April 30, 2018 - 3:00 AM EDT
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LONDON AND ASSOCIATED PROPERTIES PLC - Annual Results

 30 April 2018

LONDON & ASSOCIATED PROPERTIES PLC (‘’LAP’’):

ANNUAL RESULTS FOR 12 MONTHS TO 31 DECEMBER 2017

HIGHLIGHTS

  • Brixton Markets sale completed post year end at £37.25 million
    • A significant increase on historic professional valuation
    • Revaluation to selling price contributed to a £10.76 million improvement in LAP Group pre-tax profit
    • Sale generated £20.5 million of cash for future investment
  • Rental income stable despite challenging market
  • Voids remain minimal at 2%
  • Net assets attributable to ordinary shareholders up 20% to £45.85 million
  • NAV per ordinary share up 20% to 53.74p from 44.83p
  • Bisichi had an excellent year although impacted by exceptional loss on a joint venture
  • Dividends increased
    • Final dividend increase of 6% to 0.175p recommended
    • Special one-off dividend of 0.125p also recommended following completion of Brixton Markets sale
    • Total dividend for the year 0.30p

“We believe our portfolio is relatively well protected from online shopping as our core property holdings are either part of a major city that will remain a destination in its own right with a differentiated offer, which forms part of a leisure experience; or, they fulfil a role providing convenience retail facilities. We believe these sections of the retail world will continue to be relevant for the foreseeable future”, said Sir Michael Heller, Chairman, and John Heller, CEO.

Contact:

                London & Associated Properties PLC                                       Tel: 020 7415 5000

                John Heller, CEO, or Anil Thapar, Finance Director

                Baron Phillips Associates                                                               Tel: 07767 444193

                Baron Phillips



LONDON & ASSOCIATED PROPERTIES
ANNUAL REPORT 2017

OVERVIEW

LAP AT A GLANCE

CHAIRMAN AND CHIEF EXECUTIVE’S STATEMENT

STRATEGIC REPORT

FINANCIAL REVIEW AND PERFORMANCE

PRINCIPAL ACTIVITIES, STRATEGY & BUSINESS MODEL

RISKS AND UNCERTAINTIES

BISICHI RISKS AND UNCERTAINTIES

KEY PERFORMANCE INDICATORS

CORPORATE RESPONSIBILITY

GOVERNANCE

DIRECTORS & ADVISORS

DIRECTORS’ REPORT

CORPORATE GOVERNANCE

GOVERNANCE STATEMENT BY THE CHAIRMAN OF THE REMUNERATION COMMITTEE

ANNUAL REMUNERATION REPORT

REMUNERATION POLICY SUMMARY

AUDIT COMMITTEE REPORT

DIRECTORS’ RESPONSIBILITIES STATEMENT

INDEPENDEND AUDITOR’S REPORT

FINANCIAL STATEMENTS

CONDOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

CONSOLIDATED CASH FLOW STATEMENT

GROUP ACCOUNTING POLICIES

NOTES TO THE FINANCIAL STATEMENTS

FIVE YEAR FINANCIAL SUMMARY

Financial calendar

Annual General Meeting
19 June 2018

Announcement of half year results to 30 June 2018
Late August 2018

Payment of final and special dividend for 2017 (if approved)
14 September 2018

Announcement of annual results for 2018
Late April 2019

LAP at a glance

London & Associated Properties PLC (“LAP”) is a main market listed group which invests in UK shopping centres and retail property whilst also managing property assets for institutional clients. LAP owns and/or manages £186 million of property investments. As a property company we look to create environments where tenants can thrive.

The Group also holds a substantial investment in Bisichi Mining PLC, which operates coal mines in South Africa and owns UK property investments. In accordance with IFRS 10 the results of Bisichi have been consolidated in the group accounts.

Financial highlights
 

Fully diluted net
assets per share
IFRS net assets Properties portfolio
valuation*
53.74p £56.7m £186m
2016: 44.83p 2016: £48.6m 2016: £221m
*Including properties under management

OVERALL PORTFOLIO SPLIT

PORTFOLIO BY RENTAL INCOME

KEY PROJECTS HIGHLIGHT
Wholly owned • Market Row and Brixton Village Brixton
• Orchard Square, Sheffield
• Kings Square, West Bromwich
Market Row and Brixton Village sold in April 2018
Investments
and management
• Kingsgate Centre, Dunfermline
• The Rushes Centre, Loughborough
• The Vancouver Quarter Centre Kings Lynn
Co-investment with Oaktree Capital Management and manage three of their shopping centres
Coal production • In South Africa, Black Wattle produced 1.30 million metric tonnes of Run of Mine Coal in 2017 (2016: 1.26 million metric tonnes)

OVERVIEW

Chairman and Chief Executive’s statement

We are pleased to report on a very satisfactory period for the 12 months to 31st December 2017.

The most significant event in 2017 was our decision to offer for sale the two markets in Brixton, valued at £24.5 million last year and yielding around £0.5 million annually, net of interest expense. We believed that the timing was right to realise this asset and generate a significant profit. Sale proceeds of £37.25 million were received in April 2018. Allowing for costs and repayment of related loans, this will leave the Company with cash from this disposal of £20.5 million.

We are already in discussions with third parties on potential new investments and will look for opportunities to reinvest the cash and expand the portfolio over the coming months.

The year was also marked by a successful conclusion to a long running dispute with The Market Village Company Limited (the tenant of the two Brixton Markets). The lease entitles LAP to a share of total income less specified expenses. The Court supported our claim that inappropriate expenses had been deducted in calculating the income due. As a result, rental income for 2017 includes £0.6 million for back rent which is now due from the tenant.

LAP Group (excluding Bisichi and Dragon) property revenue for the year to 31st December 2017 was £6.8 million as compared with £6.1 million in the previous year. Excluding the extra Brixton and other income, our property revenue would have been £6.1 million, which is a creditable result in the very challenging current trading environment.

Within the LAP Group we have been particularly focused on operating costs during 2017 and we are pleased to report that in 2017 these were approximately 8% lower at £3.8 million compared to £4.1 million the year before.

Consolidated results

The Group (including Bisichi and Dragon) net assets at the year end were £56.71 million (2016: £48.63 million).

Total net assets of LAP Group (including our net interest in Bisichi) have increased by almost 20% to £45.85 million (2016: £38.24 million), while net asset value per share has increased by 20% to 53.74p from 44.83p in 2016. Total property assets owned by LAP, Bisichi and other companies in which LAP has a financial interest amount to £186 million (2016: £221 million).

The Group profit after valuation movements and before taxation for the year was £11.28 million (loss 2016: £0.97 million). Besides the improvements in Bisichi (as detailed in the Bisichi section below) and LAP income and costs (as stated above), the main improvement was due to the increase in valuation of investment properties by £9.37 million (2016: £0.53 million). A full breakdown of group income and result by sector is included in the financial review and in the segmental analysis in Note 1 to the financial statements.

Debt Management

In June 2017 we repaid £0.75 million of Prudential debenture stock which carried a coupon of 11.6% per annum. In August 2018, the residual £3 million of this debenture will expire. We are currently talking to a number of lenders about refinancing the portfolio against which the debenture is secured, and we are pleased to report that interest is strong. We will update shareholders on the terms of any new loan once we have selected the lender. We are confident that we will make a significant saving on the £0.3 million per annum interest we are currently paying.

LAP PROPERTY ACTIVITIES

Orchard Square, Sheffield

The shops at Orchard Square have remained effectively fully let throughout 2017, and we therefore have no significant new lettings to report. However, we have a number of lease expiries in 2018 and have commenced negotiations with tenants to renew their leases. Responses to date have been positive.

Kings Square, West Bromwich

Kings Square, our shopping centre at West Bromwich, has had a strong year during which we have achieved several good lettings. The principal mall remains fully let and recent lettings have underscored rental growth compared to a year ago. Additionally, the side mall, which has always been the weakest of the malls within the Centre, is fully let following a period of intensive marketing.

The town seems to be finding its equilibrium after the opening of a new Tesco Extra and adjacent shopping centre and Kings Square is clearly the location of choice for discount retailers. This is helped by the tram and bus terminus being attached to the rear of our centre. We therefore believe that this Centre will continue to trade successfully.

414 Coldharbour Lane, Brixton

Shareholders are aware that, following lease expiry in 2015, we are in the process of trying to obtain vacant possession of this property from the current tenant. We believe that the tenant has lost the statutory rights of renewal. In December 2017, the Court found in favour of LAP on two counts. A third and final count requires a separate hearing which is scheduled for September 2018. We are confident of our position and we will update shareholders in due course.

Other

The rest of our property portfolio continues to trade well and the LAP Group portfolio has a void level of 1.47%, (2016: 2.15%).

Properties outlook

There has been a lot of press coverage recently about retailer insolvencies and the increasing migration to online shopping. So far we have not directly suffered any increased level of retailer insolvency but we cannot be isolated entirely from general high street trends. Like all retail landlords, we will be forced to compete against an increased supply of empty shops.

As highlighted in Chairman’s Statements over the last few years, we believe that our portfolio is relatively protected from online shopping as our core property holdings are all either part of a major city that will remain a destination in its own right; a differentiated offer which forms part of a leisure experience; or they fulfil a role providing convenience retail facilities. We still believe that these sections of the retail world will continue to be relevant for the foreseeable future.

Harrogate joint venture

Our Harrogate joint venture with Oaktree Capital Management, which owns three shopping centres in Dunfermline, Kings Lynn and Loughborough, underwent a refinancing during the year. A loan at 80% of valuation was secured from Goldman Sachs with mezzanine funding provided by DRC. During this refinancing, we declined the option to put further cash into the joint venture and consequently our share of the equity was diluted from 6.95% to 3.17%. However, our asset and property management contracts remain unchanged and we continue to receive fees for managing the centres.

Mining and property activities by Bisichi Mining PLC

The management of Bisichi report that for the year ended 31st December 2017, the company achieved earnings before interest, tax, depreciation and amortisation (EBITDA) of £3.7 million (2016: £2.4 million). This significant improvement was achieved despite the impact on Black Wattle, its direct coal mining subsidiary in South Africa, of mining challenges in the first half of the year.

For the first half of 2017 production at Black Wattle was impacted by higher than expected seasonal rains as well as ongoing stone contamination issues at its opencast areas. Overall, during this period, the mine achieved production of 582,000 metric tonnes (2016 H1: 795,000 metric tonnes). The stone contamination issues affected both yield and mining production through the washing plant, thus impacting on sales volumes and earnings in the first half of the year.

During the second half of the year, further development of Black Wattle’s opencast areas and the successful completion of infrastructure improvements to its washing plant allowed the mine to increase production to 714,000 metric tonnes (2016 H2: 465,000 tonnes). In addition, the completion of these infrastructure improvements assisted in reducing the stone contamination through the washing plant and increasing its overall yield.

As a result of the higher production in the second half of the year, overall mining production from Black Wattle increased in 2017, with total production for the year of 1.30 million metric tonnes (2016: 1.26 million metric tonnes). As part of Black Wattle’s mining plan, the opencast areas that were mined in 2017 will continue to be mined throughout 2018. Bisichi expect mining production levels achieved in the second half of 2017 to be maintained in 2018.

Looking forward to 2018, Bisichi management will focus on maintaining production at the higher levels achieved in the second half of 2017 and increasing the life of the mine through the acquisition of additional reserves. With strong demand and improved prices achievable for the company’s coal, Bisichi believes the group is in a strong position to achieve significant value from its South African mining operations in 2018.

Bisichi’s property portfolio is managed by LAP and continues to perform well. Overall, net property revenue (excluding joint ventures) was £1.12 million (2016: £1.06 million).

The property portfolio was externally valued at 31st December 2017 and the value of UK investment properties attributable to the group at year end remained unchanged at £13.25 million.

Bisichi has decided to recommend a final dividend of 3p (2016: 3p) and in light of the strong results achieved, a special dividend of 1p (2016: nil). The total Bisichi dividend for the year is 5p (2016: 4p). LAP’s cash share of this is £221,000 (2016: £177,000).

