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|---|---|---|---|
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From Nov 2019 to Nov 2024
TIDMWNER
RNS Number : 8572I
Warner Estate Holdings PLC
31 July 2012
Warner Estate Holdings PLC
Warner Estate Holdings PLC ("Warner Estate" or "Group"), the property investment and management company has today announced its results for the year ended 31 March 2012.
Financial Summary
-- Revenue GBP29.5million (2011: GBP30.5million)
-- Recurring operating profit before net movements on investments GBP12.3million (2011: GBP12.7million)(i)
-- Loss before income tax GBP38.6million (2011: GBP7.1million loss) -- Net liabilities per share 91p (2011: 20p net liabilities) -- Loss per share 70.2p (2011: 12.9p loss)
(i) Adjusted for non-recurring net property expenses of GBP0.6million (2011: Adjusted for non-recurring management fee income of GBP1.1million and net property expenses of GBP0.4million )
Key Business Events
-- 16 Upper Woburn Place, London sold in August 2011 for GBP18.1million (book value GBP19.35million); Wingate Road, Luton and St Mary's Road, Sheffield sold in April and May 2011 respectively for GBP4.0million (book value GBP3.3million). Three smaller properties: Woking; Romford; and, Southampton, were also sold at the end of 2011 for GBP4.7million (book value GBP7.05million).
-- Post year end, the Group successfully sold 60 New Broad Street for GBP28.6million (book value GBP28.25million) and the larger of its two Horsham properties for GBP6.5million (book value GBP5.45million).
-- GBP0.6m upgrade of Bouverie Place, Folkestone, adding TK Maxx to the exisiting retail offering of Asda, New Look, Peacocks, HMV and Primark.
Philip Warner, Chairman of Warner Estate commented
"Following the disposal of the Group's property assets and satisfactory arrangements being reached with the Lenders, including the release of certain security, the Group will continue as an asset management business. Initially this would be based on the asset management contracts for the Ashtenne Industrial Fund and Apia Regional Offices Fund. Achieving the release of the security over the asset management business is fundamental and the continuing viability of the asset management business is dependent on the timing and quantum of management fee income and the implementation of further cost savings."
Date: 31 July 2012
For further information contact:
Warner Estate Holdings PLC Philip Warner, Chairman Mark Keogh, Group Managing Director Robert Game, Group Managing Director, Property Tel: 020 7907 5100 Web: www.warnerestate.co.uk
Chairman's Statement
The Warner Estate Holdings PLC Group's ("Group") primary focus continues to be negotiations with its three lenders; Barclays Bank PLC ("Barclays"), Lloyds Banking Group ("Lloyds") and an affiliate of The Royal Bank of Scotland ("the RBS affiliate") (in which a Blackstone fund has a minority interest and which is advised by Blackstone Real Estate Debt Advisors ("BREDA")) (the "Lenders"). As previously announced during these negotiations the Group remains reliant on the continuing support of the Lenders and the outcome of the negotiations will determine the Group's future. Further detail on these negotiations is given below.
Net asset value per share has deteriorated during the year ended 31 March 2012 from a negative 20p to a negative 91p, mainly due to losses on revaluation. Sales and reduced values also depressed asset management income and operating profit, outweighing an encouraging further reduction in the void rate. Further detail is shown below.
Financing Negotiations and Going Concern
In anticipation of the maturity of the Group's facilities on 31 December 2012 and the inability of the Group to meet repayment obligations at that date, the Group's negotiations with its Lenders continue and there remains uncertainty as to what will happen after that date.
From the Group's perspective, the ultimate aim of these negotiations is to dispose of the investment property business and continue thereafter as an asset management business, initially based on the asset management contracts for the Ashtenne Industrial Fund and the Apia Regional Offices Fund.
As previously announced the Group has agreed with Barclays and Lloyds to market and dispose of certain secured properties in order to repay some of the outstanding debt by 31 December 2012. This has resulted in a reclassification of these assets in the Statement of Financial Position to "investment properties classified as held for sale" under Current Assets and as disclosed in note 13. If the disposals are completed by 31 December 2012 then it is expected that any outstanding debt, exit fees and accrued interest will be treated in a way that will allow the relevant subsidiary companies to be put into members' voluntary liquidation on a solvent basis. If the disposals are not completed by 31 December 2012 then the Group will be reliant on reaching an alternative agreement with the relevant lender. Details of the Group's recent disposals are set out in the Property Review below.
The Group and BREDA are seeking to agree a proposal which will result in the RBS Affiliate, directly or indirectly, obtaining control of its secured real estate and related assets together with the benefit of certain of its other secured assets. The proposal could involve a consensual and managed appointment of fixed charge receivers over their secured real estate. BREDA has put forward a draft standstill agreement which identifies the steps and conditions that need to be satisfied by the Group. The Group and BREDA are continuing to consider the feasibility and terms of this arrangement. At this stage there can be no certainty as to the structure of any arrangement between the Group and the RBS Affiliate or whether it will be a consensual arrangement. As part of the ongoing negotiations, the Group has agreed that the RBS Affiliate can have control over payments from certain secured rental bank accounts in a manner consistent with its pre-existing contractual rights. This is consistent with the existing practice for the other two lenders. BREDA, on behalf of the RBS Affiliate, has restricted the use of monies in the secured rental accounts to what it regards as certain essential ordinary course of business payments.
Engagement with potential investors in the Group has ceased until the position with the Group's Lenders has become more certain. As previously reported the Board believes that there is little or no value to existing shareholders, whatever the outcome of the negotiations with the lenders.
Although the Group has net liabilities, mainly due to unrealised valuation movements, the Board is satisfied, following a review of appropriately stress tested cash flow forecasts for both the investment property and asset management business, that, subject to the satisfactory outcome of negotiations with the Lenders and the continued support of the Lenders and certain other creditors, the Group will be able to meet its liabilities as and when they fall due for the foreseeable future. These cash flow forecasts are based on a number of assumptions and at certain points over the coming months and beyond, the level of cash held by the business will be low and headroom will be marginal. The key business risks and material uncertainties are set out in Note 1 to the financial statements. The forecasts include the payment of the outstanding REIT conversion charge liability of GBP0.6million due to HMRC in relation to the investment property business. This liability will be settled over a period of time, and although a payment plan is yet to be agreed with HMRC, the Group has established a good track record with HMRC in relation to the settlement of the REIT charge liability over the past three years, and therefore the Board believes that a payment plan can be agreed. The forecasts exclude any payment in relation to the provision for onerous contracts of GBP3.2million as detailed in Note 23 to the financial statements. The portfolio of onerous contracts was assigned to the Group in 2005, and given the inability of the relevant entities within the Group to meet those liabilities the original assignor has in practice reassumed the liability for the remaining contracts and has not sought to pursue any Group entity.
Having taken all the above matters into account, together with the key business risks and material uncertainties set out in Note 1 to the financial statements and the status of the ongoing negotiations with the Lenders, the Directors have concluded that, whilst material uncertainties regarding the Group's future exist, which may cast significant doubt over the ability of the Group to continue as a going concern, it remains appropriate to prepare the financial statements on a going concern basis. Accordingly, the consolidated financial statements do not include the adjustments that would result from a failure to remain a going concern.
Results Overview
Operating profit before net movements on investments for the year has decreased to GBP11.7million (2011: GBP13.4million). Recurring operating profit before net movements on investments for the year was GBP12.3million compared to GBP12.7million last year due to lower asset management fee income. Recurring operating profit excludes one-off property costs of GBP0.6million (2011: excludes one-off fees received on the disposal of Radial Distribution of GBP1.1million offset by the movement in other accruals of GBP0.4million). Overall the Group made a post tax loss of GBP38.7million (2011: GBP7.2million loss), mainly due to fair value adjustments on investment properties and investments as well as realised losses on the disposal of investment properties.
The net finance expense for the period has increased to GBP21.3million (2011: GBP19.3million) as a result of a stepped increase in margin on accrued "payment in kind" interest and exit fees. The Group has hedged 17% of its gross debt as at 31 March 2012. One swap of GBP40million expired on 12 April 2011 and two swaps of GBP25million each were terminated during the year at a cost of GBP2.9million which has been expensed to the income statement. The headline cost of debt (before exit fees) is 5.75% of which the cash cost is 2.84%. Group net debt has been reduced to GBP219.6million as at 31 March 2012 from GBP244.9million as at 31 March 2011 as a result of the disposal of certain investment properties as set out in the Property Review below. The net cash inflow for the year was GBP2.6million, being the net cash from operating activities and distributions received from funds.
Only one of the Group's three facilities had a loan to value ("LTV") covenant during the year ended 31 March 2012. This covenant was not tested as at 31 March 2012. If tested, the covenant would have been in technical breach at the year end however, the covenant would be compliant as at 31 July 2012 if tested by reference to the Cushman & Wakefield 31 March 2012 property valuations, being the most recent valuations carried out, this is due to the disposal of properties since the year end and repayment of debt. The Board recognises that there may have been a further deterioration in the valuations since 31 March 2012.
The Board has considered the likely future headroom under the other financial covenants and concluded that, based on best current estimates and the Group's income and positive cash generation, the Group will, for the foreseeable future, have adequate headroom. Further detail on the financial covenants is set out in note 21 to the accounts.
There will be no payment of a dividend for this financial year (2011: nil).
Property Review
The decline in total assets under management (see table below) by GBP357.8 million since March 2011 has arisen through a combination of sales of c.GBP270million and valuation movements of c.GBP87 million with the Group's regional shopping centre joint venture, Agora, suffering most from the recent loss of investor confidence in retail property. As announced on 22 December 2011, the assets owned by the Agora Max joint venture, whose carrying value was written down to nil in the Group's balance sheet, were disposed of, reducing assets under management by GBP84.4million. In addition, as previously reported, an LPA receiver was appointed to the assets owned by the Greater London Offices joint venture, which reduced assets under management by a further GBP74.5million.
The Group has continued to market certain properties from its wholly owned portfolio to reduce debt. During the financial year and subsequently, the Group sold a total of eight assets for GBP61.9million.
16 Upper Woburn Place, London was sold in August 2011 for GBP18.1million (book value GBP19.35million); Wingate Road, Luton and St Mary's Road, Sheffield were sold in April and May 2011 respectively for GBP4.0million (book value GBP3.3million). Three smaller properties: Woking; Romford; and, Southampton, were also sold at the end of 2011 for GBP4.7million (book value GBP7.05million). Post year end, the Group successfully sold 60 New Broad Street for GBP28.6million (book value GBP28.25million) and the larger of its two Horsham properties for GBP6.5million (book value GBP5.45million).
With tenant retention rates holding up well, the wholly owned portfolio void rate has improved to 5.6% by estimated rental value as at 31 March 2012 (March 2011 : 10.1%).
Hot Features
Premium
As at 31 March Annualised Estimated
2012 Number Capital Net Rental Rental Net Initial Equivalent
of Properties Value Income Value Yield Yield Void Rate
GBPm GBPm GBPm % % %
Wholly Owned 39 162.1 13.5 14.7 7.7 8.0 5.6
--------------------- --------------- -------- ------------ ---------- ------------ ----------- ----------
Agora Shopping
Centres JV 8 120.9 11.2 16.7 8.6 10.8 11.1
Apia Regional
Office Fund 12 119.9 7.7 14.4 5.5 9.1 29.4
Ashtenne Industrial
Fund 348 630.3 51.3 71.6 7.9 10.1 17.2
Total 407 1,033.2 83.7 117.4 7.7 9.7 16.4
--------------------- --------------- -------- ------------ ---------- ------------ ----------- ----------
Outlook
Following the disposal of the Group's property assets and satisfactory arrangements being reached with the Lenders along the lines described above, including the release of certain security, the Group will continue as an asset management business. Initially this would be based on the asset management contracts for the Ashtenne Industrial Fund and Apia Regional Offices Fund. Achieving the release of the security over the asset management business is fundamental and the continuing viability of the asset management business is dependent on the timing and quantum of management fee income and the implementation of further cost savings.
