TIDMKCR
RNS Number : 4641Z
KCR Residential REIT PLC
18 September 2020
18 September 2020
KCR Residential REIT plc
("KCR" or the "Company")
Annual Results for the year ended 30 June 2020
KCR Residential REIT plc, the residential REIT group, announces
its annual results for the year ended 30 June 2020.
Contacts:
KCR Residential REIT plc info@kcrreit.com
Dominic White, Chief Executive +44 20 3793 5236
Arden Partners plc
Richard Johnson
Benjamin Cryer +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
I am pleased to introduce the 2020 Annual Report for KCR
Residential REIT plc ("KCR" or the "Company").
During the financial year under review we have been
transitioning the business by reducing management and operating
costs and modernising and lifting the standard of the property
portfolio.
The year started with the completion, following overwhelming
support from shareholders, of the corporate transaction with
Torchlight Fund LP ("Torchlight") that was announced in July (RNS
12 July 2019 - Subscription and Strategic Agreement ) and closed on
6 August 2019. The introduction of a significant new shareholder,
Torchlight, was a major step forward for KCR and its ability to
create shareholder value. It delivered immediate access to equity
capital to restructure the balance sheet through the repayment of a
number of expensive outstanding loans and assisted in the ability
to pursue refinancing of the portfolio debt on more favourable
terms.
The transaction has given strength and support to the balance
sheet enabling the Company to focus attention on maximising the
performance of the existing portfolio, while systems and processes
are upgraded, to establish a strong operating base ready to support
portfolio growth.
The Coronavirus has had a global negative impact on demand,
supply chains, stock markets and consumer and business confidence.
The economic impact is now being felt by companies and families.
This has the potential to negatively impact the occupancy level and
rentals that can be achieved in KCR's portfolio. However, at the
accounts issue date, KCR has maintained a high occupancy and rental
collection level of more than 95% and rents overall have continued
to increase.
There is greater supply of studio, one- and two- bed flats in
the letting market which has increased letting times from less than
one week to up to three weeks in our London portfolio. However,
there continues to be strong tenant demand in all the Company's
locations. UK residential rented property remains fundamentally
under-supplied and KCR continues to target studio, one and two- bed
units, that are in high demand and relatively short supply.
While it was envisaged that the Torchlight transaction would
result in a move into international residential property markets,
given global economic conditions, this expansion has been
postponed. The geographic strategy is to focus for the time being
on the UK market and the opportunities that are certain to arise in
the coming year.
KCR's objective continues to be to grow the size of its
residential portfolio to deliver an increase in revenue that
results over time in both profitability and an ability to pay
dividends. At the same time, we focus on growing net asset value
per share.
Michael Davies
Chairman
17 September 2020
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 2020.
This has been a difficult year in the UK with COVID-19 clearly
being the major challenge in the second half to June 2020.
Fortunately, we were well prepared for the challenge following the
balance sheet restructuring delivered by the transaction with
Torchlight, portfolio refinancing with Hodge Bank, and the major
efforts made to reduce operating costs within the business. The
business remains cash negative however focus is on achieving a
break even position over the next 18 months from a combination of
ongoing cost management and enhanced operational performance from
the existing assets.
This has been the first year of transition for KCR whereby the
team size and costs have been reduced to better align with the size
of the portfolio. The balance sheet has been restructured and debt
costs have been reduced. The focus now is on the existing portfolio
to improve its overall quality, thereby increasing rental and
capital values and reducing running costs. Overall, we are part way
through the transition process to create a stable platform that can
be successfully scaled-up.
A detailed review of existing assets has been completed and we
have taken significant steps to "right size" the cost base. Solid
progress has been made, with substantial further improvements
expected during the current full year to June 2021. The majority of
the restructuring costs have been incurred and expensed during the
current financial year and first half of the current year will
reflect the reductions made to date.
Property portfolio
Property transactions during the year
KCR acquired two one-bed apartments at its Heathside, Golders
Green retirement property during the year. This is explained in
more detail below (see 4* retirement living property).
Existing portfolio
A bottom-up review of the existing portfolio has been completed.
KCR now has a performance enhancement focus whereby it is
committing to more substantive capital expenditure (capex) to
positively reposition its portfolio. Whilst this will result in a
higher spend per flat in the near term than has been undertaken in
the past, much of the historical capex has been deferred
maintenance expenditure resulting from underinvestment by previous
owners. These improvements will have a positive impact on rental
and capital values. KCR is focused on modernising and lifting the
property standard so that minimal maintenance spend is required
over the next five years. Repositioned, better quality assets will
move into a higher rental bracket with better quality tenant
profiles, which we expect will enhance rental and capital
returns.
KCR is in the process of creating two operating lines which will
be clearly identified by a) operating brands and b) letting
strategies.
1. Residential apartments, developed to a high modern
specification, furnished and let on a Walk-In-Walk-Out (WIWO) basis
(utilities, internet, furniture, council tax included in the rental
payment) for a frictionless and flexible letting experience. Rental
contracts may be from a week to multi-year.
2. 4* retirement living property rented on the same basis as
above, with optionality on furniture. Rental contracts to be
assured shorthold tenancies (six months and up).
1. Residential property (WIWO letting strategy)
-- The property at Coleherne Road, held within K&C
(Coleherne) Limited, which comprises ten studio and one-bedroom
flats, continues to be in demand for letting given its prime
location. As part of the investment into the current portfolio, KCR
has started a whole-building refurbishment of the property
including double-glazing, air conditioning, digital lock systems,
modern interior designed apartments and furniture, to bring the
property to a significantly higher standard. Works are expected to
complete in Q1 2021 with the property being fully income producing
by 30 June 2021. We expect a significant increase in gross rental
income and significantly reduced operating and maintenance costs on
an ongoing basis.
-- The Ladbroke Grove portfolio (owned by KCR (Kite) Limited)
that consists of 16 one- and two-bedroom flats in three buildings,
and one stand-alone flat in Harrow Road, continues to be fully let.
Units have been lightly refurbished as tenants leave and are relet
in the private market. The Company's intention is to undertake a
whole building refurbishment of the Ladbroke Grove assets once the
Coleherne Road property works have completed and it is fully
let.
-- 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 potential occupiers requesting a WIWO strategy.
Since the property was constructed in 2018 there is no capital
investment required at the property. The letting strategy will be
adjusted to implement the WIWO strategy.
2. 4* retirement living property
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.
For a second year, the portfolio generated higher income from
sales commissions from leaseholders' sales, management fees and
lease-renewal premium income than in the previous year. 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; six of the eight
acquired units are let, each at higher rental levels than the
previous letting. The remaining two units are expected to be let by
the end of September shortly after refurbishment works are
complete.
The Company has been investigating the potential to enhance
value through redevelopment and roof extensions at four of the
seven sites. Following discussions with planning authorities, the
proposals are likely to be positively received. KCR is proceeding
with building structure and economic viability analysis before
moving to the planning application stage. 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
Following completion of the capital raise with Torchlight in
August last year the balance sheet has been stabilised. The
corporate operating costs have been significantly reduced with the
executive and operations team having reduced from seven to three.
