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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
London & Associated Properties Plc | LSE:LAS | London | Ordinary Share | GB0005234223 | ORD 10P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 11.00 | 10.00 | 12.00 | 11.00 | 11.00 | 11.00 | 0.00 | 07:49:41 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Real Estate Agents & Mgrs | 100.24M | 2.7M | 0.0317 | 3.47 | 9.39M |
TIDMLAS 30 April 2018 LONDON & ASSOCIATED PROPERTIES PLC ("LAP"): ANNUAL RESULTS FOR 12 MONTHS TO 31 DECEMBER 2017 HIGHLIGHTS * Brixton Markets sale completed post year end at �?37.25 million + A significant increase on historic professional valuation + Revaluation to selling price contributed to a GBP10.76 million improvement in LAP Group pre-tax profit + Sale generated GBP20.5 million of cash for future investment * Rental income stable despite challenging market * Voids remain minimal at 2% * Net assets attributable to ordinary shareholders up 20% to GBP45.85 million * NAV per ordinary share up 20% to 53.74p from 44.83p * Bisichi had an excellent year although impacted by exceptional loss on a joint venture * Dividends increased + Final dividend increase of 6% to 0.175p recommended + Special one-off dividend of 0.125p also recommended following completion of Brixton Markets sale + Total dividend for the year 0.30p "We believe our portfolio is relatively well protected from online shopping as our core property holdings are either part of a major city that will remain a destination in its own right with a differentiated offer, which forms part of a leisure experience; or, they fulfil a role providing convenience retail facilities. We believe these sections of the retail world will continue to be relevant for the foreseeable future", said Sir Michael Heller, Chairman, and John Heller, CEO. Contact: London & Associated Properties PLC Tel: 020 7415 5000 John Heller, CEO, or Anil Thapar, Finance Director Baron Phillips Associates Tel: 07767 444193 Baron Phillips LONDON & ASSOCIATED PROPERTIES ANNUAL REPORT 2017 OVERVIEW LAP AT A GLANCE CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT STRATEGIC REPORT FINANCIAL REVIEW AND PERFORMANCE PRINCIPAL ACTIVITIES, STRATEGY & BUSINESS MODEL RISKS AND UNCERTAINTIES BISICHI RISKS AND UNCERTAINTIES KEY PERFORMANCE INDICATORS CORPORATE RESPONSIBILITY GOVERNANCE DIRECTORS & ADVISORS DIRECTORS' REPORT CORPORATE GOVERNANCE GOVERNANCE STATEMENT BY THE CHAIRMAN OF THE REMUNERATION COMMITTEE ANNUAL REMUNERATION REPORT REMUNERATION POLICY SUMMARY AUDIT COMMITTEE REPORT DIRECTORS' RESPONSIBILITIES STATEMENT INDEP AUDITOR'S REPORT FINANCIAL STATEMENTS CONDOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED BALANCE SHEET CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY CONSOLIDATED CASH FLOW STATEMENT GROUP ACCOUNTING POLICIES NOTES TO THE FINANCIAL STATEMENTS FIVE YEAR FINANCIAL SUMMARY Financial calendar Annual General Meeting 19 June 2018 Announcement of half year results to 30 June 2018 Late August 2018 Payment of final and special dividend for 2017 (if approved) 14 September 2018 Announcement of annual results for 2018 Late April 2019 LAP at a glance London & Associated Properties PLC ("LAP") is a main market listed group which invests in UK shopping centres and retail property whilst also managing property assets for institutional clients. LAP owns and/or manages GBP186 million of property investments. As a property company we look to create environments where tenants can thrive. The Group also holds a substantial investment in Bisichi Mining PLC, which operates coal mines in South Africa and owns UK property investments. In accordance with IFRS 10 the results of Bisichi have been consolidated in the group accounts. Financial highlights Fully diluted net IFRS net assets Properties portfolio assets per share valuation* 53.74p GBP56.7m GBP186m 2016: 44.83p 2016: GBP48.6m 2016: GBP221m *Including properties under management OVERALL PORTFOLIO SPLIT PORTFOLIO BY RENTAL INCOME KEY PROJECTS HIGHLIGHT Wholly owned * Market Row and Brixton Village Market Row and Brixton Village sold Brixton in April 2018 * Orchard Square, Sheffield * Kings Square, West Bromwich Investments * Kingsgate Centre, Dunfermline Co-investment with Oaktree Capital and management * The Rushes Centre, Loughborough Management and manage three of their * The Vancouver Quarter Centre shopping centres Kings Lynn Coal * In South Africa, Black Wattle produced 1.30 million metric tonnes of production Run of Mine Coal in 2017 (2016: 1.26 million metric tonnes) OVERVIEW Chairman and Chief Executive's statement We are pleased to report on a very satisfactory period for the 12 months to 31st December 2017. The most significant event in 2017 was our decision to offer for sale the two markets in Brixton, valued at GBP24.5 million last year and yielding around GBP0.5 million annually, net of interest expense. We believed that the timing was right to realise this asset and generate a significant profit. Sale proceeds of GBP37.25 million were received in April 2018. Allowing for costs and repayment of related loans, this will leave the Company with cash from this disposal of GBP 20.5 million. We are already in discussions with third parties on potential new investments and will look for opportunities to reinvest the cash and expand the portfolio over the coming months. The year was also marked by a successful conclusion to a long running dispute with The Market Village Company Limited (the tenant of the two Brixton Markets). The lease entitles LAP to a share of total income less specified expenses. The Court supported our claim that inappropriate expenses had been deducted in calculating the income due. As a result, rental income for 2017 includes GBP0.6 million for back rent which is now due from the tenant. LAP Group (excluding Bisichi and Dragon) property revenue for the year to 31st December 2017 was GBP6.8 million as compared with GBP6.1 million in the previous year. Excluding the extra Brixton and other income, our property revenue would have been GBP6.1 million, which is a creditable result in the very challenging current trading environment. Within the LAP Group we have been particularly focused on operating costs during 2017 and we are pleased to report that in 2017 these were approximately 8% lower at GBP3.8 million compared to GBP4.1 million the year before. Consolidated results The Group (including Bisichi and Dragon) net assets at the year end were GBP56.71 million (2016: GBP48.63 million). Total net assets of LAP Group (including our net interest in Bisichi) have increased by almost 20% to GBP45.85 million (2016: GBP38.24 million), while net asset value per share has increased by 20% to 53.74p from 44.83p in 2016. Total property assets owned by LAP, Bisichi and other companies in which LAP has a financial interest amount to GBP186 million (2016: GBP221 million). The Group profit after valuation movements and before taxation for the year was GBP11.28 million (loss 2016: GBP0.97 million). Besides the improvements in Bisichi (as detailed in the Bisichi section below) and LAP income and costs (as stated above), the main improvement was due to the increase in valuation of investment properties by GBP9.37 million (2016: GBP0.53 million). A full breakdown of group income and result by sector is included in the financial review and in the segmental analysis in Note 1 to the financial statements. Debt Management In June 2017 we repaid GBP0.75 million of Prudential debenture stock which carried a coupon of 11.6% per annum. In August 2018, the residual GBP3 million of this debenture will expire. We are currently talking to a number of lenders about refinancing the portfolio against which the debenture is secured, and we are pleased to report that interest is strong. We will update shareholders on the terms of any new loan once we have selected the lender. We are confident that we will make a significant saving on the GBP0.3 million per annum interest we are currently paying. LAP PROPERTY ACTIVITIES Orchard Square, Sheffield The shops at Orchard Square have remained effectively fully let throughout 2017, and we therefore have no significant new lettings to report. However, we have a number of lease expiries in 2018 and have commenced negotiations with tenants to renew their leases. Responses to date have been positive. Kings Square, West Bromwich Kings Square, our shopping centre at West Bromwich, has had a strong year during which we have achieved several good lettings. The principal mall remains fully let and recent lettings have underscored rental growth compared to a year ago. Additionally, the side mall, which has always been the weakest of the malls within the Centre, is fully let following a period of intensive marketing. The town seems to be finding its equilibrium after the opening of a new Tesco Extra and adjacent shopping centre and Kings Square is clearly the location of choice for discount retailers. This is helped by the tram and bus terminus being attached to the rear of our centre. We therefore believe that this Centre will continue to trade successfully. 414 Coldharbour Lane, Brixton Shareholders are aware that, following lease expiry in 2015, we are in the process of trying to obtain vacant possession of this property from the current tenant. We believe that the tenant has lost the statutory rights of renewal. In December 2017, the Court found in favour of LAP on two counts. A third and final count requires a separate hearing which is scheduled for September 2018.
We are confident of our position and we will update shareholders in due course. Other The rest of our property portfolio continues to trade well and the LAP Group portfolio has a void level of 1.47%, (2016: 2.15%). Properties outlook There has been a lot of press coverage recently about retailer insolvencies and the increasing migration to online shopping. So far we have not directly suffered any increased level of retailer insolvency but we cannot be isolated entirely from general high street trends. Like all retail landlords, we will be forced to compete against an increased supply of empty shops. As highlighted in Chairman's Statements over the last few years, we believe that our portfolio is relatively protected from online shopping as our core property holdings are all either part of a major city that will remain a destination in its own right; a differentiated offer which forms part of a leisure experience; or they fulfil a role providing convenience retail facilities. We still believe that these sections of the retail world will continue to be relevant for the foreseeable future. Harrogate joint venture Our Harrogate joint venture with Oaktree Capital Management, which owns three shopping centres in Dunfermline, Kings Lynn and Loughborough, underwent a refinancing during the year. A loan at 80% of valuation was secured from Goldman Sachs with mezzanine funding provided by DRC. During this refinancing, we declined the option to put further cash into the joint venture and consequently our share of the equity was diluted from 6.95% to 3.17%. However, our asset and property management contracts remain unchanged and we continue to receive fees for managing the centres. Mining and property activities by Bisichi Mining PLC The management of Bisichi report that for the year ended 31st December 2017, the company achieved earnings before interest, tax, depreciation and amortisation (EBITDA) of GBP3.7 million (2016: GBP2.4 million). This significant improvement was achieved despite the impact on Black Wattle, its direct coal mining subsidiary in South Africa, of mining challenges in the first half of the year. For the first half of 2017 production at Black Wattle was impacted by higher than expected seasonal rains as well as ongoing stone contamination issues at its opencast areas. Overall, during this period, the mine achieved production of 582,000 metric tonnes (2016 H1: 795,000 metric tonnes). The stone contamination issues affected both yield and mining production through the washing plant, thus impacting on sales volumes and earnings in the first half of the year. During the second half of the year, further development of Black Wattle's opencast areas and the successful completion of infrastructure improvements to its washing plant allowed the mine to increase production to 714,000 metric tonnes (2016 H2: 465,000 tonnes). In addition, the completion of these infrastructure improvements assisted in reducing the stone contamination through the washing plant and increasing its overall yield. As a result of the higher production in the second half of the year, overall mining production from Black Wattle increased in 2017, with total production for the year of 1.30 million metric tonnes (2016: 1.26 million metric tonnes). As part of Black Wattle's mining plan, the opencast areas that were mined in 2017 will continue to be mined throughout 2018. Bisichi expect mining production levels achieved in the second half of 2017 to be maintained in 2018. Looking forward to 2018, Bisichi management will focus on maintaining production at the higher levels achieved in the second half of 2017 and increasing the life of the mine through the acquisition of additional reserves. With strong demand and improved prices achievable for the company's coal, Bisichi believes the group is in a strong position to achieve significant value from its South African mining operations in 2018. Bisichi's property portfolio is managed by LAP and continues to perform well. Overall, net property revenue (excluding joint ventures) was GBP1.12 million (2016: GBP1.06 million). The property portfolio was externally valued at 31st December 2017 and the value of UK investment properties attributable to the group at year end remained unchanged at GBP13.25 million. Bisichi has decided to recommend a final dividend of 3p (2016: 3p) and in light of the strong results achieved, a special dividend of 1p (2016: nil). The total Bisichi dividend for the year is 5p (2016: 4p). LAP's cash share of this is GBP 221,000 (2016: GBP177,000). Dragon Retail Properties Dragon has a single retail asset in Bristol. There is a lease renewal on the ground floor. The tenant has requested a new lease, and we believe the rent to be reversionary. Negotiations are underway. LAP Dividend We are pleased to recommend a final dividend of 0.175p, an increase of over 6% on the 2016 dividend of 0.165p. We are also pleased to report that we will recommend a special dividend of 0.125p following the sale of our Brixton properties. This means we will pay a total dividend of 0.30p. Finally, we would like to thank all of our directors, staff and advisors for their hard work during the year. We look forward to the year ahead with cautious optimism. Sir Michael Heller, John Heller, Chairman Chief Executive 27 April 2018 STRATEGIC REPORT Financial and performance review The financial statements for 2017 have been prepared to reflect the requirements of IFRS 10. This means that the accounts of Bisichi Mining PLC (a London Stock Exchange main market quoted company - BISI) ("Bisichi"), have been consolidated with those of LAP. Bisichi continues to operate as a fully independent company and currently LAP owns only 41.52% of the issued ordinary share capital. However, because related parties also have shareholdings in Bisichi and there is a wide disposition of other shareholdings, LAP is deemed under IFRS 10 to have effective control of Bisichi for accounting purposes. This treatment means that the income and net assets of Bisichi are disclosed in full and the value attributable to the "non-controlling interest" (58.48%) is shown separately in the equity section as a non-controlling interest. There is no impact on the net assets attributable to LAP shareholders. Dragon Retail Property Limited ("Dragon"), our 50:50 joint venture with Bisichi is also consolidated. Shareholders are aware that LAP is a property business with a significant investment in a listed mining company. The effect of consolidating the results, assets and liabilities of the property business and the mining company make the figures complex and less transparent. Property company accounts are already subject to significant volatility as valuations of property assets as well as derivative liabilities can be subject to major movements based on market sentiment. Most of these changes, though, have little or no effect on the cash position and it is, of course, self-evident that cash flow is the most important factor influencing the success of a property business. We explain the factors affecting the property business first, clearly separating these from factors affecting the mining business which we do not manage. Comments about Bisichi (the mining business) are based on information provided by the independent management of that company. LOANS Long term debt of LAP (excluding Bisichi and Dragon which are detailed separately below), consists of a GBP45 million facility expiring in July 2019 and two debentures: one of GBP10 million expiring in August 2022 and another of GBP3 million expiring in August 2018. During the year GBP0.75 million of debenture was repaid. As in previous years, all loans and debentures are secured on core property and cash deposits and are covenant compliant. LAP's five year GBP35 million non-recourse loan from Santander, as senior lender, is supported by a GBP10 million loan from Europa Capital Mezzanine Limited, as mezzanine lender. The senior loan facility is fully hedged and at the year end, 50% of the loan was swapped at a rate of 2.25% and the remaining 50% was covered by an interest cap at 2.25%. This gives a blended current interest rate of 4.73% for the total GBP45 million debt. On completion of the sale of Brixton Markets, GBP15.9 million of senior and mezzanine loans are repayable. Cash flow The operating cash flow and net cash balances at the year-end were as follows: CASH FLOW FROM OPERATIONS 2017 2016 GBP'000 GBP'000 LAP 2,708 2,623 Bisichi 7,593 2,879 Dragon (14) 84 Group total 10,287 5,586 Note: The figures exclude inter-company transactions. NET CASH BALANCES 2017 2016 GBP'000 GBP'000 LAP 2,109 3,706 Bisichi 4,065 (890) Dragon 92 115 Group total 6,266 2,931 Our investment with Oaktree Capital Management (HRGT Shopping Centres LP), remains profitable and generates management fees (2017: GBP0.46 million and 2016: GBP0.46 million) for our wholly owned subsidiary (London & Associated Management Services Limited). We also received GBP0.1 million (2016: GBP0.1 million) as a partial repayment of our loan. Income statement
The segmental analysis in Note 1 to the financial statements gives more detail but the tables below give a clearer summary of the Group results. RESULTS BEFORE REVALUATIONS AND NON-CASH MOVEMENTS 2017 2016 GBP'000 GBP'000 LAP (130) (1,070) Bisichi 3,536 (241) Dragon (29) 9 Group total 3,377 (1,302) Note: The figures exclude inter-company transactions. Rental income in LAP includes a one off receipt of GBP0.6 million for Brixton back rent. Additionally, renewed efforts to cut costs at LAP are reflected in lower overheads and property expenses, resulting in an improvement of GBP0.9 million in the operating result before revaluations of the core property business. Bisichi's improvement of GBP3.8 million is explained under Bisichi Mining PLC, in this review. The Group property portfolio, including assets held for sale (including Bisichi) of GBP114.46 million increased on revaluation by GBP9.37 million, a 9% increase. The improved property revenues, reductions in running costs and increased property valuations, have resulted in the LAP Group property business showing an increase of GBP10.76 million in the profit before taxation to GBP9.61 million (2016: loss GBP1.15 million). profit/(Loss) before taxation 2017 2016 GBP'000 GBP'000 LAP 9,614 (1,150) Bisichi 1,696 216 Dragon (32) (40) Group profit/(loss) before taxation 11,278 (974) Note: The figures exclude inter-company transactions. Taxation The LAP Group taxation charge of GBP2.98 million (2016: GBP1.17 million) is mainly due to changes in the rules governing the utilisation of tax losses which has restricted the group's ability to offset the deferred tax liability arising on the revaluation gains recognised in the year. Balance sheet Taking account of the changes required by IFRS 10 (see table below) LAP has group net assets of GBP56.7 million (2016: GBP48.6 million). Net assets attributable to equity shareholders at the year-end were 53.74p per share (2016: 44.83p per share). 2017 Bisichi LAP Mining PLC Dragon Original Group Retail Consolidation LAP Group GBP'000 Properties adjustments Net GBP'000 GBP'000 GBP'000 assets GBP'000 Investment properties 65,231 13,397 2,630 - 81,258 Other fixed assets 116 8,613 6 - 8,735 Investments in Bisichi Mining PLC 7,120 - - (7,120) - Investments in joint ventures 874 874 - (1,748) - Other non current assets 1,748 51 - - 1,799 Held for sale assets 36,441 - - - 36,441 Current assets 4,824 13,622 2,528 (4,416) 16,558 Current liabilities (10,822) (9,025) (2,124) 4,416 (17,555) Non-current liabilities (59,377) (9,858) (1,291) - (70,526) Net assets 46,155 17,674 1,749 (8,868) 56,710 2016 Investment properties 93,791 13,426 2,630 - 109,847 Other fixed assets 112 8,520 21 - 8,653 Investments in Bisichi Mining 6,918 - - (6,918) - PLC Investments and loans in joint 866 2,671 - (1,732) 1,805 ventures and assets held for sale Other non current assets 3,008 32 - - 3,040 Current assets 5,559 12,224 2,447 (4,347) 15,883 Current liabilities (9,014) (10,326) (2,078) 4,347 (17,071) Non-current liabilities (62,697) (9,541) (1,288) - (73,526) Net assets 38,543 17,006 1,732 (8,650) 48,631 Bisichi mining plc Although the results of Bisichi Mining PLC have been consolidated in these financial statements, the Board of LAP has no direct influence over the management of Bisichi. The comments below are based on the published accounts of Bisichi. The Bisichi group results are stated in full in its published 2017 financial statements which are available on its website: www.bisichi.co.uk. The Bisichi group increased its EBITDA to GBP3.7 million (2016: GBP2.4 million) mainly due to increased operating profits before depreciation from the mining activities of GBP4.6 million (2016: GBP1.2 million) offset by the group's share of losses in its joint venture of GBP1.8 million (2016: GBPnil). The share of losses in joint ventures arises from writing off the investment in Ezimbokodweni Mining (Pty) Ltd of GBP1.8 million, as detailed in Notes 12 and 13 to the accounts. Depreciation in the year relating to mining activities remained unchanged at GBP1.8 million. Profit for the year after tax was GBP1.5 million (2016: GBP0.3 million). Bisichi has two core revenue streams - investment in retail property in the UK and coal mining in South Africa. The increase in operating profit was mainly attributable to the higher prices achieved by coal and increased mining production at Black Wattle offsetting the impact of the higher mining and washing costs. The UK retail property portfolio was valued at the year end at GBP13.25 million (2016: GBP13.25 million). The property portfolio is actively managed by LAP and generated rental income of GBP1.1 million in the year (2016: GBP1.1 million). In South Africa, a subsidiary of Bisichi signed an increase in the structured trade finance facility from R80 million to R100 million (South African Rand) in July 2017 with Absa Bank Limited. This facility is renewable annually at 30th June and is secured against inventory, debtors and cash that are held in the Bisichi group's South African operations. This facility is expected to be renewed again in 2018. In the UK, the Bisichi group signed a GBP6 million five-year term loan with Santander in December 2014. This loan is secured against UK investment property. No covenants were breached during the year. Overall the Bisichi group achieved a net increase in cash and cash equivalents of GBP4.9 million (2016: GBP0.4 million). This increase was mainly attributable to improved coal mining operations which generated a substantial (GBP7.3 million) increase in cash from operating activities. Bisichi group's net balance of cash and cash equivalents (including bank overdrafts) at the year end was GBP4.1 million (owing 2016: GBP0.9 million). The Bisichi group's cash and cash equivalents (excluding bank overdrafts), at the year-end was GBP5.3 million (2016: GBP2.4 million). The Bisichi group's financial position remains strong. Its net assets at 31st December 2017 were GBP17.7 million (2016: GBP17 million). The group expects to continue achieving significant value in 2018 from its existing mining operation. In addition, Bisichi seeks to expand its operations in South Africa through the acquisition of additional coal reserves. DRAGON RETAIL PROPERTIES LIMITED Dragon is a UK property investment company. The company has a Santander bank loan of GBP1.25 million secured against its investment property and is covenant compliant. It paid management fees of GBP84,000 (2016: GBP72,000) split equally to the two joint venture partners. Its results continue to be near breakeven after taxation. Dragon has net assets of GBP1.7 million (2016: GBP1.7 million). Accounting judgements and going concern The most significant judgements made in preparing these accounts relate to the carrying value of the properties, investments and interest rate hedges. The hedges have been valued by the hedge provider. The Group uses external property valuers to determine the fair value of its properties. Under IFRS10 the Group has included Bisichi Mining PLC in the consolidated accounts, as it is deemed to be under the effective control of LAP and has therefore been treated as a subsidiary. The Directors exercise their commercial judgement when reviewing the Group's cash flow forecasts and the underlying assumptions on which the forecasts are based. The Group's business activities, together with the factors likely to affect its future development, are set out in the Chairman and Chief Executive's Statement and in this review. In addition, the Directors consider that Note 23 to the financial statements sets out the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk, liquidity risk and other risks. With a quality property portfolio comprising a majority of tenants with long leases supported by suitable financial arrangements, the Directors believe the group is well placed to manage its business risks successfully, despite the
continuing uncertain economic climate. The Directors therefore have a reasonable expectation that the group and the company have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. TAXation The LAP Group tax strategy is to account for tax on an accurate and timely basis. We only structure our affairs based on sound commercial principles and wish to maintain a low tax risk position. We do not engage in aggressive tax planning. The LAP Group (excluding Bisichi and Dragon) has unused tax losses and deductions with a potential value of GBP10.167 million of which only GBP4.74 million has been recognised in the 2017 financial statements. As LAP returns to profit, these tax losses and deductions should be utilised. Dividends and future prospects The directors are proposing a final dividend of 0.175p per ordinary share payable in September 2018. The directors are also proposing a special dividend of 0.125p per ordinary share payable in September 2018. The Group remains cautiously confident about its trading and future outlook and it continues to look at further reducing its overhead costs and interest payable, while it stabilises its property income together with seeking out growth opportunities. STRATEGIC REPORT Principal activities, strategy & business model The LAP Group's principal business model is the investment in and management of town centre retail property through direct investment and joint ventures, where we manage the property ourselves and on behalf of our partners. The principal activity of Bisichi Mining PLC is coal mining in South Africa. Further information is available in its 2017 Financial Statements which are available on their web site: www.bisichi.co.uk STRATEGIC PRIORITIES ARE OUR STRATEGY IS MAXIMISING INCOME By achieving an appropriate tenant mix and shopping experience we can increase footfall through the centres, hence increase tenant demand for space and enhance income. CREATING QUALITY We look to improve the consumer experience at all our centres PROPERTY by achieving an appropriate tenant mix and a vibrant trading environment through investment activity, enhancement, refurbishment and development. CAPITAL STRENGTH We operate within a prudent and flexible financial structure. Our gearing, which has been substantially reduced, provides financial stability whilst giving capacity and flexibility to look for further investments. MAINTAIN THE VALUE OF By encouraging the Bisichi management to maximise sustainable INVESTMENT IN BISICHI profits and cash distributions. Risks and uncertainties DESCRIPTION OF RISK DESCRIPTION OF IMPACT MITIGATION ASSET MANAGEMENT: TENANT FAILURE Financial loss. Initial and subsequent assessment of tenant covenant strength combined with an active credit control function. LEASES NOT RENEWED Financial loss. Lease expiries regularly reviewed. Experienced in house teams with strong tenant and market knowledge who manage appropriate tenant mix. ASSET LIQUIDITY (SIZE Assets may be illiquid Regular reporting of current and AND GEOGRAPHICAL and affect flexing of projected position to the Board with LOCATION) balance sheet. efficient treasury management. PEOPLE: RETENTION AND Unable to retain and Nomination Committee and senior staff RECRUITMENT OF STAFF attract the best people review skills gaps and succession for the key roles. planning. Training and development offered. REPUTATION: BUSINESS INTERRUPTION Loss in revenue. Documented Recovery Plan in place. Impact on footfall. General and terrorism insurance Adverse publicity. policies in place and risks Potential for criminal/ monitored by trained security staff. civil proceedings. Health and Safety policies in place. CCTV in centres. FINANCING: FLUCTUATION IN PROPERTY Impact on covenants and Secure income flows. VALUES other loan agreement Regular monitoring of LTV and IC obligations. covenants and other obligations. Focus on quality assets. REDUCED AVAILABILITY OF Insufficient funds to Efficient treasury management. BORROWING FACILITIES meet existing debts/ Loan facilities extended where interest payments and possible. operational payments. Regular reporting of current and projected position to the Board. LOSS OF CASH AND Financial loss. Only use a spread of banks and DEPOSITS financial institutions which have a strong credit rating. FLUCTUATION OF INTEREST Uncertainty of interest Manage derivative contracts to achieve RATES rate costs. a balance between hedging interest rate exposure and minimising potential cash calls. STRATEGIC REPORT Bisichi risks and uncertainties Bisichi (although it is consolidated into group accounts as required by IFRS 10) is managed independently of LAP. The risks outlined below are an abbreviated summary of the risks reported by the Directors of Bisichi to the shareholders of that Company. Full details are available in the published accounts of Bisichi (www.bisichi.co.uk). These risks, although critical to Bisichi, are of less significance to LAP which only has a minority investment of 41.52% in the company. In the unlikely event that Bisichi was unable to continue trading, it would not affect the ability of LAP to continue operating as a going concern. DESCRIPTION OF RISK DESCRIPTION OF IMPACT MITIGATION COAL PRICES CAN BE IMPACTED Affects sales value and Forward sales contracts are MATERIALLY BY MARKET AND therefore margins. used to manage value CURRENCY VARIATIONS expectations. MINING OPERATIONS ARE Loss of production causing Use of geology experts, INHERENTLY RISKY. MINERAL loss of revenue. careful attention to RESERVES, REGULATIONS, regulations, health and LICENSING, POWER safety training, employee AVAILABILITY, HEALTH AND dialogue to minimise SAFETY CAN ALL DAMAGE controllable risks. OPERATIONS CURRENCY RISK Affects realised sales value Regular monitoring and and therefore margins. review of forward currency situation. CASHFLOW VARIATION BECAUSE OF Variations can deliver UK property investments used MINING RISKS, COMMODITY PRICE significant shifts in cash to offset high risk mining OR CURRENCY VARIATIONS flow. operations. STRATEGIC REPORT Key performance indicators The Group's Key Performance Indicators are selected to ensure clear alignment between its strategy and shareholder interests. The KPIs are calculated using data from management reporting systems. Strategic priority KPI Performance MAXIMISING INCOME - LIKE FOR LIKE PROPERTY INCOME To increase the like-for-like Like-for-like rental income as The like-for-like rental income from the property year a percentage of the prior year income has remained unchanged. on year. rental. In the continuing difficult trading environment, this is considered satisfactory. MAXIMISING INCOME - OCCUPANCY We aim to maximise the total The ERV of the empty units as a Void levels have remained income in our properties by percentage of our total income. unchanged at 2.06%. achieving full occupancy. CAPITAL STRENGTH - GROWTH IN NET ASSET VALUE PER SHARE The net assets per share is Movement in the net assets The net assets per share the principal measure used by per share. increased by 8.91 pence per the group for monitoring its share performance and is an or nearly 20% to 53.74p. indicator of the level of The strategic realisation of reserves available for Brixton markets is the main distribution by way of reason for the significant dividend. increase this year. This is in accordance with our policy of selling assets when we believe that they have achieved