Philip Warner
Chairman
Consolidated Income Statement
For the year ended 31 March 2012
Notes 2012 2011
GBPm GBPm
--------------------------------------- ------ ------- -------
Revenue 29.5 30.5
--------------------------------------- ------ ------- -------
Rental and similar income 17.3 16.5
Property management expenses (5.3) (3.0)
Service charge and similar income 3.9 3.8
Service charge expense and similar
charges (4.8) (5.0)
------- -------
Net rental income 2 11.1 12.3
------- -------
Revenue from asset management
activities 8.3 10.2
Asset management expenses (7.0) (7.9)
--------------------------------------- ------ ------- -------
Net income from asset management
activities 2 1.3 2.3
------- -------
Other operating expenses (0.7) (1.2)
------- -------
Operating profit before net movements
on investments 2 11.7 13.4
------- -------
Net (loss) / gain from fair value
adjustments on investment properties 13 (21.0) 6.9
Net loss from fair value adjustment
on investments 16/17 (4.2) (3.3)
(Loss) / profit on sale of investment
properties 5 (3.9) 0.2
Profit on sale of investment in
joint ventures 15 - 0.5
Profit on termination of asset
management contract 15 - 3.0
Impairment of goodwill 12 (2.0) (8.4)
Operating (loss) / profit (19.4) 12.3
------- -------
Finance income 6 1.1 1.7
Finance expense 7 (22.4) (21.0)
Change in fair value of derivative
financial instruments 21 2.1 (0.1)
Share of joint ventures' post 15 - -
tax losses
--------------------------------------- ------ ------- -------
Loss before income tax (38.6) (7.1)
------- -------
Taxation - current 8 (0.1) (0.1)
Taxation - deferred 8 - -
Loss for the year (38.7) (7.2)
--------------------------------------- ------ ------- -------
P p
Loss per share 11 (70.20) (12.93)
------------------------ --- -------- --------
Diluted loss per share 11 (67.23) (11.96)
------------------------ --- -------- --------
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2012
Notes 2012 2011
GBPm GBPm
------------------------------------ ------ ------- ------
Loss for the year (38.7) (7.2)
Other comprehensive expense:
Actuarial losses on retirement
benefit obligations 3 (0.2) -
Deferred tax arising on retirement
benefit obligations 3 (0.1) -
------------------------------------ ------ ------- ------
Total comprehensive expense for
the year (39.0) (7.2)
------------------------------------ ------ ------- ------
Statement of Financial Position
Group Company
Notes 2012 2011 2012 2011
GBPm GBPm GBPm GBPm
----------------------------------- ------ -------- -------- -------- --------
ASSETS
Non-current assets
Goodwill 12 0.8 2.8 - -
Investment properties 13 70.9 212.2 - -
Plant and equipment 14 0.1 0.1 - -
Investments in joint ventures 15 - - - -
Investments in funds 16 33.8 38.0 - -
Investments in listed and
unlisted shares 17 0.3 0.3 40.6 62.4
Deferred income tax assets 22 0.1 0.2 - -
Trade and other receivables 18 3.6 3.0 - -
----------------------------------- ------ -------- -------- -------- --------
109.6 256.6 40.6 62.4
----------------------------------- ------ -------- -------- -------- --------
Current assets
Investment properties classified
as held for sale 13 90.8 - - -
Trade and other receivables 18 5.1 6.1 48.9 65.8
Cash and cash equivalents 19 9.8 7.2 0.2 -
----------------------------------- ------ -------- -------- -------- --------
105.7 13.3 49.1 65.8
----------------------------------- ------ -------- -------- -------- --------
Total assets 215.3 269.9 89.7 128.2
----------------------------------- ------ -------- -------- -------- --------
LIABILITIES
Non-current liabilities
Borrowings, including finance
leases 19/20 (3.8) (252.4) - -
Trade and other payables 24 (1.5) (7.1) - -
Derivative financial liabilities 21 (0.5) (2.6) - -
Retirement benefit obligations 3 (0.6) (0.6) - -
Provisions for other liabilities
and charges 23 (2.4) (3.2) - -
----------------------------------- ------ -------- -------- -------- --------
(8.8) (265.9) - -
----------------------------------- ------ -------- -------- -------- --------
Current liabilities
Borrowings, including finance
leases 19/20 (229.1) (1.0) - -
Trade and other payables 24 (26.6) (12.3) (139.9) (139.4)
Current income tax liabilities (0.1) - - -
Provisions for other liabilities
and charges 23 (0.9) (1.9) - -
----------------------------------- ------ -------- -------- -------- --------
(256.7) (15.2) (139.9) (139.4)
----------------------------------- ------ -------- -------- -------- --------
Total liabilities (265.5) (281.1) (139.9) (139.4)
----------------------------------- ------ -------- -------- -------- --------
Net liabilities (50.2) (11.2) (50.2) (11.2)
----------------------------------- ------ -------- -------- -------- --------
EQUITY
Capital and reserves attributable
to the owners of the Parent
Company
Share capital 25 2.8 2.8 2.8 2.8
Other reserves 26 (52.4) (13.2) (52.4) (13.2)
Investment in own shares 27 (0.6) (0.8) (0.6) (0.8)
----------------------------------- ------ -------- -------- -------- --------
Total deficit (50.2) (11.2) (50.2) (11.2)
----------------------------------- ------ -------- -------- -------- --------
Statement of Changes in Equity
For the year ended 31 March 2012
Share Investment
Share Share Based Revaluation Other Treasury Retained Warrants in own
Group Capital Premium Payments Reserve Reserve Shares Earnings reserve shares Total
(note (note (note (note (note (note (note (note (note
25) 26) 26) 26) 26) 26) 26) 26) 27)
--------------- -------- -------- --------- ------------ -------- --------- --------- --------- ----------- -------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 31 March
2010 2.8 40.7 1.5 (227.7) 8.0 (1.5) 172.4 0.8 (1.0) (4.0)
Loss for
the year
and other
comprehensive
expense - - - - - - (7.2) - (7.2)
Movement
on
revaluation - - - 39.0 - - (39.0) - - -
--------------- -------- -------- --------- ------------ -------- --------- --------- --------- ----------- -------
Transactions
with owners:
Disposal
of investment
in own shares - - - - - - - - 0.2 0.2
Cost of share
based
payments - - (0.5) - - - 0.3 - - (0.2)
At 31 March
2011 2.8 40.7 1.0 (188.7) 8.0 (1.5) 126.5 0.8 (0.8) (11.2)
--------------- -------- -------- --------- ------------ -------- --------- --------- --------- ----------- -------
Loss for
the year - - - - - - (38.7) - - (38.7)
Other
comprehensive
expense - - - - - - (0.3) - - (0.3)
--------------- -------- -------- --------- ------------ -------- --------- --------- --------- ----------- -------
Total
comprehensive
expense - - - - - - (39.0) - - (39.0)
Movement
on
revaluation - - - (66.7) - - 66.7 - - -
--------------- -------- -------- --------- ------------ -------- --------- --------- --------- ----------- -------
Transactions
with owners:
Disposal
of investment
in own shares - - - - - - - - 0.2 0.2
Cost of share
based
payments - - (0.5) - - - 0.3 - - (0.2)
Transfer - - - - - 1.5 (1.5) - - -
--------------- -------- -------- --------- ------------ -------- --------- --------- --------- ----------- -------
At 31 March
2012 2.8 40.7 0.5 (255.4) 8.0 - 153.0 0.8 (0.6) (50.2)
--------------- -------- -------- --------- ------------ -------- --------- --------- --------- ----------- -------
Share Investment
Share Share Based Other Treasury Retained Warrants in own
Company Capital Premium Payments Reserve Shares Earnings reserve shares Total
(note (note (note (note (note (note (note (note
25) 26) 26) 26) 26) 26) 26) 27)
--------------- --------- --------- ---------- --------- ---------- ---------- ---------- ----------- -------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 31 March
2010 2.8 40.7 1.5 7.0 (1.5) (54.3) 0.8 (1.0) (4.0)
Loss for
the year
and other
comprehensive
expense - - - - - (7.2) - - (7.2)
Transactions
with owners:
Disposal
of investment
in own shares - - - - - - - 0.2 0.2
Cost of share
based
payments - - (0.5) - - 0.3 - - (0.2)
At 31 March
2011 2.8 40.7 1.0 7.0 (1.5) (61.2) 0.8 (0.8) (11.2)
--------------- --------- --------- ---------- --------- ---------- ---------- ---------- ----------- -------
Loss for
the year
and other
comprehensive
expense - - - - - (39.0) - - (39.0)
Transactions
with owners:
Disposal
of investment
in own shares - - - - - - - 0.2 0.2
Cost of share
based
payments - - (0.5) - 0.3 - - (0.2)
Transfer - - - - 1.5 (1.5) - - -
At 31 March
2012 2.8 40.7 0.5 7.0 - (101.4) 0.8 (0.6) (50.2)
--------------- --------- --------- ---------- --------- ---------- ---------- ---------- ----------- -------
Cash Flow Statements
For the year ended 31 March 2012
Group Company
Notes 2012 2011 2012 2011
GBPm GBPm GBPm GBPm
---------------------------------------- ------ ------- ------- ----- ------
Cash flows from operating activities
Cash generated from operations 29 10.2 5.0 0.2 (0.1)
Interest paid (8.4) (7.6) - -
Interest received - 0.2 - -
UK Corporation tax paid - (0.4) - -
---------------------------------------- ------ ------- ------- ----- ------
Net cash inflow / (outflow) from
operating activities 1.8 (2.8) 0.2 (0.1)
---------------------------------------- ------ ------- ------- ----- ------
Cash flows from investing activities
Purchase of investment properties
and capital expenditure (0.4) (0.4) - -
Sale of investment properties 25.5 10.7 - -
Sale of investments in joint ventures - 0.5 - -
Termination of asset management - 3.0 - -
contract
Distributions received from funds 1.3 1.1 - -
Net cash inflow from investing
activities 26.4 14.9 - -
---------------------------------------- ------ ------- ------- ----- ------
Cash flows from financing activities
Dividends paid - - - -
Increase in bank loans - 2.0 - -
Repayment of bank loans (22.7) (10.8) - -
Finance fees paid(1) (2.9) (0.6) - -
Net cash outflow from financing
activities (25.6) (9.4) - -
---------------------------------------- ------ ------- ------- ----- ------
Net increase / (decrease) in cash
and cash equivalents 2.6 2.7 0.2 (0.1)
Cash and cash equivalents at beginning
of year 7.2 4.5 - 0.1
Cash and cash equivalents at end
of year 19 9.8 7.2 0.2 -
---------------------------------------- ------ ------- ------- ----- ------
(1) Finance fees include derivative break costs
Notes to the financial statements
1. Accounting Policies
Basis of preparation
The Financial Statements comprise the consolidated financial statements of Warner Estate Holdings PLC ("the Group") for the year ended 31 March 2012 and have been prepared in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretation Committee ("IFRIC") interpretations endorsed by the European Union ("EU") and with those parts of the Companies Act 2006 ("The Act") applicable to companies reporting under IFRS. The basis of accounting and format of presentation is subject to change following any further interpretative guidance that may be issued by the International Accounting Standards Board ("IASB") and IFRIC from time to time.
The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain assets and liabilities, which are carried at fair value, and in accordance with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparation.
The parent company's financial statements have also been prepared in accordance with IFRS, as applied in accordance with the provisions of the Act. The Directors' have taken advantage of the exemption offered by Section 408 of the Act not to present a separate statement of comprehensive income for the parent company.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group's accounting policies. Although these estimates are based on management's best knowledge of the amount, events or actions, actual results ultimately may differ from those estimates.
These financial statements have been prepared on a going concern basis which assumes that a solution, based on the disposal of the Group's property assets, will be agreed with the Lenders to resolve the Group's net liability position and the inability of the Group to meet repayment obligations on the maturity of the debt facilities on 31 December 2012. Following this, the Group will continue as an asset management business. In forming their going concern assessment, the Directors have considered the Group as a whole but have analysed the investment property and asset management businesses separately.
Negotiations continue with the Group's three lenders; Barclays Bank PLC ("Barclays"), Lloyds Banking Group ("Lloyds") and an affiliate of The Royal Bank of Scotland ("the RBS affiliate") (in which a Blackstone fund has a minority interest and which is advised by Blackstone Real Estate Debt Advisors ("BREDA")) (the "Lenders").
The Group has agreed disposal plans with Barclays and Lloyds to market and dispose of certain secured properties in order to repay some of the outstanding debt by 31 December 2012. If the disposals are completed by 31 December 2012 then it is expected that any outstanding debt, exit fees and accrued interest will be treated in a way that will allow the relevant subsidiary companies to be put into members' voluntary liquidation on a solvent basis. If the disposals are not completed by 31 December 2012 then the Group will be reliant on reaching an alternative agreement with the relevant lender.
In relation to the third facility, the Group and BREDA are seeking to agree a proposal which will result in the RBS Affiliate, directly or indirectly, obtaining control of its secured real estate and related assets together with the benefit of certain of its other secured assets and releasing the security charge over the asset management business. The proposal could involve a consensual and managed appointment of insolvency officeholders over the secured real estate. BREDA has put forward a draft standstill agreement which identifies the steps and conditions that need to be satisfied by the Group. The Group and BREDA are continuing to consider the feasibility and terms of this arrangement. At this stage there can be no certainty as to the structure of any arrangement between the Group and the RBS Affiliate or whether it will be a consensual arrangement. As part of the ongoing negotiations, the Group has agreed that the RBS Affiliate can have control over payments from certain rental bank accounts in a manner consistent with its pre-existing contractual rights. This is consistent with the existing practice for the other two lenders. BREDA, on behalf of the RBS Affiliate, has restricted the use of monies in the secured rental accounts to what it regards as, certain essential ordinary course of business payments.
The Board is satisfied, following a review of appropriately stress tested cash flow forecasts for both the investment property and asset management businesses, that, subject to the satisfactory outcome of negotiations with the Lenders and the continued support of the Lenders and certain other creditors, the Group will be able to meet its liabilities as and when they fall due for the foreseeable future. These cash flow forecasts are based on a number of assumptions and at certain points over the coming months and beyond, the level of cash held by the business will be low and headroom will be marginal. Achieving the release of the security over the asset management business is fundamentaland the continuing viability of the asset management business is dependent on the timing and quantum of management fee income and the implementation of further cost savings.
Given the above, the material uncertainties which have been taken into account in preparing the going concern assessment are summarised as:
-- whether there will be a satisfactory outcome to the negotiations with BREDA, regarding the debt held by the RBS affiliate, which the Group will be unable to repay upon its maturity in December 2012;
-- whether BREDA will agree to the satisfactory release of the security charge over the Group's asset management business;
-- whether the Lenders, which currently control the bank accounts into which net rental income is received, continue to authorise all the necessary payments in relation to the investment property business;
-- the ability of the Group to successfully execute the disposal plans in relation to the secured assets under the Lloyds and Barclays facilities prior to 31 December 2012 or, if this is not achieved, reaching an alternative agreement with those lenders;
-- in relation to the asset management business cash flow forecast:
-- whether the levels of asset management fee income will be adversely affected by property valuation movements in the funds which the Group manages and on which the Group's fees are based;
-- whether the volume of future asset management transactions, such as lettings and disposals, will impact the timing and quantum of other asset management fee income;
-- whether the original party to the onerous leases (details of which are included in note 23) will take on all future obligations resulting in no further payments being required from the Group as has been assumed in the cash flow forecast;
-- whether a deferred payment plan can be agreed with HMRC in relation to the outstanding REIT conversion charge liabilities and corporation tax;
-- whether the actual timing and quantum of asset management expenditure conforms with the assumed timing and amounts; and
-- the ability to execute certain cost saving initiatives, and the timing of these initiatives;
-- the ability of the Group to remain in compliance with the existing loan covenants on a prospective basis; and
-- whether the Lenders and certain other creditors will continue to be supportive.
Having taken into account these key assumptions, business risks and uncertainties and the status of the ongoing negotiations with the Lenders, the Directors have concluded that, whilst the above material uncertainties exist which may cast significant doubt over the ability of the Group to continue as a going concern, it remains appropriate to prepare the financial statements on a going concern basis. Accordingly, the financial statements do not include the adjustments that would result from a failure to remain a going concern.
Standards, interpretations and amendments to published standards that became effective during the year
There are no new accounting standards or interpretations that are effective for the financial year ended 31 March 2012 that have a material impact on the Group's financial statements.
The following accounting standards or interpretations were effective for the financial year beginning 1 April 2011 but have not had a material impact on the Group:
-- IAS 24 (revised) 'Related party disclosures' -- IFRIC 14 (amendment) 'Prepayments of a Minimum Funding Requirement' -- IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments'
Standards, interpretations and amendments to published standards that are not yet effective
The accounting policies are consistent with those applied in the year ended 31 March 2011, as amended to reflect the adoption of the new Standards, Amendments to Standards and Interpretations which are mandatory for the year ended 31 March 2012. In most cases, these new requirements are not relevant for the Group.
The following accounting standards or interpretations are not yet effective and are not expected to have a material impact on the Group. None of
these accounting standards or interpretations has been early adopted by the Group.