Non-essential services have been cancelled. The post-Torchlight
transaction restructuring costs have been expensed in the profit
and loss statement to June 2020. The first half of the current
financial year is expected to reflect the outcomes flowing from the
significant cost savings made to date with further improvement
targeted during the course of the current financial year.
This year's financial statements are impacted by a number of
one-off costs relating to the Torchlight transaction, cancellation
of the preference shares scheme, restructuring the balance sheet,
portfolio debt refinancing, and personnel costs relating to
restructure of the business. Following this investment of time and
capital, the recurring corporate and property operating costs are
now significantly lower than they have been at any time in KCR's
history.
Further details regarding the financial performance of the Group
can be found in the Strategic Report.
Refinancing
On 12 February 2020 KCR successfully completed a GBP7.9m
refinancing of its Coleherne Road, Ladbroke Grove and Lomond Court
portfolios, all assets in London. The refinancing, which has a
25-year term and a five year fixed rate, is interest only and is
secured on the refinanced assets. The interest rate on loans
relating to these properties moved from 3.75% p.a. to 3.5% p.a.
This transaction delivered GBP2.9m of free capital to KCR post
repayment of the existing bank facility.
This refinancing delivered liquidity to the Company that has
enabled the first phase of the refurbishment investment programme
to be initiated and the acquisition of more units at Heathside to
be completed. It also provided working capital to the Group.
Prospects
Although the business continues to be cashflow negative, it is
so at a significantly reduced rate and the gap to break-even is the
smallest since KCR's admission to AIM.
The transaction with Torchlight that completed in August 2019
is, we believe, the most significant event for KCR since the IPO.
It enabled the restructuring of the balance sheet, provided a solid
base for refinancing the portfolio with Hodge Bank, and has helped
to refocus the Group on optimising its existing portfolio and its
systems and processes at a greatly reduced cost level. The Company
will soon be ready to scale its portfolio.
We continue to be excited about the potential for the Company to
grow from a solid operating base, and in particular are pleased by
the significant progress made this year towards Group
profitability.
Dominic White
Chief executive
17 September 2020
GROUP STRATEGIC REPORT
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 2020.
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 a flat on Harrow Road
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. The valuation of the company has been written
down to nil.
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 GBP3,079,531
for the year to 30 June 2020 (2019 - GBP3,014,023).
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 rent collection percentage. 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 increased to GBP1,035,816 (2019 -
GBP777,827). Portfolio occupancy and rent collection remained above
95% for the whole period and in the majority of cases rental levels
increased as units were re-let. Overall revenue was increased
despite the Coleherne Road property being progressively vacated in
the last quarter in preparation for refurbishment works.
A large part of the year's operating loss (GBP2,054,883) is
attributable to transition and refinancing costs and non-cash items
relating to share-based payment charges. The Group therefore
reports the operating loss both before and after non-cash and
separately disclosed items. The Group's operating loss before
non-cash and separately disclosed items was GBP1,024,648 (2019 -
GBP878,213 loss). The operating loss was GBP3,079,531 (2019 -
GBP3,014,023 loss). The loss before taxation was GBP3,560,818 (2019
- GBP3,737,372 loss).
Total assets at 30 June 2020 increased to GBP25.2 million (2019
- GBP24.1 million). Investments valuations fell slightly overall
(GBP331,000) mainly following a reduction in the Southampton
property valuation from GBP6.40 million to GBP5.83 million due to a
change in the building's holding strategy. The prior valuation
methodology assumed an incremental sell-down of the building on a
flat by flat and vacant possession basis. The current strategy is,
as outlined above, to hold the property for the long term on a
rental basis.
Net assets increased to GBP12.14 million (2019 - GBP9.58
million) and net asset value per share decreased to 44.03p (2019 -
60.67p), predominantly due to the capital raised and new shares
issued in August 2019.
Upon completion of the Torchlight transaction, 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 could 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. Any exercise of the Option by
Torchlight shall be for not less than 2,000,000 Option Shares.
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
2.1. Gross assets under management
The target of GBP40 million of gross assets by 30 June 2020 was
not achieved. However, the restructuring of the business following
an investment by Torchlight Fund LP, which started in August 2019,
has significantly improved the prospects of profitable growth for
the Company over the next 12 months.
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.
RISKS AND UNCERTAINTIES
The Board regularly reviews the risks to which the Group is
exposed and ensures through its meetings and 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 new 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 such as Lambert Smith Hampton to review values of
the assets in the portfolio.
-- Brexit
The negative impact arising from the uncertainty about Brexit
which has been impacting the UK property market has improved
following the election outcome. The board believes that the Company
operates in a sector of the market, and with the advantage of REIT
status, such that it will be able to build market share, income and
net asset per share value over the coming years.
-- COVID-19
In January 2020, an outbreak of a novel coronavirus, now
classified as COVID-19, was detected in China's Hubei province.
During the following months, COVID-19 has spread steadily
throughout the World and on 11 March 2020, The World Health
Organisation ("WHO") declared the outbreak a global pandemic. 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.
Whilst it is too early to assess the impact of the COVID-19
pandemic and the UK Government's lockdown and other measures on the
Group, 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 risks that the Board have 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 completed 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 in both Ladbroke Grove and Southampton
suggests there is also solid underlying demand in both catchments
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 2020 financial
year:
Key Decision Stakeholders Action and Impact
Torchlight transaction Shareholders During the year the Company
Employees entered into a transaction
with Torchlight to raise
working capital and provide
support for potential
additional acquisitions
by issuing 9,000,000 Ordinary
shares and granting Torchlight
an option to subscribe
for a further 50,000,000
new Ordinary shares during
the option period.
The transaction was dilutive
to existing shareholders
however was strategically
important to provide the
Company with the financial
support required.
Shareholder consultation
took place and the transaction
was put to shareholders
to ensure there was wide
support for the transaction.
As part of the transaction
the Company also simplified
its share structure by
entering into the Redesignation
and Gift Agreement with
the Restricted Preference
Shareholders.
This resulted in acceleration
of the share-based charge
negatively impacting near
term financial performance,
however removing the ongoing
negative impact for shareholders
had the Restricted Preference
Shares continued.
The company consulted
extensively with the Restricted
Preference Shareholders
as part of this process
to agree mutually acceptable
terms.
The Company also consulted
with shareholders and
put this matter to shareholders
to vote on as well.
------------------------- -----------------------------------------------
Restructure of funding Creditors Following completion of
arrangements Shareholders the Torchlight transaction
and the strengthening
of the balance sheet the
Company entered into refinancing
arrangements in respect
of the existing funding
arrangements.
This refinancing, whilst
increasing overall leverage,
provided the additional
working capital required
to support implementation
of the current asset performance
enhancement programme.
Improved working capital
profile strengthens the
position of the company
overall.
The Directors considered
raising additional equity
from shareholders and
the potential costs and
dilution for non-participating
shareholders and formed
the view that the interests
of all stakeholders were
best served by optimising
financing arrangements.