maximum value. STRATEGIC REPORT Corporate responsibility Sustainable Development Bisichi's Black Wattle continues to strive to conduct business in a safe, environmentally and socially responsible manner. Some highlights of their Health, Safety and Environment performance in 2017: * Black Wattle Colliery recorded one Lost Time Injury during 2017 (2016: One). * No cases of Occupational Diseases were recorded. * Zero claims for the Compensation for Occupational Diseases were submitted. They continue to be compliant and make progress in terms of their Social and Labour Plan and their various BEE initiatives. A fuller explanation of these can be found in Bisichi's 2017 Financial Statements which are available on their web site: www.bisichi.co.uk Greenhouse gas reporting We have reported on all of the emission sources required under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013 for the reporting period 1st January 2017 to 31st December 2017. The emissions are detailed in tables 1, 2, 3 and 4 below. We have employed the Financial Control definition to outline our carbon footprint boundary reporting Scope 1 & 2 emissions only. Emissions from both landlord and tenant controlled areas of LAP owned shopping centres and facilities that fall within the footprint boundary. LAP has landlord controlled areas in Kings Square, Orchard Square, Brewery Street, Shipley and Bridgend. Excluded from our footprint boundary are: properties that we manage on behalf of others or are not wholly owned by LAP and emissions are considered non material by the business. Emissions for landlord controlled areas have been calculated based on actual consumption information collected from each shopping centre. Emissions from tenant controlled areas have been calculated based on floor area and energy consumption benchmarks for general retail services in the UK. The Bisichi Group has employed the Operational Control boundary definition to outline the carbon footprint boundary. Included within that boundary are Scope 1 & 2 emissions from coal extraction and onsite mining processes for Black Wattle Colliery. Excluded from the footprint boundary are emission sources considered non material by Bisichi Group, including refrigerant use onsite. We have used the ISO14046-1 Standard (2006) and guidance provided by UK's Department of Environment and Rural Affairs (DEFRA) on voluntary and mandatory carbon reporting. Emission factors were used from UK Government's GHG Conversion Factors for Company Reporting 20171. As well as reporting Scope 1 and Scope 2 emissions, legislation requires that at least one intensity ratio is reported for the given reporting period. The intensity figure represented below shows the emissions in tCO2e per thousand pounds revenue. Table 1. landlord & tenant controlled areas Emissions Source 2017 2016 Scope 1 emissions Natural gas (tCO2e) 71 234 Refrigerants (tCO2e) 0 5 Scope 2 emissions Electricity (tCO2e) 2,938 3,491 Total tCO2e 3,009 3,730 Intensity ratio (tCO2e/GBPthousand) 0.467 0.076 Table 2. LAP controlled areas Emissions Source 2017 2016 Scope 1 emissions Natural gas (tCO2e) 71 234 Refrigerants (tCO2e) 0 5 Scope 2 emissions Electricity (tCO2e) 176 236 Total tCO2e 247 475 Table 3. Tenant controlled areas Emissions Source 2017 2016 Scope 1 emissions Natural gas (tCO2e) - - Refrigerants (tCO2e) - - Scope 2 emissions Electricity (tCO2e) 2,762 3,255 Total tCO2e 2,762 3,255 1. 2017 Guidelines to DEFRA/DECC's GHG Conversion Factors for Company Reporting, Department for environment, Food and Rural Affairs (DEFRA) and Department for Energy and Climate Change (DECC) Table 4. Coal mining carbon footprint 2017 2016 CO2e CO2e Tonnes Tonnes Emissions source: Scope 1 Combustion of fuel & operation of facilities 15,575 11,860 Scope 1 Emissions from coal mining activities 22,683 22,171 Scope 2 Electricity, heat, steam and cooling purchased 11,210 8,530 for own use Total 49,468 42,561 Intensity: Intensity 1 Tonnes of CO2 per pound sterling of revenue 0.0013 0.0019 Intensity 2 Tonnes of CO2 per pound of coal produced 0.038 0.034 Environment United Kingdom The Group's principal UK activity is property investment, which involves renting premises to retail businesses. We seek to provide those tenants with good quality premises from which they can operate in an efficient and environmentally friendly manner. Where possible, improvements, repairs and replacements are made in an environmentally efficient manner and waste re-cycling arrangements are in place at all of the Company's locations. South Africa The Bisichi group's principal activity in South Africa is coal mining. Under the terms of the mine's Environmental Management Programme approved by the Department of Mineral Resource ("DMR"), Black Wattle undertakes a host of environmental protection activities to ensure that the approved Environmental Management Plan is fully implemented. A performance assessment audit was conducted to verify compliance to their Environmental Management Programme and no significant deviations were found. Employee, social, community and human rights The Group's policy is to attract staff and motivate employees by offering competitive terms of employment. The Group provides equal opportunities to all employees and prospective employees including those who are disabled and operates in compliance with all relevant national legislation. Diversity and equality The board recognises the importance of diversity, both in its membership, and in the Group's employees. It has a clear policy to promote diversity across the business. The Board considers that the quotas are not appropriate in determining its composition and has therefore chosen not to set targets. All aspects of diversity, including but not limited to gender, are considered at every level of recruitment. Gender diversity of the Board and the Group is set out below. Directors, employees and gender representation At the year end the LAP Group (excluding Bisichi and Dragon), had 6 directors (6 male, 0 female), 2 senior managers (2 male, 0 female) and 23 employees (12 male, 11 female). Bisichi Mining PLC Bisichi Mining PLC's group at the year end had 6 directors (6 male, 0 female), 7 senior managers (6 male, 1 female) and 196 employees (143 male, 53 female). Detailed information relating to Bisichi Strategic Report is available in its 2017 financial statements. Approved on behalf of the board of directors Anil Thapar, Finance Director 27 April 2018 GOVERNANCE Directors & advisors EXECUTIVE DIRECTORS Sir Michael Heller MA FCA* (Chairman) John A Heller LLB MBA (Chief Executive) Anil K Thapar FCCA (Finance Director) NON-EXECUTIVE DIRECTORS Howard D Goldring BSC (ECON) ACA? Howard Goldring is Executive Chairman of Delmore Asset Management Limited which specialises in the discretionary management of investment portfolios for pension funds, charities, family trusts and private clients. He also acts as an advisor providing high level asset allocation advice to family offices and pension schemes, including Tesco Pension Investment Ltd. He has been a member of the LAP Board since July 1992, and has almost 40 years' experience of the real estate market. He was a director of Baronsmead VCT 2 PLC from 2010-2016, and has specialised in providing many companies with investor relations support. Clive A Parritt FCA CF FIIA #? Clive Parritt joined the board on 1 January 2006. He is a chartered accountant with over 40 years' experience of providing strategic, financial and commercial advice to businesses of all sizes. He is Chairman of BG Training Limited and a director of Jupiter US Smaller Companies plc. Until April 2016 he was Group Finance Director of Audiotonix Limited (an international manufacturer of audio mixing consoles). He has chaired and been a director of a number of other public and private companies. Clive Parritt was President of the Institute of Chartered Accountants in England and Wales in 2011-12. He is Chairman of the Audit Committee and as Senior Independent Director he chairs the Nomination and Remuneration Committees. Robin Priest MA Robin Priest joined the board on 31 July 2013. He is chairman of private real estate company Property Alliance Group and a senior advisor to Alvarez & Marsal LLP ("A&M") and to a major listed German real estate investment fund manager. He has more than 36 years' experience in real estate and structured finance. He was formerly Managing Director of A&M's real estate practice, advising private
sector and public sector clients on both operational and financial real estate matters. Prior to joining A&M, Robin was lead partner for Real Estate Corporate Finance in London with Deloitte LLP and before this he founded and ran a property company backed by private equity. He is also a trustee of London's Oval House Theatre. * Member of the nomination committee ? Member of the audit, remuneration and nomination committees # Senior independent director SECRETARY & REGISTERED OFFICE Anil K Thapar FCCA 24 Bruton Place London W1J 6NE AUDITOR RSM UK Audit LLP PRINCIPAL BANKERS Santander UK plc Abbey National Treasury Services plc Europa Capital Mezzanine Ltd SOLICITORS Olswang LLP Pinsent Masons LLP STOCKBROKER Stockdale Securities Limited REGISTRARS & TRANSFER OFFICE Link Asset Services Shareholder Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU UK telephone: 0871 664 0300 International telephone: +44 371 664 0300 (Calls cost 12p per minute plus your phone company's access charge. Calls outside the United Kingdom will be charged at the applicable international rate). Lines are open between 9.00am to 5.30pm, Monday to Friday, excluding public holidays in England and Wales. Website: www.linkassetservices.com Email: enquiries@linkgroup.co.uk Company registration number 341829 (England and Wales) WEBSITE www.lap.co.uk E-MAIL admin@lap.co.uk GOVERNANCE Directors' report The Directors submit their report and the audited financial statements for the year ended 31 December 2017. Strategic report A comprehensive review and assessment of the Group's activities during the year as well as its position at the year end and prospects for the forthcoming year are included in the Chairman and Chief Executive's Statement and the Strategic Report. These reports can be found on pages 2 to 11 and should be read in conjunction with this report. Activities The principal activities of the Group during the year were property investment and development, as well as investment in joint ventures and an associated company. The associated company is Bisichi Mining PLC (Bisichi) in which the Company holds a 41.52 per cent interest. Bisichi is listed on the main market of the London Stock Exchange and operates in England and South Africa with subsidiaries which are involved in overseas mining and mining investment. The results, together with the assets and liabilities, of Bisichi are consolidated with those of LAP in accordance with the terms of IFRS 10 even though the Group only has a minority interest - under IFRS 10 the 58% majority interest is disclosed as a "non-controlling interest". Business review AND POST BALANCE SHEET EVENTS Review of the Group's development and performance A review of the Group's development and performance can be found below and should be read in conjunction with the Strategic Report on pages 4 to 11. Details of any post balance sheet events are disclosed in Note 32 to the financial statements. Future developments The Group continues to look for new opportunities to acquire real estate assets where it feels it can increase value by applying its intensive management skills. At the same time, it seeks to reduce its interest payments on its loans as they expire or where opportunities arise to refinance on better terms. We also seek to improve our existing estate through the continued pursuit of asset management initiatives. Property activities The Group is a long-term investor in property. It acquires retail properties, actively manages those assets to improve rental income, and thus seeks to enhance the value of its properties over time. In reviewing performance, the principal areas regularly monitored by the Group include: * Rental income - the aim of the Group is to maximise the maintainable income from each property by careful tenant management supported by sympathetic and revenue enhancing development. Income may be affected adversely by the inability of tenants to pay their rent, but careful monitoring of rent collection and tenant quality helps to mitigate this risk. Risk is also minimised by a diversified tenant base, which should limit the impact of the failure of any individual tenant. * Cash flow - allowing for voids, acquisitions, development expenditure, disposals and the impact of operating costs and interest charges, the Group aims to maintain a positive cash flow over time. * Financing costs - the exposure of the Group to interest rate movements is managed partly by the use of swap and cap arrangements (see Note 23 on page 56 for full details of the contracts in place) and also by using loans with fixed terms and interest rates. These arrangements are designed to ensure that our interest costs are known in advance and are always covered by anticipated rental income. Details of key estimates that have been adopted are contained in the accounting policies Note on page 37. * Property valuations - market sentiment and economic conditions have a direct effect on property valuations, which can vary significantly (upwards or downwards) over time. Bearing in mind the long term nature of the Group's business, valuation changes have little direct effect on the ongoing activities or the income and expenditure of the Group. Tenants generally have long term leases, so rents are unaffected by short term valuation changes. Borrowings are secured against property values and if those values fall very significantly, this could limit the ability of the Group to develop the business using external borrowings. The risk is minimised by trying to ensure that there is adequate cover to allow for fluctuations in value on a short term basis. It continues to be the policy of the Group to realise property assets when the valuation of those assets reaches a level at which the directors consider that the long-term rental yield has been reached. The Group also seeks to acquire additional property investments on an opportunistic basis when the potential rental yields offer scope for future growth. Investment activities The investments in joint ventures and Bisichi are for the long term. LAP manages the UK property assets of Bisichi. However, the principal activity of Bisichi is overseas mining investment (in South Africa). While IFRS 10 requires the consolidation of Bisichi, the investment is held to generate income and capital growth over the longer term. It is managed independently of LAP and should be viewed by shareholders as an investment and not a subsidiary. The other listed investments are held as current assets to provide the liquidity needed to support the property activities while generating income and capital growth. Investments in property are made through joint ventures when the financing alternatives and spreading of risk make such an approach desirable. Dividend The directors are recommending payment of a final dividend for 2017 of 0.175p per share (2016 0.165p per share) and a special dividend for 2017 of 0.125p (2016: nil). Subject to shareholder approval, the ordinary final dividend and special dividend will be payable on Friday 14 September 2018 to shareholders registered at the close of business on Friday 17 August 2018. The company's ordinary shares held in treasury At 31 December 2017, 221,061 (2016: 221,061) ordinary shares were held in Treasury with a market value of GBP54,160 (2016: GBP46,422). At the Annual General Meeting (AGM) in June 2017 members renewed the authority for the Company to purchase up to 10 per cent of its issued ordinary shares. The Company will be asking members to renew this authority at the next AGM to be held on Tuesday 19 June 2018. Treasury shares held at 1 January 2017 and 31 December 2017 221,061 Treasury shares are not included in issued share capital for the purposes of calculating earnings per share or net assets per share and they do not qualify for dividends payable. Investment properties The freehold and long leasehold properties of the Company, its subsidiaries and Bisichi were revalued as at 31 December 2017 by independent professional firms of chartered surveyors - Allsop LLP, London (80.69 per cent of the portfolio), Carter Towler, Leeds (16.98 per cent) - and by the Directors (2.34 per cent). The valuations, which are reflected in the financial statements, amount to GBP78 million (2016: GBP105.08 million). Investment property of GBP36.4 million sold in 2018 is stated under current assets, as Assets held for sale. Taking account of prevailing market conditions, the valuation of the properties at 31 December 2017 resulted in an increase of GBP9.37 million (2016: increase of GBP0.53 million). The proportion of this revaluation attributable to the Group (net of taxation) is reflected in the consolidated income statement and the consolidated balance sheet. Financial instruments Note 23 to the financial statements sets out the risks in respect of financial instruments. The board reviews and agrees overall treasury policies, delegating appropriate authority for applying these policies to the Chief Executive and Finance Director. Financial instruments are used to manage the financial risks facing the Group and speculative transactions are prohibited. Treasury operations are reported at each board meeting and are subject to weekly internal reporting. Hedging arrangements are in place for the Company, its subsidiaries and joint ventures in order to limit the effect of higher interest rates upon the Group. Where appropriate, hedging arrangements are covered in the Chairman and Chief Executive's Statement and the Financial Review. Directors Sir Michael Heller, J A Heller, A K Thapar, H D Goldring, C A Parritt and R Priest were Directors of the company for the whole of 2017. C A Parritt, J A Heller and A K Thapar are retiring by rotation at the Annual General Meeting in 2018 and offer themselves for re-election.
Clive Parritt has been a Director since January 2006 and has a contract of service determinable upon three months' notice and is the Senior Independent Director and Chairman of the audit, nomination and remuneration committees. He is a Chartered Accountant with over 40 years' experience in providing strategic, financial and commercial advice to business. His financial knowledge and broad commercial experience are of significant benefit to the business. The board has considered the re-appointment of Clive Parritt and recommends his re-election as a Director. John Heller has been a Director since 1998 and was appointed Chief Executive in September 2001. He has a contract of employment determinable upon twelve months' notice. The board has considered the re-appointment of John Heller and recommends his re-election as a Director. Anil Thapar has been Finance Director since January 2015 and is also the Company Secretary. He has a contract of employment determinable upon three months' notice. Anil Thapar is a Chartered Certified Accountant and has worked at LAP since November 2005. The board has considered the re-appointment of Anil Thapar and recommends his re-election as a Director. Directors' interests The interests of the Directors in the ordinary shares of the Company, including family and trustee holdings, where appropriate, can be found on page 22 of the Annual Remuneration Report. Substantial shareholdings At 31 December 2017, Sir Michael Heller and his family had an interest in 48.08 million shares of the Company, representing 56.35 per cent of the issued share capital net of treasury shares (2016: 48.08 million shares representing 56.35 per cent). Cavendish Asset Management Limited had an interest in 7,909,464 shares representing 9.27 per cent of the issued share capital of the Company (2016: 8,173,875 shares representing 9.58 per cent). James Hyslop had an interest in 4,846,258 shares representing 5.68 per cent of the issued share capital of the Company (2016: 4,456,258 shares representing 5.22 per cent). The Company does not consider that the Heller family have a controlling share interest irrespective of the number of shares held as no individual party holds a majority and there is no legal obligation for shareholders to act in concert. The Directors do not consider that any single party has control. The Company is not aware of any other holdings exceeding 3 per cent of the issued share capital. share capital and Takeover directive The Company has one class of share capital, namely ordinary shares. Each ordinary share carries one vote. All the ordinary shares rank pari passu. There are no securities issued by the Company which carry special rights with regard to control of the Company. The identity of all significant direct or indirect holders of securities in the Company and the size and nature of their holdings is shown in "Substantial Shareholdings" above. The rights of the ordinary shares to which the HMRC approved Share Incentive Plan relates are exercisable by the trustees on behalf of the employees. There are no restrictions on voting rights or on the transfer of ordinary shares in the Company, save in respect of treasury shares. The rules governing the appointment and replacement of Directors, alteration of the articles of association of the Company and the powers of the Company's Directors accord with usual English company law provisions. Each Director is re-elected at least every three years. The Company has requested authority from shareholders to buy back its own ordinary shares and there will be a resolution to renew the authority at this year's AGM (Resolution 12). The Company is not party to any significant agreements that take effect, alter or terminate upon a change of control of the Company following a takeover bid. The Company is not aware of any agreements between holders of its ordinary shares that may result in restrictions on the transfer of its ordinary shares or on voting rights. There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid. Statement as to disclosure of information to the auditor The Directors in office at the date of approval of the financial statements have confirmed that, so far as they are aware, there is no relevant audit information of which the auditor is unaware. Each of the Directors has confirmed that they have taken all the steps that they ought to have taken as a Director in order to make them aware of any relevant audit information and to establish that it has been communicated to the auditor. indemnities and insurance The Articles of Association of the company provide for it to indemnify, to the extent permitted by law, directors and officers (excluding the Auditor) of the company, including officers of subsidiaries and associated companies, against liabilities arising from the conduct of the Group's business. The indemnities are qualifying third party indemnity provisions of the Companies Act 2006 and each of these qualifying third party indemnities was in force during the course of the financial year ended 31 December 2017 and as at the date of this Directors' report. No amount has been paid under any of these indemnities during the year. The Group maintains Directors and officers insurance, which is reviewed annually and is considered to be adequate by the Company and its insurance advisers. Donations No political donations were made during the year (2016: GBPNil). GBP1,000 of donations for charitable purposes were made during the year (2016: GBP2,000). CORPORATE RESPONSIBILITY Environment The environmental considerations of the group's South African coal mining operations are covered in the Bisichi Mining PLC Strategic Report. The group's UK activities are principally property investment whereby premises are provided for rent to retail businesses. The group seeks to provide those tenants with good quality premises from which they can operate in an efficient and environmentally efficient manner and waste re-cycling arrangements are in place at all the company's locations. Greenhouse gas emissions Details of the group's greenhouse gas emissions for the year ended 31 December 2017 can be found on pages 10 and 11 of the Strategic Report. Employment The group's policy is to attract staff and motivate employees by offering competitive terms of employment. The group provides equal opportunities to all employees and prospective employees including those who are disabled. The Bisichi Mining PLC Strategic Report gives details of the group's activities and policies concerning the employment, training, health and safety and community support and social development concerning the group's employees in South Africa. Going concern The directors have reviewed the cash flow forecasts of the Group and the underlying assumptions on which they are based. The Group's business activities, together with the factors likely to affect its future development, are set out in the Chairman's and Chief Executive's Statement and Financial Review. In addition, Note 23 to the financial statements sets out the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk. With secured long term banking facilities, sound financial resources and long term leases in place the Directors believe it remains appropriate to adopt the going concern basis of accounting in preparing the annual financial statements. The Bisichi directors continue to adopt the going concern basis of accounting in preparing the Bisichi annual financial statements. Corporate Governance The Corporate governance report can be found on pages 17 and 18 of the annual report and accounts. Annual General Meeting The Annual General Meeting will be held at Royal Automobile Club, 89 Pall Mall, London, SW1Y 5HS on Tuesday 19 June 2018 at 10.00 a.m. Items 1 to 10 and 14 will be proposed as ordinary resolutions. More than 50 per cent. of shareholders' votes cast at the meeting must be in favour for those ordinary resolutions to be passed. Items 11 to 13 will be proposed as special resolutions. At least 75 per cent. of shareholders' votes cast at the meeting must be in favour for those special resolutions to be passed. The Directors consider that all of the resolutions (other than 14), to be put to the meeting are in the best interests of the Company and its shareholders as a whole and accordingly the board unanimously recommends that shareholders vote in favour of all of the resolutions, other than 14, as the Directors intend to do in respect of their own beneficial holdings of ordinary shares. The Directors do not consider resolution 14 to be in the best interests of the Company and its shareholders as a whole. The Directors recommend that shareholders vote against this resolution.Please note that the following paragraphs are only summaries of certain of the resolutions to be proposed at the Annual General Meeting and do not represent the full text of the resolutions. You should therefore read this section in conjunction with the full text of the resolutions contained in the notice of Annual General Meeting which accompanies this Directors' Report. Ordinary resolutions Resolution 10 - Authority to allot securities Paragraph 10.1.1 of Resolution 10 would give the Directors the authority to allot shares in the Company and grant rights to subscribe for or convert any security into shares in the Company up to an aggregate nominal value of GBP 2,836,478. This represents approximately 1/3 (one third) of the ordinary share capital of the Company in issue (excluding treasury shares) as at 26 April 2018 (being the last practicable date prior to the publication of this Directors' Report).