IFRS 7 (amendment) 'Financial instruments: Disclosures'
IFRS 1 (amendment) 'First time adoption'
IAS 12 (amendment) 'Income taxes'
IAS 19 (amendment) 'Employee benefits'
IAS 1 (amendment) Financial statement presentation'
IFRS 9 'Financial instruments'
IFRS 10 'Consolidated financial statements'
IFRS 11 'Joint arrangements'
IFRS 12 'Disclosure of interests in other entities'
IFRS 13 'Fair value measurements'
IAS 27 (revised) 'Separate financial statements'
IAS 28 (revised) 'Associates and joint ventures'
IAS 32 (amendment) 'First time adoption'
IFRIC 20 'Stripping costs in the production phase of a surface mine'
Consolidation
(a) Subsidiary undertakings
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.
The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date control ceases. All inter-company transactions, balances and gains on transactions between Group companies are eliminated upon consolidation. Uniform accounting policies have been adopted across the Group.
(b) Interests in joint ventures
Interests in jointly controlled entities are accounted for using the equity method. Unrealised gains and losses on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in the joint ventures. The Group's share of profit of joint ventures represents the Group's share of the joint venture's profit after tax. Joint ventures with net liabilities are carried at nil value in the statement of financial position where there is no commitment to fund the deficit.
Segment reporting
Segmental information is disclosed in the notes to the financial statements reflecting management reporting of financial performance and position as used in operational decision making. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board that makes strategic decisions.
Plant and equipment
Plant and equipment is initially measured at cost. After initial recognition, it is carried at cost less subsequent depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the consolidated statement of income during the financial period in which they are incurred.
Plant and equipment is depreciated by equal annual instalments over their estimated useful lives and are carried at historic cost less accumulated depreciation. The Group estimates a useful life of 3 years for computer equipment and 8 years for other fixtures and fittings.
Where the carrying amount of an item of plant and equipment is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use and is determined for an individual asset. After initial recognition, the item is carried at its cost less any accumulated depreciation and any accumulated impairment losses.
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date.
Goodwill
Business combinations are accounted for by applying the purchase method. The excess of the cost of the business combination over the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities, recognised in accordance with IFRS 3, Business Combinations, constitutes goodwill, and is recognised as an asset. After initial recognition, goodwill is measured at cost less any accumulated impairment losses, until disposal or termination of the previously acquired business (including planned disposal or termination where there are indications that the value of the goodwill has been permanently impaired), when the profit or loss on disposal or termination will be calculated after charging the book amount of any such goodwill through the consolidated income statement.
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. To the extent that the carrying amount exceeds the recoverable amount, which is the higher of net realisable value and value in use, the asset is written down to its recoverable amount. Any impairment is recognisedin the consolidated income statement and is not subsequently reversed. Net realisable value is the estimated amount at which an asset can be disposed of, less any direct selling costs.
Value in use is the estimate of the discounted future cash flows generated from the asset's continued use, including those resulting from its ultimate disposal. For the purposes of assessing value in use, assets are grouped into cash generating units which represent the lowest levels for which there are separately identifiable cash flows.
Investment properties
(a) Initial recognition
Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Group, is classified as investment property.
Investment property comprises freehold land, freehold buildings, land held under operating leases and buildings held under finance leases. When the Group begins to redevelop an existing investment property for continued future use as an investment property, the property remains an investment property and is accounted for as such.
Property that is being constructed or developed for future use as investment property, but which has not previously been classified as such, is classified as property under the course of development. This is recognised at fair value. Interest is capitalised (before tax relief) on the basis of the average rate of interest paid on the relevant debt outstanding until the date of practical completion. On completion the property is transferred to investment property.
Land held under operating leases is classified and accounted for as investment property when the rest of the definition of investment property is met. In such cases, the operating lease is accounted for as if it were a finance lease.
Investment property is measured initially at its cost, including related transaction costs.
(b) Fair value
After initial recognition, investment property is carried at fair value. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specified asset. The Group uses external valuers to determine the fair values of investment properties. These valuations are performed in accordance with the guidance issued by the Royal Institution of Chartered Surveyors. These valuations are reviewed at each financial reporting period end by independent external valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. Investment property that is being redeveloped for continuing use as investment property, or for which the market has become less active, continues to be measured at fair value.
The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions.
The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property.
Some of those outflows are recognised as a liability, including finance lease liabilities in respect of land classified as investment property; others, including contingent rent payments, are not recognised in the financial statements, unless they qualify as a provision.
(c) Subsequent expenditure
Subsequent expenditure is charged to the asset's carrying amount only when it is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the cost of the item can be measured reliably. All repairs and maintenance costs are charged to the consolidated income statement during the financial period in which they are incurred. Gross borrowing costs associated with direct expenditure on properties under development or undergoing major refurbishment are capitalised. With specific developments, the amount capitalised is the gross interest incurred on those borrowings less any investment income arising on their temporary investment. Interest is capitalised as from the commencement of the development work until the date of practical completion. The capitalisation of finance costs is suspended if there are prolonged periods when development activity is interrupted. Interest is also capitalised on the purchase cost of a site or property acquired specifically for redevelopment in the short term but only where activities necessary to prepare the asset for redevelopment are in progress.
(d) Changes in fair value and transfers
Changes in fair values are recorded in the consolidated income statement for investment properties.
If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment, and its fair value at the date of reclassification becomes its cost for accounting purposes. Property that is being constructed or developed for future use as investment property is classified as properties under the course of development and stated at fair value until construction or development is complete, at which time it is reclassified and subsequently accounted for as investment property.
Investment properties classified as held for sale
Investment properties are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. In accordance with IFRS 5, BC 13, assets already carried at fair value with changes in fair value recognised in profit or loss are excluded from the measurement requirements of the IFRS. Therefore, these assets have been accounted for using the fair value model in IAS 40 as prescribed above.
Cash and cash equivalents
Cash and cash equivalents comprises cash balances, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents are categorised as loans and receivables. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Bank overdrafts are disclosed in current and non-current liabilities.
Employee benefits
The Group accounts for pensions under IAS 19 'Employee Benefits'. In respect of the defined benefit pension scheme, obligations are measured at discounted present value while scheme assets are measured at their fair value.
The operating and financing costs of this plan are recognised separately in the consolidated statement of comprehensive income. Service costs are spread systematically over the working lives of the employees concerned with the charge for the period included in operating costs in the consolidated statement of comprehensive income.
Financing costs are recognised in the periods in which they arise and are included in interest expense. Actuarial gains and losses arising from either experience differing from previous actuarial assumptions or changes to those assumptions are recognised immediately in the consolidated statement of comprehensive income.
Contributions to defined contribution schemes are expensed as incurred.
Income taxes
The investment property segment of the Group's business converted to a REIT as stated below and is therefore exempt from tax. The asset management segment of the business continues to be subject to tax.
The charge for current taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using rates that have been enacted or substantively enacted by the statement of financial position date. Tax payable upon realisation of fair value gains recognised in prior periods is recorded as a current tax charge with a release of the associated deferred tax.
Deferred tax is provided using the statement of financial position liability method in respect of temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in computation of taxable profit with the exception of deferred tax on fair value gains where the tax basis used is the historic cost. Provision is made for temporary differences between the carrying value of assets and liabilities in the consolidated financial statements and the values used for tax purposes. Temporary differences are not provided for when they arise from initial recognition of assets and liabilities that do not affect accounting or taxable profit.
When distributions are controlled by the Group, and it is probable the temporary difference will not reverse in the foreseeable future, deferred tax which would arise on the distribution of profits realised in subsidiaries, associates and joint ventures is provided in the same period as the liability to pay the distribution is recognised in the financial statements.
Deferred tax is determined using tax rates that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. It is recognised in the consolidated income statement except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred tax assets and liabilities are offset only when they relate to taxes levied by the same authority, with a legal right to set off and when the Group intends to settle them on a net basis.
Compliance with the Real Estate Investment Trust ("REIT") taxation regime
On 1 April 2007 the investment property segment of the Group converted to a group REIT. In order to achieve and retain group REIT status, several entrance tests had to be met and certain ongoing criteria must be maintained. The main criteria are as follows:
-- at the start of each accounting period, the assets of the tax exempt business must be at least 75% of the total value of the Group's assets;
-- at least 75% of the Group's total profits must arise from the tax exempt business; and -- at least 90% of the profit of the property rental business must be distributed.
The Directors intend that the Group should continue as a group REIT for the foreseeable future, with the result that deferred tax is no longer recognised on temporary differences relating to the property rental business.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated.
(a) Onerous contracts
Provision is made in respect of costs incurred on vacant leasehold properties or for leasehold properties sublet at a level which renders the properties loss-making over the length of the lease, being the net cash outflow committed to be incurred over the lives of the leases. Any increase or decrease in the provision is taken to the consolidated income statement each financial period. The provision is assessed on a property by property basis taking account of individual cash flows. Cash flows are discounted using the risk free rate.
(b) Share-based payments
The cost of granting share options and other share based remuneration to employees and directors is recognised through the consolidated income statement with reference to the fair value at the date of the grant. The Group has used the Black-Scholes option valuation model and a stochastic model to establish the relevant costs. The resulting values are amortised through the consolidated income statement over the vesting period of the options and other grants. The charge is reversed if it appears probable that applicable performance criteria will not be met.
Own shares held in connection with employee share plans or other share based payment arrangements are treated as treasury shares and deducted from equity. No profit or loss is recognised in the consolidated income statement on their sale, re-issue or cancellation.
(c) Dilapidations
Where the Group, as lessee, is contractually required to restore a leased property to an agreed condition, prior to release by a lessor, provision is made for such dilapidation costs as they are identified.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and is stated net of sales taxes and value added taxes. Revenue includes 'Rental and similar income', 'Service charge and similar income' and 'Revenue from asset management activities'. Revenue is recognised as follows:
(a) Rental and similar income
Rental income from operating lease income is recognised on a straight-line basis over the lease term.
When the Group provides incentives to its customers, the cost of incentives are recognised over the lease term, on a straight-line basis, as a reduction of rental income.
(b) Service charge and similar income
Service and management charge income is recognised on a gross basis in the accounting period in which the services are rendered. Where the Group is acting as an agent, the commission rather than gross income is recorded as revenue.
(c) Revenue from asset management activities
Management fees earned are calculated on an accruals basis. Asset management income is recognised in the accounting period in which the services are rendered.
Performance fees are recognised, in line with the asset management contracts, at the end of the performance period to which they relate, based on the outperformance of relevant benchmarks. The performance period is normally three years. Where performance subsequently falls short of these benchmarks, fees are repayable, up to the amount received for the previous two years. Where there is a reasonable likelihood that part of a performance fee will be repaid the estimated repayment will not be recognised until the outcome can be reliably estimated.
Other income
(a) Income from investments
Dividend income from investments is recognised when the shareholders' rights to receive payment have been established. Distribution income from funds is recognised on an accruals basis.
(b) Gains / losses from property disposals
Profits or losses arising from the sale of trading and investment properties are included in the consolidated income statement of the Group where an exchange of contracts has taken place under which any minor outstanding conditions not affecting the transfer of risks and rewards are entirely within the control of the Group. Profits or losses arising from the sale of trading and investment properties are calculated by reference to their carrying value and are included in operating profit.
(c) Other interest income
Other interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate.
Leases
(a) A Group company is the lessee
(i) Operating lease - leases in which substantially all risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight-line basis over the period of the lease.
(ii) Finance lease - leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease commencement date at the lower of the fair value of the leased property and the present value of the minimum lease payments. The investment properties acquired under finance leases are carried at their fair value.
The corresponding rental obligations, net of finance charges, are included in current and non-current borrowings. The interest element of the finance cost is charged to the consolidated income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
(b) A Group company is the lessor
(i) Operating lease - properties leased out under operating leases are included in investment properties and investment properties classified as held for sale in the consolidated statement of financial position.
(ii) Finance lease - when assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable accrues as finance income. Lease income is recognised over the term of the lease using the net investment method before tax, which reflects a constant periodic rate of return.
Financial instruments and hedging activities
Derivatives
The Group uses derivatives to help manage its interest rate risk. In accordance with its treasury policy, the Group does not hold or issue derivatives for trading purposes.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. None of the derivatives currently held are designated as hedging instruments and accordingly any gain or loss is recognised in the consolidated income statement in the period in which it arises.
Hedge accounting
The Group's derivative financial instruments do not qualify for hedge accounting and changes in the fair value of derivative financial instruments are recognised in the consolidated income statement as they arise.
Financial assets
The Group classifies its financial assets in the following categories: financial assets at fair value through the profit and loss and loans and receivables. There are no held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and reviews this designation at each reporting date.
Purchases and sales of investments are recognised on the trade date; the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.
(a) Financial assets at fair value through the profit and loss
This category has two sub-categories: financial assets held for trading, and those designated at fair value through the profit and loss at inception. A financial asset is classified in the first category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also classified as held for trading unless they are designated as hedges. Assets in the second category are classified as current assets if they are expected to be realised within 12 months of the statement of financial position date.
Realised and unrealised gains and losses arising from changes in the fair value of the 'financial assets at fair value through the profit and loss' category are included in the consolidated income statement in the period in which they arise.
The fair values of listed investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models refined to reflect the issuer's specific circumstances. For unlisted investments in shares, fair value is based on an average spread of price/earnings ratios from comparable companies, discounted for non-marketability. Changing the assumptions to other reasonably possible alternative assumptions would not change the fair value significantly. For investments in funds, fair value is measured as the unit price of the holding at the statement of financial position date.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the statement of financial position date. These are classified as non-current assets. Loans and receivables are included in trade and other receivables in the statement of financial position.
The Group assesses at each statement of financial position date whether there is objective evidence that a financial asset or a group of financial assets is impaired.
Trade and other receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for impairment. A provision for impairment in trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The changes to the provision are recognised in the consolidated income statement.
Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Investments in subsidiary undertakings
Investments in subsidiary undertakings are carried in the company's statement of financial position at cost less any provision for impairment.
Impairment
The carrying amounts of the Group's and Company's financial assets (where applicable) and non-financial assets, other than investment properties and investment properties classified as held for sale, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised in the consolidated income statement whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its fair value less costs to sell and its value in use. The value in use is determined as the net present value of the future cash flows expected to be derived from the asset, discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversedonly to the extent that the asset's carrying amount after the reversal does not exceed the amount that would have been determined, net of applicable depreciation, if no impairment loss had been recognised.
Non-financial assets other than goodwill, which have suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
Borrowings
Borrowings are initially recognised at the fair value of consideration received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated income statement over the period of the borrowings using the effective interest method.