------------------------- -----------------------------------------------
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
17 September 2020
CORPORATE GOVERNANCE STATEMENT
Introduction
During the year to 30 June 2020 KCR Residential REIT plc, while
an AIM Listed company, was a Family Office operating with five
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 will continue 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 can 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. Digital communications
platforms such as Vox Markets are used from time to time to
communicate via video and podcast. Use of these platforms is
limited to senior executives such as the CEO and only once
appropriate media training has been completed. 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 chief executive, Dominic White, attends and presents at
investor forums from time to time, as well as holding discussions
with analysts, shareholders and investment managers.
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 GBP50m 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.
Shareholder liaison is managed by Dominic White
(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
chaired by non-executive directors.
All of the directors devote such time to the Company's affairs
as the board considers appropriate.
Throughout the 2019 year, the sole non-executive director was
Michael Davies who was regarded as Independent by the Board and
shareholders. Following the Torchlight Transaction, which completed
on 6 August 2019, two Torchlight directors Russell Naylor
(executive director in charge of finance) and Richard Boon joined
the Board. Richard Boon is regarded as a non-independent
non-executive director. James Thornton also joined the Board at
that time as an independent non-executive director.
During 2019, each of Michael Davies, Dominic White, James Cane,
Timothy James, Oliver Vaughan attended all 6 Board meetings in
person or by conference call as permitted by the company's
articles.
During 2020, 7 Board meetings were held, attended by all current
directors.
The involvement of non-executive directors varies month by month
but is estimated at 3-10 days a month.
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 in detail in the Circular relating to the Torchlight
Transaction. Each director is involved in other organisations which
keep their professional skills sharpened and up to date. In due
course the details as they pertain to the directors will be added
to the website but is included in the Circular of 12 July 2019.
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
Michael Davies Non-Executive chairman 12 November 2015 Independent
Dominic White CEO 1 January 2017 Non-independent
Russell Naylor Executive director 06 August 2019 Non-independent
Richard Boon Non-Executive director 06 August 2019 Non-independent
James Thornton Non-Executive director 06 August 2019 Independent
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, Dominic White, 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, Michael Davies, has been 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 with many of the Company's
shareholders and 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
centred 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, Michael Davies:
-- 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 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 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.
On 28 October 2019 the Group established a Remuneration
Committee chaired by Michael Davies, Chairman and Independent
Director, and comprises Michael Davies and Richard Boon,
Non-Independent Non-Executive Director, which meets on an ad hoc
basis when required.
Until 28 October 2019 the Audit committee comprised Michael
Davies, the Chairman. From 28 October 2019 the Audit and Risk
Committee is chaired by James Thornton, Independent Non-Executive
Director and comprises James Thornton and Michael Davies. Russell
Naylor is invited to attend as appropriate. The Audit and Risk
committee is comprised of independent directors. It normally meets
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
The Executive Director Finance and the Chair of the Audit
Committee met to plan the audit with the external auditor and to
discuss the materiality to be used in the audit and the expected
key issues to be covered. Progress of the audit was discussed with
the external auditor before the year-end Audit Committee.
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 2020, the Remuneration Committee met to review salaries
and restricted preference share grants.
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 comparables, 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 20.
RPS were all cancelled in conjunction with the Torchlight
transaction.
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 2020.
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 (2019 - GBPnil).
Political donations
The Group made no political donations during the year (2019 -
GBPnil).
DIRECTORS
The following directors served during the year to 30 June 2020
and up to the date of approval of this Annual Report:
Name
=============== ========================
Michael Davies
Dominic White
James Cane resigned 6 August 2019
Timothy James resigned 6 August 2019
Oliver Vaughan resigned 6 August 2019
Russell Naylor appointed 6 August 2019
Richard Boon appointed 6 August 2019
James Thornton appointed 6 August 2019
The beneficial interests of the directors holding office at 30
June 2020 in the issued share capital of the Company were as
follows:
Ordinary
Shares
----------------
Restricted
Preference
Shares
Issued in converted
At 30 June the in At 30 June
2019 year year 2020
Name No. No. No. No.
Michael Davies 195,428 -- -- 195,428
Dominic White 557,143 152,114 486,675 1,195,932
Russell Naylor -- -- -- --
James Thornton -- 22,222 -- 22,222
Richard Boon -- -- -- --
---------------- ------------ ----------- ----------- ------------
Restricted Preference
Shares
Converted to
Gifted to Ordinary Shares
At 30 June Company in the year At 30 June
2019 2020
Name No. No No. No.
Michael Davies -- -- -- --
Dominic White 1,265,357 (778,682) (486,675) --
Russell Naylor -- -- -- --
James Thornton -- -- -- --
Richard Boon -- -- -- --
---------------- ------------ ----------- ---------------- ------------
The beneficial interests of the directors holding office at 17
September 2020 in the issued share capital of the Company were as
follows:
At 30 June 2020 Issued in the At 17 September 2020
period
Name No. No. No.
Michael Davies 195,428 - 195,428
Dominic White 1,195,932 - 1,195,932
Russell Naylor - - -
James Thornton 22,222 - 22,222
Richard Boon - - -
--------------- ------------- --------------------
SUBSTANTIAL SHAREHOLDINGS
As at 17 September 2020, 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
%
------------------------------ --------
Torchlight Fund LP 32.64%
Energiser Investments Limited 8.83%
Moore House Holdings Limited 8.56%
Poole Investments Limited 6.53%
Venaglass Limited 5.74%
Timothy James 4.36%
Dominic White & White Amba
Pension Scheme 4.34%
Oliver Vaughan 3.35%
DIRECTORS' REMUNERATION
The directors have received the following remuneration for their
services during the year:
2020 2019
------------------------------ ------------------------------
Name Remuneration Benefits-in-kind Remuneration Benefits-in-kind
GBP GBP GBP GBP
------------ ---------------- ------------ ----------------
Michael Davies -- -- - -
Dominic White 145,853 -- 278,200 -
Russell Naylor* 44,000 -- - -
James Thornton 27,192 -- - -
Richard Boon* 18,130 -- - -
James Cane 7,603 -- 87,700 -
Timothy James 5,068 -- 90,200 -
Oliver Vaughan 10,541 -- 30,200 -
------------ ---------------- ------------ ----------------
258,387 -- 486,300 -
============ ================ ============ ================
In addition, during the year, the Group were charged fees of
GBP43,200 by DGS Capital Partners LLP, a limited liability
partnership of which Michael Davies is a member (2019 - GBP43,200)
(including irrecoverable VAT) for making available the services of
Michael Davies to the Group.
* The remuneration paid to Russell Naylor consisted of fees of
GBP44,000 charged by Naylor Partners, a business in which Russell
Naylor is a Director (2019 - GBPnil) and the remuneration paid to
Richard Boon consisted of fees of GBP18,130 (2019 - GBPnil) charged
by Artefact Partners, a business in which Richard Boon is a
Director.
During the 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 upon the
conversion of Restricted Preference shares to Ordinary shares was
GBP450,910 (2019 - GBP484,000). The gain has been 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 as a result of gifting a number of
Restricted Preference shares to the Company was GBP721,493 (2019 -
GBPnil).
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 8 and 9.