In line with guidance issued by the Investment Association ('IA'), paragraph 10.1.2 of Resolution 10 would give the directors the authority to allot shares in the Company and grant rights to subscribe for or convert any security into shares in the Company up to a further aggregate nominal value of GBP2,836,478, in connection with an offer by way of a rights issue. This amount represents approximately 1/3 (one third) of the ordinary share capital of the Company in issue (excluding treasury shares) as at 26 April 2018 (being the last practicable date prior to the publication of this Directors' Report). The Directors' authority will expire on the earlier of 31 August 2019 or the next AGM. The Directors do not currently intend to make use of this authority. However, if they do exercise the authority, the Directors intend to follow best practice as recommended by the IA regarding its use (including as regards the Directors standing for re-election in certain cases). Special resolutions The following special resolutions will be proposed at the Annual General Meeting: Resolution 11 - Disapplication of pre-emption rights Under English company law, when new shares are allotted or treasury shares are sold for cash (otherwise than pursuant to an employee share scheme) they must first be offered at the same price to existing shareholders in proportion to their existing shareholdings. This special resolution gives the Directors authority, for the period ending on the date of the next annual general meeting to be held in 2019, to: (a) allot shares of the Company and sell treasury shares for cash in connection with a rights issue or other pre-emptive offer; and (b) otherwise allot shares of the Company, or sell treasury shares, for cash up to an aggregate nominal value of GBP425,472 representing, in accordance with institutional investor guidelines, approximately 5 per cent. of the total ordinary share capital in issue as at 26 April 2018 (being the last practicable date prior to the publication of this Directors' Report) in each case as if the pre-emption rights in English company law did not apply. Save in respect of issues of shares in respect of employee share schemes and share dividend alternatives, the Directors do not currently intend to make use of these authorities. The board intends to adhere to the provisions in the Pre-emption Group's Statement of Principles not to allot shares for cash on a non-pre-emptive basis in excess of an amount equal to 7.5 per cent. of the Company's ordinary share capital within a rolling three-year period without prior consultation with shareholders. The Directors' authority will expire on the earlier of 31 August 2019 or the date of next AGM. Resolution 12 - Purchase of own ordinary shares The effect of Resolution 12 would be to renew the Directors' current authority to make limited market purchases of the Company's ordinary shares of 10 pence each. The power is limited to a maximum aggregate number of 8,509,435 ordinary shares (representing approximately 10 per cent. of the Company's issued share capital as at 26 April 2018 (being the latest practicable date prior to publication of this Directors' Report)). The minimum price (exclusive of expenses) which the Company would be authorised to pay for each ordinary share would be 10 pence (the nominal value of each ordinary share). The maximum price (again exclusive of expenses) which the Company would be authorised to pay for an ordinary share is an amount equal to 105 per cent. of the average market price for an ordinary share for the five business days preceding any such purchase. The authority conferred by Resolution 12 will expire at the conclusion of the Company's next annual general meeting to be held in 2019 or 15 months from the passing of the resolution, whichever is the earlier. Any purchases of ordinary shares would be made by means of market purchases through the London Stock Exchange. If granted, the authority would only be exercised if, in the opinion of the Directors, to do so would result in an increase in earnings per share or asset values per share and would be in the best interests of shareholders generally. In exercising the authority to purchase ordinary shares, the Directors may treat the shares that have been bought back as either cancelled or held as treasury shares (shares held by the Company itself). No dividends may be paid on shares which are held as treasury shares and no voting rights are attached to them. Resolution 13 - Notice of General Meetings Resolution 13 shall be proposed to allow the Company to call general meetings (other than an Annual General Meeting) on 14 clear days' notice. A resolution in the same terms was passed at the Annual General Meeting in 2017. The notice period required by the Companies Act 2006 for general meetings of the Company is 21 days, unless shareholders approve a shorter notice period, which cannot however be less than 14 clear days. Annual General Meetings must always be held on at least 21 clear days' notice. It is intended that the flexibility offered by this resolution will only be used for time-sensitive, non-routine business and where merited in the interests of shareholders as a whole. The approval will be effective until the Company's next Annual General Meeting, when it is intended that a similar resolution will be proposed. Other matters RSM UK Audit LLP has expressed its willingness to continue in office as auditor. A proposal will be made at the Annual General Meeting for its reappointment. By order of the board Anil Thapar Secretary 27 April 2018 24 Bruton Place London W1J 6NE GOVERNANCE Corporate Governance The Company has adopted the Corporate Governance Code for Small and Mid-Size Quoted Companies (the QCA Code) published by the Quoted Companies Alliance. The QCA Code provides governance guidance to small and mid-size quoted companies. The paragraphs below set out how the Company has applied this guidance during the year. The Company has complied with the QCA Code throughout the year. Principles of corporate governance The board promotes good corporate governance in the areas of risk management and accountability as a positive contribution to business prosperity. The board endeavors to apply corporate governance principles in a sensible and pragmatic fashion having regard to the circumstances of the business. The key objective is to enhance and protect shareholder value. Board structure During the year the board comprised the Chairman, the Chief Executive, one other executive Director and three non-executive Directors. Their details appear on page 12 The board is responsible to shareholders for the proper management of the Group. The Directors' responsibilities statement in respect of the accounts is set out on page 27. The non-executive Directors have a particular responsibility to ensure that the strategies proposed by the executive Directors are fully considered. To enable the board to discharge its duties, all Directors have full and timely access to all relevant information and there is a procedure for all Directors, in furtherance of their duties, to take independent professional advice, if necessary, at the expense of the Group. The board has a formal schedule of matters reserved to it and normally has eleven regular meetings scheduled each year. Additional meetings are held for special business when required. The board is responsible for overall Group strategy, approval of major capital expenditure and consideration of significant financial and operational matters. The board committees, which have written terms of reference, deal with specific aspects of the Group's affairs: * The nomination committee is chaired by C A Parritt and comprises one other non-executive Director and the executive Chairman. The committee is responsible for proposing candidates for appointment to the board, having regard to the balance and structure of the board. In appropriate cases recruitment consultants may be used to assist the process. All Directors are subject to re-election at a maximum of every three years. * The remuneration committee is responsible for making recommendations to the board on the Company's framework of executive remuneration and its cost. The committee determines the contract terms, remuneration and other benefits for each of the executive directors, including performance related bonus schemes, pension rights and compensation payments. The board itself determines the remuneration of the non-executive Directors. The committee comprises two non-executive Directors and it is chaired by C A Parritt. The executive Chairman of the board is normally invited to attend. The Annual Remuneration Report is set out on pages 20 to 23. * The audit committee comprises two non-executive Directors and is chaired by C A Parritt. The audit committee report, with its terms of reference, is set out on page 26 The Chief Executive and Finance Director are normally invited to attend. Board and board committee meetings held in 2017 The number of regular meetings during the year and attendance was as follows: Meetings Meetings held attended Sir Michael Heller Board 10 10 Nomination committee 1 1 Remuneration committee 1 1 J A Heller Board 10 10 Audit committee 2 2 A K Thapar Board 10 9 Audit committee 2 2
C A Parritt Board 10 10 Audit committee 2 2 Nomination committee 1 1 Remuneration committee 1 1 H D Goldring Board 10 10 Audit committee 2 2 Nomination committee 1 1 Remuneration committee 1 1 R Priest Board 10 7 Performance evaluation - board, board committees and directors The performance of the board as a whole, its committees and the non-executive Directors is assessed by the Chairman and the Chief Executive and is discussed with the senior independent non-executive Director. Their recommendations are discussed at the nomination committee prior to proposals for re-election being recommended to the board. The performance of executive Directors is discussed and assessed by the remuneration committee. The senior independent Director meets regularly with the Chairman, executive and non-executive Directors individually outside of formal meetings. The Directors will take outside advice in reviewing performance but have not found this to be necessary to date. Independent directors The senior independent non-executive Director is C A Parritt. The other independent non-executive Directors are H D Goldring and R Priest. Delmore Holdings Limited (Delmore) is a Company in which H D Goldring is the majority shareholder and the Executive Chairman. Delmore provides consultancy services to the Company on a fee paying basis. R Priest provides services to the Company on a fee paying basis. C A Parritt also provides some advisory services as part of his accounting practice. The board encourages all three non-executive Directors to act independently and does not consider that length of service of any individual non-executive Director, nor any connection with the above mentioned consultancy and advisory companies, has resulted in the inability or failure to act independently. In the opinion of the board the three non-executive Directors continue to fulfil their roles as independent non-executive Directors. The independent Directors exchange views regularly between board meetings and meet when required to discuss corporate governance and other issues concerning the Group. Internal control The Directors are responsible for the Group's system of internal control and for reviewing its effectiveness at least annually, and for the preparation and review of its financial statements. The board has designed the Group's system of internal control in order to provide the Directors with reasonable assurance that assets are safeguarded, that transactions are authorised and properly recorded and that material errors and irregularities are either prevented or would be detected within a timely period. However, no system of internal control can eliminate the risk of failure to achieve business objectives or provide absolute assurance against material misstatement or loss. The key elements of the control system in operation are: * The board meets regularly on full notice with a formal schedule of matters reserved for its decision and has put in place an organisational structure with clearly defined lines of responsibility and with appropriate delegation of authority; * There are established procedures for planning, approval and monitoring of capital expenditure and information systems for monitoring the Group's financial performance against approved budgets and forecasts; * The departmental heads are required annually to undertake a full assessment process to identify and quantify the risks that face their departments and functions, and assess the adequacy of the prevention, monitoring and modification practices in place for those risks. In addition, regular reports about significant risks and associated control and monitoring procedures are made to the executive Directors. The process adopted by the Group accords with the guidance contained in the document "Internal Control Guidance for Directors on the Combined Code" issued by the Institute of Chartered Accountants in England and Wales. The audit committee receives reports from external auditors and from executive Directors of the Group. During the period the audit committee has reviewed the effectiveness of the system of internal control as described above. The board receives periodic reports from all committees. * There are established procedures for the presentation and review of the financial statements and the Group has in place an organisational structure with clearly defined lines of responsibility and with appropriate delegation of authority. There are no internal control issues to report in the annual report and financial statements for the year ended 31 December 2017. Up to the date of approval of this report and the financial statements, the board has not been required to deal with any related material internal control issues. The Directors confirm that the board has reviewed the effectiveness of the system of internal control as described during the period. Communication with shareholders Prompt communication with shareholders is given high priority. Extensive information about the Group and its activities is provided in the Annual Report. In addition, a half-year report is produced for each financial year and published on the Company's website. The Company's website www.lap.co.uk is updated promptly with announcements and Annual Reports upon publication. Copies from previous years are also available on the website. The Company's share price is published daily in the Financial Times. The share price history and market information can be found at http:// www.londonstockexchange.com/prices-and-markets/markets/prices.htm. The company code is LAS. There is a regular dialogue with the Company's stockbrokers and institutional investors. Enquiries from individuals on matters relating to their shareholdings and the business of the Group are dealt with promptly and informatively. The Company's website is under continuous development to enable better communication with both existing and potential new shareholders. The Bribery Act 2010 The Company is committed to acting ethically, fairly and with integrity in all its endeavours and compliance with the code is monitored closely. GOVERNANCE Governance Statement by the Chairman of The Remuneration Committee The remuneration committee is pleased to present its report for the year ended 31 December 2017. The report is presented in two parts in accordance with the regulations. The first part is the Annual Remuneration Report which details remuneration awarded to Directors and non-executive Directors during the year. The shareholders will be asked to approve the Annual Remuneration Report as an ordinary resolution (as in previous years) at the AGM in June 2018. The second part is the Remuneration Policy which details the remuneration policy for Directors. This policy was subject to a binding vote by shareholders at the AGM in 2017 and was approved for a 3 year period commencing from then. The committee reviewed the existing policy and deemed that no changes were necessary to the current arrangements. Both of the reports have been prepared in accordance with The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The Company's auditor, RSM UK Audit LLP is required by law to audit certain disclosures and where disclosures have been audited that is indicated. C A Parritt Chairman, Remuneration Committee 27 April 2018 GOVERNANCE Annual remuneration report The following information has been audited Single total figure of remuneration for the year ended 31 December 2017 Salary BONUSES BENEFITS PENSIONS TOTAL SHARE OPTIONS TOTAL and fees GBP'000 GBP'000 GBP'000 BEFORE GBP'000 2017 GBP'000 SHARE GBP'000 OPTIONS GBP'000 Executive Directors Sir Michael Heller 7 - 49 - 56 n/a 56 * Sir Michael Heller 75 - - - 75 n/a 75 - Bisichi J A Heller 333 100 37 17 487 n/a 487 A K Thapar 157 30 9 10 206 n/a 206 572 130 95 27 824 - 824 Non-executive Directors H D Goldring*+ 17 - 7 - 24 n/a 24 C A Parritt*+ 38 - - - 38 n/a 38 R Priest* 35 - - - 35 n/a 35 90 - 7 - 97 - 97 Total 662 130 102 27 921 - 921 Single total figure of remuneration for the year ended 31 December 2016 Salary BONUSES BENEFITS PENSIONS TOTAL SHARE TOTAL and GBP'000 GBP'000 GBP'000 BEFORE OPTIONS 2016 fees SHARE GBP'000 GBP'000 GBP'000 OPTIONS GBP'000 Executive Directors
Sir Michael Heller* 7 - 43 - 50 n/a 50 Sir Michael Heller - 75 - - - 75 n/a 75 Bisichi J A Heller 333 166 40 30 569 n/a 569 A K Thapar 152 35 11 15 213 n/a 213 567 201 94 45 907 - 907 Non-executive Directors H D Goldring*+ 32 - 5 - 37 n/a 37 C A Parritt*+ 38 - - - 38 n/a 38 R Priest* 51 - - - 51 n/a 51 121 - 5 - 126 - 126 Total 688 201 99 45 1,033 - 1,033 * Note 28 "Related party transactions" + Members of the remuneration committee for years ended 31 December 2016 and 31 December 2017 Benefits include the provision of car, health and other insurance and subscriptions. Sir Michael Heller is a director of Bisichi Mining PLC, (a subsidiary for IFRS 10 purposes) and received a salary from that company of GBP75,000 (2016: GBP75,000) for services. Although Sir Michael Heller receives reduced remuneration in respect of his services to LAP, the Company does supply office premises, property management, general management, accounting and administration services for a number of companies in which Sir Michael Heller has an interest. The board estimates that the annual value of these services, if supplied to a third party, would have been GBP300,000 (2016: GBP300,000). Further details of these services are set out in Note 28 to the financial statements "Related party transactions". J A Heller is a director of Dragon Retail Properties Limited, (a subsidiary for IFRS 10 purposes) and received benefits from that company of GBP10,698 (2016: GBP 11,336) for services. This is included in the remuneration figures disclosed above. The remuneration figures disclosed for H D Goldring include fees paid to his company, Delmore Holdings Limited for consultancy services provided to the Group. This is detailed in Note 28 to the financial statements. The remuneration figures for C A Parritt include fees paid to his accountancy practice for consultancy services provided to the Group. This is detailed in Note 28 to the financial statements. R Priest provides consultancy services to the Group. This is detailed in Note 28 to the financial statements. Summary of directors' terms Date of contract Unexpired term Notice period Executive Directors Sir Michael Heller 1 January 1971 Continuous 6 months John Heller 1 May 2003 Continuous 12 months Anil Thapar 1 January 2015 Continuous 3 months Non-executive Directors H D Goldring 1 July 1992 Continuous 3 months C A Parritt 1 January 2006 Continuous 3 months R Priest 31 July 2013 Continuous 3 months Total pension entitlements Two directors had benefits under money purchase schemes. Under their contracts of employment, they were entitled to a regular employer contribution (currently GBP17,000 and GBP10,000 a year). There are no final salary schemes in operation. No pension costs are incurred on behalf of non-executive Directors. Share Incentive Plan (SIP) In 2006 the Directors set up an HMRC approved share incentive plan (SIP). The purpose of the plan, which is open to all eligible LAP executive Directors and head office based staff, is to enable them to acquire shares in the Company and give them a continuing stake in the Group. The SIP comprises four types of share - (1) free shares under which the Company may award shares of up to the value of GBP3,000 each year, (2) partnership shares, under which members may save up to GBP1,500 per annum to acquire shares, (3) matching shares, through which the Company may award up to two shares for each share acquired as a partnership share, and (4) dividend shares, acquired from dividends paid on shares within the SIP. 1. Free shares: No free shares were issued for 2017 bonuses or for 2016 bonuses. 2. Partnership shares: No partnership shares were issued between November 2016 and October 2017. 3. Matching shares: The partnership share agreements for the year to 31 October 2017 provide for two matching shares to be awarded free of charge for each partnership share acquired. No partnership shares were acquired in 2017 (2016: nil). Matching shares will usually be forfeited if a member leaves employment in the Group within five years of their grant. 4. Dividend shares: Dividends on shares acquired under the SIP will be utilised to acquire additional shares. Accumulated dividends received on shares in the SIP to 31 December 2017 amounted to GBPNil (2016: GBP602). Dividend shares issued: Number of members Number of shares Value of shares 2017 2016 2017 2016 2017 2016 GBP GBP Directors: - 1 - 402 - 85 J A Heller A K - 1 - 495 - 105 Thapar Staff - 6 - 1,934 - 412 Total at 31 December - 8 - 2,831 - 602 The SIP is set up as an employee benefit trust. The trustee is London & Associated Securities Limited, a wholly owned subsidiary of LAP, and all shares and dividends acquired under the SIP will be held by the trustee until transferred to members in accordance with the rules of the SIP. Share Option Schemes The Company has an HMRC approved scheme (Approved Scheme). It was set up in 1986 in accordance with HMRC rules to gain HMRC approved status which gave the members certain tax advantages. There are no performance criteria for the exercise of options under the Approved Scheme, as this was set up before such requirements were considered to be necessary. No Director has any options outstanding under the Approved Scheme nor were any options granted under the Approved Scheme for the year ended 31 December 2017. A share option scheme known as the "Non-approved Executive Share Option Scheme" (Unapproved Scheme) which does not have HMRC approval was set up during 2000. At 31 December 2017 there were no options to subscribe for ordinary shares outstanding. The exercise of options under the Unapproved Scheme is subject to the satisfaction of objective performance conditions specified by the remuneration committee which conforms to institutional shareholder guidelines and best practice provisions. Further details of this scheme are set out in Note 26 "Share Capital" to the financial statements. Payments to past directors No payments were made to past Directors in the year ended 31 December 2017. Payments for loss of office No payments for loss of office were made in the year ended 31 December 2017. Statement of directors' shareholding and share interest Directors' interests The interests of the Directors in the ordinary shares of the Company, including family and trustee holdings, where appropriate, were as follows: Beneficial interests Non-beneficial interests 31 Dec 17 1 Jan 17 31 Dec 17 1 Jan 17 Sir Michael Heller 5,753,541 6,053,541 19,277,931 19,277,931 H D Goldring 19,819 19,819 - - J A Heller 1,867,393 1,867,393 ?14,073,485 ?14,073,485 C A Parritt 36,168 36,168 - - R Priest - - - - A K Thapar 120,495 120,495 - - ?These non-beneficial holdings are duplicated with those of Sir Michael Heller. The beneficial holdings of Directors shown above include their interests in the Share Incentive Plan. The following information is unaudited: The graph illustrates the Company's performance as compared with a broad equity market index over a five year period. Performance is measured by total shareholder return. The directors have chosen the FTSE All Share - Total Return Index as a suitable index for this comparison as it gives an indication of performance against a large spread of quoted companies. The middle market price of London & Associated Properties PLC ordinary shares at 31 December 2017 was 24.50p (2016: 21p). During the year the share middle market price ranged between 18.25p and 24.50p. Total Shareholder Return Remuneration of the Chief Executive over the last ten years Year CEO Chief Executive Annual bonus payment Long-term incentive vesting Single against maximum rates total figure of opportunity* against maximum opportunity remuneration % * GBP'000 % 2017 J A Heller 487 11% n/a 2016 J A Heller 569 18% n/a 2015 J A Heller 762 41 % n/a
2014 J A Heller 835 49 % n/a 2013 J A Heller 716 n/a n/a 2012 J A Heller 417 n/a n/a 2011 J A Heller 671 n/a n/a 2010 J A Heller 577 n/a n/a 2009 J A Heller 982 n/a n/a 2008 J A Heller 688 n/a n/a *There were no formal criteria or conditions to apply in determining the amount of bonus payable or the number of shares to be issued prior to 2014. Percentage change in Chief Executive's Remuneration (audited) The table below shows the percentage change in Chief Executive remuneration for the prior year compared to the average percentage change for all other Head Office based employees. To provide a meaningful comparison, the same group of employees (although not necessarily the same individuals) appears in the 2016 and 2017 group. The remuneration committee chose head office based employees as the comparator group as this group forms the closest comparator group. Chief Executive Head Office Employees GBP'000 GBP'000 2017 2016 % change 2017 2016 % change Base salary and allowances 333 333 0% 643 692 (7.1%) Taxable benefits 37 40 (7.5%) 81 77 5.2% Annual bonus 100 166 (39.75%) 80 97 (17.5%) Total 470 539 (12.8%) 804 866 (7.2%) Relative importance of spend on pay The total expenditure of the Group on remuneration to all employees (Note 29 refers) is shown below: 2017 2016 GBP'000 GBP'000 Employee Remuneration 8,113 7,173 Distributions to shareholders 141 136 Statement of implementation of remuneration policy The policy was approved at the AGM in June 2017 and was effective from 6 June 2017. The vote on the remuneration policy is binding in nature. The Company may not then make a remuneration payment or payment for loss of office to a person who is, is to be, or has been a director of the Company unless that payment is consistent with the approved remuneration policy, or has otherwise been approved by a resolution of members. It is to be presented for approval at the forthcoming AGM. Consideration by the directors of matters relating to directors' remuneration The Remuneration Committee considered the executive Directors' remuneration and the board considered the non-executive Directors' remuneration in the year ended 31 December 2017. No increases were awarded and no external advice was taken in reaching this decision. Shareholder voting At the Annual General Meeting on 6 June 2017, there was an advisory vote on the resolution to approve the Remuneration Report, other than the part containing the remuneration policy. In addition, on 6 June 2017, there was a binding vote on the resolution to approve the Remuneration Policy. The results are detailed below: % of % of Number of votes votes votes for against withheld Resolution to approve the Remuneration Report 83.16 0.18 9,765,315 Resolution to approve the Remuneration Policy 83.14 16.69 89,602 GOVERNANCE Remuneration policy INTRODUCTION Set out below is the LAP Group policy on directors' remuneration (excluding Bisichi). This policy was approved at the 2017 AGM and it is effective from 6 June 2017. Unless changed it will be presented next for approval at the AGM in 2020. A copy of the full policy can be found at www.lap.co.uk. In setting the policy, the Remuneration Committee has taken the following into account: * The need to attract, retain and motivate individuals of a calibre who will ensure successful leadership and management of the company * The LAP Group's general aim of seeking to reward all employees fairly according to the nature of their role and their performance * Remuneration packages offered to similar companies within the same sector * The need to align the interests of shareholders as a whole with the long-term growth of the Group; and * The need to be flexible and adjust with operational changes throughout the term of this policy The remuneration of non-executive directors is determined by the board, and takes into account additional remuneration for services outside the scope of the ordinary duties of non-executive directors. Future policy table Element Purpose Policy Operation Opportunity and performance conditions Executive directors Base To recognise: Considered by Reviewed annually There is no prescribed salary Skills remuneration whenever there is a maximum salary or maximum Responsibility committee on change rate of increase Accountability appointment of role or operational No individual director Experience Set at a level responsibility will be awarded a base Value considered Paid monthly in cash salary in excess of GBP appropriate to 700,000 a year attract, retain, No specific performance motivate and reward conditions are attached to the right base salaries individuals Pension To provide Company The contribution Company contribution competitive contribution payable by the Company offered at up to 10% of retirement offered at up to is included in the base salary as part of benefits 10% of base salary director's contract of overall remuneration as part of overall employment package remuneration Paid into money No specific performance package purchase schemes conditions are attached to pension contributions Benefits To provide a Contractual The committee retains The costs associated with competitive benefits include: the discretion to benefits offered are benefits Car or car approve changes in closely controlled and package allowance contractual benefits reviewed on an annual Group health cover in exceptional basis Death in service circumstances or where No director will receive cover factors outside the benefits of a value in Permanent health control of the Group excess of 30% of their insurance lead to increased base salary costs No specific performance (e.g. medical conditions are attached to inflation) contractual benefits Annual To reward and In assessing the The remuneration The current maximum bonus bonus incentivise performance of the committee determines will not exceed 200% of executive team, and the level of bonus on base salary in any one in particular to an annual basis year but the remuneration determine whether In assessing committee reserves the bonuses are merited performance power to award up to 300% the remuneration consideration is given in an exceptional year committee takes to the level of net Performance conditions into account the rental income, cash will be assessed on an overall performance flow, voids, realised annual basis of the business, as development gains and The performance measures well as income from managing applied may be financial, individual joint ventures. non-financial, corporate, contribution to the Achieved results are divisional or individual business in the then compared with and in such proportion as period expectation taking the remuneration committee account of market considers appropriate conditions Bonuses are generally offered in cash or shares Share To provide Share options may Offered at appropriate Entitlements to share options executive be granted under times by the options granted under the