Transaction costs are capitalised on the statement of financial position and are amortised over the life of the associated borrowing instrument through the effective rate of interest.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date.
Exit fees are accrued and recognised in the consolidated income statement over the period of borrowing based on the position at the balance sheet date.
Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of acquisition as part of the purchase consideration.
Where any Group company purchases the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs, (net of tax) is deducted from equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, are included in equity attributable to the Company's equity holders.
Warrants reserve
Warrants issued are classified as non-distributable reserves.
The Group issued warrants to two of its lenders in conjunction with the refinancing entitling them to subscribe for ordinary shares in the Group. These have been accounted for at fair value on the date of issue. As these warrants are related to the refinancing, they have been capitalised as transaction costs and amortised over the life of the associated borrowing as set out in the borrowing accounting policy.
Critical accounting policies and judgements
The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and disclosure of contingencies at the date of the Consolidated Financial Statements. If in the future such estimates and assumptions, which are based on management's best judgement at the date of the Consolidated Financial Statements, deviate from the actual circumstances, the original estimates and assumptions will be modified, as appropriate, in the period in which the circumstances change. The following policies are considered to be of greater complexity and / or particularly subject to the exercise of judgement. These judgements involve assumptions or estimates in respect of future events. Actual results may differ from estimates.
(a) Goodwill
As required by IAS 36, Impairment of Assets, the Group regularly monitors the carrying value of its assets, including goodwill. Impairment reviews compare the carrying values to the present value of future cash flows that are derived from the relevant asset or cash-generating unit. These reviews therefore depend on management estimates and judgements, in particular in relation to the forecasting of future cash flows and the discount rate applied to the cash flows.
(b) Post-employment benefits
Application of IAS 19, Employee Benefits, requires the exercise of judgement in relation to setting the assumptions used by the actuaries in assessing the financial position of each scheme. The Group determines the assumptions to be adopted in discussion with its actuaries, and believe these assumptions to be in line with IAS generally accepted practice.
(c) Provisions
The Group carries statement of financial position provisions in respect of onerous contracts and dilapidations amongst other exposures. Judgement is involved in assessing the exposure in these areas and hence in setting the level of the required provisions.
(d) Estimate of fair value of investment properties and investment properties classified as held for sale
The best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, the Group, using third party independent experts, determines the amount within a range of reasonable fair value estimates. In making its judgement, the Group and its third party independent experts consider information from a variety of sources including:
i) current prices in an active market for properties of a different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;
ii) recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and
iii) discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts, and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.
If information on current or recent prices of assumptions underlying the discounted cash flow approach investment properties is not available, the fair values of investment properties are determined using discounted cash flow valuation techniques. The Group and its third party independent experts use assumptions that are mainly based on market conditions existing at each statement of financial position date.
The principal assumptions underlying management's estimation of fair value are those related to: the receipt of contractual rentals; expected future market rentals; void periods; maintenance requirements; and appropriate discount rates. These valuations are regularly compared to actual market yield data and actual transactions by the company and those reported by the market.
The expected future market rentals are determined on the basis of current market rentals for similar properties in the same location and condition.
The fair value of investment properties and investment properties classified as held for sale are disclosed in note 13.
(e) Investments in unlisted shares
The valuation technique is disclosed in the financial assets accounting policy note. These valuations depend on management estimates and judgements, in particular in relation to the forecasting of future cash flows and the discount rate applied to the cash flows.
2. Segmental Reporting
Business Segments
Operating segments are determined based on the internal reporting and operational management of the Group. The Group is organised into two operating divisions, Property Investment and Asset Management.
Property investment principally involves engaging in acquiring freehold or leasehold properties, including shopping centres, in the UK. Properties are held for capital appreciation and the revenue relates to rental income and is measured in a manner consistent with that in the consolidated income statement. Asset management involves managing property assets and receiving a contractual fee for the service.
The operating segments derive their revenue primarily from rental income and management fees.
Unallocated and other activity costs which include the Group's holdings in joint ventures and investments in funds are incurred centrally which are neither directly nor reasonably attributable to the individual segments.
Property Asset Management Unallocated
Investment and other Group
activities Total
GBPm GBPm GBPm GBPm
---------------------------------------- ------------ ----------------- ------------ --------
Year ended 31 March 2012
Rental and similar income 17.3 - - 17.3
Property management expenses (5.3) - - (5.3)
Service charge and similar income 3.9 - - 3.9
Service charge expense and similar
charges (4.8) - - (4.8)
---------------------------------------- ------------ ----------------- ------------ --------
Net rental income 11.1 - - 11.1
Revenue from asset management
activities
------------ ----------------- ------------ --------
Management fee income - 8.3 - 8.3
Performance fee income - - - -
- 8.3 - 8.3
Asset management expenses - (7.0) - (7.0)
Other operating expenses (0.1) (0.6) - (0.7)
---------------------------------------- ------------ ----------------- ------------ --------
Operating profit before net gain
on investments 11.0 0.7 - 11.7
Net loss from fair value adjustments
on investment properties (21.0) - - (21.0)
Net loss from fair value adjustments
on investments - - (4.2) (4.2)
Loss on sale of investment properties (3.9) - - (3.9)
Impairment of goodwill - (2.0) - (2.0)
Operating loss (13.9) (1.3) (4.2) (19.4)
---------------------------------------- ------------ ----------------- ------------ --------
Net interest expense - - (19.2) (19.2)
Share of joint ventures' post - - - -
tax losses
---------------------------------------- ------------ ----------------- ------------ --------
Loss before income tax (13.9) (1.3) (23.4) (38.6)
---------------------------------------- ------------ ----------------- ------------ --------
Taxation - current - (0.1) - (0.1)
Taxation - deferred - - - -
---------------------------------------- ------------ ----------------- ------------ --------
Loss for the year (13.9) (1.4) (23.4) (38.7)
---------------------------------------- ------------ ----------------- ------------ --------
Total assets 167.8 2.2 45.3 215.3
Total liabilities excluding borrowings
and finance leases (27.4) (0.9) (4.3) (32.6)
Borrowing, including finance leases (3.8) - (229.1) (232.9)
---------------------------------------- ------------ ----------------- ------------ --------
Net assets / (liabilities) 136.6 1.3 (188.1) (50.2)
---------------------------------------- ------------ ----------------- ------------ --------
Other segment items:
Capital expenditure 0.4 - - 0.4
Depreciation - - - -
---------------------------------------- ------------ ----------------- ------------ --------
Property Asset Management Unallocated
Investment and other Group
activities Total
GBPm GBPm GBPm GBPm
----------------------------------------- ------------ ----------------- ------------ --------
Year ended 31 March 2011
Rental and similar income 16.5 - - 16.5
Property management expenses (3.0) - - (3.0)
Service charge and similar income 3.8 - - 3.8
Service charge expense and similar
charges (5.0) - - (5.0)
----------------------------------------- ------------ ----------------- ------------ --------
Net rental income 12.3 - - 12.3
Revenue from asset management
activities
------------ ----------------- ------------ --------
Management fee income - 10.2 - 10.2
Performance fee income - - - -
- 10.2 - 10.2
Asset management expenses - (7.9) - (7.9)
Other operating expenses (0.2) (1.0) - (1.2)
----------------------------------------- ------------ ----------------- ------------ --------
Operating profit before net gain
on investments 12.1 1.3 - 13.4
Net gain from fair value adjustments
on investment properties 6.9 - - 6.9
Net loss from fair value adjustments
on investments - - (3.3) (3.3)
Profit on sale of investment properties 0.2 - - 0.2
Profit on sale of investment in
joint ventures - - 0.5 0.5
Profit on termination of asset
management contract - 3.0 - 3.0
Impairment of goodwill - (8.4) - (8.4)
Operating profit / ( loss) 19.2 (4.1) (2.8) 12.3
----------------------------------------- ------------ ----------------- ------------ --------
Net interest expense - - (19.4) (19.4)
Share of joint ventures' post - - - -
tax losses
----------------------------------------- ------------ ----------------- ------------ --------
Profit / (loss) before income
tax 19.2 (4.1) (22.2) (7.1)
----------------------------------------- ------------ ----------------- ------------ --------
Taxation - current - - (0.1) (0.1)
Taxation - deferred - - - -
----------------------------------------- ------------ ----------------- ------------ --------
Profit / (loss) for the year 19.2 (4.1) (22.3) (7.2)
----------------------------------------- ------------ ----------------- ------------ --------
Total assets 217.9 5.0 47.0 269.9
Total liabilities excluding borrowings
and finance leases (19.2) (1.1) (7.4) (27.7)
Borrowing, including finance leases (4.3) - (249.1) (253.4)
----------------------------------------- ------------ ----------------- ------------ --------
Net (liabilities) / assets 194.4 3.9 (209.5) (11.2)
----------------------------------------- ------------ ----------------- ------------ --------
Other segment items:
Capital expenditure 0.4 - - 0.4
Depreciation - 0.1 - 0.1
----------------------------------------- ------------ ----------------- ------------ --------
All turnover and operating profit has arisen from continuing operations.
(a) Rents receivable includes GBP1.0million (2011: GBP1.2million) which represents rent allocated to rent free periods.
(b) Service charge and similar income includes monies received from tenants in respect of service charge costs the tenants bear on their properties. Service charge costs not recovered ("void costs") are included within service charge expense and similar charges of GBP0.9million (2011: GBP1.2million).
Reportable segments' (losses) / profits after tax are reconciled to total loss for the year as follows:
2012 2011
GBPm GBPm
-------------------------------------- ------- -------
Segments' (loss) / profit after
tax for reportable segments (15.3) 15.1
Unallocated:
Net loss from fair value adjustments
on investments (4.2) (3.3)
Profit on sale of joint ventures - 0.5
Finance income 1.1 1.7
Finance expense (22.4) (21.0)
Change in fair value of derivative
financial instruments 2.1 (0.1)
Share of joint ventures' post - -
tax losses
Taxation - current - (0.1)
Total losses per consolidated
statement of income (38.7) (7.2)
-------------------------------------- ------- -------
Reportable segments' assets are reconciled to total assets as follows:
2012 2011
GBPm GBPm
--------------------------------- ------ ------
Segments' assets for reportable
segments 170.0 222.9
Unallocated:
Investments in funds 33.8 38.0 Investments in listed and unlisted shares 0.3 0.3 Receivables 1.2 1.2 Plant and equipment 0.1 0.1 Deferred income tax assets 0.1 0.2 Cash and cash equivalents 9.8 7.2 ------------------------------------ ------ ------ Total assets per statement of financial position 215.3 269.9 ------------------------------------ ------ ------
Reportable segments' liabilities are reconciled to total liabilities as follows:
2012 2011
GBPm GBPm
-------------------------------------- ----- -----
Segments' liabilities for reportable
segments 32.1 24.6
Unallocated:
Bank loans and overdrafts 229.1 249.1 Derivative financial liabilities 0.5 2.6 Retirement benefit obligations 0.6 0.6 Trade and other payables 3.2 4.2 Total liabilities per statement of financial position 265.5 281.1 ---------------------------------- ------ ------
The Group is domiciled in the United Kingdom where revenue is generated from property assets and management fee income. All revenue derived from external customers is listed above. All of the Group's non-current assets, current assets and all liabilities are domiciled in the United Kingdom.
The parent company is a holding company and does not operate in any segments.
2012 2011
GBPm GBPm
------------------------------------- ----- -----
Operating (loss) / profit is stated
after charging:
Depreciation - owned assets - 0.1
Operating lease charges - occupied
properties 1.1 1.3
During the year the following amounts were charged to the consolidated statement of income in respect of auditors' remuneration:
2012 2011
GBPm GBPm
------------------------------------------------- ----- -----
Remuneration to the principal auditor
in respect of audit fees:
Statutory audit of the company and consolidated
accounts 0.2 0.3
Remuneration to the principal auditor
in respect of other services:
Statutory audit of subsidiary accounts 0.2 0.1
Non-audit services: Taxation 0.1 0.1
------------------------------------------------- ----- -----
0.5 0.5
------------------------------------------------- ----- -----
In addition GBP0.1million was charged by the Auditors for audit services to the joint ventures (2011: GBP0.1million) and nil for tax work (2011: GBPnil).
3. Employees
2012 2011
GBPm GBPm
--------------------------- ----- -----
Staff costs
Wages and salaries 4.5 4.7
Social security costs 0.3 0.5
Other pension costs 0.5 0.4
Other staff costs 0.2 0.2
Share based payment costs - -
--------------------------- ----- -----
5.5 5.8
--------------------------- ----- -----
The amounts above are net of GBP0.8million (2011: GBP0.9million) relating to staff costs recharged to certain joint ventures and funds.
2012 2011
Number Number
---------------------------------------- ------- -------
The average number of persons employed
during the year was:
Directors 2 2
Management and administrative 104 119
Repairs and service 24 29
---------------------------------------- ------- -------
130 150
---------------------------------------- ------- -------
Retirement Benefit Obligations
The Group operates and contributes to pension schemes for certain Directors and employees and makes some discretionary allowances. The costs charged to the consolidated income statement for the year to 31 March 2012 in respect of these amounted to GBP0.5million (2011: GBP0.4million). Pension premiums paid in advance were GBPnil (2011: GBPnil).
The Group operates a funded defined benefit scheme in the UK, The Warner Estate Group Retirement Benefits Scheme. The costs charged to the consolidated income statement for the year to 31 March 2012 in respect of these amounted to GBPnil (2011: GBPnil). A full valuation was carried out at 1 April 2011. The values at 31 March 2012 were updates of the 1 April 2011 valuation carried out by a qualified independent actuary.
It has been agreed with the Trustees that the Group will contribute GBP0.2million per annum.
The discount rate used to calculate the funding target is equal to the yield on fixed interest gilts of appropriate term at the valuation date plus 2% per annum for active and deferred members over the period to retirement. The inflation assumption is derived from the difference between the yield on fixed interest gilts and the yield on indexed-linked gilts at the valuation date.
Warner Estate Holdings PLC employs a building block approach in determining the long term rate of return on pension plan assets. Historical markets are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted capital market principles. The assumed long-term rate of return on each asset class is set out within this note. The overall expected rate of return on assets is then derived by aggregating the expected return for each asset class over the actual asset allocation for the Scheme at the 31 March 2012.
Actuarial gains and losses are recognisedthrough the Consolidated Statement of Comprehensive Income.