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 Financial Reporting Standards as adopted by the
European Union ("IFRS"). 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
17 September 2020
REPORT OF THE INDEPENT AUDITOR TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
Opinion
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 2020 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 their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union and, as regards
the Parent Company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
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 2020 and of the Group's loss for the year then ended;
-- the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
-- the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union
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.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the Group
and 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. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you
where:
-- the directors' use of the going concern basis of accounting
in the preparation of the financial statements is not appropriate;
or
-- the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the Group or the Parent Company's ability to continue
to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are
authorised for issue.
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) 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. This
matter was 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 this matter.
Key audit matter How we addressed the key audit matter
in the audit
Valuation of investment In this area our audit procedures included:
properties
* We compared the key valuation assumptions, which we
The Group holds investment consider relate to the market yields appropriate to
properties which comprise the sector and location of the properties, against
properties owned by the our independently formed market expectations.
Group held for rental income. Variances were evaluated through challenge of the
Investment properties are valuers and accumulated to determine whether they
valued by independent external supported the overall valuation.
valuers and the valuation
approach is disclosed in
Note 12. The valuation of
investment properties requires * We tested the accuracy of key observable valuation
significant judgement in inputs, primarily passing rental income and lease
determining the appropriate terms, to the information provided to the valuers for
inputs to be used in the use in their valuation for a sample of properties.
model and there is therefore
a risk that the properties
are incorrectly valued.
We have therefore determined * We met with the external valuer to discuss and
the valuation of investment challenge the valuation methodology and key
properties to be a key audit assumptions, and to determine whether there were any
matter. The accounting policies indicators of undue management influence on the
relating to investment properties valuations.
are disclosed in Note 2.
* We assessed the competency, qualifications,
independence and objectivity of the external valuers
engaged by the company and reviewed the instructions
provided to the valuer for completeness, unusual
arrangements and to check that there was no evidence
of management bias.
* We reviewed the property valuation reports and
through discussions with the valuer we assessed the
impact of Covid-19 on the valuation of the investment
properties.
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 set certain thresholds for materiality. These help us to
determine the nature, timing and extent of our audit procedures and
to evaluate the effect of misstatements, both individually and on
the financial statements as a whole. 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. Importantly,
misstatements below these levels will not necessarily be evaluated
as immaterial as we also take into 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.
We determined the materiality for the financial statements as a
whole to be GBP306,000 (2019 - GBP301,000), calculated with
reference to a benchmark of the Company's gross assets, which is a
typical primary measure for users of the financial statements of
investment property companies, of which it represents 1.2% (2019:
1.25%).
Performance materiality is the application of materiality at the
individual account or balance level set at an amount to reduce to
an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality for
the financial statements as a whole. The Group's performance
materiality was set at GBP214,000 (2019 - GBP210,000) which
represents 70% of the above materiality levels.
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 GBP161,000 (2019 - GBP187,000) which represents 5%
of loss before tax adjusted for fair value movements on capital
items. The Parent Company's materiality was calculated at
GBP192,000 (2019: GBP154,000) based on the same as group basis.
Whilst materiality for the financial statements of a whole was
GBP306,000 (2019: GBP301,700), each component of the Group was
audited to a lower level of materiality. Significant component
materiality ranged from GBP74,000 to GBP192,000.
We reported to the Audit Committee all potential adjustments in
excess of GBP15,000 (2019: GBP15,000). We also agreed to report
differences below these thresholds that, in our view, warranted
reporting on qualitative grounds.
An overview of the scope of our audit
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
subjective judgements, for example in respect of the valuation of
unlisted investments which have a high level of estimation
uncertainty involved.
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 five significant components in the Group, which are
all registered and operate in the UK. All significant 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.
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.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the Strategic Report and the Report
of the Directors for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the Strategic Report and the Report of the Directors have
been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and
the Parent Company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
Strategic Report or the Report of the Directors.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the Parent Company financial statements 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.
A further description of our responsibilities for the audit of
the financial statements is located 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.
Paul Fenner (Senior Statutory Auditor)
for and on behalf of BDO LLP
Statutory Auditor
Birmingham, UK
18 September 2020
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 2020
30 June 30 June
2020 2019
Notes GBP GBP
CONTINUING OPERATIONS
Revenue 3 1,035,816 777,827
Cost of sales (152,605) (212,743)
----------- -----------
GROSS PROFIT 883,211 565,084
Administrative expenses (1,610,547) (1,446,565)
Other operating income 14,576 -
Fair value through profit and loss
- Revaluation of investment properties 12 (311,888) 3,268
----------- -----------
OPERATING LOSS BEFORE SEPARATELY DISCLOSED
ITEMS (1,024,648) (878,213)
Separately disclosed administrative
items
Share-based payment charge 19 (1,599,681) (1,387,441)
Costs associated with third-party
fundraising and issue of shares 6 (317,875) (407,616)
Costs associated with refinancing 6 (137,327) -
Loss on disposal of property SPV 13 - (340,753)
----------- -----------
OPERATING LOSS (3,079,531) (3,014,023)
Finance costs 5 (483,932) (732,984)
Finance income 5 2,645 9,635
----------- -----------
LOSS BEFORE TAXATION 6 (3,560,818) (3,737,372)
Taxation 7 - -
----------- -----------
( 3,737,372
LOSS FOR THE YEAR (3,560,818) )
=========== ===========
TOTAL COMPREHENSIVE EXPENSE FOR THE ( 3,737,372
YEAR (3,560,818) )
=========== ===========
Loss attributable to owners of the ( 3,737,372
parent (3,560,818) )
=========== ===========
Loss per share expressed in pence
per share 8
Basic (13.48) (24.66)
Diluted (4.98) (24.66)
=========== ===========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 JUNE 2020
30 June 30 June
2020 2019
Notes GBP GBP
----------- -----------
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 46,410 61,370
Investment properties 12 23,592,000 23,923,000
----------- -----------
23,638,410 23,984,370
----------- -----------
CURRENT ASSETS
Trade and other receivables 14 63,889 77,078
Cash and cash equivalents 15 1,535,946 29,298
----------- -----------
1,599,835 106,376
----------- -----------
TOTAL ASSETS 25,238,245 24,090,746
=========== ===========
EQUITY
SHAREHOLDERS' EQUITY
Share capital 16 2,756,963 2,029,178
Share premium 13,535,468 10,018,986
Capital redemption reserve 344,424 67,500
Other reserves 14,930 14,930
Retained earnings (4,511,633) (2,550,496)
----------- -----------
TOTAL EQUITY 12,140,152 9,580,098
----------- -----------
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing loans and borrowings 18 11,052,419 9,881,344
----------- -----------
CURRENT LIABILITIES
Trade and other payables 17 374,416 2,737,010
Interest-bearing loans and borrowings 18 1,671,258 1,892,294
2,045,674 4,629,304
----------- -----------
TOTAL LIABILITIES 13,098,093 14,510,648
----------- -----------
TOTAL EQUITY AND LIABILITIES 25,238,245 24,090,746
=========== ===========
Net asset value per share (pence) 8 44.03 60.67
=========== ===========
The financial statements were approved and authorised for issue
by the Board of Directors on 17 September 2020 and were signed on
its behalf by:
Dominic White
Director
COMPANY STATEMENT OF FINANCIAL POSITION
30 JUNE 2020
30 June 30 June
2020 2019
Notes GBP GBP
----------- -----------
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 2,099 2,348
Investments 13 10,706,081 10,706,081
----------- -----------
10,708,180 10,708,429
----------- -----------
CURRENT ASSETS
Trade and other receivables 14 3,828,071 1,813,404
Cash and cash equivalents 15 1,476,379 3,334
----------- -----------
5,304,450 1,816,738
----------- -----------
TOTAL ASSETS 16,012,630 12,525,167
=========== ===========
EQUITY
SHAREHOLDERS' EQUITY
Share capital 16 2,756,963 2,029,178
Share premium 13,535,468 10,018,986
Capital redemption reserve 344,424 67,500
Other reserves 14,930 14,930
Retained earnings (9,147,860) (7,592,921)
----------- -----------
TOTAL EQUITY 7,503,925 4,537,673
----------- -----------
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing loans and borrowings 18 - 4,756,956
----------- -----------
- 4,756,956
CURRENT LIABILITIES
Trade and other payables 17 8,423,635 1,338,244
Interest-bearing loans and borrowings 18 85,070 1,892,294
8,508,705 3,230,538
----------- -----------
TOTAL LIABILITIES 8,508,705 7,987,494
----------- -----------
TOTAL EQUITY AND LIABILITIES 16,012,630 12,525,167
=========== ===========
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(3,154,620) (2019 - GBP(3,548,447)).