Dragon Retail Properties

Dragon has a single retail asset in Bristol. There is a lease renewal on the ground floor. The tenant has requested a new lease, and we believe the rent to be reversionary. Negotiations are underway.

LAP Dividend

We are pleased to recommend a final dividend of 0.175p, an increase of over 6% on the 2016 dividend of 0.165p. We are also pleased to report that we will recommend a special dividend of 0.125p following the sale of our Brixton properties. This means we will pay a total dividend of 0.30p.

Finally, we would like to thank all of our directors, staff and advisors for their hard work during the year. We look forward to the year ahead with cautious optimism.

Sir Michael Heller,  John Heller,
Chairman                               Chief Executive

27 April 2018

STRATEGIC REPORT

Financial and performance review

The financial statements for 2017 have been prepared to reflect the requirements of IFRS 10. This means that the accounts of Bisichi Mining PLC (a London Stock Exchange main market quoted company – BISI) (“Bisichi”), have been consolidated with those of LAP.

Bisichi continues to operate as a fully independent company and currently LAP owns only 41.52% of the issued ordinary share capital. However, because related parties also have shareholdings in Bisichi and there is a wide disposition of other shareholdings, LAP is deemed under IFRS 10 to have effective control of Bisichi for accounting purposes. This treatment means that the income and net assets of Bisichi are disclosed in full and the value attributable to the “non-controlling interest” (58.48%) is shown separately in the equity section as a non-controlling interest. There is no impact on the net assets attributable to LAP shareholders.

Dragon Retail Property Limited (“Dragon”), our 50:50 joint venture with Bisichi is also consolidated.

Shareholders are aware that LAP is a property business with a significant investment in a listed mining company. The effect of consolidating the results, assets and liabilities of the property business and the mining company make the figures complex and less transparent. Property company accounts are already subject to significant volatility as valuations of property assets as well as derivative liabilities can be subject to major movements based on market sentiment. Most of these changes, though, have little or no effect on the cash position and it is, of course, self-evident that cash flow is the most important factor influencing the success of a property business. We explain the factors affecting the property business first, clearly separating these from factors affecting the mining business which we do not manage. Comments about Bisichi (the mining business) are based on information provided by the independent management of that company.

LOANS

Long term debt of LAP (excluding Bisichi and Dragon which are detailed separately below), consists of a £45 million facility expiring in July 2019 and two debentures: one of £10 million expiring in August 2022 and another of £3 million expiring in August 2018. During the year £0.75 million of debenture was repaid. As in previous years, all loans and debentures are secured on core property and cash deposits and are covenant compliant.

LAP’s five year £35 million non-recourse loan from Santander, as senior lender, is supported by a £10 million loan from Europa Capital Mezzanine Limited, as mezzanine lender. The senior loan facility is fully hedged and at the year end, 50% of the loan was swapped at a rate of 2.25% and the remaining 50% was covered by an interest cap at 2.25%. This gives a blended current interest rate of 4.73% for the total £45 million debt. On completion of the sale of Brixton Markets, £15.9 million of senior and mezzanine loans are repayable.

Cash flow

The operating cash flow and net cash balances at the year-end were as follows:

CASH FLOW FROM OPERATIONS 2017
£’000
2016
£’000
LAP 2,708 2,623
Bisichi 7,593 2,879
Dragon (14) 84
Group total 10,287 5,586

Note: The figures exclude inter-company transactions.

NET CASH BALANCES 2017
£’000
2016
£’000
LAP 2,109 3,706
Bisichi 4,065 (890)
Dragon 92 115
Group total 6,266 2,931

Our investment with Oaktree Capital Management (HRGT Shopping Centres LP), remains profitable and generates management fees (2017: £0.46 million and 2016: £0.46 million) for our wholly owned subsidiary (London & Associated Management Services Limited). We also received £0.1 million (2016: £0.1 million) as a partial repayment of our loan.

Income statement

The segmental analysis in Note 1 to the financial statements gives more detail but the tables below give a clearer summary of the Group results.

RESULTS BEFORE REVALUATIONS AND NON-CASH MOVEMENTS 2017
£’000
2016
£’000
LAP (130) (1,070)
Bisichi 3,536 (241)
Dragon (29) 9
Group total 3,377 (1,302)

Note: The figures exclude inter-company transactions.

Rental income in LAP includes a one off receipt of £0.6 million for Brixton back rent. Additionally, renewed efforts to cut costs at LAP are reflected in lower overheads and property expenses, resulting in an improvement of £0.9 million in the operating result before revaluations of the core property business.

Bisichi’s improvement of £3.8 million is explained under Bisichi Mining PLC, in this review.

The Group property portfolio, including assets held for sale (including Bisichi) of £114.46 million increased on revaluation by £9.37 million, a 9% increase.

The improved property revenues, reductions in running costs and increased property valuations, have resulted in the LAP Group property business showing an increase of £10.76 million in the profit before taxation to £9.61 million (2016: loss £1.15 million).

profit/(Loss) before taxation 2017
£’000
2016
£’000
LAP 9,614 (1,150)
Bisichi 1,696 216
Dragon (32) (40)
Group profit/(loss) before taxation 11,278 (974)

Note: The figures exclude inter-company transactions.

Taxation

The LAP Group taxation charge of £2.98 million (2016: £1.17 million) is mainly due to changes in the rules governing the utilisation of tax losses which has restricted the group’s ability to offset the deferred tax liability arising on the revaluation gains recognised in the year.

Balance sheet

Taking account of the changes required by IFRS 10 (see table below) LAP has group net assets of £56.7 million (2016: £48.6 million).

Net assets attributable to equity shareholders at the year-end were 53.74p per share (2016: 44.83p per share).

2017
LAP
Original
Group
£’000
Bisichi
Mining PLC
Group
£’000

Dragon
Retail
Properties
£’000


Consolidation
adjustments
£’000


LAP
Net assets
£’000
Investment properties 65,231 13,397 2,630 - 81,258
Other fixed assets 116 8,613 6 - 8,735
Investments in Bisichi Mining PLC 7,120 - - (7,120) -
Investments in joint ventures 874 874 - (1,748) -
Other non current assets 1,748 51 - - 1,799
Held for sale assets 36,441 - - - 36,441
Current assets 4,824 13,622 2,528 (4,416) 16,558
Current liabilities (10,822) (9,025) (2,124) 4,416 (17,555)
Non-current liabilities (59,377) (9,858) (1,291) - (70,526)
Net assets 46,155 17,674 1,749 (8,868) 56,710

   

2016
Investment properties 93,791 13,426 2,630 109,847
Other fixed assets 112 8,520 21 8,653
Investments in Bisichi Mining PLC 6,918 (6,918)
Investments and loans in joint ventures
and assets held for sale
866 2,671 (1,732) 1,805
Other non current assets 3,008 32 3,040
Current assets 5,559 12,224 2,447 (4,347) 15,883
Current liabilities (9,014) (10,326) (2,078) 4,347 (17,071)
Non-current liabilities (62,697) (9,541) (1,288) (73,526)
Net assets 38,543 17,006 1,732 (8,650) 48,631

Bisichi mining plc

Although the results of Bisichi Mining PLC have been consolidated in these financial statements, the Board of LAP has no direct influence over the management of Bisichi. The comments below are based on the published accounts of Bisichi.

The Bisichi group results are stated in full in its published 2017 financial statements which are available on its website: www.bisichi.co.uk.

The Bisichi group increased its EBITDA to £3.7 million (2016: £2.4 million) mainly due to increased operating profits before depreciation from the mining activities of £4.6 million (2016: £1.2 million) offset by the group’s share of losses in its joint venture of £1.8 million (2016: £nil). The share of losses in joint ventures arises from writing off the investment in Ezimbokodweni Mining (Pty) Ltd of £1.8 million, as detailed in Notes 12 and 13 to the accounts. Depreciation in the year relating to mining activities remained unchanged at £1.8 million. Profit for the year after tax was £1.5 million (2016: £0.3 million). Bisichi has two core revenue streams – investment in retail property in the UK and coal mining in South Africa.

The increase in operating profit was mainly attributable to the higher prices achieved by coal and increased mining production at Black Wattle offsetting the impact of the higher mining and washing costs.

The UK retail property portfolio was valued at the year end at £13.25 million (2016: £13.25 million). The property portfolio is actively managed by LAP and generated rental income of £1.1 million in the year (2016: £1.1 million).

In South Africa, a subsidiary of Bisichi signed an increase in the structured trade finance facility from R80 million to R100 million (South African Rand) in July 2017 with Absa Bank Limited. This facility is renewable annually at 30th June and is secured against inventory, debtors and cash that are held in the Bisichi group’s South African operations. This facility is expected to be renewed again in 2018.

In the UK, the Bisichi group signed a £6 million five-year term loan with Santander in December 2014. This loan is secured against UK investment property. No covenants were breached during the year.

Overall the Bisichi group achieved a net increase in cash and cash equivalents of £4.9 million (2016: £0.4 million). This increase was mainly attributable to improved coal mining operations which generated a substantial (£7.3 million) increase in cash from operating activities. Bisichi group’s net balance of cash and cash equivalents (including bank overdrafts) at the year end was £4.1 million (owing 2016: £0.9 million). The Bisichi group’s cash and cash equivalents (excluding bank overdrafts), at the year-end was £5.3 million (2016: £2.4 million).

The Bisichi group’s financial position remains strong. Its net assets at 31st December 2017 were £17.7 million (2016: £17 million). The group expects to continue achieving significant value in 2018 from its existing mining operation. In addition, Bisichi seeks to expand its operations in South Africa through the acquisition of additional coal reserves.

DRAGON RETAIL PROPERTIES LIMITED

Dragon is a UK property investment company. The company has a Santander bank loan of £1.25 million secured against its investment property and is covenant compliant. It paid management fees of £84,000 (2016: £72,000) split equally to the two joint venture partners. Its results continue to be near breakeven after taxation. Dragon has net assets of £1.7 million (2016: £1.7 million).

Accounting judgements and going concern

The most significant judgements made in preparing these accounts relate to the carrying value of the properties, investments and interest rate hedges. The hedges have been valued by the hedge provider. The Group uses external property valuers to determine the fair value of its properties.

Under IFRS10 the Group has included Bisichi Mining PLC in the consolidated accounts, as it is deemed to be under the effective control of LAP and has therefore been treated as a subsidiary.

The Directors exercise their commercial judgement when reviewing the Group’s cash flow forecasts and the underlying assumptions on which the forecasts are based. The Group’s business activities, together with the factors likely to affect its future development, are set out in the Chairman and Chief Executive’s Statement and in this review. In addition, the Directors consider that Note 23 to the financial statements sets out the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk, liquidity risk and other risks.

With a quality property portfolio comprising a majority of tenants with long leases supported by suitable financial arrangements, the Directors believe the group is well placed to manage its business risks successfully, despite the continuing uncertain economic climate. The Directors therefore have a reasonable expectation that the group and the company have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

TAXation

The LAP Group tax strategy is to account for tax on an accurate and timely basis. We only structure our affairs based on sound commercial principles and wish to maintain a low tax risk position. We do not engage in aggressive tax planning.

The LAP Group (excluding Bisichi and Dragon) has unused tax losses and deductions with a potential value of £10.167 million of which only £4.74 million has been recognised in the 2017 financial statements. As LAP returns to profit, these tax losses and deductions should be utilised.

Dividends and future prospects

The directors are proposing a final dividend of 0.175p per ordinary share payable in September 2018.

The directors are also proposing a special dividend of 0.125p per ordinary share payable in September 2018.

The Group remains cautiously confident about its trading and future outlook and it continues to look at further reducing its overhead costs and interest payable, while it stabilises its property income together with seeking out growth opportunities.

STRATEGIC REPORT

Principal activities, strategy & business model

The LAP Group’s principal business model is the investment in and management of town centre retail property through direct investment and joint ventures, where we manage the property ourselves and on behalf of our partners.