directors with existing schemes remuneration committee Approved Option scheme are a long-term (see page 21) not subject to performance interest in Where it is criteria. Share Options the company necessary to granted under the attract, retain, Unapproved Scheme are motivate and reward subject to the performance the right criteria specified in the individuals, the Scheme rules directors may The aggregate number of establish new shares over which options schemes to replace may be granted under all any expired schemes of the company's option schemes (including any options and awards granted under the company's employee share plans) in any period of ten years, will not exceed, at the time of grant, 10 % of the ordinary share capital of the company from time to time Share options will be offered by the remuneration committee as appropriate Share To offer a Offered to Maximum participation Of any bonus awarded, incentive shorter term executive directors levels are set by HMRC Directors may opt to have plan incentive in and head office maximum of GBP3,000 per year (SIP) the company staff paid in 'Free Shares' and to give under the SIP scheme rules directors a stake in the group Non-executive directors Base To recognise: Considered by the Reviewed annually No individual salary Skills board on non-executive director Responsibility appointment will be awarded a base Experience Set at a level salary in excess of GBP Risk considered 40,000 a year Value appropriate to No performance conditions attract, retain and are attached to base motivate the salaries individual Experience and time required for the role are considered on appointment Pension No pension offered Benefits No benefits offered The committee retains The costs associated with except to one the discretion to benefits offered are non-executive approve changes in closely controlled and director who is contractual benefits reviewed on an annual eligible for health in exceptional basis cover (see annual circumstances or where No non-executive director remuneration report factors outside the will receive benefits in page 20) control of the Group excess of GBP10,000 a year lead to increased No specific performance costs (e.g. medical conditions are attached to inflation) contractual benefits Share Non-executive options directors do not participate in the share option schemes Notes to the Remuneration Policy The remuneration committee considers the performance measures outlined in the table above to be appropriate measures of performance and that the KPIs chosen align the interests of the directors and shareholders. GOVERNANCE Audit committee report The committee's terms of reference have been approved by the board and follow published guidelines, which are available on request from the company secretary. At the year end the audit committee comprised two of the non-executive directors - H D Goldring and C A Parritt, both of whom are Chartered Accountants. The audit committee's primary tasks are to: * review the scope of external audit, to receive regular reports from RSM UK Audit LLP and to review the half-yearly and annual accounts before they are presented to the board, focusing in particular on accounting policies and areas of management judgement and estimation; * monitor the controls which are in force to ensure the integrity of the information reported to the shareholders; * act as a forum for discussion of internal control issues and contribute to the board's review of the effectiveness of the Group's internal control and risk management systems and processes; * to review the risk assessments made by management, consider key risks with action taken to mitigate these and to act as a forum for discussion of risk issues and contribute to the board's review of the effectiveness of the Group's risk management control and processes; * consider once a year the need for an internal audit function; * advise the board on the appointment of the external auditors, the rotation of the audit partner every five years and on their remuneration for both audit and non-audit work; discuss the nature and scope of their audit work and undertake a formal assessment of their independence each year, which includes: i) a review of non-audit services provided to the Group and related fees; ii) discussion with the auditors of their written report detailing all relationships with the Company and any other parties that could affect independence or the perception of independence; iii) a review of the auditors' own procedures for ensuring the independence of the audit firm and partners and staff involved in the audit, including the regular rotation of the audit partner; and iv) obtaining a written confirmation from the auditors that, in their professional judgement, they are independent. Meetings The committee meets at least twice prior to the publication of the annual results and discusses and considers the half year results prior to their approval by the board. The audit committee meetings are attended by the external audit partner, chief executive, finance director and company secretary. During the year the members of the committee also meet on an informal basis to discuss any relevant matters which may have arisen. Additional formal meetings may be held as necessary. During the past year the committee: * met with the external auditors, and discussed their reports to the audit committee; * approved the publication of annual and half year financial results; * considered and approved the annual review of internal controls; * decided that there was no current need for an internal audit function; * agreed the independence of the auditors and approved their fees for both audit and non-audit services as set out in Note 2 to the financial statements; and * the chairman of the audit committee has also had separate meetings and discussions with the external audit partner. FINANCIAL REPORTING As part of its role, the Audit Committee assessed the audit findings that were considered most significant to the financial statements, including those areas requiring significant judgement and/or estimation. When assessing the identified financial reporting matters, the committee assessed quantitative materiality primarily by reference to the carrying value of the group's total assets, given that the group operates a principally asset based business. When determining quantitative materiality, the Board also gave consideration to the value of revenues generated by the group and net asset value, given that they are key trading and business KPIs. The qualitative aspects of any financial reporting matters identified during the audit process were also considered when assessing their materiality. Based on the considerations set out above we have considered quantitative errors individually or in aggregate in excess of approximately GBP0.8 million in relation to the consolidated balance sheet and GBP 0.3 million for underlying profitability and the Bisichi group to be material. External Auditor RSM UK Audit LLP held office throughout the period under review. In the United Kingdom London & Associated Properties PLC provides extensive administration and accounting services to Bisichi Mining PLC, which has its own audit
committee and employs BDO LLP, a separate and independent firm of registered auditor. C A Parritt Chairman - Audit Committee 27 April 2018 GOVERNANCE Directors' responsibilities statement The Directors are responsible for preparing the Strategic Report and the Directors' Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. English company law requires the Directors to prepare Group and Company financial statements for each financial year. The Directors are required under the Listing Rules of the Financial Conduct Authority to prepare Group financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and have elected under English company law to prepare the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including FRS101 'Reduced Disclosure Framework'. The Group financial statements are required by law and IFRS adopted by the EU to present fairly the financial position and performance of the Group; the Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. Under English 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 Group and the Company and of the profit or loss of the Group for that period. In preparing each of the Group and Company financial statements, the Directors are required to: a. select suitable accounting policies and then apply them consistently; b. make judgements and accounting estimates that are reasonable and prudent; c. for the Group financial statements, state whether they have been prepared in accordance with IFRS adopted by the EU and for the company financial statements state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and d. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulations. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Directors' statement pursuant to the Disclosure GUIDANCE and Transparency Rules Each of the directors, whose names and functions are listed on page 12, confirms that to the best of each person's knowledge: a. the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and b. the Strategic Report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the London & Associated Properties PLC website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. GOVERNANCE Independent auditor's report TO THE MEMBERS OF LONDON & ASSOCIATED PROPERTIES PLC Opinion We have audited the financial statements of London & Associated Properties PLC ("the parent company") and its subsidiaries ("the group") for the year ended 31 December 2017 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement, the parent company balance sheet, the parent company statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards including FRS 101 "Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). 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 31 December 2017 and of the group's profit 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 United Kingdom Generally Accepted Accounting Practice; and * the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. 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 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 public interest 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's 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 judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Valuation of investment properties The group's properties are accounted for in the financial statements as investment properties under IAS 40 and held at fair value. The investment properties are valued by two firms of external third party valuers and these valuations are adopted in the financial statements. At 31 December 2017 investment property valued at GBP78.0m (Note 10) was disclosed within non-current assets in the financial statements. Separately, property valued at GBP36.4m (Note 14) was disclosed as assets held for sale, within current assets. The directors' assessment of the fair value of investment properties is considered a key audit matter due to the relative importance of these assets to the group's financial statements, the potential impact of movements in the fair values of the assets, and the subjectivity and complexity of the valuation process, which involves significant judgements and estimates as disclosed on page 37 of the financial statements. The valuation is carried out by two firms of professional external valuers together with, in respect of one property, an internal valuer in accordance with the methodology described in Note 10. Our response to the key audit matter included: * agreeing the valuations of all properties recorded in the financial statements and subject to the external valuation process to the valuation reports prepared by the valuers. These reports covered all except GBP1.8m of the value of investment properties, which were subject to internal valuation; * agreeing the carrying value (sales price less costs to sell) of the Brixton Village and Market Row properties, included as assets held for sale, to the agreement for sale, and the costs to invoices; * assessing the qualifications and expertise of the valuers, and considering
their objectivity and any threats to their independence. We concluded that there was no threat which might impair the valuers' independence and objectivity; and * challenging and discussing the assumptions used with the valuers, both external and internal, and comparing the key inputs to the valuation to underlying records of the leases and records of rents received and against our knowledge of market yields. Our findings The carrying values of the investment properties are consistent with the valuation reports provided and, in the case of assets held for sale, with the agreed selling price less direct costs to sell. Accuracy of life of mine estimates The mining assets amounted to GBP8.5m as at 31 December 2017 (2016: GBP8.4m) and relate to the South African mining operations. These assets represent a significant part of the Bisichi group's balance sheet (see Note 11). Bisichi's management performed an impairment assessment based on the Bisichi Board's approved Life of Mine plan at 31 December 2017 as detailed in the key judgements and estimates Note on page 37. The assessment by Bisichi management of inputs to the Life of Mine plan requires significant judgment and estimate, including determination of forecast coal prices, production, coal reserves and costs. These factors caused this area to be a significant focus for our audit. Management's discounted cash flow impairment assessment, including the underlying Life of Mine plan, was evaluated. In doing so, key inputs to the model including forecast coal prices, exchange rates, production, costs and the discount rate were critically assessed. This included assessment compared to empirical data and trends, pricing information and market data. In respect of the coal reserves included in the model, the independent Competent Person's Report was reviewed and discussions were held with the Competent Person. In relying on the Competent Person their independence and competence was assessed. Sensitivity analysis was performed on the impairment model in respect of factors such as pricing, costs, yields, exchange rates and the discount rate. The disclosures in the key judgements and estimates note were evaluated based on the audit procedures. Our findings The work on the impairment test found Bisichi management's conclusion that no impairment exists to be appropriate. The key assumptions were found to be balanced and appropriately considered by Bisichi management and the disclosures in the key judgements and estimates note to be sufficient. Impairment of Ezimbokodweni As at 31 December 2016 the group's net investment in Ezimbokedweni Mining (Pty) Limited ("Ezimbokedweni"), an equity accounted joint venture, was GBP1.8m (Notes 12 and 13). The carrying value was dependent upon the ultimate completion of a sale and purchase agreement to acquire the Pegasus coal project in South Africa, under which a deposit had been paid by Ezimbokedweni. During the year the joint venture was placed into Business Rescue under the South African Companies Act by the joint venture partner. The original deposit has been returned to Ezimbokodweni and as a result, the Bisichi Board considers there to be no reasonable prospect of the Pegasus coal project transaction completing. Further to these developments, the Bisichi Board performed an impairment review of the carrying value of the net investment in Ezimbokodweni and recorded an impairment of the net investment of GBP1.8m, with any further movements since 31 December 2016 reflecting foreign exchange differences. The assessment of the carrying value, subsequent impairment and associated disclosure represented a significant focus for our audit. Additionally, the tax treatment of this transaction was considered to be an area of risk of material misstatement. This was also considered to be an area requiring specialist knowledge and expertise. Specific inquiries were made of Bisichi's management and Board to gain an understanding of the fact pattern and events during the year regarding Ezimbokedweni. Minutes of Bisichi Board meetings, legal documents and correspondence relating to the joint venture, the Business Rescue and assessments of the resulting financial position and interests of the joint venture were reviewed. The Bisichi Board's conclusion that the net investment is impaired based on the facts and circumstances, including assessment of the probability of value being recovered from the joint venture was assessed. The tax treatment of the transaction applied by Bisichi management was assessed in conjunction with specialists. The accounting entries in respect of the impairment as well as the disclosures in Note 12 and the key judgements and estimates note were assessed. Our findings The judgements made by Bisichi management relating to the impairment recorded by the group are considered to be appropriate based on the developments during the year. The disclosures at Note 12 and the key judgements and estimates note are also considered to be acceptable. Our application of materiality When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures and to evaluate the effects of misstatements, both individually and on the financial statements as a whole. During planning we determined a magnitude of uncorrected misstatements that we judge would be material for the financial statements as a whole (FSM). During planning FSM was calculated as GBP1.1m, which was not changed during the course of our audit. The London & Associated Properties PLC group consists of two distinct components: a UK based property investment group, and a fully listed mining group carrying out mining operations in South Africa with a relatively small investment property portfolio. During planning, we determined materiality in respect of these components at: * for the London & Associated Properties PLC property investment sub group balance sheet, GBP0.8 million and to underlying profitability GBP0.3 million; and * for the Bisichi Mining PLC coal mining and property investment sub group, GBP 0.3 million. We agreed with the audit committee that we would report to them all unadjusted differences in excess of GBP15,000 for both components of the group. We also agreed to report other differences below that threshold which, in our view, warranted reporting for other reasons. An overview of the scope of our audit The audit was scoped to support our audit opinion on the company and group financial statements of London & Associated Properties PLC and was based on group materiality and an assessment of risk at group level. We planned our 2017 audit on the understanding that the activities of the group had changed very little from the previous year, and that there had been no changes in the valuation methodologies to be applied, or the accounting standards applicable to the group and company's financial statements. The group comprises 27 trading, or active holding, companies and 12 dormant companies. Full scope audits, using component materiality, were performed on 24 of the active entities with the other three entities subjected to desktop review. Six of the full scope audits and the three desktop reviews were performed by component auditors whose work we evaluated and reviewed for the purpose of the group audit. This resulted in coverage of 100% of total revenues and profit before tax of the group, and 100% of total gross assets of the group. Other information The other information comprises the information included in the annual report other than the financial statements, the audited part of the directors' remuneration report and our auditor's report thereon. The directors are responsible for the other information. 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 the 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, the part of the directors' remuneration report to be audited has been properly prepared in accordance with 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 directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and * the strategic report and the directors' report have been prepared in accordance with applicable legal requirements. 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 their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report. 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 and the part of the directors' remuneration report to be audited 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 directors' responsibilities statement set out on page 27 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. As part of our audit, we will consider the susceptibility of the group and parent company to fraud and other irregularities, taking account of the business and control environment established and maintained by the directors, as well as the nature of transactions, assets and liabilities recorded in the accounting records. Owing to the inherent limitations of an audit, there is an unavoidable risk that some material misstatements of the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs. However, the principal responsibility for ensuring that the financial statements are free from material misstatement, whether caused by fraud or error, rests with management who should not rely on the audit to discharge those functions. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: http:// www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report. Other matters which we are required to address Following the recommendation of the audit committee, we were appointed by the Board of Directors on 27 July 1987 to audit the financial statements for the year ended 31 December 1987 and subsequent financial periods. The period of total uninterrupted engagement is 31 years, covering the years ending 31 December 1987 to 2017. The non-audit services prohibited by the FRC's Ethical Standard were not provided to the group or the parent company and we remain independent of the group and the parent company in conducting our audit. During the period under review agreed upon procedures under ISRS 4400 were completed in respect of a number of the group's service charge account, and in respect of two deeds of release relating to two debentures. Our audit opinion is consistent with the additional report to the audit committee. This report is made solely to the 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 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 company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Geoff Wightwick (Senior Statutory Auditor) For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered Accountants 25 Farringdon Street London EC4A 4AB 27 April 2018 London & Associated Properties PLC Report and accounts 2017 Financial statements Consolidated Income Statement for the year ended 31 December 2017 Notes 2017 2016 GBP'000 GBP'000 Group revenue 1 44,979 29,704 Operating costs (37,428) (26,860) Gain on disposal of other investments 3 - Income from listed investments held for trading 3 - 2 Operating profit 7,554 2,846 Finance income 5 105 144 Finance expenses 5 (4,268) (4,292) Debenture break cost 23 (14) - Result before revaluation and other movements 3,377 (1,302) Non-cash changes in valuation of assets and liabilities and other movements Increase in value of investment properties 10 9,373 532 Write off investment in joint venture 12, 13 (1,827) - Increase in trading investments - 1 Increase in value of other investments - 12 Adjustment to interest rate derivative 23 355 (217) Profit/(loss) for the year before taxation 2 11,278 (974) Income tax charge 6 (2,982) (1,175) Profit/(loss) for the year 8,296 (2,149) Attributable to: Equity holders of the Company 7,686 (2,357) Non-controlling interest 27 610 208 Profit/(loss) for the year 8,296 (2,149) Earnings per share Profit/(loss) per share - basic and diluted 9 9.01p (2.77)p Consolidated Statement of Comprehensive Income for the year ended 31 December 2017 2017 2016 GBP'000 GBP'000 Profit/(loss) for the year 8,296 (2,149) Other comprehensive income/(expense): Items that may be subsequently recycled to the income statement: Exchange differences on translation of Bisichi Mining PLC 91 1,106 foreign operations Transfer of gain on available for sale investments 103 193 Taxation (20) (13) Other comprehensive income for the year net of tax 174 1,286 Total comprehensive income/(expense) for the year net of tax 8,470 (863) Attributable to: Equity shareholders 7,753 (1,864) Non-controlling interest 717 1,001 8,470 (863) Consolidated Balance Sheet at 31 December 2017 Notes 2017 2016 GBP'000 GBP'000 Non-current assets Market value of properties attributable to Group 10 78,025 105,080 Present value of head leases 31 3,233 4,767 Property 81,258 109,847 Mining reserves, plant and equipment 11 8,735 8,653 Investments in joint ventures 12 - 455 Loan to joint venture 13 - 1,350 Held to maturity investments 17 1,748 1,874 Other investments 17 51 32 Deferred tax 24 - 1,134 91,792 123,345 Current assets Inventories 16 828 1,721 Assets held for sale 14 36,441 - Trade and other receivables 18 7,132 7,061 Interest rate derivatives 23 1 4
Corporation tax recoverable - 32 Available for sale investments 19 1,050 781 Investments held for trading 19 19 19 Cash and cash equivalents 7,528 6,265 52,999 15,883 Total assets 144,791 139,228 Current liabilities Trade and other payables 20 (12,909) (12,942) Borrowings 21 (4,288) (4,108) Current tax liabilities (358) (21) (17,555) (17,071) Non-current liabilities Borrowings 21 (61,661) (64,401) Interest rate derivatives 23 (435) (793) Present value of head leases on properties 31 (3,233) (4,767) Provisions 22 (1,349) (1,236) Deferred tax liabilities 25 (3,848) (2,329) (70,526) (73,526) Total liabilities (88,081) (90,597) Net assets 56,710 48,631 Consolidated Balance Sheet at 31 December 2017 Notes 2017 2016 GBP'000 GBP'000 Equity attributable to the owners of the parent Share capital 26 8,554 8,554 Share premium account 4,866 4,866 Translation reserve (Bisichi Mining PLC) (695) (728) Capital redemption reserve 47 47 Retained earnings (excluding treasury shares) 33,227 25,648 Treasury shares 26 (145) (145) Retained earnings 33,082 25,503 Total equity attributable to equity shareholders 45,854 38,242 Non-controlling interest 27 10,856 10,389 Total equity 56,710 48,631 Net assets per share 9 53.74p 44.83p Diluted net assets per share 9 53.74p 44.83p These financial statements were approved by the board of directors and authorised for issue on 27 April 2018 and signed on its behalf by: Sir Michael Heller Anil Thapar Company Registration No. 341829 Director Director Consolidated Statement of Changes in Shareholders' Equity for the year ended 31 December 2017 Share Share Translation Capital Treasury Retained Total Non- Total capital premium reserves redemption shares earnings excluding controlling equity GBP'000 GBP'000 GBP'000 reserve GBP'000 excluding Non- Interests GBP'000 GBP'000 treasury Controlling GBP'000 shares Interests GBP'000 GBP'000 Balance at 1 8,554 4,866 (1,145) 47 (482) 28,238 40,078 9,574 49,652 January 2016 Loss for year - - - - - (2,357) (2,357) 208 (2,149) Other comprehensive expense: Currency - - 417 - - - 417 689 1,106 translation Gain on - - - - - 76 76 104 180 available for sale investments (net of tax) Total other - - 417 - - 76 493 793 1,286 comprehensive expense Total - - 417 - - (2,281) (1,864) 1,001 (863) comprehensive expense Transactions with owners: Share options - - - - - 45 45 64 109 charge Dividends - - - - - - (136) (136) - (136) equity holders Dividends - - - - - - - - (250) (250) non-controlling interests Disposal of own - - - - 119 - 119 - 119 shares Loss on transfer - - - - 218 (218) - - - of own shares Transactions - - - - 337 (309) 28 (186) (158) with owners Balance at 31 8,554 4,866 (728) 47 (145) 25,648 38,242 10,389 48,631 December 2016 Profit for year - - - - - 7,686 7,686 610 8,296 Other comprehensive income: Currency - - 33 - - - 33 58 91 translation Gain on - - - - - 34 34 49 83 available for sale investments (net of tax) Total other - - 33 - - 34 67 107 174 comprehensive income Total - - 33 - - 7,720 7,753 717 8,470 comprehensive income/ (expense) Transactions with owners: Dividends - - - - - - (141) (141) - (141) equity holders Dividends - - - - - - - - (250) (250) non-controlling interests Transactions - - - - - (141) (141) (250) (391) with owners Balance at 31 8,554 4,866 (695) 47 (145) 33,227 45,854 10,856 56,710 December 2017 Consolidated Cash Flow Statement for the year ended 31 December 2017 2017 2016 GBP'000 GBP'000 Operating activities Profit/(loss) for the year before taxation 11,278 (974) Finance income (105) (144) Finance expense 4,268 4,292 Debenture break cost 14 - Realised gain on disposal of other investments (3) - Decrease in value of investment properties (9,373) (532) Write off investment in joint venture 1,827 - Increase in trading investments - (1) Increase in value of other investments - (12) Adjustment to interest rate derivative (355) 217 Depreciation 1,804 1,818 Profit on disposal of non-current assets (3) (32) Share based payment expense - 109 Gain on investment held for trading - 4 Exchange adjustments 258 (449) Change in inventories 896 (258) Change in receivables 196 468 Change in payables (415) 1,080 Cash generated from operations 10,287 5,586 Income tax paid (14) (57) Cash inflows from operating activities 10,273 5,529 Investing activities Disposal of shares and loans held to maturity - 121 Disposal of assets held for sale (56) 2,275 Share of profit in joint ventures (assets held for sale) - 60 Acquisition of investment properties, mining reserves, plant and (1,771) (3,022) equipment Sale of plant and equipment 29 32 Residual receipt from Windsor Shopping Centre disposal - 414 Interest received 137 133