The financial statements were approved and authorised for issue
by the Board of Directors on 17 September 2020 and were signed on
its behalf by:
Dominic White
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 JUNE 2020
Unissued Capital
Share Share share redemption Other Retained Total
capital premium capital reserve reserve earnings equity
---------- ------------ -------------- ------------ ---------- ------------ ------------
GBP GBP GBP GBP GBP GBP GBP
Balance at 1 July
2018 1,435,721 7,358,244 1,260,299 67,500 29,862 (200,565) 9,951,061
Changes in equity
Transactions with
owners:
Issue of share
capital 593,457 2,660,742 (1,260,299) - - - 1,993,900
Share-based payments - - - - - 1,387,441 1,387,441
---------- ------------ -------------- ------------ ---------- ------------ ------------
Total transactions
with owners 593,457 2,660,742 (1,260,299) - - 1,387,441 3,381,341
---------- ------------ -------------- ------------ ---------- ------------ ------------
Equity element of
loan finance - - - - (14,932) - (14,932)
Total comprehensive
expense - - - - - (3,737,372) (3,737,372)
---------- ------------ -------------- ------------ ---------- ------------ ------------
Balance at 30 June
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
========== ============ ============== ============ ========== ============ ============
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 JUNE 2020
Capital
Share Share Unissued redemption Other Retained Total
capital premium share capital reserve reserve earnings equity
---------- ------------ --------------- ------------ --------- ----------------------- ------------
GBP GBP GBP GBP GBP GBP GBP
Balance at 1
July
2018 1,435,721 7,358,244 1,260,299 67,500 29,862 (5,431,915) 4,719,711
Changes in
equity
Transactions
with
owners:
Issue of share
capital 593,457 2,660,742 (1,260,299) - - - 1,993,900
Share-based
payments - - - - - 1,387,441 1,387,441
---------- ------------ --------------- ------------ --------- ----------------------- ------------
Total
transactions
with owners 593,457 2,660,742 (1,260,299) - - 1,387,441 3,381,341
---------- ------------ --------------- ------------ --------- ----------------------- ------------
Equity element
of loan finance - - - - (14,932) - (14,932)
Total
comprehensive
expense - - - - - (3,548,447) (3,548,447)
---------- ------------ --------------- ------------ --------- ----------------------- ------------
Balance at 30
June
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
---------- ------------ --------------- ------------ --------- ----------------------- ------------
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
========== ============ =============== ============ ========= ======================= ============
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 30 JUNE 2020
2020 2019
Note GBP GBP
------------ ------------
Cash flows from operating activities
Cash used in operations 1 (1,554,962) (4,960,666)
Interest paid (483,932) (732,984)
Net cash used in operating activities (2,038,894) (5,693,650)
------------ ------------
Cash flows from investing activities
Purchase of property, plant & equipment (8,178) (40,451)
Repayment of other borrowings (1,738,076) -
Purchase of investment properties (518,888) (24,732)
Disposal of investment properties 538,000 -
Disposal of property SPV - 1,140,000
Interest received 2,645 9,635
------------ ------------
Net cash generated from investing
activities (1,724,497) 1,084,452
------------ ------------
Cash flows from financing activities
Loan repayments in year (6,658,130) (796,079)
New loans in year 7,868,169 3,434,250
Shares issued 4,060,000 1,993,900
------------ ------------
Net cash generated from financing
activities 5,270,039 4,632,071
------------ ------------
Increase in cash and cash equivalents 1,506,648 22,873
Cash and cash equivalents at beginning
of year 29,298 6,425
------------ ------------
Cash and cash equivalents at end
of year 1,535,946 29,298
============ ============
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEARED 30 JUNE 2020
2020 2019
Note GBP GBP
------------ ------------
Cash flows from operating activities
Cash used in operations 1 (1,868,397) (2,165,998)
Interest paid (178,040) (428,185)
------------ ------------
Net cash generated from/(used in)
operating activities (2,046,437) (2,594,183)
------------ ------------
Cash flows from investing activities
Purchase of property, plant & equipment (980) -
Disposal of property SPV - 1,140,000
Interest received 2,569 9,619
------------ ------------
Net cash generated from investing
activities 1,589 1,149,619
------------ ------------
Cash flows from financing activities
Increase in loans from group companies 7,787,070 -
Increase in loans to group companies (2,024,997) -
Loan repayments in year (6,304,180) (546,079)
Shares issued 4,060,000 1,993,900
------------ ------------
Net cash (used in)/generated from
financing activities 3,517,893 1,447,821
------------ ------------
Increase in cash and cash equivalents 1,473,045 3,257
Cash and cash equivalents at beginning
of year 3,334 77
------------ ------------
Cash and cash equivalents at end
of year 1,476,379 3,334
============ ============
NOTES TO THE STATEMENTS OF CASH FLOWS
FOR THE YEARED 30 JUNE 2020
1) RECONCILIATION OF LOSS BEFORE TAXATION TO CASH USED IN OPERATIONS
Group 2020 2019
GBP GBP
----------- -----------
Loss before taxation (3,560,818) (3,737,372)
Depreciation charges 23,138 18,074
Revaluation of investment properties 311,888 (3,268)
Loss on disposal of property SPV - 340,753
Share-based payment charge 1,599,681 1,387,441
Finance costs 483,932 732,984
Finance income (2,645) (9,635)
----------- -----------
(1,144,824) (1,271,023)
Decrease in trade and other receivables 13,189 626,349
Decrease in trade and other payables (423,327) (4,315,992)
----------- -----------
Cash used in operations (1,554,962) (4,960,666)
=========== ===========
Company 2020 2019
GBP GBP
----------- -----------
Loss before taxation (3,154,620) (3,548,447)
Depreciation charges 1,229 1,636
Loss on disposal of property SPV - 241,585
Share-based payment charge 1,599,681 1,387,441
Finance costs 178,040 428,185
Finance income (2,569) (9,619)
----------- -----------
(1,378,239) (1,499,219)
Decrease/(increase) in trade and other receivables 10,330 (894,340)
(Decrease)/increase in trade and other payables (500,488) 227,561
----------- -----------
Cash used in operations (1,868,397) (2,165,998)
----------- -----------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 30 JUNE 2020
1) PRESENTATION OF FINANCIAL STATEMENTS
Statement of compliance
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board
and as adopted by the European Union.