The principal activity of Bisichi Mining PLC is coal mining in South Africa. Further information is available in its 2017 Financial Statements which are available on their web site: www.bisichi.co.uk

STRATEGIC PRIORITIES ARE OUR STRATEGY IS
MAXIMISING INCOME By achieving an appropriate tenant mix and shopping experience we can increase footfall through the centres, hence increase tenant demand for space and enhance income.
CREATING QUALITY PROPERTY We look to improve the consumer experience at all our centres by achieving an appropriate tenant mix and a vibrant trading environment through investment activity, enhancement, refurbishment and development.
CAPITAL STRENGTH We operate within a prudent and flexible financial structure. Our gearing, which has been substantially reduced, provides financial stability whilst giving capacity and flexibility to look for further investments.
MAINTAIN THE VALUE OF
INVESTMENT IN BISICHI
By encouraging the Bisichi management to maximise sustainable profits and cash distributions.

Risks and uncertainties

DESCRIPTION OF RISK DESCRIPTION OF IMPACT MITIGATION
ASSET MANAGEMENT:
TENANT FAILURE Financial loss. Initial and subsequent assessment of tenant covenant strength combined with an active credit control function.
LEASES NOT RENEWED Financial loss. Lease expiries regularly reviewed. Experienced in house teams with strong tenant and market knowledge who manage appropriate tenant mix.
ASSET LIQUIDITY (SIZE AND GEOGRAPHICAL LOCATION) Assets may be illiquid and affect flexing of balance sheet. Regular reporting of current and projected position to the Board with efficient treasury management.
PEOPLE:
RETENTION AND RECRUITMENT OF STAFF Unable to retain and attract the best people for the key roles. Nomination Committee and senior staff review skills gaps and succession planning. Training and development offered.
REPUTATION:
BUSINESS INTERRUPTION Loss in revenue.
Impact on footfall.
Adverse publicity.
Potential for criminal/
civil proceedings.
Documented Recovery Plan in place.
General and terrorism insurance policies in place and risks monitored by trained security staff.
Health and Safety policies in place.
CCTV in centres.
FINANCING:
FLUCTUATION IN PROPERTY
VALUES
Impact on covenants and other loan agreement obligations. Secure income flows.
Regular monitoring of LTV and IC covenants and other obligations.
Focus on quality assets.
REDUCED AVAILABILITY OF BORROWING FACILITIES Insufficient funds to meet existing debts/interest payments and operational payments. Efficient treasury management.
Loan facilities extended where possible.
Regular reporting of current and projected position to the Board.
LOSS OF CASH AND DEPOSITS Financial loss. Only use a spread of banks and financial institutions which have a strong credit rating.
FLUCTUATION OF INTEREST RATES Uncertainty of interest rate costs. Manage derivative contracts to achieve a balance between hedging interest rate exposure and minimising potential cash calls.

STRATEGIC REPORT

Bisichi risks and uncertainties

Bisichi (although it is consolidated into group accounts as required by IFRS 10) is managed independently of LAP. The risks outlined below are an abbreviated summary of the risks reported by the Directors of Bisichi to the shareholders of that Company. Full details are available in the published accounts of Bisichi (www.bisichi.co.uk).

These risks, although critical to Bisichi, are of less significance to LAP which only has a minority investment of 41.52% in the company. In the unlikely event that Bisichi was unable to continue trading, it would not affect the ability of LAP to continue operating as a going concern.

DESCRIPTION OF RISK DESCRIPTION OF IMPACT MITIGATION
COAL PRICES CAN BE IMPACTED MATERIALLY BY MARKET AND CURRENCY VARIATIONS Affects sales value and therefore margins. Forward sales contracts are used to manage value expectations.
MINING OPERATIONS ARE INHERENTLY RISKY. MINERAL RESERVES, REGULATIONS, LICENSING, POWER AVAILABILITY, HEALTH AND SAFETY CAN ALL DAMAGE OPERATIONS Loss of production causing loss of revenue. Use of geology experts, careful attention to regulations, health and safety training, employee dialogue to minimise controllable risks.
CURRENCY RISK Affects realised sales value and therefore margins. Regular monitoring and review of forward currency situation.
CASHFLOW VARIATION BECAUSE OF MINING RISKS, COMMODITY PRICE OR CURRENCY VARIATIONS Variations can deliver significant shifts in cash flow. UK property investments used to offset high risk mining operations.

STRATEGIC REPORT

Key performance indicators

The Group’s Key Performance Indicators are selected to ensure clear alignment between its strategy and shareholder interests.
The KPIs are calculated using data from management reporting systems.

Strategic priority KPI           Performance
MAXIMISING INCOME – LIKE FOR LIKE PROPERTY INCOME
To increase the like-for-like income from the property year on year. Like-for-like rental income as a percentage of the prior year rental. The like-for-like rental
income has remained unchanged.
In the continuing difficult trading environment, this is considered satisfactory.
 
MAXIMISING INCOME – OCCUPANCY
We aim to maximise the total
income in our properties by
achieving full occupancy.

 
The ERV of the empty units as a percentage of our total income. Void levels have remained unchanged at 2.06%.
CAPITAL STRENGTH – GROWTH IN NET ASSET VALUE PER SHARE
The net assets per share is the principal measure used by the group for monitoring its performance and is an indicator of the level of reserves available for distribution by way of dividend. Movement in the net assets
per share.
The net assets per share
increased by 8.91 pence per share
or nearly 20% to 53.74p.
The strategic realisation of Brixton markets is the main reason for the significant increase this year. This is in accordance with our policy of selling assets when we believe that they have achieved maximum value.

STRATEGIC REPORT

Corporate responsibility

Sustainable Development

Bisichi’s Black Wattle continues to strive to conduct business in a safe, environmentally and socially responsible manner. Some highlights of their Health, Safety and Environment performance in 2017:

•   Black Wattle Colliery recorded one Lost Time Injury during 2017 (2016: One).

•   No cases of Occupational Diseases were recorded.

•   Zero claims for the Compensation for Occupational Diseases were submitted.

They continue to be compliant and make progress in terms of their Social and Labour Plan and their various BEE initiatives. A fuller explanation of these can be found in Bisichi’s 2017 Financial Statements which are available on their web site: www.bisichi.co.uk

Greenhouse gas reporting

We have reported on all of the emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 for the reporting period 1st January 2017 to 31st December 2017. The emissions are detailed in tables 1, 2, 3 and 4 below.

We have employed the Financial Control definition to outline our carbon footprint boundary reporting Scope 1 & 2 emissions only. Emissions from both landlord and tenant controlled areas of LAP owned shopping centres and facilities that fall within the footprint boundary. LAP has landlord controlled areas in Kings Square, Orchard Square, Brewery Street, Shipley and Bridgend. Excluded from our footprint boundary are: properties that we manage on behalf of others or are not wholly owned by LAP and emissions are considered non material by the business.

Emissions for landlord controlled areas have been calculated based on actual consumption information collected from each shopping centre. Emissions from tenant controlled areas have been calculated based on floor area and energy consumption benchmarks for general retail services in the UK.

The Bisichi Group has employed the Operational Control boundary definition to outline the carbon footprint boundary. Included within that boundary are Scope 1 & 2 emissions from coal extraction and onsite mining processes for Black Wattle Colliery. Excluded from the footprint boundary are emission sources considered non material by Bisichi Group, including refrigerant use onsite.

We have used the ISO14046-1 Standard (2006) and guidance provided by UK’s Department of Environment and Rural Affairs (DEFRA) on voluntary and mandatory carbon reporting. Emission factors were used from UK Government’s GHG Conversion Factors for Company Reporting 20171.

As well as reporting Scope 1 and Scope 2 emissions, legislation requires that at least one intensity ratio is reported for the given reporting period. The intensity figure represented below shows the emissions in tCO2e per thousand pounds revenue.

Table 1. landlord & tenant controlled areas

Emissions Source 2017 2016
Scope 1 emissions Natural gas (tCO2e) 71 234
Refrigerants (tCO2e) 0 5
Scope 2 emissions Electricity (tCO2e) 2,938 3,491
Total tCO2e 3,009 3,730
Intensity ratio (tCO2e/£thousand) 0.467 0.076

Table 2. LAP controlled areas

Emissions Source 2017 2016
Scope 1 emissions Natural gas (tCO2e) 71 234
Refrigerants (tCO2e) 0 5
Scope 2 emissions Electricity (tCO2e) 176 236
Total tCO2e 247 475

Table 3. Tenant controlled areas

Emissions Source 2017 2016
Scope 1 emissions Natural gas (tCO2e) - -
Refrigerants (tCO2e) - -
Scope 2 emissions Electricity (tCO2e) 2,762 3,255
Total tCO2e 2,762 3,255

1. 2017 Guidelines to DEFRA/DECC’s GHG Conversion Factors for Company Reporting, Department for environment,
Food and Rural Affairs (DEFRA) and Department for Energy and Climate Change (DECC)

Table 4. Coal mining carbon footprint

2017
CO2e
Tonnes
2016
CO2e
Tonnes
Emissions source:
                Scope 1 Combustion of fuel & operation of facilities 15,575 11,860
                Scope 1 Emissions from coal mining activities 22,683 22,171
                Scope 2 Electricity, heat, steam and cooling purchased for own use 11,210 8,530
                Total 49,468 42,561
Intensity:
                Intensity 1 Tonnes of CO2 per pound sterling of revenue 0.0013 0.0019
                Intensity 2 Tonnes of CO2 per pound of coal produced 0.038 0.034

Environment

United Kingdom

The Group’s principal UK activity is property investment, which involves renting premises to retail businesses. We seek to provide those tenants with good quality premises from which they can operate in an efficient and environmentally friendly manner. Where possible, improvements, repairs and replacements are made in an environmentally efficient manner and waste re-cycling arrangements are in place at all of the Company’s locations.

South Africa

The Bisichi group’s principal activity in South Africa is coal mining. Under the terms of the mine’s Environmental Management Programme approved by the Department of Mineral Resource (“DMR”), Black Wattle undertakes a host of environmental protection activities to ensure that the approved Environmental Management Plan is fully implemented. A performance assessment audit was conducted to verify compliance to their Environmental Management Programme and no significant deviations were found.

Employee, social, community and human rights

The Group’s policy is to attract staff and motivate employees by offering competitive terms of employment. The Group provides equal opportunities to all employees and prospective employees including those who are disabled and operates in compliance with all relevant national legislation.

Diversity and equality

The board recognises the importance of diversity, both in its membership, and in the Group’s employees. It has a clear policy to promote diversity across the business. The Board considers that the quotas are not appropriate in determining its composition and has therefore chosen not to set targets. All aspects of diversity, including but not limited to gender, are considered at every level of recruitment. Gender diversity of the Board and the Group is set out below.

Directors, employees and gender representation

At the year end the LAP Group (excluding Bisichi and Dragon), had 6 directors (6 male, 0 female), 2 senior managers (2 male, 0 female) and 23 employees (12 male, 11 female).

Bisichi Mining PLC

Bisichi Mining PLC’s group at the year end had 6 directors (6 male, 0 female), 7 senior managers (6 male, 1 female) and 196 employees (143 male, 53 female).

Detailed information relating to Bisichi Strategic Report is available in its 2017 financial statements.

Approved on behalf of the board of directors

Anil Thapar,
Finance Director

27 April 2018

GOVERNANCE

Directors & advisors

EXECUTIVE DIRECTORS

Sir Michael Heller MA FCA*
(Chairman)

John A Heller LLB MBA
(Chief Executive)

Anil K Thapar FCCA
(Finance Director)

NON-EXECUTIVE DIRECTORS

Howard D Goldring BSC (ECON) ACA†
Howard Goldring is Executive Chairman of Delmore Asset Management Limited which specialises in the discretionary management of investment portfolios for pension funds, charities, family trusts and private clients. He also acts as an advisor providing high level asset allocation advice to family offices and pension schemes, including Tesco Pension Investment Ltd. He has been a member of the LAP Board since July 1992, and has almost 40 years’ experience of the real estate market. He was a director of Baronsmead VCT 2 PLC from 2010-2016, and has specialised in providing many companies with investor relations support.