The following assumptions were made by the Group:
2012 2011
% per % per annum
annum
------------------------------------------ ------- ------------
Discount rate 4.75 5.55
Rate of increase in pensionable salaries 3.55 3.70
Rate of increases to pensions in payment 3.35 3.45
Price inflation 3.55 3.70
Mortality assumptions are based on standard mortality tables which allow for future mortality improvements. The assumptions are that a member currently aged 60 will live on average for a further 29 years if they are male and for a further 30 years if they are female. For a member who retires in future at age 60 the assumptions are that they will live on average for a further 31 years after retirement if they are male and for a further 32 years after retirement if they are female.
The market value of the assets of the Scheme together with the expected rates of return at the beginning and end of the year were as follows:
Long-term Value Long-term Value at
rate of at 31 rate of 31 March
return March return 2011
expected 2012 expected
at 31 at 31
March March
2012 2011
% GBPm % GBPm
--------------------------------- ---------- ------- ---------- ----------
Equities 7.30 0.8 7.60 0.6
Fixed interest government bonds 3.10 - 4.40 -
Fixed interest corporate bonds 3.90 0.1 5.20 0.1
Insured assets 4.75 5.5 5.55 5.2
Cash 1.70 0.1 1.50 0.1
--------------------------------- ---------- ------- ---------- ----------
Total 6.20 6.5 6.60 6.0
--------------------------------- ---------- ------- ---------- ----------
None of the scheme assets are property related.
Reconciliation of Funded Status to Statement of Financial Position
Value at Value at
31 March 31 March
2012 2011
GBPm GBPm
--------------------------------------- ---------- ----------
Fair value of Scheme assets 6.5 6.0
Present value of non-insured defined
benefit of obligations (1.6) (1.4)
Liability in respect of insured
pensioners (5.5) (5.2)
--------------------------------------- ---------- ----------
Liability recognised in the statement
of financial position (0.6) (0.6)
Related deferred tax asset 0.1 0.2
--------------------------------------- ---------- ----------
Net pension liability (0.5) (0.4)
--------------------------------------- ---------- ----------
Changes to the Present Value of the Defined Benefit Obligation
2012 2011
GBPm GBPm
--------------------------------------------------- ------ ------
Opening defined benefit obligation 6.6 6.7
Current service cost - -
Interest cost 0.4 0.4
Actuarial losses / (gains) on Scheme liabilities* 0.5 (0.1)
Contributions by plan participants - -
Net benefits paid out (0.4) (0.4)
--------------------------------------------------- ------ ------
Closing defined benefit obligation 7.1 6.6
--------------------------------------------------- ------ ------
*Includes changes to the actuarial assumptions.
Changes to the Fair Value of Scheme Assets
2012 2011
GBPm GBPm
--------------------------------------------- ------ ------
Opening fair value of Scheme assets 6.0 5.9
Expected return on assets 0.4 0.4
Actuarial gains / (losses) on Scheme assets 0.2 (0.1)
Contributions by the employer 0.3 0.2
Contributions by plan participants - -
Net benefits paid out (0.4) (0.4)
--------------------------------------------- ------ ------
Closing fair value of Scheme assets 6.5 6.0
--------------------------------------------- ------ ------
Actual Return on Scheme Assets
2012 2011
GBPm GBPm
--------------------------------------------- ----- ------
Expected return on Scheme assets 0.4 0.4
Actuarial gains / (losses) on Scheme assets 0.2 (0.1)
--------------------------------------------- ----- ------
Actual return on Scheme assets 0.6 0.3
--------------------------------------------- ----- ------
Analysis of Consolidated Income Statement Charge
2012 2011
GBPm GBPm
---------------------------------------------------- ------ ------
Current service cost - -
Interest cost 0.4 0.4
Expected return on scheme assets (0.4) (0.4)
---------------------------------------------------- ------ ------
Amount recognised in consolidated income statement - -
---------------------------------------------------- ------ ------
Current service cost is recognised within property management and asset management expenses. Interest cost and expected return on plan assets are recognised in finance income.
Analysis of Amounts Recognised in Consolidated Statement of Comprehensive Income
2012 2011
GBPm GBPm
-------------------------------------------------------- ------ ------
Total actuarial losses (0.2) -
Related deferred tax (0.1) -
-------------------------------------------------------- ------ ------
Total loss in consolidated statement of comprehensive (0.3) -
income
-------------------------------------------------------- ------ ------
Cumulative amount of losses recognised in consolidated
statement of comprehensive income (1.5) (1.2)
-------------------------------------------------------- ------ ------
History of Asset Values, Defined Benefit Obligation, Deficit in Scheme and Experience Gains and Losses
2012 2011 2010 2009 2008
GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ------ ------ ------ ------
Fair value of Scheme
assets 6.5 6.0 5.9 5.1 5.5
Defined benefit obligation (7.1) (6.6) (6.7) (6.0) (5.6)
Deficit in Scheme (0.6) (0.6) (0.8) (0.9) (0.1)
Experience gains / (losses)
on Scheme assets 0.3 (0.1) 0.6 (0.3) (0.5)
Experience (losses) /
gains on Scheme liabilities - (0.1) 0.1 (0.2) 0.1
------------------------------ ------ ------ ------ ------ ------
The estimated amounts of contributions expected to be paid to the Scheme during the year to March 2013 are GBP0.2million.
4. Directors' Remuneration
A summary of Directors' remuneration, including disclosures required by the Companies Act 2006 and those specified by the Financial Services Authority, is contained in the Report and Accounts which will be published in due course.
5. (Loss) / Profit on Sale of Investment Properties
2012 2011
GBPm GBPm
----------------------------------- ------ -----
Net (deficit) / surplus over book
value and fair value gains (3.9) 0.2
----------------------------------- ------ -----
6. Finance Income
2012 2011
GBPm GBPm
---------------------------------------- ------ ------
Income from investments
Distributions from funds (see note
16) 1.0 1.5
Other 0.1 -
Other interest - 0.2
Other finance income
------ ------
Expected return on pension scheme
assets 0.4 0.4
Interest on pension scheme liabilities (0.4) (0.4)
------ ------
- -
---------------------------------------- ------ ------
1.1 1.7
---------------------------------------- ------ ------
Dividends from listed investments, unlisted investments and distributions from funds represent income from financial assets at fair value through profit and loss.
Other interest represents income from financial assets categorised as loans and receivables.
7. Finance Expense
2012 2011
GBPm GBPm
------------------------------------------ ----- -----
Interest payable on loans and overdrafts 14.7 14.8
Accrued exit fees 1.2 2.7
Termination of derivative financial 2.9 -
instruments
Charges in respect of cost of raising
finance 2.8 2.7
------------------------------------------ ----- -----
21.6 20.2
Other interest payable 0.5 0.4
------------------------------------------ ----- -----
22.1 20.6
Interest payable under finance leases 0.3 0.4
------------------------------------------ ----- -----
22.4 21.0
------------------------------------------ ----- -----
Interest payable on loans and overdrafts, accrued exit fees and charges in respect of raising finance represent expenses on financial liabilities at amortised cost.
8. Taxation
2012 2011
GBPm GBPm
----------------------------- ----- -----
Current tax
UK corporation tax:
Current at 26% (2011: 28%) - -
Underprovision in respect
of prior year's tax charge 0.1 0.1
----------------------------- ----- -----
0.1 0.1
Deferred taxation (note 22) - -
0.1 0.1
----------------------------- ----- -----
The tax on the group's loss before
income tax differs from the theoretical
amount that would arise using the weighted
average tax rate applicable to profits
or losses of the consolidated entities
as follows: 2012 2011
GBPm GBPm
--------------------------------------------- ------- ------
Loss on ordinary activities before
income tax (38.6) (7.1)
------- ------
Tax at 26% (2011: 28%) (10.0) (2.0)
Effect of REIT exemption
------- ------
Net operating losses after net finance
costs 2.5 2.1
Realised loss / (profit) on disposal
of investment properties 1.0 (0.1)
Fair value losses / (gains) on investment
properties 5.5 (1.9)
------
9.0 0.1
Share of joint ventures' post tax losses - -
Losses utilised - (1.0)
Losses carried forward, no deferred
tax asset provided 0.2 0.2
Disallowable expenses - -
Gains not subject to tax (0.3) (0.6)
Impairment of goodwill not subject
to tax 0.5 2.4
Fair value gains on derivative financial (0.5) -
instruments
Fair value losses on investments 1.1 0.9
Underprovision in respect of prior
years 0.1 0.1
0.1 0.1
--------------------------------------------- ------- ------
The standard rate of Corporation Tax in the UK changed from 28% to 26% with effect from 1 April 2011. Accordingly, the company's profits for this accounting period are taxed at an effective rate of 26%.
9. Loss of Warner Estate Holdings PLC
The Company has taken advantage of the exemption provided by Section 408 of the Companies Act 2006 from presenting its own income statement. Loss attributable to members includes GBP39.0 million (2011: GBP7.2million loss) which has been dealt with in the accounts of the Company.
10. Dividends
Group and Company 2012 2011
GBPm GBPm
---------------------- ----- -----
On Ordinary 5p shares - -
- -
---------------------- ----- -----
No final dividend is proposed by the Board.
11. Earnings Per Share
Losses per share of 70.20p (2011: 12.93p) are calculated on the losses for the year of GBP38.7million (2011: GBP7.2million) and the weighted average of 55,180,538 (2011: 55,146,172) shares in issue throughout the year.
Diluted losses per share of 67.23p (2011: 11.96p) are calculated on the loss for the year as above divided by the weighted average number of shares in issue, being 57,618,042 (2011: 59,534,067) after the dilutive impact of share options granted.
A reconciliation of the weighted average number of shares used to calculate earnings per share and to that used to calculate diluted earnings per share is shown below:
2012 2011
----------------------------------------------- ----------- -----------
Earnings per share: weighted average
number of shares 55,180,538 55,146,172
Weighted average ordinary shares to be
issued under employee incentive arrangements 1,812,184 2,239,078
Weighted average warrants for ordinary
shares to be issued 625,320 2,148,817
----------------------------------------------- ----------- -----------
Diluted earnings per share: weighted
average number of shares 57,618,042 59,534,067
----------------------------------------------- ----------- -----------
12. Goodwill
GBPm
--------------------------------- -------
Group
Cost
At 31 March 2011 11.2
Additions -
--------------------------------- -------
At 31 March 2012 11.2
--------------------------------- -------
Impairment
At 31 March 2011 (8.4)
Charge for the year (2.0)
--------------------------------- -------
At 31 March 2012 (10.4)
--------------------------------- -------
Net book value at 31 March 2012 0.8
--------------------------------- -------
Net book value at 31 March 2011 2.8
--------------------------------- -------
Goodwill is not amortised but is subject to an annual impairment test. Goodwill of GBP0.8million is allocated to the cash generating unit ("CGU") defined as the asset management business owned by Industrial Funds Limited. The recoverable amount of the asset management business has been used to assess whether the goodwill is impaired. The recoverable amount of the CGUs has been calculated based on the value-in-use calculations. These calculations use cash flow projections based on financial projections approved by management covering the period to the termination of the asset management contract. Year 1 is based on the budget as approved by management. This is determined by past experience and management's expectations of the current market conditions. Cash flows beyond year 1 are based on the assumption of nil growth in management fee income and no increase or decrease in associated administrative costs. A discount rate of 2.84% has been used to calculate the recoverable amount. The impairment arises from the Group reassessing a number of factors including the maturity of the contract in 2016 and the potential impact on management fees of uncertain capital values given that the fees of this business are based on gross asset values.
13. Investment Properties
Freehold Leasehold Total
with Investment
over Properties
50 years
unexpired
GBPm GBPm GBPm
---------------------------- --------- ----------- ------------
Group
At 31 March 2011 133.9 78.3 212.2
Capital expenditure 0.4 - 0.4
Disposals (27.5) (2.4) (29.9)
Net losses from fair value
adjustments on investment
property (12.1) (8.9) (21.0)
At 31 March 2012 94.7 67.0 161.7
---------------------------- --------- ----------- ------------
The Group's investment portfolio was valued externally principally by Cushman & Wakefield LLP and CB Richard Ellis on an open market basis in accordance with the recommended guidelines of the Royal Institution of Chartered Surveyors as at 31 March 2012.
Investment properties have been analysed between current and non-current as follows:
Group
-------------------------------- --------------
2012 2011
GBPm GBPm
Non-current 70.9 212.2
Current (assets held for sale) 90.8 -
-------------------------------- ------ ------
161.7 212.2
-------------------------------- ------ ------
As stated in the Chairman's Statement, the Group is marketing certain properties in order to reduce total outstanding debt and as a result these properties have been reclassified as assets held for sale. These sales are expected within the next 12 months.
Investment properties were valued as follows:
GBPm
------------------------- ------
Cushman & Wakefield LLP 116.4
CB Richard Ellis 45.7
162.1
------------------------- ------
A reconciliation of investment property valuations to the statement of financial position carrying value of property is shown below:
2012 2011
GBPm GBPm
------------------------------------------------------ ------ ------
Investment property at market value as determined
by external valuers 162.1 211.2
Add minimum payment under head leases separately
included as a payable in the statement of financial
position 3.8 4.2
Less accrued lease incentives separately accrued
as a receivable in the statement of financial
position (4.2) (3.2)
Statement of financial position carrying value
of investment property 161.7 212.2
------------------------------------------------------ ------ ------
All repairs and maintenance costs are charged to the consolidated income statement during the financial period in which they are incurred. Therefore, no costs in respect of repairs and maintenance are included within the above figures (2011: GBPnil)
On an historical cost basis the investment properties which have been included above at valuation would have been shown at cost as GBP251.7million (2011: GBP292.6million).
Investment properties valued at GBP162.1million (2011: GBP211.2million) are used as security for Group loans.
14. Plant and Equipment
2012 2011
GBPm GBPm
----------------------------- ----- -----
Group
Cost
Opening balance at 1 April 0.5 0.5
Additions - -
Disposals - -
----------------------------- ----- -----
Closing balance at 31 March 0.5 0.5
----------------------------- ----- -----
Accumulated depreciation
Opening balance at 1 April 0.4 0.3
Charge for year - 0.1
Disposals - -
----------------------------- ----- -----
Closing balance at 31 March 0.4 0.4
----------------------------- ----- -----
Net book value at 31 March 0.1 0.1
----------------------------- ----- -----
Plant and equipment include fixtures, fittings and equipment.