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 2019:
IFRS 16 Leases
The application of this standard has not had a material impact
on the amounts reported in these financial statements.
Changes in accounting policies for standards implemented in the
year are as follows:
IFRS 16 Leases
IFRS 16 was adopted on 1 January 2019 without restatement of
comparative figures. No transitional adjustments were required upon
adoption.
The standard makes substantial changes to the recognition and
measurement of leases by lessees. On adoption of the standard,
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 requirements for lessors are substantially unchanged.
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.
New standards in issue but not yet effective
As at 30 June 2020, the Group has not applied the following new
and revised standards that have been issued but are not yet
effective:
-- Amendments to References to the Conceptual Framework in IFRS
Standards (effective 1 January 2020)
-- Amendments to IFRS 3: Business Combinations - Definition of a
business (effective 1 January 2020)
-- Amendments to IAS 1 and IAS 8: Definition of Material (effective 1 January 2020)
-- Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate
Benchmark Reform (effective 1 January 2020)
-- Amendments to IAS 1: Classification of Liabilities as Current
or Non-current (effective 1 January 2022).
The directors do not anticipate that the adoption of the above
new and revised standards 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. It
is the intention of the company to refinance which would
potentially also provide further capital which the Group could use
for future property acquisitions.
The Company has undertaken procedures to ensure that the Company
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.
In the light of the results of the procedures described above,
the directors consider that the adoption of the going concern basis
is reasonable and appropriate.
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.
KCR (Cygnet) Limited was disposed of by the Group in December
2018. Details can be found in note 13.
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 administrative 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 administrative 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 exchange of contracts. 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. 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 is 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 is 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:
-- Share-based payments
The total amount to be expensed is determined by reference to
the fair value of the options granted. The fair values were
estimated using the Black-Scholes valuation model. In arriving at
the charge for the period, assumptions are made on the number of
options likely to be exercised, the current market value of the
shares and the volatility of the market value of the shares.
Further details regarding share-based payments are contained in
note 19 of the financial statements.
-- 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 all valued independently at 30 June 2020 at GBP23,592,000
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.
2020 2019
GBP GBP
Revenue analysed by class of business
Rental income 727,859 619,906
Management fees 74,218 74,887
Resale commission 39,043 62,490
Ground rents 13,655 16,649
Leasehold extension income 168,916 -
Other income 12,125 3,895
--------- -------
1,035,816 777,827
========= =======
4) EMPLOYEES AND DIRECTORS
Group
2020 2019
GBP GBP
------- ---------
Wages and salaries 635,023 657,793
Social security costs 69,628 86,735
Pension costs 12,732 (506)
------- ---------
717,383 744,022
======= =========
The average monthly number of employees during
the year was as follows: 2020 2019
Directors and management 7 5
Administration 3 3
------- -------
10 8
======= =======
2020 2019
GBP GBP
Directors' remuneration (as per Report
of the Directors) 258,387 486,300
Share-based payment charge relating to
directors (see Note 19) 1,055,755 974,199
Remuneration of the highest-paid director 145,853 278,200
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
2020 2019
GBP GBP
------- -------
Wages and salaries 573,637 597,700
Social security costs 60,631 78,320
Pension costs 10,110 (2,630)
------- -------
644,378 673,390
======= =======
The average monthly number of employees during
the year was as follows
Directors and management 7 5
Administration 1 1
8 6
5) FINANCE COSTS AND INCOME
2020 2019
GBP GBP
--------- ---------
Finance costs
Loan interest 483,932 732,984
========= =========
Finance income
Bank interest 2,645 9,635
========= =========
6) LOSS BEFORE TAXATION
The loss before taxation is stated after charging:
2020 2019
GBP GBP
====== ======
Hire of plant and machinery 10,437 8,230
Other operating leases 20,639 23,052
Depreciation - owned assets 23,138 18,074
Auditors' remuneration for the Group - audit
services for parent company 40,000 38,000
- audit services for subsidiaries 20,000 10,000
- taxation advisory services - 29,675
Separately disclosed items
At the start of the year the Group incurred significant costs
relating to third-party fundraising and issue of shares. The costs
to the Group totalled GBP317,875 (2019 - GBP407,616). The Group
also incurred significant costs relating to refinancing during the
second half of the year, these totalled GBP137,327 (2019 - 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.
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.
Also during the year, the Group has commenced substantial
refurbishment work at investment properties owned by K&C
(Coleherne) Limited and K&C (Osprey) Limited. The costs
incurred in the 2020 financial year amounted to GBP41,602. The
refurbishment costs will continue in the 2021 financial year.
7) TAXATION
Analysis of tax
2020 2019
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:
2020 2019
GBP GBP
----------- -----------
(3,560,818
Loss on ordinary activities before taxation ) (3,737,372)
=========== ===========
Loss on ordinary activities multiplied by
the standard rate of corporation tax in the
UK of 19% (2019 - 19%) (676,555) (710,101)
Effects of
Expenses not deductible 481,229 444,191
Income not taxable (66,141) (64,455)
Capital losses - 23,238
Losses not recognised in deferred tax 261,467 307,127
----------- -----------
Tax credit - -
=========== ===========
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
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 - - -
============ ================= ==========
2019
Weighted average
number of Per share
Loss shares amount
------------ ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (3,737,372) 15,156,059 (24.66)
Effect of dilutive securities - - -
============ ================= ==========
Diluted loss per share
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 - - -
============ ================= ==========
2019
Weighted average
number of Per share
Loss shares amount
------------ ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (3,737,372) 15,156,059 (24.66)
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.