Clive A Parritt FCA CF FIIA #†
Clive Parritt joined the board on 1 January 2006. He is a chartered accountant with over 40 years’ experience of providing strategic, financial and commercial advice to businesses of all sizes. He is Chairman of BG Training Limited and a director of Jupiter US Smaller Companies plc. Until April 2016 he was Group Finance Director of Audiotonix Limited (an international manufacturer of audio mixing consoles). He has chaired and been a director of a number of other public and private companies. Clive Parritt was President of the Institute of Chartered Accountants in England and Wales in 2011-12. He is Chairman of the Audit Committee and as Senior Independent Director he chairs the Nomination and Remuneration Committees.

Robin Priest MA
Robin Priest joined the board on 31 July 2013. He is chairman of private real estate company Property Alliance Group and a senior advisor to Alvarez & Marsal LLP (“A&M”) and to a major listed German real estate investment fund manager. He has more than 36 years’ experience in real estate and structured finance. He was formerly Managing Director of A&M’s real estate practice, advising private sector and public sector clients on both operational and financial real estate matters. Prior to joining A&M, Robin was lead partner for Real Estate Corporate Finance in London with Deloitte LLP and before this he founded and ran a property company backed by private equity. He is also a trustee of London’s Oval House Theatre.

*     Member of the nomination committee
†    Member of the audit, remuneration and nomination committees
#    Senior independent director

SECRETARY & REGISTERED OFFICE

Anil K Thapar FCCA
24 Bruton Place
London W1J 6NE

AUDITOR

RSM UK Audit LLP

PRINCIPAL BANKERS

Santander UK plc
Abbey National Treasury Services plc
Europa Capital Mezzanine Ltd

SOLICITORS

Olswang LLP
Pinsent Masons LLP

STOCKBROKER

Stockdale Securities Limited

REGISTRARS & TRANSFER OFFICE

Link Asset Services
Shareholder Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU

UK telephone: 0871 664 0300
International telephone: +44 371 664 0300
(Calls cost 12p per minute plus your phone company’s access charge. Calls outside the United Kingdom will be charged at the applicable international rate).

Lines are open between 9.00am to 5.30pm, Monday to Friday, excluding public holidays in England and Wales.

Website: www.linkassetservices.com
Email: enquiries@linkgroup.co.uk

Company registration number
341829 (England and Wales)

WEBSITE

www.lap.co.uk

E-MAIL

admin@lap.co.uk

GOVERNANCE

Directors’ report

The Directors submit their report and the audited financial statements for the year ended 31 December 2017.

Strategic report

A comprehensive review and assessment of the Group’s activities during the year as well as its position at the year end and prospects for the forthcoming year are included in the Chairman and Chief Executive’s Statement and the Strategic Report. These reports can be found on pages 2 to 11 and should be read in conjunction with this report.

Activities

The principal activities of the Group during the year were property investment and development, as well as investment in joint ventures and an associated company. The associated company is Bisichi Mining PLC (Bisichi) in which the Company holds a 41.52 per cent interest. Bisichi is listed on the main market of the London Stock Exchange and operates in England and South Africa with subsidiaries which are involved in overseas mining and mining investment. The results, together with the assets and liabilities, of Bisichi are consolidated with those of LAP in accordance with the terms of IFRS 10 even though the Group only has a minority interest – under IFRS 10 the 58% majority interest is disclosed as a “non-controlling interest”.

Business review AND POST BALANCE SHEET EVENTS

Review of the Group’s development and performance

A review of the Group’s development and performance can be found below and should be read in conjunction with the Strategic Report on pages 4 to 11.

Details of any post balance sheet events are disclosed in Note 32 to the financial statements.

Future developments

The Group continues to look for new opportunities to acquire real estate assets where it feels it can increase value by applying its intensive management skills. At the same time, it seeks to reduce its interest payments on its loans as they expire or where opportunities arise to refinance on better terms. We also seek to improve our existing estate through the continued pursuit of asset management initiatives.

Property activities

The Group is a long-term investor in property. It acquires retail properties, actively manages those assets to improve rental income, and thus seeks to enhance the value of its properties over time. In reviewing performance, the principal areas regularly monitored by the Group include:

•   Rental income – the aim of the Group is to maximise the maintainable income from each property by careful tenant management supported by sympathetic and revenue enhancing development. Income may be affected adversely by the inability of tenants to pay their rent, but careful monitoring of rent collection and tenant quality helps to mitigate this risk. Risk is also minimised by a diversified tenant base, which should limit the impact of the failure of any individual tenant.

•   Cash flow – allowing for voids, acquisitions, development expenditure, disposals and the impact of operating costs and interest charges, the Group aims to maintain a positive cash flow over time.

•   Financing costs – the exposure of the Group to interest rate movements is managed partly by the use of swap and cap arrangements (see Note 23 on page 56 for full details of the contracts in place) and also by using loans with fixed terms and interest rates. These arrangements are designed to ensure that our interest costs are known in advance and are always covered by anticipated rental income. Details of key estimates that have been adopted are contained in the accounting policies Note on page 37.

•   Property valuations – market sentiment and economic conditions have a direct effect on property valuations, which can vary significantly (upwards or downwards) over time. Bearing in mind the long term nature of the Group’s business, valuation changes have little direct effect on the ongoing activities or the income and expenditure of the Group. Tenants generally have long term leases, so rents are unaffected by short term valuation changes. Borrowings are secured against property values and if those values fall very significantly, this could limit the ability of the Group to develop the business using external borrowings. The risk is minimised by trying to ensure that there is adequate cover to allow for fluctuations in value on a short term basis.

It continues to be the policy of the Group to realise property assets when the valuation of those assets reaches a level at which the directors consider that the long-term rental yield has been reached. The Group also seeks to acquire additional property investments on an opportunistic basis when the potential rental yields offer scope for future growth.

Investment activities

The investments in joint ventures and Bisichi are for the long term.

LAP manages the UK property assets of Bisichi. However, the principal activity of Bisichi is overseas mining investment (in South Africa). While IFRS 10 requires the consolidation of Bisichi, the investment is held to generate income and capital growth over the longer term. It is managed independently of LAP and should be viewed by shareholders as an investment and not a subsidiary. The other listed investments are held as current assets to provide the liquidity needed to support the property activities while generating income and capital growth.

Investments in property are made through joint ventures when the financing alternatives and spreading of risk make such an approach desirable.

Dividend

The directors are recommending payment of a final dividend for 2017 of 0.175p per share (2016 0.165p per share) and a special dividend for 2017 of 0.125p (2016: nil).

Subject to shareholder approval, the ordinary final dividend and special dividend will be payable on Friday 14 September 2018 to shareholders registered at the close of business on Friday 17 August 2018.

The company’s ordinary shares held in treasury

At 31 December 2017, 221,061 (2016: 221,061) ordinary shares were held in Treasury with a market value of £54,160 (2016: £46,422). At the Annual General Meeting (AGM) in June 2017 members renewed the authority for the Company to purchase up to 10 per cent of its issued ordinary shares. The Company will be asking members to renew this authority at the next AGM to be held on Tuesday 19 June 2018.

Treasury shares held at 1 January 2017 and 31 December 2017 221,061

Treasury shares are not included in issued share capital for the purposes of calculating earnings per share or net assets per share and they do not qualify for dividends payable.

Investment properties

The freehold and long leasehold properties of the Company, its subsidiaries and Bisichi were revalued as at 31 December 2017 by independent professional firms of chartered surveyors – Allsop LLP, London (80.69 per cent of the portfolio), Carter Towler, Leeds (16.98 per cent) – and by the Directors (2.34 per cent). The valuations, which are reflected in the financial statements, amount to £78 million (2016: £105.08 million).

Investment property of £36.4 million sold in 2018 is stated under current assets, as Assets held for sale.

Taking account of prevailing market conditions, the valuation of the properties at 31 December 2017 resulted in an increase of £9.37 million (2016: increase of £0.53 million). The proportion of this revaluation attributable to the Group (net of taxation) is reflected in the consolidated income statement and the consolidated balance sheet.

Financial instruments

Note 23 to the financial statements sets out the risks in respect of financial instruments. The board reviews and agrees overall treasury policies, delegating appropriate authority for applying these policies to the Chief Executive and Finance Director. Financial instruments are used to manage the financial risks facing the Group and speculative transactions are prohibited. Treasury operations are reported at each board meeting and are subject to weekly internal reporting. Hedging arrangements are in place for the Company, its subsidiaries and joint ventures in order to limit the effect of higher interest rates upon the Group. Where appropriate, hedging arrangements are covered in the Chairman and Chief Executive’s Statement and the Financial Review.

Directors

Sir Michael Heller, J A Heller, A K Thapar, H D Goldring, C A Parritt and R Priest were Directors of the company for the whole of 2017.

C A Parritt, J A Heller and A K Thapar are retiring by rotation at the Annual General Meeting in 2018 and offer themselves for re-election.

Clive Parritt has been a Director since January 2006 and has a contract of service determinable upon three months’ notice and is the Senior Independent Director and Chairman of the audit, nomination and remuneration committees. He is a Chartered Accountant with over 40 years’ experience in providing strategic, financial and commercial advice to business. His financial knowledge and broad commercial experience are of significant benefit to the business. The board has considered the re-appointment of Clive Parritt and recommends his re-election as a Director.

John Heller has been a Director since 1998 and was appointed Chief Executive in September 2001. He has a contract of employment determinable upon twelve months’ notice. The board has considered the re-appointment of John Heller and recommends his re-election as a Director.

Anil Thapar has been Finance Director since January 2015 and is also the Company Secretary. He has a contract of employment determinable upon three months’ notice. Anil Thapar is a Chartered Certified Accountant and has worked at LAP since November 2005. The board has considered the re-appointment of Anil Thapar and recommends his re-election as a Director.

Directors’ interests

The interests of the Directors in the ordinary shares of the Company, including family and trustee holdings, where appropriate, can be found on page 22 of the Annual Remuneration Report.

Substantial shareholdings

At 31 December 2017, Sir Michael Heller and his family had an interest in 48.08 million shares of the Company, representing 56.35 per cent of the issued share capital net of treasury shares (2016: 48.08 million shares representing 56.35 per cent). Cavendish Asset Management Limited had an interest in 7,909,464 shares representing 9.27 per cent of the issued share capital of the Company (2016: 8,173,875 shares representing 9.58 per cent). James Hyslop had an interest in 4,846,258 shares representing 5.68 per cent of the issued share capital of the Company (2016: 4,456,258 shares representing 5.22 per cent).

The Company does not consider that the Heller family have a controlling share interest irrespective of the number of shares held as no individual party holds a majority and there is no legal obligation for shareholders to act in concert. The Directors do not consider that any single party has control.

The Company is not aware of any other holdings exceeding 3 per cent of the issued share capital.

share capital and Takeover directive

The Company has one class of share capital, namely ordinary shares. Each ordinary share carries one vote. All the ordinary shares rank pari passu. There are no securities issued by the Company which carry special rights with regard to control of the Company.

The identity of all significant direct or indirect holders of securities in the Company and the size and nature of their holdings is shown in “Substantial Shareholdings” above.

The rights of the ordinary shares to which the HMRC approved Share Incentive Plan relates are exercisable by the trustees on behalf of the employees.

There are no restrictions on voting rights or on the transfer of ordinary shares in the Company, save in respect of treasury shares. The rules governing the appointment and replacement of Directors, alteration of the articles of association of the Company and the powers of the Company’s Directors accord with usual English company law provisions. Each Director is re-elected at least every three years. The Company has requested authority from shareholders to buy back its own ordinary shares and there will be a resolution to renew the authority at this year’s AGM (Resolution 12).

The Company is not party to any significant agreements that take effect, alter or terminate upon a change of control of the Company following a takeover bid. The Company is not aware of any agreements between holders of its ordinary shares that may result in restrictions on the transfer of its ordinary shares or on voting rights.

There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid.