15. Investments in Joint Ventures
Group GBPm
--------------------------------- -----
Share of joint ventures
At 31 March 2011 -
Share of post-tax losses for the -
year
Net equity movements -
At 31 March 2012 -
--------------------------------- -----
2012 2011
Group share GBPm GBPm
------------------------------------ -------- --------
Unlisted shares at cost 19.1 73.4
Group's share of post acquisition
retained losses and reserves (19.1) (73.4)
------------------------------------ -------- --------
- -
------------------------------------ -------- --------
Included in investments in joint ventures:
2012 2011
GBPm GBPm
------------------------------------ -------- --------
Year to 31 March
Group share of results
Revenue 10.5 19.8
Expenses (31.1) (21.3)
Adjustments due to net liabilities 20.6 1.5
------------------------------------ -------- --------
Loss for the year - -
------------------------------------ -------- --------
Group share of
Non-current assets 64.1 157.8
Current assets 4.5 9.7
------------------------------------ -------- --------
Total assets 68.6 167.5
------------------------------------ -------- --------
Non-current liabilities (25.3) (18.8)
Current liabilities (131.8) (206.7)
------------------------------------ -------- --------
Total liabilities (157.1) (225.5)
------------------------------------ -------- --------
Adjustment due to net liabilities 88.5 58.0
------------------------------------ -------- --------
Share of net assets - -
------------------------------------ -------- --------
Agora Radial Agora Greater Total
Shopping Distribution Max London
Centres Limited Limited Offices
Limited Limited
(a) (b) (c) (d)
GBPm GBPm GBPm GBPm GBPm
----------------------------- ---------- -------------- --------- --------- ------
Amounts receivable by Group
Asset management fees
2012 0.7 - 0.7 0.1 1.5
2011 0.7 1.3 0.5 0.3 2.8
(a) Agora Shopping Centres Limited was set up on 5 March 2003 and subsequently acquired the Pyramids, Birkenhead on 25 June 2003 and The Grange, Birkenhead on 30 September 2004. On 7 March 2006, The Pyramids, Birkenhead and The Grange, Birkenhead were disposed of into the Agora Max Limited joint venture group.
(b) Fairway Industrial Limited was set up on 29 August 2003 and changed its name to Radial Distribution Limited on 14 October 2004. On 17 May 2010 the Group sold its investment in Radial Distribution Limited which had a book value of GBPnil. The net proceeds were GBP0.5million. The Group's share of results has been included to the disposal date. On this date, the Group's associated asset management agreement was terminated and the Group received consideration of GBP3.0million.
(c) Agora Max Limited was set up on 16 September 2005 and subsequently acquired The Pallasades, Birmingham on 25 October 2005. The Pyramids and The Grange, both in Birkenhead, were acquired from Agora Shopping Centres on 7 March 2006. The Pallasades, Birmingham was disposed of on 31 March 2009. The Pyramids and The Grange Shopping centres were disposed of on 22 December 2011. The joint venture is now dormant and will be put into members' voluntary liquidation in due course. The results for the year ended 31 March 2012 include the share of profits or losses but do not include any share of net assets and liabilities. The investment was written down to nil as at 31 March 2011.
(d) Greater London Offices Limited was set up on 28 September 2006 and subsequently acquired Old Broad Street and Central House, London. On 20 August 2009, GBP3.6million loan notes issued to the Group by Greater London Offices Limited were repaid in full and the proceeds used to subscribe to additional equity. Fixed charge receivers were appointed over the property assets in May 2011 and took over all day to day financial dealings from that point. The directors of Greater London Offices Limited and its subsidiaries have not been made aware of any financial information since May 2011 and therefore the results for the year ended 31 March 2012 do not include any share of profits or losses or share of net assets and liabilities. The investment was written down to nil as at 31 March 2011.
There are no outstanding loan balances between the Group and its joint ventures.
Joint venture investment properties are valued by DTZ Debenham Tie Leung.
All joint ventures are incorporated in the United Kingdom (refer to note 33 for further information).
16. Investments in Funds
Group
GBPm
-------------------------------------- ------
As at 1 April 2011 38.0
Net loss from fair value adjustments (4.2)
-------------------------------------- ------
At 31 March 2012 33.8
-------------------------------------- ------
Fund Information:
------------------------------ ------ ------- ------
AIF Apia Total
(a) (b)
GBPm GBPm GBPm
------------------------------ ------ ------- ------
Year to 31 March 2012
Distributions receivable 0.4 0.6 1.0
------------------------------ ------ ------- ------
Net assets at 31 March 2012 220.0 90.6
Percentage share at 31 March
2012 6.52% 21.57%
Group share of net assets 14.3 19.5 33.8
Fund Information:
------------------------------ ------ ------- ------
AIF Apia Total
(a) (b)
GBPm GBPm GBPm
------------------------------ ------ ------- ------
Year to 31 March 2011
Distributions receivable 0.3 1.2 1.5
------------------------------ ------ ------- ------
Net assets at 31 March 2011 234.7 105.2
Percentage share at 31 March
2011 6.52% 21.57%
Group share of net assets 15.3 22.7 38.0
(a) The Group invested GBP12million in the Ashtenne Industrial Fund in August 2005 and a GBP23.1million investment was acquired on the purchase of the remaining 50% of Industrial Funds Limited.
(b) Apia was set-up on 7 June 2005 and the Group invested an initial GBP44.1million. A further GBP10.0million was invested in December 2005, of which GBP0.9million was disposed of in March 2006, and GBP0.4million in May 2006. It is treated as an investment rather than an associate as the Group does not have the power to exert significant control as a Trustee which is independent of the Group is responsible for the strategic decisions of the unit trust.
Units held in AIF valued at GBP14.3million (2011: GBP15.3million) and the units in Apia valued at GBP19.5million (2011: GBP22.7million) are used as security for Group loans.
17. Investments in Listed and Unlisted Shares
Group Company
2012 2011 2012 2011
GBPm GBPm GBPm GBPm
----------------------------- ----- ----- ----- -----
Subsidiary undertakings (a) - - 40.6 62.4
Unlisted investments (b) 0.3 0.3 - -
----------------------------- ----- ----- ----- -----
0.3 0.3 40.6 62.4
----------------------------- ----- ----- ----- -----
(a) Subsidiary Undertakings
Shares in subsidiary
undertakings
GBPm
------------- ---------------------
Cost
At 31 March
2011 62.4
Additions -
Disposals -
Impairments (21.8)
At 31 March
2012 40.6
------------- ---------------------
Investments are reviewed at least annually for impairment. Where there exists an indication of impairment an assessment of the recoverable amount is performed. The recoverable amount is based on the higher of the investments continued value in use or its fair value less cost to sell. The impairment charge taken above arose due to the carrying value of the asset exceeding its recoverable amount. This was determined based on the assets' fair value less cost to sell. Fair value is derived from the subsidiaries' net asset value at the statement of financial position date. Please refer to note 33 for further information on subsidiary undertakings.
(b) Unlisted Investments
Group Company
GBPm GBPm
----------------- ------ --------
At 31 March 2011 0.3 -
Net movements - -
----------------- ------ --------
At 31 March 2012 0.3 -
----------------- ------ --------
18. Trade and Other Receivables
Group Company
------------------------- ------------ ------------
2012 2011 2012 2011
GBPm GBPm GBPm GBPm
------------------------- ----- ----- ----- -----
Current assets:
Trade receivables 0.9 2.0 - -
Amounts owed by Group
undertakings - - 48.8 65.5
Other receivables 1.5 1.2 - -
Prepayments and accrued
income 2.7 2.9 0.1 0.3
------------------------- ----- ----- ----- -----
5.1 6.1 48.9 65.8
------------------------- ----- ----- ----- -----
Non-current assets:
Other receivables 3.6 3.0 - -
------------------------- ----- ----- ----- -----
Total trade and other
receivables 8.7 9.1 48.9 65.8
------------------------- ----- ----- ----- -----
Other receivables include rent deposits from tenants of GBP0.3million (2011: GBP0.4million) used as collateral. In the event of tenant default, these rent deposits can be offset against any outstanding debts.
Amounts owed by Group undertakings are unsecured and have no fixed date of repayment. They are interest free except for interest recharges for REIT compliance purposes; to ensure the interest charge is in the correct group entity.
Amounts owed byGroup undertakings are reviewed at least annually for impairment. Where there exists an indication of impairment an assessment of the recoverable amount is performed. The recoverable amount is based on the fair value which is derived from the Group undertakings' net asset value and their ability to repay their debts. An impairment of GBP18.6million (2011: GBP2.3million write back) has been taken to the Company's consolidated income statement during the year against amounts owed by Group undertakings.
19. Borrowings, Including Finance Leases
Group Company
--------------------------- -------------- -------------
2012 2011 2012 2011
GBPm GBPm GBPm GBPm
--------------------------- ------ ------ ------ -----
Amounts falling due
after more than one
year:
Bank loans - 248.1 - -
Finance lease obligations
(see note 20) 3.8 4.3 - -
--------------------------- ------ ------ ------ -----
3.8 252.4 - -
--------------------------- ------ ------ ------ -----
Amounts falling due
within one year:
Bank loans 229.1 1.0 - -
Finance lease obligations - - - -
(see note 20)
--------------------------- ------ ------ ------ -----
229.1 1.0 - -
--------------------------- ------ ------ ------ -----
Total borrowings,
including finance
leases 232.9 253.4 - -
Cash and cash equivalents (9.8) (7.2) (0.2) -
--------------------------- ------ ------ ------ -----
Net borrowings 223.1 246.2 (0.2) -
--------------------------- ------ ------ ------ -----
Bank loans and overdrafts are secured on all properties valued at GBP162.1million as detailed in note 13 and by floating charges on unit holdings in the Apia Regional Office Fund and the Ashtenne Industrial Fund, valued at GBP19.5million and GBP14.3million (2011: GBP22.7million and GBP15.3million) respectively, as set out in note 16.
Bank loans and 2012 2011
overdrafts
GBPm GBPm
----------------- ------ ------
Group
Within one year
or on demand 229.4 1.0
Between one and
two years - 251.1
Between two and - -
five years
----------------- ------ ------
229.4 252.1
Future finance
costs (0.3) (3.0)
----------------- ------ ------
229.1 249.1
----------------- ------ ------
Company
Within one year - -
on demand
Between two and - -
five years
----------------- ------ ------
- -
----------------- ------ ------
As stated in note 21, the Group's operations are predominantly in the UK and therefore bank borrowings are denominated in Sterling. The Group's average cost of debt at the year end was 5.75% including PIK interest (2011: 6.19%). This excludes exit fees which are accrued as at 31 March 2012 and calculated as disclosed in note 21. The proportions of debt held on fixed or floating rate debt, together with the hedging in place at 31 March 2012, are set out in note 21. A comparison of the fair values to carrying values of financial assets and liabilities is also set out in note 21.
20. Finance Lease Obligations
Group
2012 2011
Minimum Future Present Minimum Future Present
lease payments finance value of lease payments finance value
under finance charges minimum under finance charges of minimum
leases on finance finance leases on finance finance
leases lease obligations leases lease
obligations
GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------------- ------------ ------------------- ---------------- ------------ -------------
Within one
year 0.3 (0.3) - 0.3 (0.3) -
Between
two
and five
years 1.0 (1.0) - 1.2 (1.2) -
Later than
five years 25.5 (21.7) 3.8 29.3 (25.0) 4.3
Total 26.8 (23.0) 3.8 30.8 (26.5) 4.3
------------- ---------------- ------------ ------------------- ---------------- ------------ -------------
The fair value of the Group's finance lease obligations approximate to the carrying value.
Finance lease obligations are in respect of leasehold investment properties.
Finance lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.
21. Financial Risk Management
On 26 March 2010 the Group entered into new debt facilities with two lenders and extended and amended its existing facility with a third lender.
In respect of one facility the Group will pay an exit fee equal to 5.0% of the outstanding loan on the maturity date. In respect of another facility the Group will pay an exit fee at maturity that approximates to 20% of the excess of the value of properties secured against the facility over the debt at that time. The Group is obliged to amortise one of the facilities at GBP0.3million per quarter. The debt maturity on the first and second facilities has been extended to December 2012, bringing them in line with the third facility.
Only one of the Group's three facilities had a loan to value ("LTV") covenant during the year ended 31 March 2012. This covenant of 117.5% was not tested as at 31 March 2012. If tested, the covenant would have been in technical breach at the year end however, the covenant would be compliant as at 31 Jul 2012 if tested by reference to the Cushman & Wakefield 31 March 2012 property valuations, being the most recent valuations carried out, this is due to the disposal of properties since the year end and repayment of debt. The Board recognises that there may have been a further deterioration in the valuations since 31 March 2012.
One facility has two interest cover covenants set at 125%, based on rental income, and 175%, based on total income. Another facility has a covenant to provide quarterly cash flow forecasts showing adequate liquidity and that there is no projected cash shortfall. The Group was compliant with both of these covenants during the year and continues to be compliant.
Treasury Policy
The Group enters into derivative transactions such as interest rate swaps and caps in order to manage the financial risks arising from the Group's activities. The main financial risks arising from the Group's financing structure are liquidity risk and interest rate risk. The policies for managing each of these risks and the principal effects of these policies on the results for the year are set out below.
Liquidity Risk
The Group's policy is to ensure that there are always sufficient working capital facilities available to meet the requirements of the business, through efficient treasury and cash management and strict credit control. The Group's earliest scheduled debt maturity is December 2012.
Under the debt facility documents, the lenders each have sole signatory rights to the rent accounts for each borrower. Two of the three lenders were sole signatories throughout the year ended 31 March 2012 with the third becoming the sole signatory in June 2012. The lenders are obliged to ensure that any balances in the rent accounts are available for the borrower to settle ongoing operational liabilities as and when they fall due once any interest and debt amortisation liabilities have been settled.
Capital expenditure to be incurred by the Group is funded on a case by case basis.
The tables below set out the maturity analysis of the Group's financial liabilities based on undiscounted contractual obligations.
Group
2012 Less than 1 to 2 2 to 5 Over 5 Total
1 year years years years
GBPm GBPm GBPm GBPm GBPm
------------------------ ----------- ------- ------- ------- ------
Bank loans and
overdrafts 229.4 - - - 229.4
Trade and other
payables(1) 21.7 - 1.5 - 23.2
Finance lease
liabilities 0.3 0.3 0.7 25.5 26.8
Other provisions(2) 1.0 0.8 1.8 - 3.6
252.4 1.1 4.0 25.5 283.0
Interest on bank
loans and overdrafts 12.7 - - - 12.7
Cash outflows
from gross settled
derivatives 0.5 - - - 0.5
------------------------ ----------- ------- ------- ------- ------
265.6 1.1 4.0 25.5 296.2
------------------------ ----------- ------- ------- ------- ------
(1) Excludes deferred income of GBP3.1million and other
taxation and social security of GBP0.8m
(2) Includes future finance charges of GBP0.3million
Exit fees and accrued PIK interest are included in Trade and other payables.