2020
Number of Per share
Equity shares amount
----------- ----------- ----------
GBP No Pence
Net asset value 12,140,152 27,569,631 44.03
2019
Number of Per share
Equity shares amount
----------- ----------- ----------
GBP No Pence
Net asset value 9,580,098 15,791,777 60.67
=========== =========== ==========
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
2020 2019
GBP GBP
------- ---------
Within one year 507,513 508,096
Between one and five years 239,355 469,846
More than 5 years 45,531 53,969
------- ---------
Total 792,399 1,031,911
======= =========
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
2020 2019
GBP GBP
Within one year 24,784 29,784
Between one and five years 18,809 27,167
------- -------
Total 43,593 56,951
======= =======
11) PROPERTY, PLANT AND EQUIPMENT
GROUP Fixtures, fittings
& computer
equipment
GBP
-------------------
COST
At 1 July 2018 49,111
Additions 40,451
-------------------
At 30 June 2019 89,562
Additions 8,178
-------------------
At 30 June 2020 97,740
-------------------
DEPRECIATION
At 1 July 2018 10,118
Charge for year 18,074
-------------------
At 30 June 2019 28,192
Charge for year 23,138
-------------------
At 30 June 2020 51,330
-------------------
NET BOOK VALUE
At 30 June 2020 46,410
===================
At 30 June 2019 61,370
===================
COMPANY Fixtures, fittings
& computer
equipment
GBP
-------------------
COST
At 1 July 2018 and 30 June 2019 6,536
Additions 980
-------------------
At 30 June 2020 7,516
-------------------
DEPRECIATION
At 1 July 2018 2,552
Charge for year 1,636
-------------------
At 30 June 2019 4,188
Charge for year 1,229
-------------------
At 30 June 2020 5,417
-------------------
NET BOOK VALUE
At 30 June 2020 2,099
===================
At 30 June 2019 2,348
===================
12) INVESTMENT PROPERTIES
Group Total
GBP
------------
COST
At 1 July 2018 26,695,000
Additions 24,732
Disposals (2,800,000)
Revaluations 3,268
------------
At 30 June 2019 23,923,000
Additions 518,888
Disposals (538,000)
Revaluations (311,888)
------------
At 30 June 2020 23,592,000
============
NET BOOK VALUE
At 30 June 2020 23,592,000
============
At 30 June 2019 23,923,000
============
The investment properties disposed of in the prior year arose
from the sale of a property SPV (KCR Cygnet).
In July 2020, all properties were valued by professionally
qualified independent external valuers in accordance with the Royal
Institution of Chartered Surveyors' Appraisal and Valuation
Standards 2014 as amended. The valuation of the investment
properties was GBP23,592,000, which has been included in the
financial statements.
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% - 5.60%
3 and or capital value yield
on a per square foot
basis
Adopted rate
per square foot GBP303 - GBP1,018
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.
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 GBP727,859 (2019 - GBP619,906). The total
rental expenses in relation to investment properties for the Group
equated to GBP152,605 (2019 - GBP183,977).
13) INVESTMENTS
Shares in
group undertakings
Company GBP
--------------------
COST
At 1 July 2018 12,086,858
Disposals (1,380,777)
At 30 June 2019 and 30 June 2020 10,706,081
====================
NET BOOK VALUE
At 30 June 2020 10,706,081
====================
At 30 June 2019 10,706,081
====================
As at 17 September 2020, the Company's investments comprise the
following:
Subsidiaries Holding
%
=================================================== ========
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 and property Ordinary
management
Registered
KCR (Kite) Limited office: UK 100.00
Nature of business Class of shares
Property letting 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
Disposal of KCR (Cygnet) Limited
On 20 December 2018, the Company sold the entire issued share
capital of KCR (Cygnet) Limited for total consideration of
GBP1,140,000, satisfied by cash of GBP1,140,000. The assets and
liabilities of the subsidiary at the date of disposal were:
GBP
Investment property 2,800,000
Debtors 43,427
Bank loan (1,293,286)
Other creditors (69,388)
-----------
Net assets disposed of 1,480,753
Loss on disposal of property (340,753)
-----------
Total consideration 1,140,000
===========
Satisfied by cash 1,140,000
===========
14) TRADE AND OTHER RECEIVABLES
Group Company
2020 2019 2020 2019
GBP GBP GBP GBP
Trade debtors 23,460 3,000 - -
Amounts owed by group
undertakings - - 3,812,236 1,787,239
Other debtors 19,403 34,773 748 7,500
VAT 604 12,271 - -
Prepayments 20,422 27,034 15,087 18,665
63,889 77,078 3,828,071 1,813,404
======= ======= ========== ==========
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 2020. 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
2020 2019 2020 2019
GBP GBP GBP GBP
Cash in hand 40 40 - -
Bank accounts 1,535,906 29,258 1,476,379 3,334
1,535,946 29,298 1,476,379 3,334
========== ======= ========== ======
16) SHARE CAPITAL
Allotted, issued and fully paid
30 June 30 June
Number Class Nominal value 2020 2019
---------- --------- ---------
GBP GBP
--------- ---------
27,569,631 Ordinary GBP0.10 2,756,963 1,579,178
- Restricted Preference GBP0.10 - 450,000
--------- ---------
2,756,963 2,029,178
========= =========
2020 2020 2019 Number 2019
Number GBP GBP
Ordinary shares of GBP0.10
each
At 1 July 15,791,777 1,579,178 9,857,207 985,721
Conversion of Restricted
Preference Shares 1,730,765 173,077 1,500,000 150,000
Shares issued as loan repayments 577,778 57,778 946,286 94,629
Shares issued as creditor
payments 447,089 44,708 2,200,427 220,042
Shares issued for cash 9,022,222 902,222 1,287,857 128,786
----------- ---------- ------------ ----------
At 30 June 27,569,631 2,756,963 15,791,777 1,579,178
=========== ========== ============ ==========
The Ordinary shares issued during the year, with the exception
of the 1,730,765 issued upon conversion of Restricted Preference
shares, were issued at GBP0.45 per share. The Ordinary shares
issued upon conversion of Restricted Preference shares were issued
at GBP0.10 per share.
2020 2020 2019 Number 2019
Number GBP GBP
Restricted Preference shares
of GBP0.10 each
At 1 July 4,500,000 450,000 4,500,000 450,000
Shares issued for cash - - 1,500,000 150,000
Conversion to Ordinary
shares (1,730,765) (173,077) (1,500,000 (150,000)
Gifted back to company
(and subsequently cancelled) (2,769,235) (276,923) - -
-------------- ------------
At 30 June - - 4,500,000 450,000
============== ============ ============ ==========
17) TRADE AND OTHER PAYABLES
Group Company
2020 2019 2020 2019
Current GBP GBP GBP GBP
Trade creditors 112,690 358,567 80,870 351,060
Amounts owed to group
undertakings - - 8,210,910 423,840
Other taxes and social
security 36,043 45,253 24,819 33,291
Other creditors 28,436 1,779,710 6,131 8,063
Accruals and deferred
income 197,247 553,480 100,905 521,990
-------- ---------- ---------- ----------
374,416 2,737,010 8,423,635 1,338,244
======== ========== ========== ==========
Other creditors include GBPnil (2019 - GBP1,738,076) owed to the
vendor on the purchase of the investment property within KCR
(Southampton) Limited.