Statement as to disclosure of information to the auditor

The Directors in office at the date of approval of the financial statements have confirmed that, so far as they are aware, there is no relevant audit information of which the auditor is unaware. Each of the Directors has confirmed that they have taken all the steps that they ought to have taken as a Director in order to make them aware of any relevant audit information and to establish that it has been communicated to the auditor.

indemnities and insurance

The Articles of Association of the company provide for it to indemnify, to the extent permitted by law, directors and officers (excluding the Auditor) of the company, including officers of subsidiaries and associated companies, against liabilities arising from the conduct of the Group’s business. The indemnities are qualifying third party indemnity provisions of the Companies Act 2006 and each of these qualifying third party indemnities was in force during the course of the financial year ended 31 December 2017 and as at the date of this Directors’ report. No amount has been paid under any of these indemnities during the year.

The Group maintains Directors and officers insurance, which is reviewed annually and is considered to be adequate by the Company and its insurance advisers.

Donations

No political donations were made during the year (2016: £Nil). £1,000 of donations for charitable purposes were made during the year (2016: £2,000).

CORPORATE RESPONSIBILITY

Environment

The environmental considerations of the group’s South African coal mining operations are covered in the Bisichi Mining PLC Strategic Report.

The group’s UK activities are principally property investment whereby premises are provided for rent to retail businesses. The group seeks to provide those tenants with good quality premises from which they can operate in an efficient and environmentally efficient manner and waste re-cycling arrangements are in place at all the company’s locations.

Greenhouse gas emissions

Details of the group’s greenhouse gas emissions for the year ended 31 December 2017 can be found on pages 10 and 11 of the Strategic Report.

Employment

The group’s policy is to attract staff and motivate employees by offering competitive terms of employment. The group provides equal opportunities to all employees and prospective employees including those who are disabled. The Bisichi Mining PLC Strategic Report gives details of the group’s activities and policies concerning the employment, training, health and safety and community support and social development concerning the group’s employees in South Africa.

Going concern

The directors have reviewed the cash flow forecasts of the Group and the underlying assumptions on which they are based. The Group’s business activities, together with the factors likely to affect its future development, are set out in the Chairman’s and Chief Executive’s Statement and Financial Review. In addition, Note 23 to the financial statements sets out the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk.

With secured long term banking facilities, sound financial resources and long term leases in place the Directors believe it remains appropriate to adopt the going concern basis of accounting in preparing the annual financial statements.

The Bisichi directors continue to adopt the going concern basis of accounting in preparing the Bisichi annual financial statements.

Corporate Governance

The Corporate governance report can be found on pages 17 and 18 of the annual report and accounts.

Annual General Meeting

The Annual General Meeting will be held at Royal Automobile Club, 89 Pall Mall, London, SW1Y 5HS on Tuesday 19 June 2018 at 10.00 a.m. Items 1 to 10 and 14 will be proposed as ordinary resolutions. More than 50 per cent. of shareholders’ votes cast at the meeting must be in favour for those ordinary resolutions to be passed. Items 11 to 13 will be proposed as special resolutions. At least 75 per cent. of shareholders’ votes cast at the meeting must be in favour for those special resolutions to be passed. The Directors consider that all of the resolutions (other than 14), to be put to the meeting are in the best interests of the Company and its shareholders as a whole and accordingly the board unanimously recommends that shareholders vote in favour of all of the resolutions, other than 14, as the Directors intend to do in respect of their own beneficial holdings of ordinary shares. The Directors do not consider resolution 14 to be in the best interests of the Company and its shareholders as a whole. The Directors recommend that shareholders vote against this resolution.Please note that the following paragraphs are only summaries of certain of the resolutions to be proposed at the Annual General Meeting and do not represent the full text of the resolutions. You should therefore read this section in conjunction with the full text of the resolutions contained in the notice of Annual General Meeting which accompanies this Directors’ Report.

Ordinary resolutions

Resolution 10 – Authority to allot securities

Paragraph 10.1.1 of Resolution 10 would give the Directors the authority to allot shares in the Company and grant rights to subscribe for or convert any security into shares in the Company up to an aggregate nominal value of £2,836,478. This represents approximately 1/3 (one third) of the ordinary share capital of the Company in issue (excluding treasury shares) as at 26 April 2018 (being the last practicable date prior to the publication of this Directors’ Report).

In line with guidance issued by the Investment Association (‘IA’), paragraph 10.1.2 of Resolution 10 would give the directors the authority to allot shares in the Company and grant rights to subscribe for or convert any security into shares in the Company up to a further aggregate nominal value of £2,836,478, in connection with an offer by way of a rights issue. This amount represents approximately 1/3 (one third) of the ordinary share capital of the Company in issue (excluding treasury shares) as at 26 April 2018 (being the last practicable date prior to the publication of this Directors’ Report).

The Directors’ authority will expire on the earlier of 31 August 2019 or the next AGM. The Directors do not currently intend to make use of this authority. However, if they do exercise the authority, the Directors intend to follow best practice as recommended by the IA regarding its use (including as regards the Directors standing for re-election in certain cases).

Special resolutions

The following special resolutions will be proposed at the Annual General Meeting:

Resolution 11 – Disapplication of pre-emption rights

Under English company law, when new shares are allotted or treasury shares are sold for cash (otherwise than pursuant to an employee share scheme) they must first be offered at the same price to existing shareholders in proportion to their existing shareholdings. This special resolution gives the Directors authority, for the period ending on the date of the next annual general meeting to be held in 2019, to: (a) allot shares of the Company and sell treasury shares for cash in connection with a rights issue or other pre-emptive offer; and (b) otherwise allot shares of the Company, or sell treasury shares, for cash up to an aggregate nominal value of £425,472 representing, in accordance with institutional investor guidelines, approximately 5 per cent. of the total ordinary share capital in issue as at 26 April 2018 (being the last practicable date prior to the publication of this Directors’ Report) in each case as if the pre-emption rights in English company law did not apply.

Save in respect of issues of shares in respect of employee share schemes and share dividend alternatives, the Directors do not currently intend to make use of these authorities. The board intends to adhere to the provisions in the Pre-emption Group’s Statement of Principles not to allot shares for cash on a non-pre-emptive basis in excess of an amount equal to 7.5 per cent. of the Company’s ordinary share capital within a rolling three-year period without prior consultation with shareholders. The Directors’ authority will expire on the earlier of 31 August 2019 or the date of next AGM.

Resolution 12 – Purchase of own ordinary shares

The effect of Resolution 12 would be to renew the Directors’ current authority to make limited market purchases of the Company’s ordinary shares of 10 pence each. The power is limited to a maximum aggregate number of 8,509,435 ordinary shares (representing approximately 10 per cent. of the Company’s issued share capital as at 26 April 2018 (being the latest practicable date prior to publication of this Directors’ Report)). The minimum price (exclusive of expenses) which the Company would be authorised to pay for each ordinary share would be 10 pence (the nominal value of each ordinary share). The maximum price (again exclusive of expenses) which the Company would be authorised to pay for an ordinary share is an amount equal to 105 per cent. of the average market price for an ordinary share for the five business days preceding any such purchase. The authority conferred by Resolution 12 will expire at the conclusion of the Company’s next annual general meeting to be held in 2019 or 15 months from the passing of the resolution, whichever is the earlier. Any purchases of ordinary shares would be made by means of market purchases through the London Stock Exchange.

If granted, the authority would only be exercised if, in the opinion of the Directors, to do so would result in an increase in earnings per share or asset values per share and would be in the best interests of shareholders generally. In exercising the authority to purchase ordinary shares, the Directors may treat the shares that have been bought back as either cancelled or held as treasury shares (shares held by the Company itself). No dividends may be paid on shares which are held as treasury shares and no voting rights are attached to them.

Resolution 13 – Notice of General Meetings

Resolution 13 shall be proposed to allow the Company to call general meetings (other than an Annual General Meeting) on 14 clear days’ notice. A resolution in the same terms was passed at the Annual General Meeting in 2017. The notice period required by the Companies Act 2006 for general meetings of the Company is 21 days, unless shareholders approve a shorter notice period, which cannot however be less than 14 clear days. Annual General Meetings must always be held on at least 21 clear days’ notice. It is intended that the flexibility offered by this resolution will only be used for time-sensitive, non-routine business and where merited in the interests of shareholders as a whole. The approval will be effective until the Company’s next Annual General Meeting, when it is intended that a similar resolution will be proposed.

Other matters

RSM UK Audit LLP has expressed its willingness to continue in office as auditor. A proposal will be made at the Annual General Meeting for its reappointment.

By order of the board

Anil Thapar
Secretary

27 April 2018
24 Bruton Place
London
W1J 6NE

GOVERNANCE

Corporate Governance

The Company has adopted the Corporate Governance Code for Small and Mid-Size Quoted Companies (the QCA Code) published by the Quoted Companies Alliance. The QCA Code provides governance guidance to small and mid-size quoted companies. The paragraphs below set out how the Company has applied this guidance during the year. The Company has complied with the QCA Code throughout the year.

Principles of corporate governance

The board promotes good corporate governance in the areas of risk management and accountability as a positive contribution to business prosperity. The board endeavors to apply corporate governance principles in a sensible and pragmatic fashion having regard to the circumstances of the business. The key objective is to enhance and protect shareholder value.

Board structure

During the year the board comprised the Chairman, the Chief Executive, one other executive Director and three non-executive Directors. Their details appear on page 12 The board is responsible to shareholders for the proper management of the Group.

The Directors’ responsibilities statement in respect of the accounts is set out on page 27. The non-executive Directors have a particular responsibility to ensure that the strategies proposed by the executive Directors are fully considered. To enable the board to discharge its duties, all Directors have full and timely access to all relevant information and there is a procedure for all Directors, in furtherance of their duties, to take independent professional advice, if necessary, at the expense of the Group. The board has a formal schedule of matters reserved to it and normally has eleven regular meetings scheduled each year. Additional meetings are held for special business when required.

The board is responsible for overall Group strategy, approval of major capital expenditure and consideration of significant financial and operational matters.

The board committees, which have written terms of reference, deal with specific aspects of the Group’s affairs:

•   The nomination committee is chaired by C A Parritt and comprises one other non-executive Director and the executive Chairman. The committee is responsible for proposing candidates for appointment to the board, having regard to the balance and structure of the board. In appropriate cases recruitment consultants may be used to assist the process. All Directors are subject to re-election at a maximum of every three years.

•   The remuneration committee is responsible for making recommendations to the board on the Company’s framework of executive remuneration and its cost. The committee determines the contract terms, remuneration and other benefits for each of the executive directors, including performance related bonus schemes, pension rights and compensation payments. The board itself determines the remuneration of the non-executive Directors. The committee comprises two non-executive Directors and it is chaired by C A Parritt. The executive Chairman of the board is normally invited to attend. The Annual Remuneration Report is set out on pages 20 to 23.

•   The audit committee comprises two non-executive Directors and is chaired by C A Parritt. The audit committee report, with its terms of reference, is set out on page 26 The Chief Executive and Finance Director are normally invited to attend.

Board and board committee meetings held in 2017

The number of regular meetings during the year and attendance was as follows:

Meetings
held
Meetings
attended
Sir Michael Heller Board
Nomination committee
Remuneration committee
10
1
1
10
1
1
J A Heller Board
Audit committee
10
2
10
2
A K Thapar Board
Audit committee
10
2
9
2
C A Parritt Board
Audit committee
Nomination committee
Remuneration committee
10
2
1
1
10
2
1
1
H D Goldring Board
Audit committee
Nomination committee
Remuneration committee
10
2
1
1
10
2
1
1
R Priest Board 10 7

Performance evaluation – board, board committees and directors

The performance of the board as a whole, its committees and the non-executive Directors is assessed by the Chairman and the Chief Executive and is discussed with the senior independent non-executive Director. Their recommendations are discussed at the nomination committee prior to proposals for re-election being recommended to the board. The performance of executive Directors is discussed and assessed by the remuneration committee. The senior independent Director meets regularly with the Chairman, executive and non-executive Directors individually outside of formal meetings. The Directors will take outside advice in reviewing performance but have not found this to be necessary to date.

Independent directors

The senior independent non-executive Director is C A Parritt. The other independent non-executive Directors are H D Goldring and R Priest. Delmore Holdings Limited (Delmore) is a Company in which H D Goldring is the majority shareholder and the Executive Chairman. Delmore provides consultancy services to the Company on a fee paying basis. R Priest provides services to the Company on a fee paying basis. C A Parritt also provides some advisory services as part of his accounting practice.