Cash (outflows)/inflows from investing activities (1,661) 13 Financing activities Sale of treasury shares - 119 Interest paid (3,963) (3,943) Interest obligation under finance leases (178) (216) Debenture stock break costs paid (14) - Receipt of bank loan - Bisichi Mining PLC 23 37 Repayment of bank loan - Bisichi Mining PLC (25) (131) Short term loan from joint ventures and related parties (30) - Repayment of debenture stocks (750) - Equity dividends paid (141) (136) Equity dividends paid - non-controlling interests (250) (250) Cash outflows from financing activities (5,328) (4,520) Net increase in cash and cash equivalents 3,284 1,022 Cash and cash equivalents at beginning of year 2,931 2,575 Exchange adjustment 51 (666) Cash and cash equivalents at end of year 6,266 2,931 The cash flows above relate to continuing and discontinued operations. See note 7 for information on discontinued operations. Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise the following balance sheet amounts: 2017 2016 GBP'000 GBP'000 Cash and cash equivalents (before bank overdrafts) 7,528 6,265 Bank overdrafts (1,262) (3,334) Cash and cash equivalents at end of year 6,266 2,931 GBP120,000 of cash deposits at 31 December 2017 were charged as security to debenture stocks. financial statements group accounting policies The following are the principal Group accounting policies: Basis of accounting The Group financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Company has elected to prepare the parent company's financial statements in accordance with Financial Reporting Standard 101 'Reduced Disclosure Framework' (FRS 101) and Companies Act 2006 and these are presented in note 33. The financial statements are prepared under the historical cost convention, except for the revaluation of freehold and leasehold properties and financial assets held for trading as well as fair value of interest derivatives. The Group financial statements are presented in Pounds Sterling and all values are rounded to the nearest thousand pounds (GBP'000) except when otherwise stated. The functional currency for each entity in the Group, and for joint arrangements, is the currency of the country in which the entity has been incorporated. Details of the country in which each entity has been incorporated can be found in note 15 for subsidiaries and note 12 for joint ventures. The exchange rates used in the accounts were as follows: GBP1 Sterling: GBP1 Sterling: Rand Dollar 2017 2016 2017 2016 Year-end rate 16.6686 16.9472 1.35028 1.23321 Annual average 17.1540 19.9269 1.29174 1.35477 London & Associated Properties PLC ("LAP"), the parent company, is a listed public company incorporated and domiciled in England and quoted on the London Stock Exchange. The Company registration number is 341829. LAP and its subsidiaries ("the Group") consists of LAP, all of its subsidiary undertakings, including Bisichi Mining PLC ("Bisichi") and Dragon Retail Properties Limited ("Dragon"). The Group without Bisichi and Dragon is referred to as LAP Group. Going concern In reviewing going concern it is necessary to consider separately the position of LAP Group and Bisichi. Although both are consolidated into group accounts (as required by IFRS 10), they are managed independently and in the unlikely event that Bisichi was unable to continue trading this would not affect the ability of LAP Group to continue operating as a going concern. The same would be true for Bisichi in reverse. The directors have reviewed the cash flow forecasts of the LAP Group and the underlying assumptions on which they are based. The LAP Group's business activities, together with the factors likely to affect its future development, are set out in the Chairman and Chief Executive's Statement and Financial Review. In addition, note 23 to the financial statements sets out the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk. The directors believe that the LAP Group has adequate resources to continue in operational existence for the foreseeable future and that the LAP Group is well placed to manage its business risks. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. The Bisichi directors continue to adopt the going concern basis of accounting in preparing the Bisichi annual financial statements. International Accounting Standards (IAS/IFRS) The Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board ("IASB") that are relevant to its operations and effective for accounting periods beginning 1 January 2017. An amendment to IAS 7 "Statement of Cash Flows: Disclosure Initiative", which is mandatory for 2017, requires entities to provide disclosures about changes in liabilities arising from financing activities, including changes from financing cash flows and non-cash changes (such as foreign exchange gains or losses). This amendment has been endorsed by the EU. The adoption of this amendment and other new and revised Standards and Interpretations had no material effect on the profit or loss or financial position of the Group. The Group has not adopted any Standards or Interpretations in advance of the required implementation dates. IFRS 15 'Revenue from Contracts with Customers' was issued by the IASB in May 2014. It is effective for accounting periods beginning on or after 1 January 2018. The new standard will replace existing accounting standards, and provides enhanced detail on the principle of recognising revenue to reflect the transfer of goods and services to customers at a value which the company expects to be entitled to receive. The standard also updates revenue disclosure requirements. The standard was endorsed by the EU on 22 September 2017. The Directors are continuing to assess the impact of IFRS 15 on the results of the Group. Whilst management do not envisage a material impact, the impact of adopting this standard cannot be reliably estimated until the transition review is complete. IFRS 9 was published in July 2014 and will be effective for the Group from 1 January 2018. The standard was endorsed by the EU on 22 November 2017. It is applicable to financial assets and financial liabilities, and covers the classification, measurement, impairment and de-recognition of financial assets and financial liabilities together with a new hedge accounting model. IFRS 9 also introduces the expected credit loss model for impairment of financial assets. Application of the IFRS 9 impairment model is expected to have minimal impact given the Group's credit risk management policies. The Directors are continuing to assess the impact on the results of the Group and will complete the assessment during H1 2018. IFRS 16 'Leases' - IFRS 16 'Leases' was issued by the IASB in January 2017 and is effective for accounting periods beginning on or after 1 January 2019. The new standard will replace IAS 17 'Leases' and will eliminate the classification of leases as either operating leases or finance leases and, instead, introduce a single lessee accounting model. The standard, which has been endorsed by the EU, provides a single lessee accounting model, specifying how leases are recognised, measured, presented and disclosed. The Directors are currently evaluating the financial and operational impact of this standard including the application to service contracts at the mine containing leases. The review of the impact of IFRS 16 will require an assessment of all leases and the impact of adopting this standard cannot be reliably estimated until this work is substantially complete. The Directors do not anticipate that the adoption of the other standards and interpretations not listed above will have a material impact on the accounts. Certain of these standards and interpretations will, when adopted, require addition to or amendment of disclosures in the accounts. We are committed to improving disclosure and transparency and will continue to work with our different stakeholders to ensure they understand the detail of these accounting changes. We continue to remain committed to a robust financial policy Key judgements and estimates
The preparation of the financial statements requires management to make assumptions and estimates that may affect the reported amounts of assets and liabilities and the reported income and expenses, further details of which are set out below. Although management believes that the assumptions and estimates used are reasonable, the actual results may differ from those estimates. Further details of the estimates are contained in the Directors' Report. Property operations Fair value measurements of investment properties and investments An assessment of the fair value of certain assets and liabilities, in particular investment properties, is required to be performed. In such instances, fair value measurements are estimated based on the amounts for which the assets and liabilities could be exchanged between market participants. To the extent possible, the assumptions and inputs used take into account externally verifiable inputs. However, such information is by nature subject to uncertainty. Mining operations Life of mine and reserves The directors consider their judgements and estimates surrounding the life of the mine and its reserves to have significant effect on the amounts recognised in the financial statements and to be an area where the financial statements are at most risk of a significant estimation uncertainty. The life of the mine remaining is currently estimated at 4 years. This life of mine is based on the Groups existing coal reserves and excludes future coal purchases and coal reserve acquisitions. The Group's estimates of proven and probable reserves are prepared and subject to assessment by an independent Competent Person experienced in the field of coal geology and specifically opencast and pillar coal extraction. Estimates of coal reserves impact assessments of the carrying value of property, plant and equipment, depreciation calculations and rehabilitation and decommissioning provisions. There are numerous uncertainties inherent in estimating coal reserves and changes to these assumptions may result in restatement of reserves. These assumptions include geotechnical factors as well as economic factors such as commodity prices, production costs and yield. Depreciation, amortisation of mineral rights, mining development costs and plant & equipment The annual depreciation/amortisation charge is dependent on estimates, including coal reserves and the related life of the mine, expected development expenditure for probable reserves, the allocation of certain assets to relevant ore reserves and estimates of residual values of the processing plant. The charge can fluctuate when there are significant changes in any of the factors or assumptions used, such as estimating mineral reserves which in turn affects the life of mine or the expected life of reserves. Estimates of proven and probable reserves are prepared by an independent Competent Person. Assessments of depreciation/amortisation rates against the estimated reserve base are performed regularly. Details of the depreciation/amortisation charge can be found in note 11. Provision for mining rehabilitation including restoration and de-commissioning costs A provision for future rehabilitation including restoration and decommissioning costs requires estimates and assumptions to be made around the relevant regulatory framework, the timing, extent and costs of the rehabilitation activities and of the risk free rates used to determine the present value of the future cash outflows. The provisions, including the estimates and assumptions contained therein, are reviewed regularly by management. The Group engages an independent expert to assess the cost of restoration and decommissioning annually as part of management's assessment of the provision. Details of the provision for mining rehabilitation can be found in note 22. Mining impairment Property, plant and equipment representing the Group's mining assets in South Africa are reviewed for impairment at each reporting date. The impairment test is performed using the approved Life of Mine plan and those future cash flow estimates are discounted using asset specific discount rates and are based on expectations about future operations. The impairment test requires estimates about production and sales volumes, commodity prices, proven and probable reserves (as assessed by the Competent Person), operating costs and capital expenditures necessary to extract reserves in the approved Life of Mine plan. Changes in such estimates could impact recoverable values of these assets. Details of the carrying value of property, plant and equipment can be found in note 11. The impairment test indicated significant headroom as at 31 December 2017 and therefore no impairment is considered appropriate. The key assumptions include: coal prices, including domestic coal prices based on recent pricing and assessment of market forecasts for export coal; production based on proven and probable reserves assessed by the independent Competent Person and yields associated with mining areas based on assessments by the Competent Person and empirical data. A 9% reduction in average forecast coal prices or a 9% reduction in yield would give rise to a breakeven scenario. However, the Bisichi directors consider the forecasted yield levels and pricing to be achievable. EZIMBOKODWENI JOINT VENTURE During the year the Group wrote off its GBP1.8million (2016: GBP1.8million) investment in Ezimbokodweni Mining (Pty) Limited ("Ezimbokodweni") made up of a GBP1.35million loan (2016: GBP1.35million) and a GBP0.45million (2016: GBP0.45million) joint venture investment. The carrying value of the investment was dependent upon the completion of the acquisition of the Pegasus coal project ("the project") in South Africa. Although a proposed sale and purchase agreement had been negotiated and a deposit paid for the project, the conclusion of the transaction had been delayed pending the commercial transfer of the prospecting right from the current owners of the project to Ezimbokodweni. Although the Group has always remained committed to completing the transaction, previous negotiations to complete the commercial acquisition of the project had been beset by various delays outside of its control and at the beginning of 2017, the current owners of the project notified Ezimbokodweni that they no longer wished to divest the project. More recently, the Group was notified that an agreement was reached between the current owners of the project and the directors of Ezimbokodweni for the deposit for the project to be returned and any further negotiations with Ezimbokodweni to acquire the project to be terminated. Although, a legal claim by the Group has been issued against Ezimbokodweni and its representatives, in order for the Group to recover some of the investment, the Bisichi Board has exercised its judgement and decided that it is appropriate and prudent to write off the investment in full at this time. DEFERRED TAX The calculation of deferred tax involves the exercise of judgement in relation to the amount of income and gains which will be realised in future to support the recognition of a deferred tax asset in respect of unrelieved losses. INTEREST RATE HEDGES All interest rate hedges are held at fair value as valued by the hedge provider. Further detail is provided in notes 21 and 23. Basis of consolidation The Group accounts incorporate the accounts of LAP and all of its subsidiary undertakings, together with the Group's share of the results and net assets of its joint ventures. Non-controlling interests in subsidiaries are presented separately from the equity attributable to equity owners of the parent company. When changes in ownership in a subsidiary do not result in a loss of control, the non-controlling shareholders' interests are initially measured at the non-controlling interests' proportionate share of the subsidiaries' net assets. Subsequent to this, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance. Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries acquired during the year are consolidated using the acquisition method. Their results are incorporated from the date that control passes. All intra Group transactions, balances, income and expenses are eliminated on consolidation. Details of the Group's trading subsidiary companies are set out in note 15. The directors are required to consider the implications of IFRS 10 on the LAP investment in Bisichi Mining PLC ("Bisichi"). Related parties also have shareholdings in Bisichi. When combined with the 42% held by LAP and, taking account of the wide disposition of other shareholders, there is potential for LAP and these related parties to exercise voting control over Bisichi. IFRS 10 makes it clear that possible voting control is of more significance than actual management control. For this reason the directors have concluded that there is a requirement to consolidate Bisichi with LAP. While, in theory, they could achieve control, in practice they do not get involved in the day to day operations of Bisichi. The directors have presented consolidated accounts using the published accounts of Bisichi but it is important to note that any figures, risks and assumptions attributable to that company are the responsibility of the Bisichi Board of directors who are independent from LAP. As a result of treating Bisichi as a subsidiary, Dragon Retail Properties
Limited is also a subsidiary for accounting purposes, as LAP and Bisichi each own 50% of that joint venture business. Joint ventures Investments in joint ventures, being those entities over whose activities the Group has joint control, as established by contractual agreement, include the appropriate share of the results and net assets of those undertakings. Loans to joint ventures are classified as non-current assets when they are not expected to be received in the normal working capital cycle. Goodwill Goodwill arising on acquisition is recognised as an intangible asset and initially measured at cost, being the excess of the cost of the acquired entity over the Group's interest in the fair value of the assets and liabilities acquired. Goodwill is carried at cost less accumulated impairment losses. Goodwill arising from the difference in the calculation of deferred tax for accounting purposes and fair value in negotiations is judged not to be an asset and is accordingly impaired on completion of the relevant acquisition. Revenue Revenue comprises sales of coal, property rental income and property management fees. Rental income Rental income arises from operating leases granted to tenants. An operating lease is a lease other than a finance lease. A finance lease is one whereby substantially all the risks and rewards of ownership are passed to the lessee. Rental income is recognised in the Group income statement on a straight-line basis over the term of the lease. This includes the effect of lease incentives to tenants, which are normally in the form of rent free periods. Contingent rents, being the difference between the rent currently receivable and the minimum lease payments, are recognised in property income in the periods in which they are receivable. Rent reviews are recognised when such reviews have been agreed with tenants. Reverse surrender premiums Payments received from tenants to surrender their lease obligations are recognised immediately in the income statement. Dilapidations Dilapidations monies received from tenants in respect of their lease obligations are recognised immediately in the income statement. Other revenue Revenue in respect of listed investments held for trading represents investment dividends received and profit or loss recognised on realisation. Dividends are recognised in the income statement when the dividend is received. Property operating expenses Operating expenses are expensed as incurred and any property operating expenditure not recovered from tenants through service charges is charged to the income statement. Employee benefits Share based remuneration The Company operates a long-term incentive plan and two share option schemes. The fair value of the conditional awards on shares granted under the long-term incentive plan and the options granted under the share option scheme is determined at the date of grant. This fair value is then expensed on a straight-line basis over the vesting period, based on an estimate of the number of shares that will eventually vest. At each reporting date, the fair value of the non-market based performance criteria of the long-term incentive plan is recalculated and the expense is revised. In respect of the share option scheme, the fair value of options granted is calculated using a binomial method. Pensions The Company operates a defined contribution pension scheme. The contributions payable to the scheme are expensed in the period to which they relate. Foreign currencies Monetary assets and liabilities are translated at year end exchange rates and the resulting exchange rate differences are included in the consolidated income statement within the results of operating activities if arising from trading activities, including inter-company trading balances and within finance cost / income if arising from financing. For consolidation purposes, income and expense items are included in the consolidated income statement at average rates, and assets and liabilities are translated at year end exchange rates. Translation differences arising on consolidation are recognised in other comprehensive income. Foreign exchange differences on intercompany loans are recorded in other comprehensive income when the loans are not considered trading balances and are not expected to be repaid in the foreseeable future. Where foreign operations are sold or closed, the cumulative exchange differences attributable to that foreign operation are recognised in the consolidated income statement when the gain or loss on disposal is recognised. Transactions in foreign currencies are translated at the exchange rate ruling on transaction date. Financial instruments Investments Held to maturity investments are stated at amortised cost using the effective interest rate method. Investments held for trading are included in current assets at fair value. For listed investments, fair value is the bid market listed value at the balance sheet date. Realised and unrealised gains or losses arising from changes in fair value are included in the income statement of the period in which they arise. Trade and other receivables Trade and other receivables are recognised initially at fair value. A provision for impairment of trade receivables is made when there is evidence that the Group will not be able to collect all amounts due. Trade receivables do not carry any interest, as any interest that would be recognised from discounting future cash payments over the short period is not considered to be material. Trade and other payables Trade and other payables are non-interest bearing and are stated at their nominal value, as the interest that would be recognised from discounting future cash payments over the short payment period is not considered to be material. Bank loans and overdrafts Bank loans and overdrafts are included as financial liabilities on the Group balance sheet net of the unamortised discount and costs of issue. The cost of issue is recognised in the Group income Statement over the life of the bank loan. Interest payable on those facilities is expensed as a finance cost in the period to which it relates. Debenture loans The debenture loans are included as a financial liability on the balance sheet net of the unamortised costs on issue. The cost of issue is recognised in the Group income statement over the life of the debenture. Interest payable to debenture holders is expensed in the period to which it relates. Finance lease liabilities Finance lease liabilities arise for those investment properties held under a leasehold interest and accounted for as investment property. The liability is calculated as the present value of the minimum lease payments, reducing in subsequent reporting periods by the apportionment of payments to the lessor. Lease payments are allocated between the liability and finance charges so as to achieve a constant financing rate. Contingent rents payable, such as rent reviews or those related to rental income, are charged as an expense in the period in which they are incurred. Interest rate derivatives The Group uses derivative financial instruments to hedge the interest rate risk associated with the financing of the Group's business. No trading in such financial instruments is undertaken. At each reporting date, these interest rate derivatives are recognised at their fair value to the business, being the Net Present Value of the difference between the hedged rate of interest and the market rate of interest for the remaining period of the hedge. Ordinary shares Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Treasury shares When the Group's own equity instruments are repurchased, consideration paid is deducted from equity as treasury shares until they are cancelled. When such shares are subsequently sold or reissued, any consideration received is included in equity. Investment properties Valuation Investment properties are those that are held either to earn rental income or for capital appreciation or both, including those that are undergoing redevelopment. They are reported on the Group balance sheet at fair value, being the amount for which an investment property could be exchanged between knowledgeable and willing parties in an arm's length transaction. The directors' property valuation is at fair value. The external valuation of properties is undertaken by independent valuers who hold recognised and relevant professional qualifications and have recent experience in the locations and categories of properties being valued. Surpluses or deficits resulting from changes in the fair value of investment property are reported in the Group income statement in the period in which they arise. Capital expenditure Investment properties are measured initially at cost, including related transaction costs. Additions to capital expenditure, being costs of a capital nature, directly attributable to the redevelopment or refurbishment of an investment property, up to the point of it being completed for its intended use, are capitalised in the carrying value of that property. The redevelopment of an existing investment property will remain an investment property measured at fair value and is not reclassified. Capitalised interest is calculated with reference to the actual rate payable on borrowings for development purposes, or for that part of the development costs financed out of borrowings the capitalised interest is calculated on the basis of the average rate of interest paid on the relevant debt outstanding. Disposal The disposal of investment properties is recorded on completion of the contract. On disposal, any gain or loss is calculated as the difference between