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
2020 2019 2020 2019
GBP GBP GBP GBP
Current
Bank loans - 82,224 - 82,224
Other loans 1,671,258 1,810,070 85,070 1,810,070
----------- ---------- ------- ----------
1,671,258 1,892,294 85,070 1,892,294
=========== ========== ======= ==========
Non-current
Bank loans 7,868,169 4,756,956 - 4,756,956
Other loans 3,184,250 5,124,388 - -
11,052,419 9,881,344 - 4,756,956
=========== ========== ======= ==========
Terms and debt repayment schedule
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
========== ========== ========== =========== ===========
2019
1 year More than
or less 1-2 years 2-5 years 5 years Totals
---------- ---------- ---------- ----------- -----------
Group GBP GBP GBP GBP GBP
Bank loans 265,740 265,740 797,220 6,288,388 7,617,088
Other loans 2,191,102 2,176,063 525,401 3,957,757 8,850,323
---------- ---------- ---------- ----------- -----------
2,456,842 2,441,803 1,322,621 10,246,145 16,467,411
========== ========== ========== =========== ===========
Company
Bank loans 265,740 265,740 797,220 6,288,388 7,617,088
Other loans 1,979,796 - - - 1,979,796
---------- ---------- ---------- ----------- -----------
2,245,536 265,740 797,220 6,288,388 9,596,884
========== ========== ========== =========== ===========
Details of the principal loans are as follows:
a) On 28 June 2018, the Company took out a new loan of
GBP4,930,000, with Metro Bank plc, repayable by 300 instalments of
GBP22,145 and a final instalment of GBP1,239,328. The loan was
secured by a first debenture over all assets and undertakings of
the Company, a first legal charge over the freehold properties
known as 272 Ladbroke Grove, 282 Ladbroke Grove and 284 Ladbroke
Grove and the leasehold premises known as Flat 9 Lomond Court, and
a cross-guarantee over the aforementioned properties. It was also
secured by a cross-guarantee from K&C (Coleherne) Limited over
the freehold property known as 25 Coleherne Road and a debenture
over the assets and undertakings of K&C (Coleherne) Limited.
The loan was also secured by a pledge of shares of K&C
(Coleherne) Limited and KCR (Kite) Limited. The loan was repaid in
full during the 2020 financial year when the Group refinanced with
Hodge Bank.
b) 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 2020 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.
c) 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 previous 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.
d) During the previous financial year, 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 loan was settled in full in July 2020.
e) During the previous year, Oliver Vaughan, a 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.
f) 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 2020 was GBP3,184,250.
g) 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 2020 was GBP2,743,359.
h) 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
2020 was GBP5,124,810.
Reconciliation of net movement in cash
Group
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)
============= ========== =============== ============= =========== =============
Loans received Other Net cash
Net cash Cash in year Repayments non-cash at 30 June
at 1 July flow in year movements 2019
2018
GBP GBP GBP GBP GBP
Cash at bank
and in hand 6,425 22,873 - - - 29,298
Borrowings (10,420,535) - (3,434,250) 796,079 1,285,068 (11,773,638)
------------- ------- --------------- ------------- ----------- -------------
Total financial
liabilities (10,414,110) 22,873 (3,434,250) 796,079 1,285,068 (11,744,340)
============= ======= =============== ============= =========== =============
Company
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
============ ============ ============= =========== =============
Other
Net cash Repayments non-cash Net cash
at 1 July Cash flow in year movements at 30 June
2018 2019
GBP GBP GBP GBP GBP
Cash at bank
and in hand 77 3,257 - - 3,334
Borrowings (7,180,397) - 546,079 (14,932) (6,649,250)
------------ ------------ ------------- ----------- -------------
Total financial
liabilities (7,180,320) 3,257 546,079 (14,932) (6,645,916)
============ ============ ============= =========== =============
19) SHARE-BASED PAYMENT TRANSACTIONS
During the year ended 30 June 2020, the Company had one
share-based payment arrangement in place, which is described
below:
Restricted Preference
shares
---------------------
Outstanding at 1 July
2019 4,500,000
Exercised during the
year (1,730,765)
Gifted to the company
during the year (2,769,235)
Outstanding at 30 June -
2020
=====================
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. Details of the Restricted
Preference shares held by the directors, along with movements in
the year, can be found further in this note and also in the Report
of the Directors. 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
following table shows the shares held at the year end, along with
movements in the year:
Restricted Preference Shares
----------------
Converted to ordinary Gifted to company
At 30 June shares in the in year At 30 June
2019 year 2020
Name No. No No. No.
Dominic White 1,265,357 (486,675) (778,682) -
Timothy James 905,357 (348,214) (557,143) -
Oliver Vaughan 805,357 (309,752) (495,605) -
James Cane 30,000 (11,538) (18,462) -
Timothy Oakley 465,357 (178,983) (286,374) -
Christopher
James 614,286 (236,263) (378,023) -
Employees 414,286 (159,340) (254,946) -
------------ --------------------- ----------------- ------------
Total 4,500,000 (1,730,765) (2,769,235) -
---------------- ------------ --------------------- ----------------- ------------
The estimated fair value of each Restricted Preference share
acquired is as follows:
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 reflects 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 has been 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 have been recognised
immediately, in the 2020 financial year. The expense recognised
during the year is shown in the following table:
30 June 30 June
2020 2019
GBP GBP
Expenses arising from Restricted Preference
shares 1,599,681 1,387,441
Total expense from share-based payments 1,599,681 1,387,441
========= =========
20) FINANCIAL INSTRUMENTS
The Group's financial assets, as defined under IFRS 9, and their
estimated carrying amount are as follows:
Group Company
2020 2019 2020 2019
GBP GBP GBP GBP
Carrying amount of financial
assets at amortised cost
Trade and other receivables 63,889 77,078 3,828,071 1,813,404
Cash at bank and in hand 1,535,946 29,298 1,476,379 3,334
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 2020
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 2020, 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 GBP3,604,930
(2019 - GBP3,803,492). 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
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 previous 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, the Group paid DGS Capital Partners LLP, a
limited liability partnership in which Michael Davies is a member,
fees of GBP36,000 plus VAT of GBP7,200 (2019 - GBP36,000 and VAT of
GBP7,200). At the year end, GBP7,200 was outstanding and included
in trade and other payables.
During the previous year, Oliver Vaughan, a 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 previous year, 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 year. The principal loan
was repaid on 22 August 2019. The repayment consisted of GBP50,000
of Ordinary shares.
During the previous year, the Company issued convertible loan
notes to the White Amba Pension Scheme of GBP25,000. The Company
was charged GBP170 interest in the year. The principal loan was
repaid on 22 August 2019. The repayment consisted of GBP25,000 of
Ordinary shares.
During the previous year, the Company issued convertible loan
notes to Katie James, relative of Timothy James of GBP25,000. The
Company was charged GBP170 interest in the year. The principal loan
was repaid on 22 August 2019. The repayment consisted of GBP25,000
of Ordinary shares.
During the year, Timothy Oakley, a director of a number of
subsidiary companies, received remuneration of GBP10,541 (2019 -
GBP30,200). During the previous year 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 year. The loan was repaid on 22 August 2019. The
repayment consisted of GBP50,000 of Ordinary shares.
During the year, Christopher James, a director of a number of
subsidiary companies, received remuneration of GBP70,881 (2019 -
GBP51,200).
23) POST-BALANCE SHEET EVENTS
In July 2020, the remaining convertible loan notes of GBP100,000
that were outstanding at 30 June 2020 were repaid in full.
On 13 July 2020, following an internal strategic and legal
review, the Group determined that it was no longer necessary for it
to maintain its AIFM status. The Group has now deregistered as an
AIFM.
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END
FR SFUFFAESSESU
(END) Dow Jones Newswires
September 18, 2020 07:15 ET (11:15 GMT)
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