The board encourages all three non-executive Directors to act independently and does not consider that length of service of any individual non-executive Director, nor any connection with the above mentioned consultancy and advisory companies, has resulted in the inability or failure to act independently. In the opinion of the board the three non-executive Directors continue to fulfil their roles as independent non-executive Directors.

The independent Directors exchange views regularly between board meetings and meet when required to discuss corporate governance and other issues concerning the Group.

Internal control

The Directors are responsible for the Group’s system of internal control and for reviewing its effectiveness at least annually, and for the preparation and review of its financial statements. The board has designed the Group’s system of internal control in order to provide the Directors with reasonable assurance that assets are safeguarded, that transactions are authorised and properly recorded and that material errors and irregularities are either prevented or would be detected within a timely period. However, no system of internal control can eliminate the risk of failure to achieve business objectives or provide absolute assurance against material misstatement or loss. The key elements of the control system in operation are:

•   The board meets regularly on full notice with a formal schedule of matters reserved for its decision and has put in place an organisational structure with clearly defined lines of responsibility and with appropriate delegation of authority;

•   There are established procedures for planning, approval and monitoring of capital expenditure and information systems for monitoring the Group’s financial performance against approved budgets and forecasts;

•   The departmental heads are required annually to undertake a full assessment process to identify and quantify the risks that face their departments and functions, and assess the adequacy of the prevention, monitoring and modification practices in place for those risks. In addition, regular reports about significant risks and associated control and monitoring procedures are made to the executive Directors. The process adopted by the Group accords with the guidance contained in the document “Internal Control Guidance for Directors on the Combined Code” issued by the Institute of Chartered Accountants in England and Wales. The audit committee receives reports from external auditors and from executive Directors of the Group. During the period the audit committee has reviewed the effectiveness of the system of internal control as described above. The board receives periodic reports from all committees.

•   There are established procedures for the presentation and review of the financial statements and the Group has in place an organisational structure with clearly defined lines of responsibility and with appropriate delegation of authority.

There are no internal control issues to report in the annual report and financial statements for the year ended 31 December 2017. Up to the date of approval of this report and the financial statements, the board has not been required to deal with any related material internal control issues. The Directors confirm that the board has reviewed the effectiveness of the system of internal control as described during the period.

Communication with shareholders

Prompt communication with shareholders is given high priority. Extensive information about the Group and its activities is provided in the Annual Report. In addition, a half-year report is produced for each financial year and published on the Company’s website. The Company’s website www.lap.co.uk is updated promptly with announcements and Annual Reports upon publication. Copies from previous years are also available on the website.

The Company’s share price is published daily in the Financial Times.
The share price history and market information can be found at http://www.londonstockexchange.com/prices-and-markets/markets/prices.htm. The company code is LAS.

There is a regular dialogue with the Company’s stockbrokers and institutional investors. Enquiries from individuals on matters relating to their shareholdings and the business of the Group are dealt with promptly and informatively.

The Company’s website is under continuous development to enable better communication with both existing and potential new shareholders.

The Bribery Act 2010

The Company is committed to acting ethically, fairly and with integrity in all its endeavours and compliance with the code is monitored closely.

GOVERNANCE

Governance Statement by the Chairman of The Remuneration Committee

The remuneration committee is pleased to present its report for the year ended 31 December 2017. The report is presented in two parts in accordance with the regulations.

The first part is the Annual Remuneration Report which details remuneration awarded to Directors and non-executive Directors during the year. The shareholders will be asked to approve the Annual Remuneration Report as an ordinary resolution (as in previous years) at the AGM in June 2018.

The second part is the Remuneration Policy which details the remuneration policy for Directors. This policy was subject to a binding vote by shareholders at the AGM in 2017 and was approved for a 3 year period commencing from then. The committee reviewed the existing policy and deemed that no changes were necessary to the current arrangements.

Both of the reports have been prepared in accordance with The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.

The Company’s auditor, RSM UK Audit LLP is required by law to audit certain disclosures and where disclosures have been audited that is indicated.

C A Parritt
Chairman, Remuneration Committee

27 April 2018

GOVERNANCE

Annual remuneration report

The following information has been audited

Single total figure of remuneration for the year ended 31 December 2017

Salary and fees
£’000
BONUSES
£’000
BENEFITS
£’000
PENSIONS
£’000
TOTAL
BEFORE
SHARE
OPTIONS

£’000
SHARE OPTIONS
£’000
TOTAL 2017
£’000
Executive Directors
Sir Michael Heller* 7 - 49 - 56 n/a 56
Sir Michael Heller - Bisichi 75 - - - 75 n/a 75
J A Heller 333 100 37 17 487 n/a 487
A K Thapar 157 30 9 10 206 n/a 206
572 130 95 27 824 - 824
Non-executive Directors
H D Goldring*+ 17 - 7 - 24 n/a 24
C A Parritt*+ 38 - - - 38 n/a 38
R Priest* 35 - - - 35 n/a 35
90 - 7 - 97 - 97
Total 662 130 102 27 921 - 921

Single total figure of remuneration for the year ended 31 December 2016

Salary and fees
£’000
BONUSES
£’000
BENEFITS
£’000
PENSIONS
£’000
TOTAL
BEFORE
SHARE
OPTIONS
£’000
SHARE OPTIONS
£’000
TOTAL 2016
£’000
Executive Directors
Sir Michael Heller* 7 - 43 - 50 n/a 50
Sir Michael Heller - Bisichi 75 - - - 75 n/a 75
J A Heller 333 166 40 30 569 n/a 569
A K Thapar 152 35 11 15 213 n/a 213
567 201 94 45 907 - 907
Non-executive Directors
H D Goldring*+ 32 - 5 - 37 n/a 37
C A Parritt*+ 38 - - - 38 n/a 38
R Priest* 51 - - - 51 n/a 51
121 - 5 - 126 - 126
Total 688 201 99 45 1,033 - 1,033

* Note 28 “Related party transactions”

+ Members of the remuneration committee for years ended 31 December 2016 and 31 December 2017

Benefits include the provision of car, health and other insurance and subscriptions.

Sir Michael Heller is a director of Bisichi Mining PLC, (a subsidiary for IFRS 10 purposes) and received a salary from that company of £75,000 (2016: £75,000) for services.

Although Sir Michael Heller receives reduced remuneration in respect of his services to LAP, the Company does supply office premises, property management, general management, accounting and administration services for a number of companies in which Sir Michael Heller has an interest. The board estimates that the annual value of these services, if supplied to a third party, would have been £300,000 (2016: £300,000). Further details of these services are set out in Note 28 to the financial statements “Related party transactions”.

J A Heller is a director of Dragon Retail Properties Limited, (a subsidiary for IFRS 10 purposes) and received benefits from that company of £10,698 (2016: £11,336) for services. This is included in the remuneration figures disclosed above.

The remuneration figures disclosed for H D Goldring include fees paid to his company, Delmore Holdings Limited for consultancy services provided to the Group. This is detailed in Note 28 to the financial statements.

The remuneration figures for C A Parritt include fees paid to his accountancy practice for consultancy services provided to the Group. This is detailed in Note 28 to the financial statements.

R Priest provides consultancy services to the Group. This is detailed in Note 28 to the financial statements.

Summary of directors’ terms

Date of contract Unexpired term Notice period
Executive Directors
Sir Michael Heller 1 January 1971 Continuous 6 months
John Heller 1 May 2003 Continuous 12 months
Anil Thapar 1 January 2015 Continuous 3 months
Non-executive Directors
H D Goldring 1 July 1992 Continuous 3 months
C A Parritt 1 January 2006 Continuous 3 months
R Priest 31 July 2013 Continuous 3 months

Total pension entitlements

Two directors had benefits under money purchase schemes. Under their contracts of employment, they were entitled to a regular employer contribution (currently £17,000 and £10,000 a year). There are no final salary schemes in operation. No pension costs are incurred on behalf of non-executive Directors.

Share Incentive Plan (SIP)

In 2006 the Directors set up an HMRC approved share incentive plan (SIP). The purpose of the plan, which is open to all eligible LAP executive Directors and head office based staff, is to enable them to acquire shares in the Company and give them a continuing stake in the Group. The SIP comprises four types of share – (1) free shares under which the Company may award shares of up to the value of £3,000 each year, (2) partnership shares, under which members may save up to £1,500 per annum to acquire shares, (3) matching shares, through which the Company may award up to two shares for each share acquired as a partnership share, and (4) dividend shares, acquired from dividends paid on shares within the SIP.

1. Free shares: No free shares were issued for 2017 bonuses or for 2016 bonuses.

2. Partnership shares: No partnership shares were issued between November 2016 and October 2017.

3. Matching shares: The partnership share agreements for the year to 31 October 2017 provide for two matching shares to be awarded free of charge for each partnership share acquired. No partnership shares were acquired in 2017 (2016: nil). Matching shares will usually be forfeited if a member leaves employment in the Group within five years of their grant.

4. Dividend shares: Dividends on shares acquired under the SIP will be utilised to acquire additional shares. Accumulated dividends received on shares in the SIP to 31 December 2017 amounted to £Nil (2016: £602).

Dividend shares issued:

Number of members Number of shares Value of shares
2017 2016 2017 2016 2017
£
2016
£
Directors:
                J A Heller
- 1 - 402 - 85
                A K Thapar - 1 - 495 - 105
Staff - 6 - 1,934 - 412
Total at 31 December - 8 - 2,831 - 602

The SIP is set up as an employee benefit trust. The trustee is London & Associated Securities Limited, a wholly owned subsidiary of LAP, and all shares and dividends acquired under the SIP will be held by the trustee until transferred to members in accordance with the rules of the SIP.

Share Option Schemes

The Company has an HMRC approved scheme (Approved Scheme). It was set up in 1986 in accordance with HMRC rules to gain HMRC approved status which gave the members certain tax advantages. There are no performance criteria for the exercise of options under the Approved Scheme, as this was set up before such requirements were considered to be necessary. No Director has any options outstanding under the Approved Scheme nor were any options granted under the Approved Scheme for the year ended 31 December 2017.

A share option scheme known as the “Non-approved Executive Share Option Scheme” (Unapproved Scheme) which does not have HMRC approval was set up during 2000. At 31 December 2017 there were no options to subscribe for ordinary shares outstanding. The exercise of options under the Unapproved Scheme is subject to the satisfaction of objective performance conditions specified by the remuneration committee which conforms to institutional shareholder guidelines and best practice provisions. Further details of this scheme are set out in Note 26 “Share Capital” to the financial statements.

Payments to past directors

No payments were made to past Directors in the year ended 31 December 2017.

Payments for loss of office

No payments for loss of office were made in the year ended 31 December 2017.

Statement of directors’ shareholding and share interest

Directors’ interests

The interests of the Directors in the ordinary shares of the Company, including family and trustee holdings, where appropriate, were as follows:

                 Beneficial interests                        Non-beneficial interests
31 Dec 17 1 Jan 17 31 Dec 17 1 Jan 17
Sir Michael Heller 5,753,541 6,053,541 19,277,931 19,277,931
H D Goldring 19,819 19,819 - -
J A Heller 1,867,393 1,867,393 †14,073,485 †14,073,485
C A Parritt 36,168 36,168 - -
R Priest - - - -
A K Thapar 120,495 120,495 - -

†These non-beneficial holdings are duplicated with those of Sir Michael Heller.

The beneficial holdings of Directors shown above include their interests in the Share Incentive Plan.

The following information is unaudited:

The graph illustrates the Company’s performance as compared with a broad equity market index over a five year period. Performance is measured by total shareholder return. The directors have chosen the FTSE All Share – Total Return Index as a suitable index for this comparison as it gives an indication of performance against a large spread of quoted companies.

The middle market price of London & Associated Properties PLC ordinary shares at 31 December 2017 was 24.50p (2016: 21p). During the year the share middle market price ranged between 18.25p and 24.50p.