Group
2011 Less than 1 to 2 2 to 5 Over 5 Total
1 year years years years
GBPm GBPm GBPm GBPm GBPm
----------------------- ---------- ------- ------- ------- ------
Bank loans and
overdrafts 1.0 251.1 - - 252.1
Trade and other
payables(1) 9.0 6.2 1.0 - 16.2
Finance lease
liabilities 0.3 0.3 0.9 29.3 30.8
Other provisions(2) 1.9 0.9 2.2 0.5 5.5
12.2 258.5 4.1 29.8 304.6
Interest on bank
loans and overdrafts 5.9 11.1 - - 17.0
Cash outflows
from gross settled
derivatives 2.0 3.5 - - 5.5
----------------------- ---------- ------- ------- ------- ------
20.1 273.1 4.1 29.8 327.1
----------------------- ---------- ------- ------- ------- ------
(1) Excludes deferred income of GBP3.2million
(2) Includes future finance charges of GBP0.4million
Company
2012 Less than 1 to 2 2 to 5 Over 5 Total
1 year years years years
GBPm GBPm GBPm GBPm GBPm
Trade and other
payables 139.9 - - - 139.9
Company
2011 Less than 1 to 2 2 to 5 Over 5 Total
1 year years years years
GBPm GBPm GBPm GBPm GBPm
----------------- ---------- ------- ------- ------- ------
Trade and other
payables 139.3 - - - 139.3
Interest Rate Risk
The Group is exposed to market price risk through interest rate movements. The Group's policy is to manage the risk arising from changes in interest rates by hedging a proportion of the floating rate debt to provide increased certainty as to how much the interest cost will be, such that in the long term any fluctuations in interest rates will have little or no impact on reported profits. The Group monitors the level of floating debt on a regular basis together with interest rate expectations in order to form a view as to when it may be appropriate to enter into further hedging. The Group is, however, exposed to market price risk in respect of the fair value of its fixed rate financial instruments. The Group has one swap of GBP40million as at 31 March 2012. One swap of GBP40million expired on 12 April 2011 and two swaps of GBP25million each were terminated during the year at a cost of GBP2.9million which has been expensed to the income statement.
The amount of debt fixed through swaps effective as at 31 March 2012, equates to 17% (2011: 52%) of Group debt, and the remainder is floating. The floating debt is linked to LIBOR.
The Group is exposed to fair value interest rate risk on its derivative financial instrument and cash flow interest rate risk on floating rate bank loans and revolving credit facilities. The forecast cash and borrowings profile of the Group is monitored regularly to assess the mix of fixed and floating rate debt and the Group uses interest rate derivatives where appropriate to reduce its exposure to changes in interest rates and the economic environment.
At 31 March 2012, the Group's floating rate debt was GBP229.4million (2011: GBP252.1million). Of this, GBP40.0million (2011: GBP130.0million) has been hedged with derivative instruments in the form of swaps and callable swaps.
The derivative instruments are used to hedge the variability of cash flows from debt instruments. The fair values of derivatives are determined by discounting the future cash flows using the mid point of the relevant yields curves prevailing on the reporting dates. The derivatives are held for hedging purposes and provide protection against the effects of the rising short term interest rates. None of the total hedging in place at 31 March 2012 (2011: GBPnil), may be called at the Bank's discretion within the next five years.
The Group has elected not to designate the hedge contracts as being effective hedges for accounting purposes and therefore changes in the fair value of the hedge contracts are taken to the consolidated income statement.
Interest Rate Sensitivity
The table below shows the Group's sensitivity to movements in interest rates. The Group has considered the movements in interest rates over the last two years and has concluded that a 0.5% increase or decrease is a reasonable benchmark.
2012
Interest Residual Total
Rate Debt
Swaps
------------- ------------ ---------- ---------- ----------
Net debt GBP40.0m GBP189.4m GBP229.4m
Average
Rate 2.33% 5.51% 4.96%
GBPm GBPm GBPm
Fair Value (0.5) - (0.5)
Rise of
Sensitivity 50bps 0.2 - 0.2
Fall of
50bps (0.2) - (0.2)
Interest
Rate
Rise of
Sensitivity 50bps - (0.9) (0.9)
Fall of
50bps - 0.9 0.9
2011
Interest Residual Total
Rate Debt
Swaps
------------- ------------ ---------- ---------- ----------
Net debt GBP130.0m GBP122.1m GBP252.1m
Average
Rate 2.04% 6.08% 3.59%
GBPm GBPm GBPm
Fair Value (2.6) - (2.6)
Rise of
Sensitivity 50bps 1.0 - 1.0
Fall of
50bps (1.0) - (1.0)
Interest
Rate
Rise of
Sensitivity 50bps - (0.6) (0.6)
Fall of
50bps - 0.6 0.6
The total sensitivity to interest rate increases and decreases is the total impact on both the consolidated income statement and consolidated statement of changes in equity. This is based on debt balances and prevailing interest rates at the year end.
At 31 March 2012 the fair value of the Group's derivative instruments resulted in a GBP0.5million net liability (2011: GBP2.6million net liability). Had LIBOR been 0.5% higher, the fair value would have been reduced by GBP0.2million (2011: GBP1.0million). Had LIBOR been 0.5% lower, the fair value would have been increased by GBP0.2million (2011: GBP1.0million).
At 31 March 2012, the residual floating rate debt amounted to GBP189.4million (2011: GBP122.1million). If short term interest rates had been 0.5% higher the annualised cost to the Group would have been GBP0.9million higher (2011: GBP0.6million). Had short term rates been 0.5% lower the Group would have benefited by the same amount.
Credit Risk
The Group has no significant concentration of credit risk as exposure is spread over a large number of counterparties.
The credit risk in liquid funds and derivative financial instruments is limited due to the counterparties being banks with high credit ratings assigned by international credit rating agencies. As at the statement of financial position date, the carrying value of loans, cash and the fair values of swaps and caps approximates to this credit risk exposure.
The maximum amount the Group is exposed to on investments in funds and unlisted investments is the carrying values in the statement of financial position. Investments in funds are with reputable counterparties. Financial information is issued by all investments on a regular basis which is reviewed by management.
The Group is exposed to credit risk in respect of its trade receivables. Potential customers are evaluated for creditworthiness and, where necessary, collateral is secured in the form of rent deposits. There is no concentration of credit risk within the lease portfolio to either business sector or individual company as the Group has a well spread and diverse customer base.
At 31 March 2012, trade and other receivables consisting of rents and asset management fees receivable, of GBP0.9million (2011: GBP2.0million) were past due but not impaired. These relate to customers for whom there is no recent history or indication of default. The amounts presented in the statement of financial position are net of allowances for doubtful receivables of GBP0.3million (2011: GBP0.2million).
The ageing analysis of these trade receivables is as follows:
Group 2012 2011
--------------------- ----- -----
GBPm GBPm
Up to three months 0.6 1.9
Three to six months 0.3 0.1
--------------------- ----- -----
0.9 2.0
--------------------- ----- -----
The credit risk relating to cash, deposits and derivative financial instruments is actively managed by Group Treasury.
Counterparty Credit Group
rating 2012
-------------- --------- ------
GBPm
Bank #1 A 1.2
Bank #2 A 3.6
Bank #3 A 5.0
-------------- --------- ------
9.8
------------------------ ------
Capital Risk Management
The current capital structure of the Group is considered appropriate and consists of a mix of equity and net debt. Equity comprises issued capital, reserves and retained earnings as disclosed in notes 25 and 26. Debt primarily comprises long-term bank loans and overdrafts from banks as disclosed in note 19.
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern, and it aims to maintain a prudent mix between debt and equity financing. The Group is not subject to any externally imposed capital requirements. There have been no changes in the capital structure since the prior period. Further information is given in the Chairman's Statement.
Derivative Financial Instruments
Gains and Losses on Derivatives held to Manage Debt
The Group uses interest rate derivatives to manage its interest rate profile. Changes in the fair value of these derivatives are recognised in the consolidated statement of income. An analysis of these derivatives and gains / (losses) thereon is as follows:
Group
Derivative Derivative Total
financial financial
assets liabilities
GBPm GBPm GBPm
------------------------------------ ------------ ------------- ------
Fair value at 31 March 2011 - 2.6 2.6
Change in fair value of derivative - - -
financial instruments
Fair value of derivative financial
instruments cancelled / expired
during the year - (2.1) (2.1)
Fair value at 31 March 2012 - 0.5 0.5
------------------------------------ ------------ ------------- ------
Financial Instruments - Categories Group
2012 2011
--------------------------------------- -------------------- -------------------
Carrying Fair Carrying Fair
value value value value
GBPm GBPm GBPm GBPm
--------------------------------------- ---------- -------- --------- --------
Financial assets
Fair value through profit or loss
- designated on inception
Investments in funds 33.8 33.8 38.0 38.0
Investments in listed and unlisted
shares 0.3 0.3 0.3 0.3
Loans and receivables
Trade and other receivables(1) 7.4 7.4 7.3 7.3
Cash and cash equivalents 9.8 9.8 7.2 7.2
Financial liabilities
Fair value through profit or loss
- held for trading
Derivative financial liabilities (0.5) (0.5) (2.6) (2.6)
Amortised cost
Borrowings (229.4) (229.4) (252.1) (252.1)
Trade and other payables(2) (25.0) (25.0) (16.2) (16.2)
Finance lease obligations (3.8) (3.8) (4.3) (4.3)
(1) Excludes prepayments of GBP1.3million (2011: GBP1.8million)
(2) Excludes deferred income of GBP3.1million (2011: GBP3.2million)
Company
2012 2011
----------------------------------- -------------------- -------------------
Carrying Fair Carrying Fair
value value value value
GBPm GBPm GBPm GBPm
----------------------------------- ---------- -------- ---------- -------
Financial assets
Loans and receivables
Trade and other receivables(1) 48.8 48.8 65.4 65.4
Cash and cash equivalents 0.2 0.2 - -
Financial liabilities
Amortised cost
Trade and other payables 139.9 139.9 139.3 139.3
(1) Excludes prepayments of GBP0.1million (2010: GBP0.3million)
The table below presents the Group's assets and liabilities recognised at fair value.
2012 Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
------------------------------------ ------- ------ ------ ------
Investments
Investments in funds - - 33.8 33.8
Investments in unlisted shares - - 0.3 0.3
Total assets - - 34.1 34.1
------------------------------------ ------- ------ ------ ------
Derivative financial liabilities
Fair value through profit or loss - (0.5) - (0.5)
------------------------------------ ------- ------ ------ ------
Total liabilities - (0.5) - (0.5)
------------------------------------ ------- ------ ------ ------
2011 Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
------------------------------------ ------- ------ ------ ------
Investments
Investments in funds - - 38.0 38.0
Investments in unlisted shares - - 0.3 0.3
Total assets - - 38.3 38.3
------------------------------------ ------- ------ ------ ------
Derivative financial liabilities
Fair value through profit or loss - (2.6) - (2.6)
------------------------------------ ------- ------ ------ ------
Total liabilities - (2.6) - (2.6)
------------------------------------ ------- ------ ------ ------
Fair value hierarchy
Level 1: valuation based on quoted market prices traded in active markets.
Level 2: valuation techniques are used, maximising the use of observable market data, either directly from market prices or derived from market prices.
Level 3: where one or more inputs to valuation are not based on observable market data. Valuations at this level are more subjective and therefore more closely managed, including sensitivity analysis of inputs to valuation models. Such testing has not indicated that any material difference would arise due to a change in input variables.
The table below presents a reconciliation of level 3 fair value measurements for the year:
Investments Investments
in funds in unlisted Total
shares
GBPm GBPm GBPm
---------------------- ------------ ------------- -------
At 1 April 2011 38.0 0.3 38.3
Unrealised losses(1) (4.2) - (4.2)
At 31 March 2012 33.8 0.3 34.1
---------------------- ------------ ------------- -------
(1) Unrealised losses of GBP4.2million are included in net loss from fair value adjustment on investments in the consolidated income statement.
The fair value of the investment in funds is calculated using the underlying Net Asset Value ("NAV") of the relevant fund. If the NAV was to increase or decrease by 5% the impact on the financial statements would be GBP1.7million.
22. Deferred Income Tax
Group
2012 2011
GBPm GBPm
------------------------------------------------ ----- -----
Deferred taxation assets
Deferred taxation arising from retirement
benefit obligations 0.1 0.2
0.1 0.2
------------------------------------------------ ----- -----
Deferred taxation liabilities
Deferred taxation arising from the temporary
differences noted below:
Unrealised property and investment valuations - -
------------------------------------------------ ----- -----
- -
------------------------------------------------ ----- -----
The movement in deferred tax assets and liabilities during the year is as follows:
Group
----------------------------- ----------------------
Retirement
benefit
obligations Total
GBPm GBPm
----------------------------- ------------- -------
Deferred tax assets
at 31 March 2011 0.2 0.2
-------------
Charged to consolidated
statement of comprehensive
income (0.1) (0.1)
Charged to reserves - -
------------- -------
Total impact (0.1) (0.1)
----------------------------- ------------- -------
Deferred tax assets
at 31 March 2012 0.1 0.1
----------------------------- ------------- -------
Unrealised Group
fair value Total
gains
GBPm GBPm
-------------------------------------- ------------ -------
Deferred tax liabilities at 31 March - -
2011
------------ -------
Credited to consolidated statement of - -
comprehensive income
Total impact - -
-------------------------------------- ------------ -------
Deferred tax liabilities at 31 March - -
2012
-------------------------------------- ------------ -------
23. Provisions for Other Liabilities and Charges
Onerous Performance Total
contracts fees
GBPm GBPm GBPm
-------------------------------- ----------- ------------ ------
Group
At 31 March 2011 4.3 0.8 5.1
Charged to consolidated income - - -
statement
Utilised during the year (1.1) (0.7) (1.8)
-------------------------------- ----------- ------------ ------
At 31 March 2012 3.2 0.1 3.3
-------------------------------- ----------- ------------ ------
Provisions have been analysed between current and non-current as follows:
Group
------------- ------------
2012 2011
GBPm GBPm
Non-current 2.4 3.2
Current 0.9 1.9
------------- ----- -----
3.3 5.1
------------- ----- -----
The onerous contracts provision is made in relation to onerous leases on properties which are vacant or sublet at a level which renders the properties loss-making over the remaining life of the lease. The remaining lease lengths range between 1 and 7 years.
The provision represents the net cash flows on the properties as calculated by DTZ Debenham Tie Leung.
The key assumptions
used are:
Rental growth 0.00% per
rate annum
Inflation rate 0.00% per
annum
Discount rate 2.84%
The performance fee provision is repayable on demand. GBP0.7million (2011: GBP0.9million) was repaid during the year; the remaining balance was repaid in full post year end.