the net disposal proceeds and the valuation at the last year end plus subsequent capitalised expenditure in the period. Depreciation and amortisation In applying the fair value model to the measurement of investment properties, depreciation and amortisation are not provided in respect of investment properties. Other assets and depreciation The cost, less estimated residual value, of other property, plant and equipment is written off on a straight-line basis over the asset's expected useful life. Residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Changes to the estimated residual values or useful lives are accounted for prospectively. The depreciation rates generally applied are: Motor vehicles 25-33 per cent per annum Office equipment 10-33 per cent per annum Assets held for sale Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather through continuing use. Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs of sale. Any impairment loss on a disposal group is allocated first to goodwill and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets, or investment property which continues to be measured in accordance with the Group's other accounting policies. Impairment losses on initial classification as assets held-for-sale and subsequent gains and losses on remeasurement are recognised in profit or loss. Once classified as held-for-sale, intangible assets and property, plant and equipment are no longer amortised or depreciated, and any equity-accounted investment is no longer equity accounted. Available for sale assets Financial assets available for sale are measured at fair value. Any changes in fair value above cost are recognised in other comprehensive income and accumulated in the available-for-sale reserve. For any changes in fair value below cost a provision for impairment is recognised in the profit or loss account. Other investments classified as non-current available for sale investments comprise shares in listed companies and are carried at fair value. Income taxes The charge for current taxation is based on the results for the year as adjusted for disallowed or non-assessable items. Tax payable upon realisation of revaluation gains recognised in prior periods is recorded as a current tax charge with a release of the associated deferred tax. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the tax computations and is recorded using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. In respect of the deferred tax on the revaluation surplus, this is calculated on the basis of the chargeable gains that would crystallise on the sale of the investment portfolio as at the reporting date. The calculation takes account of indexation on the historic cost of properties and any available capital losses. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Group income statement, except when it relates to items charged or credited directly to equity, in which case it is also dealt with in equity. Dividends Dividends payable on the ordinary share capital are recognised as a liability in the period in which they are approved. Cash and cash equivalents Cash comprises cash in hand and on-demand deposits. Cash and cash equivalents comprises short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and original maturities of three months or less. The cash and cash equivalents shown in the cashflow statement are stated net of bank overdrafts that are repayable on demand as per IAS 7. This includes the structured trade finance facility held in South Africa as detailed in note 21. These facilities are considered to form an integral part of the treasury management of the Group and can fluctuate from positive to negative balances during the period. Bisichi Mining PLC Mining revenue Revenue is recognised when the customer has a legally binding obligation to settle under the terms of the contract and has assumed all significant risks and rewards of ownership. Revenue is only recognised on individual sales of coal when all of the significant risks and rewards of ownership have been transferred to a third party. Export revenue is generally recognised when the product is delivered to the export terminal location specified by the customer, at which point the customer assumes risks and rewards under the contract. Domestic coal revenues are generally recognised on collection by the customer from the mine when loaded into transport, where the customer pays the transportation costs. MINING COSTS Expenditure is recognised in respect of goods and services received. Where coal is purchased from third parties at point of extraction the expenditure is only recognised when the coal is extracted and all of the significant risks and rewards of ownership have been transferred. Mining reserves, plant and equipment The cost of property, plant and equipment comprises its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in accordance with agreed specifications. Freehold land is not depreciated. Other property, plant and equipment is stated at historical cost less accumulated depreciation. The cost recognised includes the recognition of any decommissioning assets related to property, plant and equipment. Heavy surface mining and other plant and equipment is depreciated at varying rates depending upon its expected usage. The depreciation rates generally applied are between 5-10 per cent per annum, but limited to the shorter of its useful life or the life of the mine. Other non-current assets, comprising motor vehicles and office equipment, are depreciated at a rate of between 10% and 33% per annum which is calculated to write off the cost, less estimated residual value of the assets, on a straight line basis over their expected useful lives. Mine inventories Inventories are stated at the lower of cost and net realisable value. Cost includes materials, direct labour and overheads relevant to the stage of production. Cost is determined using the weighted average method. Net realisable value is based on estimated selling price less all further costs to completion and all relevant marketing, selling and distribution costs. Mine provisions Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reliably estimated. A provision for rehabilitation of the mine is initially recorded at present value and the discounting effect is unwound over time as a finance cost. Changes to the provision as a result of changes in estimates are recorded as an increase/decrease in the provision and associated decommissioning asset. The decommissioning asset is depreciated in line with the Group's depreciation policy over the life of mine. The provision includes the restoration of the underground, opencast, surface operations and de-commissioning of plant and equipment. The timing and final cost of the rehabilitation is uncertain and will depend on the duration of the mine life and the quantities of coal extracted from the reserves. Mine impairment Whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable that asset is reviewed for impairment. This includes mining reserves, plant and equipment and net investments in joint ventures. A review involves determining whether the carrying amounts are in excess of the recoverable amounts. An asset's recoverable amount is determined as the higher of its fair value less costs of disposal and its value in use. Such reviews are undertaken on an asset-by-asset basis, except where assets do not generate cash flows independent of other assets, in which case the review is undertaken on a company or Group level. If the carrying amount of an asset exceeds its recoverable amount an asset's carrying value is written down to its estimated recoverable amount (being the higher of the fair value less cost to sell and value in use). Any change in carrying value is recognised in the comprehensive income statement. Mine reserves and development cost The purpose of mine development is to establish secure working conditions and infrastructure to allow the safe and efficient extraction of recoverable reserves. Depreciation on mine development is not charged until production commences or the assets are put to use. On commencement of full commercial production, depreciation is charged over the life of the associated mine reserves extractable using the asset on a unit of production basis. The unit of production calculation is based on tonnes mined as a ratio to proven and probable reserves and also includes future forecast capital expenditure. The cost recognised includes the recognition of any decommissioning assets related to mine development. Post production stripping
In surface mining operations, the Group may find it necessary to remove waste materials to gain access to coal reserves prior to and after production commences. Prior to production commencing, stripping costs are capitalised until the point where the overburden has been removed and access to the coal seam commences. Subsequent to production, waste stripping continues as part of the extraction process as a run of mine activity. There are two benefits accruing to the Group from stripping activity during the production phase: extraction of coal that can be used to produce inventory and improved access to further quantities of material that will be mined in future periods. Economic coal extracted is accounted for as inventory. The production stripping costs relating to improved access to further quantities in future periods are capitalised as a stripping activity asset, if and only if, all of the following are met: * it is probable that the future economic benefit associated with the stripping activity will flow to the Group; * the Group can identify the component of the ore body for which access has been improved; and * the costs relating to the stripping activity associated with that component or components can be measured reliably. In determining the relevant component of the coal reserve for which access is improved, the Group componentises its mine into geographically distinct sections or phases to which the stripping activities being undertaken within that component are allocated. Such phases are determined based on assessment of factors such as geology and mine planning. The Group depreciates deferred costs capitalised as stripping assets on a unit of production method, with reference to the tons mined and reserve of the relevant ore body component or phase. Segmental reporting For management reporting purposes, the Group is organised into business segments distinguishable by economic activity. The Group's business segments are LAP operations, Bisichi operations and Dragon operations. These business segments are subject to risks and returns that are different from those of other business segments and are the primary basis on which the Group reports its segmental information. This is consistent with the way the Group is managed and with the format of the Group's internal financial reporting. Significant revenue from transactions with any individual customer, which makes up 10 per cent or more of the total revenue of the Group, is separately disclosed within each segment. All coal exports are sales to coal traders at Richard Bay's terminal in South Africa with the risks and rewards passing to the coal trader at the terminal. Whilst the coal traders will ultimately sell the coal on the international markets the Group has no visibility over the ultimate destination of the coal. Accordingly, the export sales are recorded as South Africa revenue. Notes to the Financial Statements for the year ended 31 December 2017 1. Results for the year and segmental analysis Operating Segments are based on the internal reporting and operational management of the Group. LAP is focused primarily on property activities (which generate trading income), but it also holds and manages investments. IFRS 10 requires the Group to treat Bisichi as a subsidiary and therefore it is consolidated, rather than being included in the accounts as an associate using the equity method. The Group has also consolidated Dragon, a company which the Company jointly controls with Bisichi; Bisichi is a coal mining company with operations in South Africa and also holds investment property in the United Kingdom and derives income from property rentals. Dragon is a property investment company and derives its income from property rentals. These operating segments (LAP, Bisichi and Dragon) are each viewed separately and have been so reported below. Business segments 2017 LAP BISICHI DRAGON TOTAL GBP'000 GBP'000 GBP'000 GBP'000 BUSINESS ANALYSIS Rental income 6,825 1,112 166 8,103 Management income from third party 542 - - 542 properties Mining - 36,334 - 36,334 Group Revenue 7,367 37,446 166 44,979 Direct property costs (926) (152) (1) (1,079) Direct mining costs - (25,664) - (25,664) Overheads (2,869) (5,589) (164) (8,622) Exchange losses - (256) - (256) Depreciation (13) (1,790) (1) (1,804) Operating profit 3,559 3,995 - 7,554 Finance income 38 67 - 105 Finance expenses (3,713) (526) (29) (4,268) Debenture break costs (14) - - (14) Result before valuation movements (130) 3,536 (29) 3,377 Other segment items Net increase/(decrease) on revaluation of 9,386 (13) - 9,373 investment properties Write off investment in joint venture - (1,827) - (1,827) Adjustment to interest rate derivative 358 - (3) 355 Revaluation and other movements 9,744 (1,840) (3) 7,901 Profit/(loss) for the year before taxation 9,614 1,696 (32) 11,278 Segment assets - Non-current assets - property 65,231 13,397 2,630 81,258 - Non-current assets - plant & equipment 116 8,613 6 8,735 - Cash & cash equivalents 2,109 5,327 92 7,528 - Non-current assets - other 1,748 51 - 1,799 - Current assets - others 2,715 6,285 30 9,030 Total assets excluding investment in 71,919 33,673 2,758 108,350 joint ventures and assets held for sale Segment liabilities Borrowings (57,571) (7,160) (1,218) (65,949) Current liabilities (5,588) (7,556) (123) (13,267) Non-current liabilities (4,806) (3,986) (73) (8,865) Total liabilities (67,965) (18,702) (1,414) (88,081) Net assets 3,954 14,971 1,344 20,269 Assets held for sale 36,441 - - 36,441 Net assets as per balance sheet 56,710 Major customers Customer A - 27,528 - 27,528 Customer B - 7,226 - 7,226 These customers are for mining revenue in South Africa. United South 2017 Kingdom Africa Total Geographic analysis GBP'000 GBP'000 GBP'000 Revenue 8,692 36,287 44,979 Operating profit 4,645 2,909 7,554 Non-current assets excluding investments 81,383 8,610 89,993 Total net assets 52,452 4,258 56,710 Capital expenditure 30 1,741 1,771 BISICHI DRAGON 2016 LAP GBP'000 GBP'000 TOTAL GBP'000 GBP'000 BUSINESS ANALYSIS Rental income 6,241 1,060 171 7,472 Management income from third party 501 - - 501 properties Mining - 21,731 - 21,731 Group Revenue 6,742 22,791 171 29,704 Direct property costs (1,168) (187) 5 (1,350) Direct mining costs - (16,184) - (16,184) Overheads (2,926) (4,903) (128) (7,957) Exchange gains - 449 - 449 Depreciation (25) (1,785) (8) (1,818) Operating profit before listed 2,623 181 40 2,844 investments held for trading Listed investments held for trading 2 - - 2 Operating profit 2,625 181 40 2,846 Finance income 11 132 1 144 Finance expenses (3,706) (554) (32) (4,292) Result before valuation movements (1,070) (241) 9 (1,302)
Other segment items Net increase/(decrease) on revaluation of 125 445 (38) 532 investment properties Increase in value of other investments - 12 - 12 Net increase on revaluation of 1 - - 1 investments held for trading Adjustment to interest rate derivative (206) - (11) (217) Revaluation and other movements (80) 457 (49) 328 (Loss)/profit for the year before (1,150) 216 (40) (974) taxation Segment assets - Non - current assets - property 93,791 13,426 2,630 109,847 - Non - current assets - plant and 112 8,520 21 8,653 equipment - Cash and cash equivalents 3,706 2,444 115 6,265 - Non - current assets - other 1,874 32 - 1,906 - Non - current assets - deferred tax 1,134 - - 1,134 asset - Current assets - others 1,853 7,745 20 9,618 Total assets excluding investment in 102,470 32,167 2,786 137,423 joint ventures and assets held for sale Segment liabilities Borrowings (58,068) (9,234) (1,207) (68,509) Current liabilities (6,074) (6,811) (78) (12,963) Non-current liabilities (5,379) (3,665) (81) (9,125) Total liabilities (69,521) (19,710) (1,366) (90,597) Net assets 32,949 12,457 1,420 46,826 Investment in joint ventures non - - - 1,805 segmental Net assets as per balance sheet - - - 48,631 Major customer Customer A - 14,543 - 14,543 This customer is for mining revenue in South Africa. Geographic analysis United South 2016 Kingdom Africa Total GBP'000 GBP'000 GBP'000 Revenue 8,025 21,679 29,704 Operating profit/(loss) 3,441 (595) 2,846 Non-current assets excluding investments 111,117 8,517 119,634 Total net assets 43,916 4,715 48,631 Capital expenditure 164 2,858 3,022 Group revenue is external to the Group and the directors consider that inter segmental revenues are not material. Revenue includes contingent rents of GBP0.7 million (2016: GBP0.2 million). 2. Profit/(Loss) before taxation 2017 2016 GBP'000 GBP'000 Profit/(loss) before taxation is stated after charging/ (crediting): Staff costs (see note 29) 8,113 7,173 Depreciation on tangible fixed assets - owned assets 1,804 1,818 Operating lease rentals - land and buildings 411 442 Exchange loss/(gain) 256 (449) Profit on disposal of motor vehicles and office equipment (3) (32) Amounts payable to the auditor in respect of both audit and non-audit services Audit services Statutory - Company and consolidation 83 88 Subsidiaries - audited by RSM 17 20 Subsidiaries - audited by other auditors 51 50 Further assurance services 4 4 Other services 5 32 160 194 Staff costs are included in overheads. 3. Listed investments held for trading 2017 2016 GBP'000 GBP'000 Dividends receivable - 2 Net profit from listed investments - 2 4. Directors' emoluments 2017 2016 GBP'000 GBP'000 Emoluments 894 988 Defined contribution pension scheme contributions 27 45 921 1,033 Sir Michael Heller received GBP75,000 (2016: GBP75,000) as a Director of Bisichi Mining PLC. Details of directors' emoluments and share options are set out in the remuneration report. 5. Finance income and expenses 2017 2016 GBP'000 GBP'000 Finance income 105 144 Finance expenses Interest on bank loans and overdrafts (2,223) (2,243) Unwinding of discount (Bisichi) (92) (78) Other loans (1,414) (1,420) Interest on derivatives (337) (302) Interest on obligations under finance leases (202) (249) Total finance expenses (4,268) (4,292) (4,163) (4,148) 6. Income tax 2017 2016 GBP'000 GBP'000 Current tax Corporation tax on profit of the period 369 73 Corporation tax on profit/(loss) of previous periods (5) - Total current tax 364 73 Deferred tax Origination of timing differences (35) 874 Revaluation of investment properties 2,348 472 Accelerated capital allowances 235 (48) Fair value of interest derivatives 68 (40) Adjustment in respect of prior years 2 (156) Total deferred tax (notes 24 and 25) 2,618 1,102 Tax on profit on ordinary activities 2,982 1,175 The 2016 deferred tax recognised in income of GBP1,102,000 includes a credit of GBP 168,000 arising in the Bisichi Group on the correction of an error in the calculation of deferred tax in 2015 related to the accounting of a deferred tax liability incorrectly recognised in respect of management fees. The Group adjusted the effect of this error in its 2016 financial statements by reducing the tax charge for the year by GBP168,000 and reducing the associated deferred tax liability as it was not considered to be material to the current or prior year financial statements. Factors affecting tax charge for the year The corporation tax assessed for the year is different from that at the effective rate of corporation tax in the United Kingdom of 19.25 per cent (2016: 20 per cent). The differences are explained below: 2017 2016 GBP'000 GBP'000 Profit/(loss) for the year before taxation 11,278 (974) Taxation at 19.25 per cent (2016: 20 per cent) 2,171 (195) Effects of: Capital gains 1,792 800 Other differences (785) 506 Adjustment in respect of prior years (3) (157) Deferred tax rate adjustment (193) 221 Income tax charge for the year 2,982 1,175 Analysis of United Kingdom and overseas tax: United Kingdom tax included in above: 2017 2016
GBP'000 GBP'000 Corporation tax 233 13 Adjustment in respect of prior years (5) - Current tax 228 13 Deferred tax 2,219 1,241 2,447 1,254 Overseas tax included above: 2017 2016 GBP'000 GBP'000 Corporation tax 136 60 Current tax 136 60 Deferred tax 397 (139) Adjustment in respect of prior years 2 - Deferred tax 399 (139) 535 (79) Factors that may affect future tax charges: Based on current capital expenditure plans, the Group expects to continue to be able to claim capital allowances in excess of depreciation in future years, but at a slightly lower level than in the current year. A deferred tax provision has been made for gains on revaluing investment properties. The Finance Bill 2016 was substantively enacted on 7 September 2016. This includes a reduction in the rate of Corporation tax from 19% effective 1 April 2017 to 17% from 1 April 2020. The Finance (no. 2) Act 2017 was substantively enacted on 16 November 2017. This includes a restriction on the utilisation of brought forward tax losses and corporate interest in certain circumstances effective from 1 April 2017. 7. Discontinued operations As part of the Group's strategy to focus on core assets, the Group disposed of King Edward Court, Windsor in 2013. The profits and losses arising from this disposal were classified as discontinued operations. Contracts for the sale of King Edward Court had been exchanged in 2013 and completion took place in January 2014. Following the settlement of a dispute additional proceeds of GBP 414,000 were received by the Group in 2016. 8. Dividend 2017 2016 Per GBP'000 Per GBP'000 share share Dividends paid during the year relating 0.165p 141 0.16p 136 to the prior period Dividends to be paid: Proposed final dividend 0.175p 149 0.165p 141 for the year Proposed special dividend for 0.125p 107 - - the year 9. Profit/(Loss) per share and net assets per share Profit/(loss) per share has been calculated as follows: 2017 2016 Profit / (loss) for the year for the purposes of basic and 7,686 (2,357) diluted profit/(loss) per share (GBP'000) Weighted average number of ordinary shares in issue for the 85,322 85,107 purpose of basic profit/(loss) per share ('000) Basic profit / (loss) per share 9.01p (2.77)p Weighted average number of ordinary shares in issue for the 85,322 85,107 purpose of diluted profit/(loss) per share ('000) Fully diluted profit /(loss) per share 9.01p (2.77)p Weighted average number of shares in issue is calculated after excluding treasury shares of 221,061 (2016: 221,061). Net assets per share have been calculated as follows: 2017 2016 Net assets (GBP'000) 45,854 38,242 Shares in issue ('000) 85,322 85,322 Basic net assets per share 53.74p 44.83p Net assets diluted (GBP'000) 45,854 38,242 Shares in issue ('000) 85,322 85,322 Diluted net assets per share 53.74p 44.83p 10. Investment properties Leasehold Leasehold Total Freehold over 50 under 50 years years GBP'000 GBP'000 GBP'000 GBP'000 Cost or valuation at 1 January 2017 109,847 88,585 19,620 1,642 Transfer to assets held for sale (note 14) (36,441) (36,441) - - Additions in year 13 13 - - (Decrease)/increase in present value of (1,534) - (1,839) 305 head leases Increase/(decrease) on revaluation 9,373 10,268 (925) 30 At 31 December 2017 81,258 62,425 16,856 1,977 Representing assets stated at: Valuation 78,025 62,425 14,570 1,030 Present value of head leases 3,233 - 2,286 947 81,258 62,425 16,856 1,977 At 31 December 2017 81,258 62,425 16,856 1,977 At 31 December 2016 109,847 88,585 19,620 1,642 Total Freehold Leasehold Leasehold GBP'000 GBP'000 over under 50 years 50 years GBP'000 GBP'000 Cost or valuation at 1 January 2016 109,172 86,468 21,060 1,644 Additions in year 160 160 - - Decrease in present value of head leases (17) - (15) (2) Increase/(decrease) on revaluation 532 1,957 (1,425) - At 31 December 2016 109,847 88,585 19,620 1,642 Representing assets stated at: Valuation 105,080 88,585 15,495 1,000 Present value of head leases 4,767 - 4,125 642 109,847 88,585 19,620 1,642 At 31 December 2016 109,847 88,585 19,620 1,642 At 31 December 2015 109,172 86,468 21,060 1,644 The leasehold and freehold properties, excluding the present value of head leases and directors' valuations, were valued as at 31 December 2017 by professional firms of chartered surveyors. The valuations were made at fair value. The directors' property valuations were made at fair value. 2017 2016 GBP'000 GBP'000 Allsop LLP 62,955 90,010 Carter Towler 13,245 13,245 Directors' valuations 1,825 1,825 78,025 105,080 Add: present value of headleases 3,233 4,767 81,258 109,847 The historical cost of investment properties, including total capitalised interest of GBP1,161,000 (2016: GBP1,161,000) was as follows: 2017 2016 Leasehold Leasehold Leasehold Leasehold Over 50 under 50 Over 50 under 50 Freehold years years Freehold years years GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Cost at 1 January 72,711 17,653 1,939 72,551 17,653 1,939 Transfer to assets held for sale (5,022) - - - - - (note 14) Additions 13 - - 160 - - Cost at 31 December 67,702 17,653 1,939 72,711 17,653 1,939 Each year external valuers are appointed by the executive directors on behalf of the Board. The valuers are selected based upon their knowledge, independence and reputation for valuing assets such as those held by the Group. Valuations are performed annually and are performed consistently across all properties in the Group's portfolio. At each reporting date appropriately
qualified employees of the Group verify all significant inputs and review the computational outputs. Valuers submit their report to the Board on the outcome of each valuation. Valuations take into account tenure, lease terms and structural condition. The inputs underlying the valuations include market rent or business profitability, likely incentives offered to tenants, forecast growth rates, yields, EBITDA, discount rates, construction costs including any specific site costs (for example section 106), professional fees, developer's profit including contingencies, planning and construction timelines, lease regear costs, planning risk and sales prices based on known market transactions for similar properties to those being valued. Valuations are based on what is determined to be the highest and best use. When considering the highest and best use the valuer will consider, on a property by property basis, its actual and potential uses which are physically, legally and financially viable. Where the highest and best use differs from the existing use, the valuer will consider the cost and likelihood of achieving and implementing this change in arriving at the valuation. There are often restrictions on Freehold and Leasehold property which could have a material impact on the realisation of these assets. The most significant of these occur when planning permission or lease extension and renegotiation of use are required or when a credit facility is in place. These restrictions are factored into the property's valuation by the external valuer. The methods of fair value measurement are classified into a hierarchy based on the reliability of the information used to determine the valuation, as follows: Level 1: valuation based on inputs on quoted market prices in active markets. Level 2: valuation based on inputs other than quoted prices included within level 1 that maximise the use of observable data directly or from market prices or indirectly derived from market prices. Level 3: where one or more significant inputs to valuations are not based on observable market data. Class of property Carrying Carrying Valuation Key Range Level 3 / / Fair technique unobservable (weighted Range Fair value inputs average) (weighted value 2016 2017 average) 2017 GBP'000 2016 GBP'000 Freehold - external 60,600 86,760 Income Estimated valuation capitalisation Rental Value GBP5 - GBP39 GBP5 - GBP37 Per sq ft p.a (GBP19) (GBP19) Equivalent 4.9% - 5% - 14% Yield 12.9% (8%) (8.4%) Leasehold over 50 14,570 15,495 Income Estimated years - capitalisation Rental Value GBP5 - GBP10 GBP5 - GBP11 external valuation Per sq ft p.a (GBP9) (GBP9) Equivalent 5.8% - 7% - 18% Yield 17.6% (11%) (9%) Leasehold under 50 1,030 1,000 Income Estimated years - external capitalisation Rental Value GBP4 - GBP5 GBP3 - GBP5 valuation Per sq ft p.a (GBP5) (GBP4) Equivalent 25.4% - 18% - 23% Yield 25.8% (19%) (25.5%) Freehold - 1,825 1,825 Income Estimated Directors' valuation capitalisation Rental Value GBP5 - GBP5 GBP5 - GBP5 Per sq ft p.a (GBP5) (GBP5) Equivalent 6.1% - 6% - 6% Yield 6.1% (6%) (6.1%) At 31 December 78,025 105,080 There are interrelationships between all these inputs as they are determined by market conditions. The existence of an increase in more than one input would be to magnify the input on the valuation. The impact on the valuation will be mitigated by the interrelationship of two inputs in opposite directions, for example, an increase in rent may be offset by an increase in yield. The table below illustrates the impact of changes in key unobservable inputs on the carrying / fair value of the Group's properties. Estimated rental value Equivalent yield 10% increase or 25 basis point (decrease) contraction or (expansion) 2017 2016 2017 2016 GBP'000 GBP'000 GBP'000 GBP'000 Freehold - external valuation 6,055/ 8,671/ 2,095/ 3,585/ (6,055) (8,671) (1,956) (3,298) Leasehold over 50 years - external valuation 1,457/ 1,545/ 355/(338) 394/(375) (1,457) (1,545) Leasehold under 50 years - external valuation 103/(103) 100/(100) 10/(10) 13/(13) Freehold - Directors' valuation 183/(183) 183/(183) 78/(71) 78/(72) 11. Mining reserves, plant and equipment Office equipment Mining Mining and motor Total reserves equipment vehicles GBP'000 GBP'000 GBP'000 GBP'000 Cost at 1 January 2017 25,817 1,344 23,724 749 Exchange adjustment 474 22 447 5 Additions 1,758 - 1,731 27 Disposals (53) - - (53) At 31 December 2017 27,996 1,366 25,902 728 Accumulated depreciation at 1 January 2017 17,164 1,287 15,370 507 Exchange adjustment 332 21 308 3 Charge for the year 1,804 1 1,763 40 Disposals in year (39) (1) - (38) Accumulated depreciation at 31 December 19,261 1,308 17,441 512 2017 Net book value at 31 December 2017 8,735 58 8,461 216 Cost at 1 January 2016 17,188 995 15,453 740 Exchange adjustment 6,273 349 5,858 66 Additions 2,862 - 2,814 48 Disposals (506) - (401) (105) Cost at 31 December 2016 25,817 1,344 23,724 749 Accumulated depreciation at 1 January 2016 11,636 949 10,201 486 Exchange adjustment 4,202 336 3,824 42 Charge for the year 1,818 2 1,746 70 Disposals (492) - (401) (91) Accumulated depreciation at 31 December 17,164 1,287 15,370 507 2016 Net book value at 31 December 2016 8,653 57 8,354 242 12. Investment in joint venture Shares in joint venture: 2017 2016 GBP'000 GBP'000 At 1 January 455 325 Write off of investment (447) - Exchange adjustment (8) 130 At 31 December - 455 At 31 December 2017 the joint venture had non-current assets of GBPnil (2016: GBP 1,346,000), current assets of GBPnil (2016: GBP3,000) and current liabilities of GBP nil (2016: GBP,1,349,000). 2017 2016