Total Shareholder Return

Remuneration of the Chief Executive over the last ten years

Year CEO Chief Executive Single
total figure of 
remuneration
£’000
Annual bonus payment
against maximum opportunity*
%
Long-term incentive vesting rates
against maximum opportunity*
%
2017 J A Heller 487 11% n/a
2016 J A Heller 569 18% n/a
2015 J A Heller 762 41 % n/a
2014 J A Heller 835 49 % n/a
2013 J A Heller 716 n/a n/a
2012 J A Heller 417 n/a n/a
2011 J A Heller 671 n/a n/a
2010 J A Heller 577 n/a n/a
2009 J A Heller 982 n/a n/a
2008 J A Heller 688 n/a n/a

*There were no formal criteria or conditions to apply in determining the amount of bonus payable or the number of shares to be issued prior to 2014.

Percentage change in Chief Executive’s Remuneration (audited)

The table below shows the percentage change in Chief Executive remuneration for the prior year compared to the average percentage change for all other Head Office based employees. To provide a meaningful comparison, the same group of employees (although not necessarily the same individuals) appears in the 2016 and 2017 group. The remuneration committee chose head office based employees as the comparator group as this group forms the closest comparator group.

Chief Executive
£’000
Head Office Employees
£’000
2017 2016 % change 2017 2016 % change
Base salary and allowances 333 333 0% 643 692 (7.1%)
Taxable benefits 37 40 (7.5%) 81 77 5.2%
Annual bonus 100 166 (39.75%) 80 97 (17.5%)
Total 470 539 (12.8%) 804 866 (7.2%)

Relative importance of spend on pay

The total expenditure of the Group on remuneration to all employees (Note 29 refers) is shown below:

2017
£’000
2016
£’000
Employee Remuneration 8,113 7,173
Distributions to shareholders 141 136

Statement of implementation of remuneration policy

The policy was approved at the AGM in June 2017 and was effective from 6 June 2017. The vote on the remuneration policy is binding in nature. The Company may not then make a remuneration payment or payment for loss of office to a person who is, is to be, or has been a director of the Company unless that payment is consistent with the approved remuneration policy, or has otherwise been approved by a resolution of members. It is to be presented for approval at the forthcoming AGM.

Consideration by the directors of matters relating to directors’ remuneration

The Remuneration Committee considered the executive Directors’ remuneration and the board considered the non-executive Directors’ remuneration in the year ended 31 December 2017. No increases were awarded and no external advice was taken in reaching this decision.

Shareholder voting

At the Annual General Meeting on 6 June 2017, there was an advisory vote on the resolution to approve the Remuneration Report, other than the part containing the remuneration policy.

In addition, on 6 June 2017, there was a binding vote on the resolution to approve the Remuneration Policy. The results are detailed below:

% of votes
for
% of votes
against
Number of votes
withheld
Resolution to approve the Remuneration Report 83.16 0.18 9,765,315
Resolution to approve the Remuneration Policy 83.14 16.69 89,602

GOVERNANCE

Remuneration policy

INTRODUCTION

Set out below is the LAP Group policy on directors’ remuneration (excluding Bisichi). This policy was approved at the 2017 AGM and it is effective from 6 June 2017. Unless changed it will be presented next for approval at the AGM in 2020.

A copy of the full policy can be found at www.lap.co.uk.

In setting the policy, the Remuneration Committee has taken the following into account:

•   The need to attract, retain and motivate individuals of a calibre who will ensure successful leadership and management of the company

•   The LAP Group’s general aim of seeking to reward all employees fairly according to the nature of their role and their performance

•   Remuneration packages offered to similar companies within the same sector

•   The need to align the interests of shareholders as a whole with the long-term growth of the Group; and

•   The need to be flexible and adjust with operational changes throughout the term of this policy

The remuneration of non-executive directors is determined by the board, and takes into account additional remuneration for services outside the scope of the ordinary duties of non-executive directors.

Future policy table

Element Purpose Policy Operation Opportunity and performance conditions
Executive directors
Base salary To recognise:
Skills
Responsibility
Accountability
Experience
Value
Considered by remuneration committee on appointment
Set at a level considered appropriate to attract, retain, motivate and reward the right individuals
Reviewed annually whenever there is a change
of role or operational responsibility
Paid monthly in cash
There is no prescribed maximum salary or maximum rate of increase
No individual director will be awarded a base salary in excess of £700,000 a year
No specific performance conditions are attached to base salaries
Pension To provide competitive retirement benefits Company contribution offered at up to 10% of base salary as part of overall remuneration package The contribution payable by the Company is included in the director’s contract of employment
Paid into money purchase schemes
Company contribution offered at up to 10% of base salary as part of overall remuneration package
No specific performance conditions are attached to pension contributions
Benefits To provide a competitive benefits package Contractual benefits include:
Car or car allowance
Group health cover
Death in service cover
Permanent health insurance
The committee retains the discretion to approve changes in contractual benefits in exceptional circumstances or where factors outside the control of the Group lead to increased costs
(e.g. medical inflation)
The costs associated with benefits offered are closely controlled and reviewed on an annual basis
No director will receive benefits of a value in excess of 30% of their base salary
No specific performance conditions are attached to contractual benefits
Annual
bonus
To reward and incentivise In assessing the performance of the executive team, and in particular to determine whether bonuses are merited the remuneration committee takes into account the overall performance of the business, as well as
individual contribution to the business in the period
The remuneration committee determines the level of bonus on an annual basis
In assessing performance consideration is given to the level of net rental income, cash flow, voids, realised development gains and income from managing joint ventures. Achieved results are then compared with expectation taking account of market conditions
Bonuses are generally offered in cash or shares
The current maximum bonus will not exceed 200% of base salary in any one year but the remuneration committee reserves the power to award up to 300% in an exceptional year
Performance conditions will be assessed on an annual basis
The performance measures applied may be financial, non-financial, corporate, divisional or individual and in such proportion as the remuneration committee considers appropriate
Share
options
To provide executive directors with
a long-term interest in the company
Share options may be granted under existing schemes (see page 21)
Where it is necessary to attract, retain, motivate and reward the right individuals, the directors may establish new schemes to replace any expired schemes
Offered at appropriate times by the
remuneration committee
Entitlements to share options granted under the Approved Option scheme are not subject to performance criteria. Share Options granted under the Unapproved Scheme are subject to the performance criteria specified in the Scheme rules
The aggregate number of shares over which options may be granted under all of the company’s option schemes (including any options and awards granted under the company’s employee share plans) in any period of ten years, will not exceed, at the time of grant, 10 % of the ordinary share capital of the company from time to time
Share options will be offered by the remuneration committee as appropriate
Share incentive plan (SIP) To offer a shorter term incentive in the company and to give directors a stake
in the group
Offered to executive directors and head office staff Maximum participation levels are set by HMRC Of any bonus awarded, Directors may opt to have maximum of £3,000 per year paid in ‘Free Shares’ under the SIP scheme rules
Non-executive directors
Base salary To recognise:
Skills
Responsibility
Experience
Risk
Value
Considered by the board on appointment
Set at a level considered appropriate to attract, retain and motivate the individual
Experience and time required for the role are considered on appointment
Reviewed annually No individual non-executive director will be awarded a base salary in excess of £40,000 a year
No performance conditions are attached to base salaries
Pension No pension offered
Benefits No benefits offered except to one non-executive director who is eligible for health cover (see annual remuneration report page 20) The committee retains the discretion to approve changes in contractual benefits in exceptional circumstances or where factors outside the control of the Group lead to increased costs (e.g. medical inflation) The costs associated with benefits offered are closely controlled and reviewed on an annual basis
No non-executive director will receive benefits in excess of £10,000 a year
No specific performance conditions are attached to contractual benefits
Share
options
Non-executive directors do not participate in the share option schemes

Notes to the Remuneration Policy

The remuneration committee considers the performance measures outlined in the table above to be appropriate measures of performance and that the KPIs chosen align the interests of the directors and shareholders.

GOVERNANCE

Audit committee report

The committee’s terms of reference have been approved by the board and follow published guidelines, which are available on request from the company secretary.

At the year end the audit committee comprised two of the non-executive directors – H D Goldring and C A Parritt, both of whom are Chartered Accountants.

The audit committee’s primary tasks are to:

•   review the scope of external audit, to receive regular reports from RSM UK Audit LLP and to review the half-yearly and annual accounts before they are presented to the board, focusing in particular on accounting policies and areas of management judgement and estimation;

•   monitor the controls which are in force to ensure the integrity of the information reported to the shareholders;

•   act as a forum for discussion of internal control issues and contribute to the board’s review of the effectiveness of the Group’s internal control and risk management systems and processes;

•   to review the risk assessments made by management, consider key risks with action taken to mitigate these and to act as a forum for discussion of risk issues and contribute to the board’s review of the effectiveness of the Group’s risk management control and processes;

•   consider once a year the need for an internal audit function;

•   advise the board on the appointment of the external auditors, the rotation of the audit partner every five years and on their remuneration for both audit and non-audit work; discuss the nature and scope of their audit work and undertake a formal assessment of their independence each year, which includes:

     i) a review of non-audit services provided to the Group and related fees;

    ii) discussion with the auditors of their written report detailing all relationships with the Company and any other parties that could affect independence or the perception of independence;

    iii)  a review of the auditors’ own procedures for ensuring the independence of the audit firm and partners and staff involved in the audit, including the regular rotation of the audit partner; and

    iv)  obtaining a written confirmation from the auditors that, in their professional judgement, they are independent.

Meetings

The committee meets at least twice prior to the publication of the annual results and discusses and considers the half year results prior to their approval by the board. The audit committee meetings are attended by the external audit partner, chief executive, finance director and company secretary. During the year the members of the committee also meet on an informal basis to discuss any relevant matters which may have arisen. Additional formal meetings may be held as necessary.

During the past year the committee:

•   met with the external auditors, and discussed their reports to the audit committee;

•   approved the publication of annual and half year financial results;

•   considered and approved the annual review of internal controls;

•   decided that there was no current need for an internal audit function;

•   agreed the independence of the auditors and approved their fees for both audit and non-audit services as set out in Note 2 to the financial statements; and

•   the chairman of the audit committee has also had separate meetings and discussions with the external audit partner.

FINANCIAL REPORTING    

As part of its role, the Audit Committee assessed the audit findings that were considered most significant to the financial statements, including those areas requiring significant judgement and/or estimation. When assessing the identified financial reporting matters, the committee assessed quantitative materiality primarily by reference to the carrying value of the group’s total assets, given that the group operates a principally asset based business. When determining quantitative materiality, the Board also gave consideration to the value of revenues generated by the group and net asset value, given that they are key trading and business KPIs. The qualitative aspects of any financial reporting matters identified during the audit process were also considered when assessing their materiality. Based on the considerations set out above we have considered quantitative errors individually or in aggregate in excess of approximately £0.8 million in relation to the consolidated balance sheet and £0.3 million for underlying profitability and the Bisichi group to be material.

External Auditor

RSM UK Audit LLP held office throughout the period under review. In the United Kingdom London & Associated Properties PLC provides extensive administration and accounting services to Bisichi Mining PLC, which has its own audit committee and employs BDO LLP, a separate and independent firm of registered auditor.

C A Parritt
Chairman – Audit Committee

27 April 2018

GOVERNANCE

Directors’ responsibilities statement

The Directors are responsible for preparing the Strategic Report and the Directors’ Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations.

English company law requires the Directors to prepare Group and Company financial statements for each financial year. The Directors are required under the Listing Rules of the Financial Conduct Authority to prepare Group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and have elected under English company law to prepare the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including FRS101 ‘Reduced Disclosure Framework’.

The Group financial statements are required by law and IFRS adopted by the EU to present fairly the financial position and performance of the Group; the Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.