24. Trade And Other Payables
Group Company
--------------------------- ------------ --------------
2012 2011 2012 2011
GBPm GBPm GBPm GBPm
Current liabilities:
Trade payables 0.6 0.4 - -
Amounts owed to Group
undertakings - - 139.7 138.6
Other taxation and social
security 1.8 1.2 - 0.1
Other payables 2.1 3.6 0.1 0.5
Accrued PIK interest 14.3 - - -
& exit fees
Accruals and deferred
income 7.8 7.1 0.1 0.2
--------------------------- ----- ----- ------ ------
26.6 12.3 139.9 139.4
--------------------------- ----- ----- ------ ------
Non-current liabilities:
Other payables 1.5 1.0 - -
Accrued PIK interest - 6.1 - -
& exit fees
--------------------------- ----- ----- ------ ------
1.5 7.1 - -
--------------------------- ----- ----- ------ ------
Total trade and other
payables 28.1 19.4 139.9 139.4
--------------------------- ----- ----- ------ ------
Amounts owed to Group undertakings are unsecured and have no fixed date of repayment. They are interest free except for interest recharges for REIT compliance purposes; to ensure the interest charge is in the correct group entity.
25. Share Capital
2012 2011
------------------------------------- ----- -----
Group and Company GBPm GBPm
Authorised
80,000,000 Ordinary shares of 5p 4.0 4.0
------------------------------------- ----- -----
Issued and fully paid
Ordinary shares of 5p
At 1 April and 31 March (56,170,865
shares) 2.8 2.8
------------------------------------- ----- -----
Warner Estate Holdings PLC 1995 Share Option Scheme
At 31 March 2012 there were share options to subscribe for Ordinary shares under the Warner Estate Holdings Plc 1995 Share Option Scheme as follows:
At 319p per share exercisable between 65,831 shares
17 July 2005 and 16 July 2012
At 367.5p per share exercisable between 67,956 shares
27 June 2006 and 26 June 2013
At 495p per share exercisable between 87,605 shares
8 July 2007 and 7 July 2014
---------------------------------------- --------------
221,392
shares
---------------------------------------- --------------
2012 2011
Number Average Number Average
exercise exercise
price price
p p
At 1 April 287,291 380.6 457,796 389.2
Options expired/lapsed (65,899) 303.5 (170,505) 403.8
At 31 March 221,392 403.5 287,291 380.6
--------- ---------- ---------- ----------
All of the options outstanding at 31 March 2012 (2011: 287,291) were exercisable.
Warner Estate Holdings PLC Performance Share Plan
At 31 March 2012 there were share options to subscribe for Ordinary shares at nil cost under the Warner Estate Holdings Plc Performance Share Plan as follows:
Exercisable between 4 August 2013 and 1,545,000
4 February 2014 shares
-------------------------------------- ----------
1,545,000
shares
-------------------------------------- ----------
2012 2011
Number Average Number Average
exercise exercise
price price
p p
At 1 April 2,239,078 - 770,027 -
Options granted - - 1,770,000 -
Options exercised - - - -
Options expired/lapsed (498,692) - (185,921) -
Options forfeited (195,386) - (115,028) -
At 31 March 1,545,000 - 2,239,078 -
---------- ---------- ---------- ----------
None of the options outstanding at 31 March 2012 were exercisable (2011: nil).
The average share price during the year was 6.4p (2011: 21.2p).
The key assumptions used in valuing the fair value of share based payments are as follows (also see directors' remuneration report):
Exercise price GBPnil
Share price Price at date of grant
Expected term 3 years
Expected volatility(1) 38.5% for awards granted on 14 July 2008, 24% for awards
granted on 4 August 2010
Expected dividend Dividends paid in the 12 months prior to grant calculated
yield as a percentage of the share price on the date of grant
Risk free Not applicable as exercise price is GBPnil
interest rate
Model used Black-Scholes
(1) Volatility is calculated by looking at the historical share price movements prior to the date of grant over a period of time commensurate with the expected term for each award (i.e. 3 years). The formula calculates the ratio of each day's price to the preceding value, which gives a "dimensionless" figure. The final step is to calculate the standard deviation of the logs of these ratios and to annualise this figure.
26. Other Reserves
Share Share Warrants Revaluation Other Treasury Retained
Premium Based Reserve(1) Reserve(2) Reserve(3) Shares Earnings(4) Total
Payments
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Group
At 31 March
2011 40.7 1.0 0.8 (188.7) 8.0 (1.5) 126.5 (13.2)
Retained loss
for the
year - - - - - - (38.7) (38.7)
Realised on
disposal
of investment
properties - - - 11.2 - - (11.2) -
Realised on
disposal
of investment
in joint
ventures - - - (57.2) - - 57.2 -
Net loss from
fair value
adjustment on
investment
properties - - - (21.0) - - 21.0 -
Share of joint
ventures'
net gain from
fair value
adjustment on
investment
properties - - - 8.8 - - (8.8) -
Net loss from
fair value
adjustment on
unlisted
investments - - - (4.2) - - 4.2 -
Change in fair
value
of derivative
financial
instruments - - - 2.1 - - (2.1) -
Change in fair
value
of joint
ventures'
derivative
financial
instruments - - - (6.4) - - 6.4 -
Actuarial
losses on
pension scheme
assets - - - - - - (0.2) (0.2)
Deferred tax on
pension
scheme assets - - - - - - (0.1) (0.1)
Cost of share
based
payments - (0.5) - - - - 0.3 (0.2)
Transfer - - - - - 1.5 (1.5) -
At 31 March
2012 40.7 0.5 0.8 (255.4) 8.0 - 153.0 (52.4)
---------------- --------- ---------- ------------ ------------- ------------ ---------- ------------- -------
(1) 2,808,713 share warrants were issued on 26 March 2010 and have been
accounted for at fair value on that date.
(2) The revaluation reserve consists of unrealised fair value movements
on investment properties, share of joint ventures' investment properties,
investments, derivative financial instruments and share of joint ventures'
derivative financial instruments.
(3) Other reserves consist of a capital redemption reserve and a merger
reserve.
(4) The closing balance on retained earnings reserve includes GBP0.5million
liability (2011: GBP0.4million) stated after a deferred tax asset of GBP0.1million
(2011: GBP0.2million) in respect of the Group's defined benefit pension
scheme as set out in note 3 to the accounts.
Non-distributable Reserves Distributable Reserves
--------------------------------- ---------------------------------
Share Share Warrants Other Treasury Retained
Premium Based Reserve Reserve Shares Earnings Total
Payments
Company GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 31 March 2011 40.7 1.0 0.8 7.0 (1.5) (61.2) (13.2)
Retained loss for the
year - - - - - (39.0) (39.0)
Dividends paid - - - - - - -
Cost of share based
payments - (0.5) - - - 0.3 (0.2)
Transfers - - - - 1.5 (1.5) -
At 31 March 2012 40.7 0.5 0.8 7.0 - (101.4) (52.4)
----------------------- --------- ---------- ---------- --------- ---------- ---------- -------
27. Investment in Own Shares
Group and Company
------------------- ----------------
Number Cost
'000 GBPm
At 31 March 2011 938.2 0.8
Additions 763.9 -
Disposals (406.6) (0.2)
------------------- -------- ------
At 31 March 2012 1,295.5 0.6
------------------- -------- ------
Additions relate to the Inland Revenue Approved All-Employee Share Ownership Plan.
Included in investment in own shares are shares relating to the Inland Revenue Approved All-Employee Share Ownership Plan, as follows:
2012 2011
Number Cost Market Number Cost Market
value value
'000 GBPm GBPm '000 GBPm GBPm
------------------------------ -------- ----- ------- ------- ----- -------
Partnership shares purchased
by employees held in Trust 587.7 - - 428.6 - 0.1
Matching and Free shares not
yet vested 688.3 0.5 - 490.2 0.7 0.1
------------------------------ -------- ----- ------- ------- ----- -------
1,276.0 0.5 - 918.8 0.7 0.2
------------------------------ -------- ----- ------- ------- ----- -------
The vesting of Matching and Free shares is conditional on meeting the conditions of the scheme which are summarised in the Report and Accounts which will be published in due course.
28. Directors' Interests and Related Party Transactions
Transactions between the company and subsidiaries, which are related parties, have been eliminated on consolidation for the Group.
Compensation of key management personnel is disclosed in the Report and Accounts which will be published in due course.
There were no transactions between the parent company and its subsidiaries in the current or prior year.
Balances outstanding between the parent company and its subsidiaries are shown below:
Amounts owed Amounts owed
by subsidiaries to subsidiaries
2012 2011 2012 2011
Subsidiary GBPm GBPm GBPm GBPm
-------------------------------- --------- -------- --------- --------
Cardiff and Provincial
Properties Limited - - (12.1) (12.1)
Clay Estates Limited - - (79.6) (79.6)
Industrial Funds Limited - - (3.9) (4.1)
Lancaster Holdings Limited 0.3 0.1 - -
Lancaster Investments - 2.8 - -
Limited
Warner Estate Asset Management
Limited - - (2.0) (3.5)
Warner Estate Development
(Folkestone) Limited 24.0 23.0 - -
Warner Estate Investments
Limited - - (23.1) (16.1)
Warner Estate (Jersey)
Limited 5.0 12.1 - -
Warner Estate, Limited 19.5 21.1 - -
Warner Estate Management
Limited - 6.4 (3.0) -
Warner Estate Property
Management Limited - - (16.0) (23.2)
48.8 65.5 (139.7) (138.6)
-------------------------------- --------- -------- --------- --------
No fees were paid in respect of contracts, which provided services in the ordinary course of business to the Group, and in which Directors have or had interests.
Management charges payable by the joint ventures are set out in note 15.
29. Reconciliation of Operating Profit / (Loss) to Net Cash Flow
Group Company
----------------------------------------- -------------- ---------------
2012 2011 2012 2011
GBPm GBPm GBPm GBPm
----------------------------------------- ------ ------ ------- ------
Operating profit / (loss) before
net movements on investments 11.7 13.4 (18.3) (0.9)
Depreciation of plant and equipment - 0.1 - -
Decrease in retirement benefit
obligations (0.2) (0.2) - -
Decrease in trade and other receivables 0.2 - 17.9 2.8
(Decrease) / increase trade and
other payables (1.5) (8.3) 0.6 (2.0)
----------------------------------------- ------ ------ ------- ------
Cash generated from operations 10.2 5.0 0.2 (0.1)
----------------------------------------- ------ ------ ------- ------
30. Contingent Liabilities
2012 2011
GBPm GBPm
------------------------------------- ------ ------
Contingent liabilities in respect
of guarantees given by the Company
in respect of borrowings of its
subsidiaries as follows:
Bank overdrafts 149.0 168.6
------------------------------------- ------ ------
149.0 168.6
------------------------------------- ------ ------
These liabilities have not been recognised on the statement of financial position.
31. Operating Lease Commitments
2012 2011
GBPm GBPm
-------------------------------------------- ----- -----
Group
Total future annual minimum lease payments
under non-cancellable operating leases
are as follows:
Within one year 0.9 0.2
Expiring between two and five years 0.6 1.2
Expiring after five years 0.1 0.3
-------------------------------------------- ----- -----
1.6 1.7
-------------------------------------------- ----- -----
32. Operating Leases Granted
The Group earns rental income by leasing its investment properties to tenants under operating leases.
At the statement of financial position date, the Group had contracted with tenants to receive the following future minimum lease payments:
2012 2011
GBPm GBPm
------------------------------------- ------ ------
Group
Within one year 14.3 15.0
Expiring between two and five years 45.8 50.8
Expiring after five years 45.8 45.4
------------------------------------- ------ ------
105.9 111.2
------------------------------------- ------ ------
33. Fixed Asset Investments
Issued Percentage
Share Capital Held
Principal Subsidiary Companies GBP %
Holding and Services
*Apia Asset Management Limited: GBP1 Ordinary Shares 1 100
*Ashtenne Asset Management Limited: 10p Ordinary Shares 100 100
*Ashtenne Investments Limited: GBP1 Ordinary Shares 100 100
Warner Estate Management Limited: GBP1 Ordinary Shares 2 100
*Warner Active Management No
2 Limited: GBP1 Ordinary Shares 1 100
Warner Estate Asset Management
Limited: 10p Ordinary Shares 1,636,000 100
Warner Estate Property Management
Limited: 10p Ordinary Shares 3,987,000 100
*Warner Estate (AM:PM) Limited: GBP1 Ordinary Shares 1 100
Property Investment
Lancaster Investments Limited: GBP1 Shares 1,000 100
Warner Estate Development (Folkestone)
Limited: GBP1 Ordinary Shares 1 100
Warner Estate Investments Limited: GBP1 Ordinary Shares 1 100
Warner Estate Property Limited: GBP1 Ordinary Shares 40,000,000 100
Other Investment
Cardiff and Provincial Properties
Limited: 25p Ordinary Shares 162,000 100
Warner Estate, Limited: GBP1 Ordinary Shares 1 100
*Warner Estate (AIF) Limited
(Jersey): GBP1 Ordinary Shares 1 100
GBP1 Redeemable
Preference Shares 12,000,000 100
Warner Estate Joint Ventures
Limited: GBP1 Ordinary Shares 1 100
Principal Joint Ventures
Property Investment
GBP1 A Ordinary
*Agora Shopping Centres Limited: Shares 7,323,013 100
GBP1 B Ordinary
Shares 7,323,013 -
*Apia Regional Office Fund (General GBP1 A Ordinary
Partner) Limited: Shares 25,000 -
GBP1 B Ordinary
Shares 25,000 100
Principal Other Investments
Investment in Shares
*Ashtenne Industrial (General GBP1 A Ordinary
Partner) Limited: Shares 120 -
GBP1 B Ordinary
Shares 60 100
Investment in Funds
*Apia Regional Office Fund Unit
Trust (Jersey): GBP1 Units 242,366,433 21.57
*Ashtenne Industrial Fund Unit
Trust (Jersey): GBP1 Units 358,695,267 6.52
* Held through a subsidiary
company
All companies are incorporated in the UK and registered in
England unless otherwise indicated.
The companies listed above are those subsidiary undertakings whose results or financial position, in the opinion of the Directors principally affected the figures in the Group's financial statements. The Company has taken advantage of s410(2) and (3) Companies Act 2006 in not listing all its subsidiary and joint venture undertakings. All of the subsidiaries have been consolidated in the Group financial statements.
Full listings of all the subsidiaries are available from the Company Secretary at the registered office.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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