GBP'000 GBP'000 At 1 January 455 325 Write off of investment (447) - Exchange adjustment (8) 130 At 31 December - 455 Bisichi owned 49% of the issued share capital of Ezimbokodweni (an unlisted coal production company in South Africa). The Directors of Bisichi have now concluded that the joint venture (which has not traded to date) is unlikely to generate income in the foreseeable future. For that reason, the investment and the loan (note 13) have been written off. 13. Loan to joint venture 2017 2016 Joint Joint ventures ventures assets assets GBP'000 GBP'000 Loan to Ezimbokodweni Mining (Pty) Limited At 1 January 1,350 900 Exchange adjustment (16) 336 Additions - interest 46 114 Write-off (1,380) - At 31 December - 1,350 14. Assets held for sale 2017 2016 GBP'000 GBP'000 At 1 January - 2,335 Transfer from investment 36,441 - property (note 10) Disposal - (2,335) At 31 December 36,441 - In March 2018 contracts were exchanged for the sale of both Brixton markets for a combined price of GBP37.25 million. The properties were held at a valuation of GBP24.52 million at 31 December 2016 and a revaluation gain of GBP11.92 million is recognised in note 10 prior to the transfer of the property to assets held for sale. Following the Market Row completion on 23 April 2018, GBP15.9 million of bank loans related to those properties have been repaid as required by the terms of the loan agreements. The Brixton Village completion was on 26 April 2018. As required under IFRS, these properties have been reclassified from investment properties to assets held for sale, at fair value less costs to sell of GBP36.44 million. Related loans are classified as non-current in note 23. 15. Subsidiary companies In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, the principal activity, the country of incorporation and the percentage of equity owned, as at 31 December 2017 is disclosed below: Entity Activity Percentage Country of of Registered address incorporation share capital Analytical Investments Limited Dormant 100% 24 Bruton Place, England and London, W1J 6NE Wales Analytical Portfolios Limited Dormant 100% 24 Bruton Place, England and London, W1J 6NE Wales Analytical Properties Holdings Property 100% 24 Bruton Place, England and Limited London, W1J 6NE Wales Analytical Properties Limited Property 100% 24 Bruton Place, England and London, W1J 6NE Wales Analytical Ventures Limited Property 100% 24 Bruton Place, England and London, W1J 6NE Wales 24 Bruton Place Limited Dormant 100% 24 Bruton Place, England and London, W1J 6NE Wales 24 BPL (Harrogate) Limited Investment 88% 24 Bruton Place, England and London, W1J 6NE Wales 24 BPL (Harrogate ) Two Limited Investment 100% 24 Bruton Place, England and London, W1J 6NE Wales Brixton Village Limited Property 100% 24 Bruton Place, England and London, W1J 6NE Wales Market Row Limited Property 100% 24 Bruton Place, England and London, W1J 6NE Wales Newincco 1243 Limited Property 100% 24 Bruton Place, England and London, W1J 6NE Wales Newincco 1244 Limited Property 100% 24 Bruton Place, England and London, W1J 6NE Wales Newincco 1245 Limited Property 100% 24 Bruton Place, England and Management London, W1J 6NE Wales Services Newincco 1299 Limited Property 100% 24 Bruton Place, England and London, W1J 6NE Wales Newincco 1300 Limited Property 100% 24 Bruton Place, England and London, W1J 6NE Wales LAP Ocean Holdings Limited Property 100% 24 Bruton Place, England and London, W1J 6NE Wales LAP Ocean Two Limited Property 100% 24 Bruton Place, England and London, W1J 6NE Wales London & Associated Limited Dormant 100% 24 Bruton Place, England and London, W1J 6NE Wales London & Associated (Rugeley) Dormant 100% 24 Bruton Place, England and Limited London, W1J 6NE Wales London & Associated Securities Dormant 100% 24 Bruton Place, England and Limited London, W1J 6NE Wales London & Associated Management Property 100% 24 Bruton Place, England and Services Limited Management London, W1J 6NE Wales Services London & African Investments Dormant 100% 24 Bruton Place, England and Limited London, W1J 6NE Wales Orchard Chambers Residential Dormant 100% 24 Bruton Place, England and Limited London, W1J 6NE Wales Bisichi Mining PLC (note D) Coal 41.52% 24 Bruton Place, England and mining London, W1J 6NE Wales Mineral Products Limited (note A) Share 100% 24 Bruton Place, England and (note D) dealing London, W1J 6NE Wales Bisichi (Properties) Limited (note Property 100% 24 Bruton Place, England and A)(note D) London, W1J 6NE Wales Bisichi Mining (Exploration) Holding 100% 24 Bruton Place, England and Limited (note A)(note D) company London, W1J 6NE Wales Black Wattle Colliery (Pty) Coal 62.5% Samora Machel Street, South Africa Limited (note A)(note D) mining Bethal Road, Middelburg, Mpumalanga, 1050 Bisichi Coal Mining (Pty) Limited Coal 100% Samora Machel Street, South Africa (note A)(note D) mining Bethal Road, Middelburg, Mpumalanga, 1050 Urban First (Northampton) Limited Dormant 100% 24 Bruton Place, England and (note A)(note D) London, W1J 6NE Wales Bisichi Trustee Limited (note A) Property 100% 24 Bruton Place, England and (note D) London, W1J 6NE Wales Bisichi Mining Management Services Dormant 100% 24 Bruton Place, England and Limited (note A) London, W1J 6NE Wales (note D) Ninghi Marketing Limited (note A) Dormant 90.1% 24 Bruton Place, England and
(note D) London, W1J 6NE Wales Bisichi Northampton Limited (note Property 100% 24 Bruton Place, England and A)(note D) London, W1J 6NE Wales Amandla Ehtu Mineral Resource Dormant 70% Samora Machel Street, South Africa Development (Pty) Limited (note A) Bethal Road, (note D) Middelburg, Mpumalanga, 1050 Black Wattle Klipfontein (Pty) Coal 62.5% Samora Machel Street, South Africa Limited (note A)(note D) mining Bethal Road, Middelburg, Mpumalanga, 1050 Dragon Retail Properties Limited Property 50% 24 Bruton Place, England and (note B)(note D) London, W1J 6NE Wales Newincco 1338 Limited (note C) Property 100% 24 Bruton Place, England and London, W1J 6NE Wales Details on the non-controlling interest in subsidiaries are shown under note 27. Note A: these companies are owned by Bisichi and the equity shareholdings disclosed relate to that company. Note B: this entity is a joint venture owned 50% by LAP and 50% by Bisichi. Note C: this company is owned by Dragon and the equity shareholdings disclosed relate to that company. Note D: Bisichi and Dragon and their subsidiaries are included in the consolidated financial statements in accordance with IFRS 10. 16. Inventories 2017 2016 GBP'000 GBP'000 Coal Washed 301 1,139 Mining production 286 83 Work in progress 227 458 Other 14 41 828 1,721 17. Held to maturity investments and other investments Held to maturity investments: 2017 Unlisted Loan 2016 Unlisted Loan Total shares stock Total shares stock GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 At 1 January 1,874 1 1,873 1,995 1 1,994 Repayments (126) - (126) (121) - (121) At 31 December 1,748 1 1,747 1,874 1 1,873 The Group owns a 3.17% (2016: 6.95%) interest in the equity and loans of HRGT Shopping Centres LP (HRGT), a limited partnership set up in England to acquire and own 3 shopping centres in Dunfermline, Kings Lynn and Loughborough. 96.4% (2016: 92.10%) of the equity and loans are owned by Oaktree Capital Management and 0.43% (2016: 0.95%) by Gooch Cunliffe Whale LLP. London & Associated Management Services Limited has a management contract to manage the properties on behalf of HRGT. OTHER INVESTMENTS: 2017 2016 GBP'000 GBP'000 Net book and market value of investments listed on overseas 51 32 stock exchange 18. Trade and other receivables 2017 2016 GBP'000 GBP'000 Trade receivables 4,920 4,701 Other receivables 736 1,010 Prepayments and accrued income 1,476 1,350 7,132 7,061 The directors consider that the carrying amount of trade and other receivables approximates to their fair value. 19. Investments available for sale and held for trading 2017 2016 GBP'000 GBP'000 Market bid value of the listed investment portfolio - available 1,050 781 for sale Market bid value of the listed investment portfolio - held for 19 19 trading Unrealised gain of market value over cost 129 45 Listed investment portfolio at cost 940 755 Investments are listed on the London Stock Exchange with the exception of GBP 47,000 (2016: GBP60,000) listed outside Great Britain. The directors have reviewed the individual investments for impairment and do not consider the investments which are below cost to be impaired. 20. Trade and other payables 2017 2016 GBP'000 GBP'000 Trade payables 3,937 3,618 Other taxation and social security costs 629 739 Other payables 2,842 2,815 Accruals and deferred income 5,501 5,770 12,909 12,942 The directors consider that the carrying amount of trade and other payables approximates to their fair value. 21. Borrowings 2017 2017 2016 2016 GBP'000 GBP'000 GBP'000 GBP'000 Current Non-current Current Non-current Other loans (Bisichi) 26 - 24 - GBP1.25 million term bank loan (secured) - 1,218 - 1,207 repayable by 2020 (Dragon)* GBP3.75 million first mortgage debenture stock 3,000 - 750 3,000 2018 at 11.6 per cent Bank overdrafts (secured) (Bisichi) 1,262 - 3,334 - Bank loan (secured)(Bisich) - - - 66 GBP10 million first mortgage debenture stock - 9,922 - 9,905 2022 at 8.109 per cent* GBP5.876 million term bank loan (secured) - 5,872 - 5,810 repayable by 2019 (Bisichi)* GBP34.897 million term bank loan (secured) - 34,640 - 34,468 repayable by 2019* GBP10.105 million term bank loan (secured) - 10,009 - 9,945 repayable by 2019 at 9.5 per cent* 4,288 61,661 4,108 64,401 Borrowings analysis by origin: 2017 2016 GBP'000 GBP'000 United Kingdom 64,621 65,085 South Africa 1,328 3,424 65,949 68,509 * The GBP10 million debenture and bank loans are shown after deduction of un-amortised issue costs. Interest payable on the term bank loans is variable being based upon the London inter-bank offered rate (LIBOR) plus margin. In June 2017, the Group repaid early GBP0.75 million of the GBP5 million first mortgage debenture stock 2018, at an additional cost of GBP14,000. First Mortgage Debenture Stocks August 2018 and 2022 and the Santander GBP34.897 million and Europa GBP10.105 million term bank loans repayable in July 2019 are secured by way of a charge on specific freehold and leasehold properties which are included in the financial statements at a value of GBP96.52 million. In addition, GBP0.12 million of cash deposits are charged as security to debenture stocks. The GBP34.897 million bank loan has an interest cost of 2 per cent above LIBOR. An interest rate swap and cap agreements are in place as detailed in note 23. Santander bank loans of GBP12.8 million and Europa bank loans of GBP3.1m related to Brixton Markets sales are repayable on completion in accordance with the terms of the loan agreements. The Bisichi United Kingdom bank loans of GBP5.832 million (2016: GBP5.810 million) are secured by way of a first charge over the investment properties in the UK which are included in the financial statements at a value of GBP13.2 million. The interest cost of the bank loan is 2.35 per cent above LIBOR. The Bisichi South African bank loans and overdrafts of GBP1.328 million (2016: GBP 3.424 million) are secured by way of a first charge over specific pieces of mining equipment, inventory and the debtors of the relevant company which holds
the loan which are included in the financial statements at a value of GBP6.1 million. The bank loan of GBP1.25 million (Dragon) which is repayable in November 2020 is secured by way of a first charge on specific freehold property and which is included in the financial statements at a value of GBP2.58 million. The interest cost of the loan is 2 per cent above LIBOR. The Group's objectives when managing capital are: - To safeguard the Group's ability to continue as a going concern, so that it may provide returns for shareholders and benefits for other stakeholders; and - To provide adequate returns to shareholders by ensuring returns are commensurate with the risk. Analysis of the changes in liabilities arising from financing activities: 2017 2017 2016 2016 GBP'000 GBP'000 GBP'000 GBP'000 BORROWINGS FINANCE BORROWINGS FINANCE LEASES LEASES Balance at 1 January 68,509 4,767 67,218 4,784 Exchange adjustments (4) - 854 - Cash movements excluding exchange (2,820) - 173 - adjustments Valuation movements 264 (1,534) 264 (17) Balance at 31 December 65,949 3,233 68,509 4,767 22. Provisions 2017 2016 GBP'000 GBP'000 At 1 January 1,236 847 Exchange adjustment 21 311 Unwinding of discount 92 78 At 31 December 1,349 1,236 The above provision relates to mine rehabilitation costs in Bisichi. 23. Financial instruments Total financial assets and liabilities The Group's financial assets and liabilities and their fair values are as follows: 2017 2016 Fair Carrying Fair Carrying value value value value GBP'000 GBP'000 GBP'000 GBP'000 Cash and cash equivalents 7,528 7,528 6,265 6,265 Assets held for sale 36,441 36,441 - - Investments held to maturity 1,748 1,748 1,874 1,874 Loan to joint venture - - 1,350 1,350 Other investments 51 51 32 32 Investments held for trading 19 19 19 19 Available for sale 1,050 1,050 781 781 investments Derivative assets 1 1 4 4 Other assets 5,656 5,656 5,711 5,711 Derivative liabilities (435) (435) (793) (793) Bank overdrafts (1,262) (1,262) (3,334) (3,334) Bank loans (52,218) (51,765) (52,218) (51,520) Present value of head leases (3,233) (3,233) (4,767) (4,767) on properties Other liabilities (6,779) (6,779) (6,432) (6,432) Total financial liabilities (11,433) (10,980) (51,508) (50,810) before debentures Fair value of debenture stocks Fair value of the Group's debenture liabilities: 2017 2016 Book Fair Fair Fair value value value value adjustment adjustment GBP'000 GBP'000 GBP'000 GBP'000 Debenture stocks (13,000) (15,686) (2,686) (3,526) Tax at 19.25 per cent (2016: - - 517 705 20 per cent) Post tax fair value - - (2,169) (2,821) adjustment Post tax fair value - - (2.54)p (3.3)p adjustment - basic pence per share There is no material difference in respect of other financial liabilities or any financial assets. The fair values were calculated by the directors as at 31 December 2017 and reflect the replacement value of the financial instruments used to manage the Group's exposure to adverse rate movements. The fair values of the debentures are based on the net present value at the relevant gilt interest rate of the future payments of interest on the debentures. The bank loans and overdrafts are at variable rates and there is no material difference between book values and fair values. Investments held for trading and available for sale fall under level 1 of the fair value hierarchy into which fair value measurements are recognised in accordance with the levels set out in IFRS 7. Held to maturity investments are held at cost and other investments are held at fair value. The directors are of the opinion that the difference in value between cost and fair value of other investments is not significant or material. The comparative figures for 2016 fall under the same category of financial instrument as 2017. The carrying amount of short term (less than 12 months) trade receivable and other liabilities approximates its fair values. The fair value of non-current borrowings in note 21 approximates its carrying value and was determined under level 2 of the fair value hierarchy and is estimated by discounting the future contractual cash flows at the current market interest rates for UK borrowings and for the South African overdraft facility. The fair value of the finance lease liabilities in note 31 approximates its carrying value and was determined under level 2 of the fair value hierarchy and is estimated by discounting the future contractual cash flows at the current market interest rates. Treasury policy The Group enters into derivative transactions such as interest rate swaps and forward exchange contracts in order to help manage the financial risks arising from the Group's activities. The main risks arising from the Group's financing structure are interest rate risk, liquidity risk and market price risk, credit risk, commodity price risk and foreign exchange risk. The policies for managing each of these risks and the principal effects of these policies on the results are summarised below. Sensitivity analysis LAP and Dragon have variable interest term debts which are covered by derivatives. Additionally, LAP has variable interest term debt covered by interest caps. At 31 December 2017, with other variables unchanged, a 1% increase in interest rates would change the profit/loss for the year by GBP 175,000 (2016: GBP173,000). Bisichi has variable loans and a 1% increase in interest rates would change the profit/loss for the year by GBP82,000 (2016: GBP 56,000). Interest rate risk Treasury activities take place under procedures and policies approved and monitored by the Board to minimise the financial risk faced by the Group. The GBP 34.897 million bank loan and Bisichi United Kingdom bank loans and overdraft are secured by way of a first charge on certain fixed assets. The rates of interest vary based on LIBOR in the UK. The GBP10.105 million term bank loan is secured by way of a second charge on certain fixed assets. This loan is based on a fixed interest rate. The Bisichi South African bank loans are secured by way of a first charge over specific pieces of mining equipment, inventory and the debtors of the relevant company which holds the loan. The rates of interest vary based on PRIME in South Africa. The GBP1.25 million bank loan (Dragon) is secured by way of a first charge on specific freehold property. The rate of interest varies based on LIBOR in the UK. Liquidity risk The Group's policy is to minimise refinancing risk by balancing its exposure to interest risk and to refinancing risk. In effect the Group seeks to borrow for as long as possible at the lowest acceptable cost. Efficient treasury management and strict credit control minimise the costs and risks associated with this policy which ensures that funds are available to meet commitments as they fall due. Cash and cash equivalents earn interest at rates based on LIBOR in the UK. These facilities are considered adequate to meet the Group's anticipated cash flow requirements for the foreseeable future. In South Africa, an increased structured trade finance facility for R100million was signed by Black Wattle Colliery (Pty) Limited in July 2017 with Absa Bank Limited. The facility is renewable annually at 30 June and is secured against inventory, debtors and cash that are held by Black Wattle Colliery (Pty) Limited. The trade facility, which is repayable on demand, is included in cash and cash equivalents within the cashflow statement.
The table below analyses the Group's financial liabilities (excluding interest rate derivatives) into maturity Groupings and also provides details of the liabilities that bear interest at fixed, floating and non-interest bearing rates. 2017 Less 2-5 Over than years Total 1 year 5 years GBP'000 GBP'000 GBP'000 GBP'000 Bank overdrafts (floating) 1,262 1,262 - - Debentures (fixed) 12,922 3,000 9,922 - Bank loans (fixed) 10,009 - 10,009 - Bank loans (floating)* 41,756 26 41,730 - Trade and other payables 6,779 6,779 - - (non-interest) 72,728 11,067 61,661 - 2016 Less 2-5 Over than years Total 1 year 5 years GBP'000 GBP'000 GBP'000 GBP'000 Bank overdrafts (floating) 3,334 3,334 - - Debentures (fixed) 13,655 750 3,000 9,905 Bank loans (fixed) 9,945 - 9,945 - Bank loans (floating)* 41,575 24 41,551 - Trade and other payables 6,432 6,432 - - (non-interest) 74,941 10,540 54,496 9,905 The Group would normally expect that sufficient cash is generated in the operating cycle to meet the contractual cash flows as disclosed above through effective cash management. *Certain bank loans are fully hedged with appropriate interest derivatives. Details of all hedges are shown below. Market price risk The Group is exposed to market price risk through interest rate and currency fluctuations. Credit risk At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. The Group only deposits surplus cash with well-established financial institutions of high quality credit standing. Foreign exchange risk Only Bisichi is subject to this risk. All trading is undertaken in the local currencies except for certain export sales which are invoiced in US Dollars. It is not the Bisichi Group's policy to obtain forward contracts to mitigate foreign exchange risk on these contracts as payment terms are within 15 days of invoice or earlier. Funding is also in local currencies other than inter-company investments and loans and it is also not the Bisichi Group's policy to obtain forward contracts to mitigate foreign exchange risk on these amounts. During 2017 and 2016 the Bisichi Group did not hedge its exposure of foreign investments held in foreign currencies. The Bisichi directors consider there to be no significant risk from exchange rate movements of foreign currencies against the functional currencies of the reporting companies within the Bisichi Group, excluding inter-company balances. The principal currency risk to which the Bisichi Group is exposed in regard to inter-company balances is the exchange rate between Pounds Sterling and South African Rand. It arises as a result of the retranslation of Rand denominated inter-company trade receivable balances held within the UK which are payable by South African Rand functional currency subsidiaries. Based on the Bisichi Group's net financial assets and liabilities as at 31 December 2017, a 25% strengthening of Sterling against the South African Rand, with all other variables held constant, would decrease the Bisichi Group's profit after taxation by GBP34,000 (2016: GBP435,000). A 25% weakening of Sterling against the South African Rand, with all other variables held constant would increase the Bisichi Group's profit after taxation by GBP56,000 (2016: GBP725,000). The 25% sensitivity has been determined based on the average historic volatility of the exchange rate for 2016 and 2017. The table below shows the Bisichi currency profiles of cash and cash equivalents: 2017 2016 GBP'000 GBP'000 Sterling 3,402 1,717 South African Rand 1,923 725 US Dollar 2 2 5,327 2,444 Cash and cash equivalents earn interest at rates based on LIBOR in Sterling and Prime in Rand. The tables below shows the Bisichi currency profiles of net monetary assets and liabilities by functional currency: 2017: UK South GBP'000 Africa GBP'000 Sterling (832) - South African Rand 54 (1,304) US Dollar 13 - (765) (1,304) 2016: UK South GBP'000 Africa GBP'000 Sterling (2,522) - South African Rand 36 (2,262) US Dollar 35 - (2,451) (2,262) Borrowing facilities At 31 December 2017 the Group was within its bank borrowing facilities and was not in breach of any of the covenants. Term loan repayments are as set out on the next page. Details of other financial liabilities are shown in notes 20 and 21. Interest rate and hedge profile 2017 2016 GBP'000 GBP'000 Fixed rate borrowings 23,105 23,855 Floating rate borrowings - Subject to interest rate 36,147 36,147 swap - Other borrowings 7,160 9,300 66,412 69,302 Average fixed interest rate 9.17% 9.24% Weighted average swapped 3.32% 3.30% interest rate Weighted average cost of debt 5.45% 5.80% on overdrafts, bank loans and debentures Average period for which 2.9 3.8 borrowing rate is fixed years years Average period for which 1.5 2.5 borrowing rate is swapped years years The Group's floating rate debt bears interest based on LIBOR for the term bank loans and bank base rate for the overdraft. At 31 December 2017 the Group had hedges totalling GBP34.897 million to cover the GBP34.9 million bank loan. These consisted of a 5 year swap for GBP17.5 million, at 2.25% and a GBP17.397 million cap agreement at 2.25% to July 2019. At the year end the fair value liability in the accounts was GBP435,000 (2016: GBP 793,000) as valued by the hedge provider. At 31 December 2017, Dragon had hedges of GBP1.25 million to cover the GBP1.25 million bank loan. This consists of a 5 year GBP1.25 million cap agreement taken out in November 2016 at 2.5%. At the year end, the fair value asset in the accounts was GBP1,000 (2016: GBP4,000), as valued by the hedge provider. Fair value of financial instruments Fair value estimation The Group has adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value. This requires the methods of fair value measurement to be classified into a hierarchy based on the reliability of the information used to determine the valuation, as follows: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). - Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3). Level 1 Level 2 Level 3 Total 2017
GBP'000 GBP'000 GBP'000 GBP'000 Gain/ (loss) to income statement GBP'000 Financial assets Other financial assets held for trading and available for sale Quoted equities 1,069 - - 1,069 - Derivative financial instruments Interest rate swaps - 1 - 1 (3) Financial liabilities Derivative financial instruments Interest rate swaps - 435 - 435 358 Level 1 Level 2 Level 3 Total 2016 GBP'000 GBP'000 GBP'000 GBP'000 Gain/ (loss) to income statement GBP'000 Financial assets Other financial assets held for trading and available for sale Quoted equities 832 - - 832 13 Derivative financial instruments Interest rate swaps - 4 - 4 (11) Financial liabilities Derivative financial instruments Interest rate swaps - 793 - 793 (206) Capital structure The Group sets the amount of capital in proportion to risk. It ensures that the capital structure is commensurate to the economic conditions and risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may vary the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group considers its capital to include share capital, share premium, capital redemption reserve, translation reserve and retained earnings, but excluding the interest rate derivatives. Consistent with others in the industry, the Group monitors its capital by its debt to equity ratio (gearing levels). This is calculated as the net debt (loans less cash and cash equivalents) as a percentage of the equity calculated as follows: 2017 2016 GBP'000 GBP'000 Total debt 65,949 68,509 Less cash and cash equivalents (7,528) (6,265) Net debt 58,421 62,244 Total equity 56,710 48,631 103.0% 128.0% The Group does not have any externally imposed capital requirements. Financial assets The Group's principal financial assets are bank balances and cash, trade and other receivables, investments and assets held for sale. The Group has no significant concentration of credit risk as exposure is spread over a large number of counterparties and customers. The credit risk in liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The Group's credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group's management based on prior experience and the current economic environment. Financial assets maturity Cash and cash equivalents all have a maturity of less than three months. 2017 2016 GBP'000 GBP'000 Cash at bank and in hand 7,528 6,265 These funds are primarily invested in short term bank deposits maturing within one year bearing interest at the bank's variable rates. Financial liabilities maturity The following table sets out the maturity profile of contractual undiscounted cashflows of financial liabilities as at 31 December: Repayment of borrowings 2017 2016 GBP'000 GBP'000 Bank loans and overdrafts: Repayable on demand or within one year 1,288 3,358 Repayable between two and five years 51,739 51,496 53,027 54,854 Debentures: Repayable within one year 3,000 750 Repayable between two and five years 9,922 3,000 Repayable in more than five years - 9,905 65,949 68,509 Certain borrowing agreements contain financial and other conditions that if contravened by the Group, could alter the repayment profile. Bank loans of GBP15.9 million currently shown as repayable between two and five years related to Brixton markets sales are repayable on completion. 24. Deferred tax asset 2017 2016 GBP'000 GBP'000 Balance at 1 January 1,134 2,390 Transferred to consolidated income statement (1,134) (1,256) Balance at 31 December - 1,134 The deferred tax balance comprises the following: Revaluation of properties - (2,719) Accelerated capital allowances - (904) Fair value of interest derivatives - 151 Short-term timing differences - (124) Loss relief - 4,730 Deferred tax asset at end of year: - 1,134 25. Deferred tax liabilities 2017 2016 GBP'000 GBP'000 Balance at 1 January 2,329 2,106 Transferred from/(to) consolidated income statement 1,484 (154) Transferred from other comprehensive income - 13 Exchange adjustment 35 364 Balance at 31 December 3,848 2,329 The deferred tax balance comprises the following: Revaluation of properties 5,836 793 Accelerated capital allowances 2,522 1,347 Short-term timing differences 144 191 Unredeemed capital deductions (83) (642) Losses and other deductions (4,571) 640 Deferred tax liability provision at end of year: 3,848 2,329 The directors consider the temporary differences arising in connection with the interests in joint ventures are insignificant. There is no time limit in respect of the Group tax loss relief. In addition, the Group has unused losses and reliefs with a potential value of GBP5,427,000 (2016: GBP5,455,000), which have not been recognised as a deferred tax asset. As the Group returns to profit, these losses and reliefs can be utilised. 26. Share capital The Company has one class of ordinary shares which carry no right to fixed income. Number of Number of ordinary 10p ordinary 10p shares shares 2017 2016 2017 2016 GBP'000 GBP'000 Authorised: ordinary 110,000,000 110,000,000 11,000 11,000 shares of 10p each Allotted, issued and fully 85,542,711 85,542,711 8,554 8,554 paid share capital Less: held in Treasury (see (221,061) (221,061) (22) (22) below) "Issued share capital" for 85,321,650 85,321,650 8,532 8,532 reporting purposes Treasury shares Number of ordinary Cost/issue value 10p shares
2017 2016 2017 2016 GBP'000 GBP'000 Shares held in Treasury at 1 January 221,061 734,816 145 482 Issued for share incentive plan -dividends - (1,936) - (1) investment (Jan 2016 - 25p) Issued to meet directors bonuses (Jan - (69,225) - (45) 2016 - 24.50p) Issued to meet staff bonuses (Jan 2016 - (154,073) - (101) - 24.50p) Issued for new directors share incentive plan - (24,488) - (16) (Jan 2016 - 24.50p) Issued for new staff share incentive plan - (36,732) - (24) (Jan 2016 - 24.50p) Issued for share incentive plan -dividends - (2,831) - (2) investment (Nov 2016 - 21.25p) Issued to meet directors bonuses (Nov - (224,470) - (148) 2016 - 21.25p) Shares held in Treasury at 31 December 221,061 221,061 145 145 Share Option Schemes Employees' share option scheme (Approved scheme) At 31 December 2017 there were no options to subscribe for ordinary shares outstanding, issued under the terms of the Employees' Share Option Scheme. This share option scheme was approved by members in 1986, and has been approved by Her Majesty's Revenue and Customs (HMRC). There are no performance criteria for the exercise of options under the Approved scheme, as this was set up before such requirements were considered to be necessary. A summary of the shares allocated and options issued under the scheme up to 31 December 2017 is as follows: Changes during the year At 1 At 31 January Options Options Options December 2017 Exercised granted lapsed 2017 Shares issued to date 2,367,604 - - - 2,367,604 Shares allocated over which options have 1,549,955 - - - 1,549,955 not been granted Total shares allocated for issue to 3,917,559 - - - 3,917,559 employees under the scheme Non-approved Executive Share Option Scheme (Unapproved scheme) A share option scheme known as the "Non-approved Executive Share Option Scheme" which does not have HMRC approval was set up during 2000. At 31 December 2017 there were no options to subscribe for ordinary shares outstanding. The exercise of options under the Unapproved scheme is subject to the satisfaction of objective performance conditions specified by the remuneration committee which confirms to institutional shareholder guidelines and best practice provisions. A summary of the shares allocated and options issued under the scheme up to 31 December 2017 is as follows: Changes during the year At 1 At 31 January Options Options Options December 2017 Exercised granted lapsed 2017 Shares issued to date 450,000 - - - 450,000 Shares allocated over which options have 550,000 - - - 550,000 not yet been granted Total shares allocated for issue to 1,000,000 - - - 1,000,000 employees under the scheme The Bisichi Mining PLC Unapproved Option Schemes Details of the share option schemes in Bisichi are as follows: Number of Number of share Number of shares options shares Period within for which issued/ for which options exercised/ options Subscription which options outstanding (cancelled) outstanding at at Year of price per exercisable 31 December during year 31 December grant share 2016 2017 2010 202.5p Aug 2013 - Aug 80,000 - 80,000 2020 2015 87.0p Sep 2015 - Sep 300,000 - 300,000 2025 The exercise of options under the Unapproved Share Option Schemes, for certain option issues, is subject to the satisfaction of the objective performance conditions specified by the remuneration committee, which will conform to institutional shareholder guidelines and best practice provisions in force from time to time. On the 5 February 2018 Bisichi entered into an agreement with G.Casey to surrender the 80,000 options which were granted in 2010. The aggregate consideration paid by the Group to effect the cancellation was GBP1. There are no performance or service conditions attached to 2015 options which are outstanding at 31 December 2017 which vested in 2015. On 6 February 2018 Bisichi granted additional options to the following directors: * A.Heller 150,000 options at an exercise price of 73.50p per share. * G.Casey 230,000 options at an exercise price of 73.50p per share. The above options vest on date of grant and are exercisable within a period of 10 years from date of grant. There are no performance or service conditions attached to the options. 2017 2016 Weighted Weighted 2017 average 2016 average Number exercise Number exercise price price Outstanding at 1 380,000 111.3p 705,000 133.1p January Lapsed during the year - - (325,000) 237.5p Outstanding at 31 380,000 111.3p 380,000 111.3p December Exercisable at 31 380,000 111.3p 380,000 111.3p December 27. Non-controlling interest ("NCI") 2017 2016 GBP'000 GBP'000 As at 1 January 10,389 9,574 Share of profit for the year 610 208 Share of gain on available for sale investments 49 104 Dividends received (250) (250) Shares issued - 64 Exchange movement 58 689 As at 31 December 10,856 10,389 The following subsidiaries had material NCI: Bisichi Mining PLC Black Wattle Colliery (Pty) Ltd Summarised financial information for these subsidiaries is set out below. The information is before inter-company eliminations with other companies in the Group. 2017 2016 BISICHI MINING PLC GBP'000 GBP'000 Revenue 37,446 22,791 Profit for the year attributable to owners of the parent 749 479 Profit/(loss) for the year attributable to NCI 172 (72) Profit for the year 921 407 Other comprehensive income attributable to owners of the parent 163 1,186 Other comprehensive income attributable to NCI 11 100 Other comprehensive income for the year 174 1,286 Balance sheet Non-current assets 22,935 24,649 Current assets 13,622 12,224 Total assets 36,557 36,873 Current liabilities (9,025) (10,326) Non-current liabilities (9,858) (9,541) Total liabilities (18,883) (19,867) Net current assets at 31 December 17,674 17,006 Cash flows From operating activities 7,692 2,941 From investing activities (1,812) (1,570) From financing activities (975) (969) Net cash flows 4,905 402
The non-controlling interest comprises of a 37.5% shareholding in Black Wattle Colliery (Pty) Ltd, a coal mining company incorporated in South Africa. Summarised financial information reflecting 100% of the underlying subsidiary's relevant figures, is set out below. 2017 2016 Black Wattle Colliery (Pty) Limited ("Black Wattle") GBP'000 GBP'000 Revenue 36,300 21,703 Expenses (35,150) (22,185) Profit/(loss) for the year 1,150 (482) Total comprehensive income/(expense) for the year 1,150 (482) Balance sheet Non-current assets 8,613 8,516 Current assets 6,747 8,600 Current liabilities (8,652) (12,151) Non-current liabilities (3,155) (2,635) Net assets at 31 December 3,553 2,330 The non-controlling interest relates to the disposal of a 37.5% shareholding in Black Wattle in 2010. The total issued share capital in Black Wattle Colliery (Pty) Ltd was increased from 136 shares to 1,000 shares at par of ZAR1 (South African Rand) through the following shares issue: - a subscription for 489 ordinary shares at par by Bisichi Mining (Exploration) Limited increasing the number of shares held from 136 ordinary shares to a total of 625 ordinary shares; - a subscription for 110 ordinary shares at par by Vunani Mining (Pty) Ltd; - a subscription for 265 "A" shares at par by Vunani Mining (Pty) Ltd Bisichi Mining (Exploration) Limited is a wholly owned subsidiary of Bisichi Mining PLC incorporated in England and Wales. Vunani Mining (Pty) Ltd is a South African Black Economic Empowerment company and minority shareholder in Black Wattle. The "A" shares rank pari passu with the ordinary shares save that they will have no dividend rights until such time as the dividends paid by Black Wattle Colliery (Pty) Ltd on the ordinary shares subsequent to 30 October 2008 will equate to ZAR832,075,000. A non-controlling interest of 15% in Black Wattle is recognised for all profits distributable to the 110 ordinary shares held by Vunani Mining (Pty) Ltd from the date of issue of the shares (18 October 2010). An additional non-controlling interest will be recognised for all profits distributable to the 265 "A" shares held by Vunani Mining (Pty) Ltd after such time as the profits available for distribution, in Black Wattle Colliery (Pty) Ltd, before any payment of dividends after 30 October 2008, exceeds ZAR832,075,000. 28. Related party transactions Cost Amounts Advanced recharged owed to to (by) by (to) (by) related related related party party party GBP'000 GBP'000 GBP'000 Related party: Dragon Retail Properties Limited Current account - 24 (84) Loan account (1) - - Bisichi Mining PLC Current account - - - Simon Heller Charitable Trust Current account (63) - - Loan account - (700) - Directors and key management M A Heller and J A Heller 15 (i) 1 - H D Goldring (Delmore Holdings Limited) (15) (ii) - - C A Parritt (18) (ii) (4) - R Priest (35) (ii) - - Ezimbokodweni Mining (pty) Limited - see 46 - - note 12 Totals at 31 December 2017 (71) (679) (84) Totals at 31 December 2016 53 340 (208) Nature of costs recharged - (i) Property management fees (ii) Consultancy fees. Directors London & Associated Properties PLC provides office premises, property management, general management, accounting and administration services for a number of private property companies in which Sir Michael Heller and J A Heller have an interest. Under an agreement with Sir Michael Heller no charge is made for these services on the basis that he reduces by an equivalent amount the charge for his services to London & Associated Properties PLC. The board estimates that the value of these services, if supplied to a third party, would have been GBP300,000 for the year (2016: GBP300,000). The companies for which services are provided are: Barmik Properties Limited, Cawgate Limited, Clerewell Limited, Cloathgate Limited, Ken-Crav Investments Limited, London & South Yorkshire Securities Limited, Metroc Limited, Penrith Retail Limited, Shop.com Limited, South Yorkshire Property Trust Limited, Wasdon Investments Limited, Wasdon (Dover) Limited, and Wasdon (Leeds) Limited. In addition the Company receives management fees of GBP10,000 (2016: GBP10,000) for work done for two charitable foundations, the Michael & Morven Heller Charitable Foundation and the Simon Heller Charitable Trust. The Simon Heller Trust has placed on deposit with LAP GBP700,000 at an interest rate of 9% which is refundable on demand. Delmore Holdings Limited (Delmore) is a Company in which H D Goldring is a majority shareholder and director. Delmore provides consultancy services to the Company on an invoiced fee basis. R Priest provided consultancy services to the Company on an invoiced fee basis. In 2012 a loan of GBP116,000 was made by Bisichi to one of the Bisichi directors - A R Heller. The loan amount outstanding at the year end was GBP56,000 (2016: GBP 71,000) and a repayment of GBP15,000 (2016: GBP15,000) was made during the year. Interest is payable on the loan at a rate of 6.14 percent. There is no fixed repayment date for the loan. The directors are considered to be the only key management personnel and their remuneration including employer's national insurance for the year were GBP949,000 (2016: GBP1,103,000). All other disclosures required including interest in share options in respect of those directors are included within the remuneration report. 29. Employees The average number of employees, including directors, of the Group during the year was as follows: 2017 2016 Production 192 185 Administration 45 46 237 231 Staff costs during the year were as follows: 2017 2016 GBP'000 GBP'000 Salaries and other costs 7,426 6,397 Social security costs 327 332 Pension costs 360 335 Share based payments - 109 8,113 7,173 30. Capital Commitments 2017 2016 GBP'000 GBP'000 Commitments for capital expenditure approved and contracted for - 762 at the year end Share of commitment of capital expenditure in joint venture - 1,489 All the above relates to Bisichi Mining PLC. 31. Operating and finance leases Operating leases on land and buildings At 31 December 2017 the Group had commitments under non-cancellable operating leases on land and buildings expiring as follows: 2017 2016 GBP'000 GBP'000 Within one year 240 240 Second to fifth year 960 960 After five years 240 480 Operating lease payments represent rentals payable by the Group for its office premises. The leases are for an average term of ten years and rentals are fixed for an average of five years. Present value of head leases on properties Present value Minimum lease of minimum Payments lease payments
2017 2016 2017 2016 GBP'000 GBP'000 GBP'000 GBP'000 Within one year 211 305 211 305 Second to fifth year 841 1,222 776 1,130 After five years 16,682 29,734 2,246 3,332 17,734 31,261 3,233 4,767 Future finance charges on finance leases (14,501) (26,494) - - Present value of finance lease liabilities 3,233 4,767 3,233 4,767 Finance lease liabilities are in respect of leased investment property. Many leases provide for contingent rent in addition to the rents above, usually a proportion of rental income. Finance lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. Future aggregate minimum rentals receivable The Group leases out its investment properties to tenants under operating leases. The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows: 2017 2016 GBP'000 GBP'000 Within one year 5,088 6,684 Second to fifth year 14,597 20,104 After five years 18,519 36,736 38,204 63,524 32. Contingent liabilities and events after the reporting period There were no contingent liabilities at 31 December 2017 (2016: GBPNil), except as disclosed in note 23. Bank guarantees have been issued by the bankers of Black Wattle Colliery (Pty) Limited on behalf of the Company to third parties. The guarantees are secured against the assets of the Company and have been issued in respect of the following: 2017 2016 GBP'000 GBP'000 Rail siding & transportation 64 63 Rehabilitation of mining land 1,387 1,364 Water & electricity 58 57 1,509 1,484 In March 2018 contracts were exchanged for the sale of both Brixton markets for a combined sale price of GBP37.25 million. Following the Market Row completion on 23 April 2018, GBP15.9 million of bank loans related to those properties have been repaid. The Brixton Village completion was on 26 April 2018. As required under IFRS, these properties have been reclassified from Investment properties to Assets held for sale at their net disposal value of GBP36.44 million. 33. Company financial statements Company balance sheet at 31 December 2017 2017 2016 Notes GBP'000 GBP'000 Fixed assets Tangible assets 33.3 25,397 27,383 Other investments: Associated company - Bisichi Mining PLC 33.4 489 489 Subsidiaries and others including Dragon 33.4 42,598 42,492 Retail Properties Limited 43,087 42,981 68,484 70,364 Current assets Debtors 33.5 1,025 1,130 Deferred tax due after more than one year 33.9 2,059 2,082 Investments 33.6 19 19 Bank balances 1,233 2,625 4,336 5,856 Creditors Amounts falling due within one year 33.7 (35,540) (34,790) Borrowings 33.8 (3,000) (750) Net current liabilities (34,204) (29,684) Total assets less current liabilities 34,280 40,680 Creditors Amounts falling due after more than one 33.8 (13,003) (17,491) year Net assets 21,277 23,189 Capital and reserves Share capital 33.10 8,554 8,554 Share premium account 4,866 4,866 Capital redemption reserve 47 47 Treasury shares 33.10 (145) (145) Retained earnings 7,955 9,867 Shareholders' funds 21,277 23,189 The loss for the financial year, before dividends was GBP1,771,000 (2016: profit of GBP1,418,000) These financial statements were approved by the board of directors and authorised for issue on 27 April 2018 and signed on its behalf by: Sir Michael Heller Anil Thapar Company Registration No. 341829 Director Director COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEARED 31 DECEMBER 2017 Retained earnings Capital excluding Share Share redemption Treasury treasury Total capital premium reserve shares shares equity GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Balance at 1 January 2016 8,554 4,866 47 (482) 8,803 21,788 Profit for the year - - - - 1,418 1,418 Total comprehensive income - - - - 1,418 1,418 Transactions with owners: Dividends - equity holders - - - - (136) (136) Disposal of own shares - - - 119 - 119 Loss on transfer of own shares - - - 218 (218) - Transactions with owners - - - 337 (354) (17) Balance at 31 December 2016 8,554 4,866 47 (145) 9,867 23,189 Loss for the year - - - - (1,771) (1,771) Total comprehensive expense - - - - (1,771) (1,771) Transaction with owners: Dividends - equity holders - - - - (141) (141) Transactions with owners - - - - (141) (141) Balance at 31 December 2017 8,554 4,866 47 (145) 7,955 21,277 GBP6.5 million (2016: GBP7.9 million) of retained earnings (excluding treasury shares) is distributable. 33.1. Company Accounting policies The following are the main accounting policies of the Company: Basis of Preparation The financial statements have been prepared on a going concern basis and in accordance with Financial Reporting Standard 101 'Reduced Disclosure Framework' (FRS 101) and Companies Act 2006. The financial statements are prepared under the historical cost convention as modified to include the revaluation of freehold and leasehold properties and fair value adjustments in respect of current asset investments and interest rate hedges. The results of the Company are included in the consolidated financial statements. No profit or loss is presented by the Company as permitted by Section 408 of the Companies Act 2006. In these financial statements, the company has applied the exemptions available under FRS 101 in respect of the following disclosures: * Cash Flow Statement and related notes; * Comparative period reconciliations for share capital, tangible fixed assets and intangible assets; * Disclosures in respect of transactions with wholly owned subsidiaries; * Disclosures in respect of capital management; * The effects of new but not yet effective IFRSs; * Disclosures in respect of the compensation of Key Management Personnel. As the consolidated financial statements include the equivalent disclosures, the Company has also taken the exemptions under FRS 101 available in respect of the following disclosures: * IFRS 2 Share Based Payments in respect of Group settled share based payments; * The disclosures required by IFRS 7 and IFRS 13 regarding financial instrument disclosures have not been provided apart from those which are relevant for the financial instruments which are held at fair value and are
not either held as part of trading portfolio or derivatives. Key judgements and estimates The preparation of the financial statements requires management to make assumptions and estimates that may affect the reported amounts of assets and liabilities and the reported income and expenses, further details of which are set out below. Although management believes that the assumptions and estimates used are reasonable, the actual results may differ from those estimates. Further details of the estimates are contained in the Directors' Report and in the Group accounting policies. INVESTMENTS IN SUBSIDIARIES, ASSOCIATED UNDERTAKINGS AND JOINT VENTURES Investments in subsidiaries, associated undertakings and joint ventures are held at cost less accumulated impairment losses. Fair value measurements of investment properties and investments An assessment of the fair value of certain assets and liabilities, in particular investment properties, is required to be performed. In such instances, fair value measurements are estimated based on the amounts for which the assets and liabilities could be exchanged between market participants. To the extent possible, the assumptions and inputs used take into account externally verifiable inputs. However, such information is by nature subject to uncertainty. The fair value measurement of the investment properties may be considered to be less judgemental where external valuers have been used as is the case with the Company. The following accounting policies are consistent with those of the Group and are disclosed on page 36 to 41 of the Group financial statements. * Revenue * Property operating expenses * Employee benefits * Financial instruments * Investment properties * Other assets and depreciation * Assets held for sale * Income taxes * Leases 33.2. Result for the financial year The Company's result for the year was a loss of GBP1,771,000 (2016: profit of GBP 1,418,000). In accordance with the exemption conferred by Section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account. 33.3. Tangible assets Investment Properties Office equipment Leasehold Leasehold and motor Total Freehold over 50 under 50 vehicles years years GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Cost or valuation at 1 January 27,618 8,885 16,744 1,642 347 2017 Additions 17 - - - 17 (Decrease)/increase in present (1,505) - (1,810) 305 - value of head leases (Decrease)/increase on (485) 410 (895) - - revaluation Cost or valuation at 31 December 25,645 9,295 14,039 1,947 364 2017 Representing assets stated at: Valuation 25,281 9,295 14,039 1,947 - Cost 364 - - - 364 25,645 9,295 14,039 1,947 364 Depreciation at 1 January 2017 235 - - - 235 Charge for the year 13 - - - 13 Depreciation at 31 December 2017 248 - - - 248 Net book value at 1 January 2017 27,383 8,885 16,744 1,642 112 Net book value at 31 December 25,397 9,295 14,039 1,947 116 2017 The freehold and leasehold properties, excluding the present value of head leases and directors' valuations, were valued as at 31 December 2017 by professional firms of chartered surveyors. The valuations were made at fair value. The directors' property valuations were made at fair value. 2017 2016 GBP'000 GBP'000 Allsop LLP 20,375 20,860 Directors' valuation 1,825 1,825 22,200 22,685 Add: Present value of headleases 3,081 4,586 25,281 27,271 The historical cost of investment properties was as follows: Leasehold Leasehold Freehold over 50 under 50 years years GBP'000 GBP'000 GBP'000 Cost at 1 January 2017 4,889 13,966 1,939 Cost at 31 December 2017 4,889 13,966 1,939 Long leasehold properties are held on leases with an unexpired term of more than fifty years at the balance sheet date. 33.4. Other investments Cost or valuation Shares in Shares in subsidiary joint Shares in Total companies ventures associate GBP'000 GBP'000 GBP'000 GBP'000 At 1 January 2017 42,981 42,328 164 489 Impairment provision 106 106 - - At 31 December 2017 43,087 42,434 164 489 Subsidiary companies Details of the Company's subsidiaries are set out in note 15. Under IFRS 10, Bisichi Mining PLC and its subsidiaries and Dragon Retail Properties Limited are treated in the financial statements as subsidiaries of the Company. Impairment reflects reduction in value of investment due to receipt of dividend of GBP15 million from a subsidiary. In the opinion of the directors the value of the investment in subsidiaries is not less than the amount shown in these financial statements. Details of the joint ventures are set out in notes 12 and 13. 33.5. Debtors 2017 2016 GBP'000 GBP'000 Trade debtors 366 343 Amounts due from associate and 33 35 joint ventures Amounts due from subsidiary 100 150 companies Other debtors 118 173 Prepayments and accrued income 408 429 1,025 1,130 33.6. Investments 2017 2016 GBP'000 GBP'000 Market value of the listed 19 19 investment portfolio Unrealised gain of market value 1 1 over cost Listed investment portfolio at 18 18 cost All investments are listed on the London Stock Exchange. 33.7. Creditors: amounts falling due within one year 2017 2016 GBP'000 GBP'000 Amounts owed to subsidiary 29,775 28,750 companies Amounts owed to joint ventures 2,214 2,190 Other taxation and social 278 388 security costs Other creditors 1,400 1,323 Accruals and deferred income 1,873 2,139 35,540 34,790 33.8. Creditors: amounts falling due after more than one year 2017 2016 GBP'000 GBP'000 Present value of head leases on 3,081 4,586 properties Term Debenture stocks: GBP3.75 million First Mortgage - 3,000 Debenture Stock 2018 at 11.6 per cent GBP10 million First Mortgage 9,922 9,905 Debenture Stock 2022 at 8.109 per cent* 9,922 12,905 13,003 17,491 *The GBP10 million debenture is shown after deduction of un-amortised issue costs. Details of terms and security of overdrafts, loans and loan renewal and debentures are set out in note 21. Repayment of borrowings: 2017 2016 GBP'000 GBP'000 Debentures:
Repayable within one year 3,000 750 Repayable between two and five years 9,922 3,000 Repayable in more than five years - 9,905 12,922 13,655 33.9. Deferred tax asset 2017 2016 GBP'000 GBP'000 Deferred Taxation Balance at 1 January 2,082 3,055 Transfer to profit and loss (23) (973) account Balance at 31 December 2,059 2,082 The deferred tax balance comprises the following: Accelerated capital allowances (833) (823) Short-term timing differences (124) (124) Revaluation of investment 66 100 properties Loss relief 2,950 2,929 Deferred tax asset at year end 2,059 2,082 33.10. Share capital Details of share capital, treasury shares and share options are set out in note 26. 33.11. Related party transactions Cost Amounts Advanced recharged owed to to (by) by (to) (by) related related related party party party GBP'000 GBP'000 GBP'000 Related party: Dragon Retail Properties Limited Current account (95) (i) (214) - Loan account - (2,000) - Bisichi Mining PLC Current account 138 (ii) 33 - Simon Heller Charitable Trust Current account (63) - - Loan account - (700) - Directors and key management M A Heller and J A Heller 15 (i) 1 - H D Goldring (Delmore Holdings Limited) (15) (iii) - - C A Parritt (18) (iii) (4) - R Priest (35) (iii) - - Totals at 31 December 2017 (73) (2,884) - Totals at 31 December 2016 (84) (2,916) (34) Nature of costs recharged - (i) Management fees (ii) Property management fees (iii) Consultancy fees During the period, the Company entered into transactions, in the ordinary course of business, with other related parties. The company has taken advantage of the exemption under paragraph 8(k) of FRS101 not to disclose transactions with wholly owned subsidiaries. Dragon Retail Properties Limited - 'Dragon' is owned equally by the Company and Bisichi Mining PLC. During 2013 Dragon lent the company GBP2 million at 6.875 per cent annual interest. Bisichi Mining PLC - The company has 41.52 per cent ownership of 'Bisichi'. Other details of related party transactions are given in note 28. 33.12. Employees 2017 2016 The average weekly number of employees of the company during the year were as follows: Directors & Administration 24 25 Staff costs during the year were 2017 2016 as follows: GBP'000 GBP'000 Salaries 1,375 1,474 Social Security costs 163 178 Pension costs 119 135 1,657 1,787 33.13. Capital commitments There were no capital commitments at 31 December 2017 (2016: GBPNil). 33.14. Operating and finance leases At 31 December 2017 the Company had commitments under non-cancellable operating leases on land and buildings as follows: 2017 2016 GBP'000 GBP'000 Expiring in more than five years 1,440 1,680 In addition, the Company has an annual commitment to pay ground rents on its leasehold investment properties which amount to GBP201,000 (2016: GBP246,000). Present value of head leases on properties Present value Minimum lease of minimum payments lease payments 2017 2016 2017 2016 GBP'000 GBP'000 GBP'000 GBP'000 Within one year 201 294 201 294 Second to fifth year 803 1,177 746 1,094 After five years 15,483 28,298 2,134 3,198 16,487 29,769 3,081 4,586 Future finance charges on (13,406) (25,183) - - finance leases Present value of finance lease 3,081 4,586 3,081 4,586 liabilities Finance lease liabilities are in respect of leased investment property. A few leases provide for contingent rent in addition to the rents above, usually a proportion of rental income. Finance lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. Future aggregate minimum rentals receivable The Company leases out its investment properties to tenants under operating leases. The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows: 33.15. Contingent liabilities and post balance sheet events There were no contingent liabilities at 31 December 2017 (2016: GBPNil). Five year financial summary 2017 2016 2015 2014 2013 GBPM GBPM GBPM GBPM GBPM Portfolio size Investment properties-LAP^ 62 89 89 89 87 Investment properties-joint - - 19 20 16 ventures Investment properties-Dragon 3 3 3 3 3 Retail Properties Investment properties-Bisichi 13 13 13 12 12 Mining^ 78 105 124 124 118 Portfolio activity GBPM GBPM GBPM GBPM GBPM Acquisitions - - 1.00 0.68 - Disposals - - (0.40) - (9.47) Capital Expenditure - 0.16 0.36 - - - 0.16 0.96 0.68 (9.47) Consolidated income statement GBPM GBPM GBPM GBPM GBPM Group income 44.98 29.70 32.67 33.53 43.29 Profit/(loss) before tax 11.28 (0.97) (2.09) (2.69) 1.14 Taxation (2.98) (1.18) 0.04 (3.70) 2.55 Profit/(loss) attributable to 7.69 (2.36) (1.90) (7.14) 3.47 shareholders Earnings/(loss) per share - 9.01p (2.77)p (2.24)p (8.45)p 4.12p basic and diluted Dividend per share 0.300p 0.165p 0.160p 0.156p 0.125p Consolidated balance sheet GBPM GBPM GBPM GBPM GBPM Shareholders' funds attributable 45.86 38.24 40.08 42.55 49.73 to equity shareholders Net borrowings 58.42 62.22 62.39 59.71 53.96 Net assets per share 53.74p 44.83p 47.26p 50.35p 59.00p - basic 53.74p 44.83p 47.26p 50.35p 59.00p - fully diluted Consolidated cash flow statement GBPM GBPM GBPM GBPM GBPM Cash generated from operations 10.29 5.59 4.37 2.96 12.23 Capital investment and financial (1.80)) (0.18) (2.77) 100.42 4.35 investment Notes: ^ Excluding the present value of head leases END
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