Under English company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

In preparing each of the Group and Company financial statements, the Directors are required to:

a. select suitable accounting policies and then apply them consistently;

b. make judgements and accounting estimates that are reasonable and prudent;

c. for the Group financial statements, state whether they have been prepared in accordance with IFRS adopted by the EU and for the company financial statements state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

d. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulations. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Directors’ statement pursuant to the Disclosure GUIDANCE and Transparency Rules

Each of the directors, whose names and functions are listed on page 12, confirms that to the best of each person’s knowledge:

a. the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and

b. the Strategic Report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the London & Associated Properties PLC website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

GOVERNANCE

Independent auditor’s report

TO THE MEMBERS OF LONDON & ASSOCIATED PROPERTIES PLC

Opinion

We have audited the financial statements of London & Associated Properties PLC (“the parent company”) and its subsidiaries (“the group”) for the year ended 31 December 2017 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement, the parent company balance sheet, the parent company statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards including FRS 101 “Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).

In our opinion:

•   the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2017 and of the group’s profit for the year then ended;

•   the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

•   the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•   the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

•   the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

•   the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Valuation of investment properties

The group’s properties are accounted for in the financial statements as investment properties under IAS 40 and held at fair value. The investment properties are valued by two firms of external third party valuers and these valuations are adopted in the financial statements. At 31 December 2017 investment property valued at £78.0m (Note 10) was disclosed within non-current assets in the financial statements. Separately, property valued at £36.4m (Note 14) was disclosed as assets held for sale, within current assets.

The directors’ assessment of the fair value of investment properties is considered a key audit matter due to the relative importance of these assets to the group’s financial statements, the potential impact of movements in the fair values of the assets, and the subjectivity and complexity of the valuation process, which involves significant judgements and estimates as disclosed on page 37 of the financial statements.

The valuation is carried out by two firms of professional external valuers together with, in respect of one property, an internal valuer in accordance with the methodology described in Note 10.

Our response to the key audit matter included:

•   agreeing the valuations of all properties recorded in the financial statements and subject to the external valuation process to the valuation reports prepared by the valuers. These reports covered all except £1.8m of the value of investment properties, which were subject to internal valuation;

•   agreeing the carrying value (sales price less costs to sell) of the Brixton Village and Market Row properties, included as assets held for sale, to the agreement for sale, and the costs to invoices;

•   assessing the qualifications and expertise of the valuers, and considering their objectivity and any threats to their independence. We concluded that there was no threat which might impair the valuers’ independence and objectivity; and

•   challenging and discussing the assumptions used with the valuers, both external and internal, and comparing the key inputs to the valuation to underlying records of the leases and records of rents received and against our knowledge of market yields.

Our findings

The carrying values of the investment properties are consistent with the valuation reports provided and, in the case of assets held for sale, with the agreed selling price less direct costs to sell.

Accuracy of life of mine estimates

The mining assets amounted to £8.5m as at 31 December 2017 (2016: £8.4m) and relate to the South African mining operations. These assets represent a significant part of the Bisichi group’s balance sheet (see Note 11).

Bisichi’s management performed an impairment assessment based on the Bisichi Board’s approved Life of Mine plan at 31 December 2017 as detailed in the key judgements and estimates Note on page 37.

The assessment by Bisichi management of inputs to the Life of Mine plan requires significant judgment and estimate, including determination of forecast coal prices, production, coal reserves and costs. These factors caused this area to be a significant focus for our audit.

Management’s discounted cash flow impairment assessment, including the underlying Life of Mine plan, was evaluated. In doing so, key inputs to the model including forecast coal prices, exchange rates, production, costs and the discount rate were critically assessed. This included assessment compared to empirical data and trends, pricing information and market data.

In respect of the coal reserves included in the model, the independent Competent Person’s Report was reviewed and discussions were held with the Competent Person. In relying on the Competent Person their independence and competence was assessed.

Sensitivity analysis was performed on the impairment model in respect of factors such as pricing, costs, yields, exchange rates and the discount rate.

The disclosures in the key judgements and estimates note were evaluated based on the audit procedures.

Our findings

The work on the impairment test found Bisichi management’s conclusion that no impairment exists to be appropriate. The key assumptions were found to be balanced and appropriately considered by Bisichi management and the disclosures in the key judgements and estimates note to be sufficient.

Impairment of Ezimbokodweni

As at 31 December 2016 the group’s net investment in Ezimbokedweni Mining (Pty) Limited (“Ezimbokedweni”), an equity accounted joint venture, was £1.8m (Notes 12 and 13). The carrying value was dependent upon the ultimate completion of a sale and purchase agreement to acquire the Pegasus coal project in South Africa, under which a deposit had been paid by Ezimbokedweni.

During the year the joint venture was placed into Business Rescue under the South African Companies Act by the joint venture partner. The original deposit has been returned to Ezimbokodweni and as a result, the Bisichi Board considers there to be no reasonable prospect of the Pegasus coal project transaction completing.

Further to these developments, the Bisichi Board performed an impairment review of the carrying value of the net investment in Ezimbokodweni and recorded an impairment of the net investment of £1.8m, with any further movements since 31 December 2016 reflecting foreign exchange differences.

The assessment of the carrying value, subsequent impairment and associated disclosure represented a significant focus for our audit.

Additionally, the tax treatment of this transaction was considered to be an area of risk of material misstatement. This was also considered to be an area requiring specialist knowledge and expertise.

Specific inquiries were made of Bisichi’s management and Board to gain an understanding of the fact pattern and events during the year regarding Ezimbokedweni.

Minutes of Bisichi Board meetings, legal documents and correspondence relating to the joint venture, the Business Rescue and assessments of the resulting financial position and interests of the joint venture were reviewed.

The Bisichi Board’s conclusion that the net investment is impaired based on the facts and circumstances, including assessment of the probability of value being recovered from the joint venture was assessed.

The tax treatment of the transaction applied by Bisichi management was assessed in conjunction with specialists.

The accounting entries in respect of the impairment as well as the disclosures in Note 12 and the key judgements and estimates note were assessed.

Our findings

The judgements made by Bisichi management relating to the impairment recorded by the group are considered to be appropriate based on the developments during the year. The disclosures at Note 12 and the key judgements and estimates note are also considered to be acceptable.

Our application of materiality

When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures and to evaluate the effects of misstatements, both individually and on the financial statements as a whole.

During planning we determined a magnitude of uncorrected misstatements that we judge would be material for the financial statements as a whole (FSM). During planning FSM was calculated
as £1.1m, which was not changed during the course of our audit.

The London & Associated Properties PLC group consists of two distinct components: a UK based property investment group, and a fully listed mining group carrying out mining operations in South Africa with a relatively small investment property portfolio.

During planning, we determined materiality in respect of these components at:

•   for the London & Associated Properties PLC property investment sub group balance sheet, £0.8 million and to underlying profitability £0.3 million; and

•   for the Bisichi Mining PLC coal mining and property investment sub group, £0.3 million.

We agreed with the audit committee that we would report to them all unadjusted differences in excess of £15,000 for both components of the group. We also agreed to report other differences below that threshold which, in our view, warranted reporting for other reasons.

An overview of the scope of our audit

The audit was scoped to support our audit opinion on the company and group financial statements of London & Associated Properties PLC and was based on group materiality and an assessment of risk at group level. We planned our 2017 audit on the understanding that the activities of the group had changed very little from the previous year, and that there had been no changes in the valuation methodologies to be applied, or the accounting standards applicable to the group and company’s financial statements.

The group comprises 27 trading, or active holding, companies and 12 dormant companies. Full scope audits, using component materiality, were performed on 24 of the active entities with the other three entities subjected to desktop review. Six of the full scope audits and the three desktop reviews were performed by component auditors whose work we evaluated and reviewed for the purpose of the group audit.

This resulted in coverage of 100% of total revenues and profit before tax of the group, and 100% of total gross assets of the group.

Other information

The other information comprises the information included in the annual report other than the financial statements, the audited part of the directors’ remuneration report and our auditor’s report thereon. The directors are responsible for the other information.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information.

If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

•   the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

•   the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

•   adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

•   the parent company financial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or

•   certain disclosures of directors’ remuneration specified by law are not made; or

•   we have not received all the information and explanations we require for our audit.

Responsibilities of directors

As explained more fully in the directors’ responsibilities statement set out on page 27 the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of our audit, we will consider the susceptibility of the group and parent company to fraud and other irregularities, taking account of the business and control environment established and maintained by the directors, as well as the nature of transactions, assets and liabilities recorded in the accounting records. Owing to the inherent limitations of an audit, there is an unavoidable risk that some material misstatements of the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs. However, the principal responsibility for ensuring that the financial statements are free from material misstatement, whether caused by fraud or error, rests with management who should not rely on the audit to discharge those functions.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Other matters which we are required to address

Following the recommendation of the audit committee, we were appointed by the Board of Directors on 27 July 1987 to audit the financial statements for the year ended 31 December 1987 and subsequent financial periods.

The period of total uninterrupted engagement is 31 years, covering the years ending 31 December 1987 to 2017.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain independent of the group and the parent company in conducting our audit.

During the period under review agreed upon procedures under ISRS 4400 were completed in respect of a number of the group’s service charge account, and in respect of two deeds of release relating to two debentures.

Our audit opinion is consistent with the additional report to the audit committee.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Geoff Wightwick (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
25 Farringdon Street
London
EC4A 4AB

27 April 2018



London & Associated Properties PLC
Report and accounts 2017

Financial statements


Consolidated Income Statement
for the year ended 31 December 2017

Notes 2017
£’000
2016
£’000

   

Group revenue 1  44,979  29,704
Operating costs (37,428) (26,860)
 Gain on disposal of other investments  3 – 
 Income from listed investments held for trading 3 –   2
Operating profit  7,554  2,846
Finance income 5  105  144
Finance expenses 5 (4,268) (4,292)
Debenture break cost 23 (14) – 
Result before revaluation and other movements  3,377 (1,302)
Non–cash changes in valuation of assets and liabilities and other movements
Increase in value of investment properties 10  9,373  532
Write off investment in joint venture 12, 13 (1,827) – 
Increase in trading investments –   1
Increase in value of other investments –   12
Adjustment to interest rate derivative 23  355 (217)
Profit/(loss) for the year before taxation 2  11,278 (974)
Income tax charge 6 (2,982) (1,175)
Profit/(loss) for the year  8,296 (2,149)
Attributable to:
Equity holders of the Company  7,686 (2,357)
Non–controlling interest 27  610  208
Profit/(loss) for the year  8,296 (2,149)
Earnings per share
Profit/(loss) per share – basic and diluted 9 9.01p (2.77)p

Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017

2017
£’000
2016
£’000

   

Profit/(loss) for the year  8,296 (2,149)
Other comprehensive income/(expense):
Items that may be subsequently recycled to the income statement:
Exchange differences on translation of Bisichi Mining PLC foreign operations  91  1,106
Transfer of gain on available for sale investments  103  193
Taxation (20) (13)
Other comprehensive income for the year net of tax  174  1,286
Total comprehensive income/(expense) for the year net of tax  8,470 (863)
Attributable to:
Equity shareholders  7,753 (1,864)
Non–controlling interest  717  1,001
 8,470 (863)



Consolidated Balance Sheet
at 31 December 2017

Notes 2017
£’000
2016
£’000

   

Non–current assets
Market value of properties attributable to Group 10  78,025  105,080
Present value of head leases 31  3,233  4,767
Property  81,258  109,847
Mining reserves, plant and equipment 11  8,735  8,653
Investments in joint ventures 12 –   455
Loan to joint venture 13 –   1,350
Held to maturity investments 17  1,748  1,874
Other investments 17  51  32
Deferred tax 24 –   1,134
 91,792  123,345
Current assets
Inventories 16  828  1,721
Assets held for sale 14  36,441 – 
Trade and other receivables 18  7,132  7,061
Interest rate derivatives 23  1  4
Corporation tax recoverable –   32
Available for sale investments 19  1,050  781
Investments held for trading 19  19  19
Cash and cash equivalents  7,528  6,265
 52,999  15,883
Total assets  144,791  139,228
Current liabilities
Trade and other payables 20 (12,909) (12,942)
Borrowings 21 (4,288) (4,108)
Current tax liabilities (358) (21)
(17,555) (17,071)
Non–current liabilities
Borrowings 21 (61,661) (64,401)
Interest rate derivatives 23 (435) (793)
Present value of head leases on properties 31 (3,233) (4,767)
Provisions 22 (1,349) (1,236)
Deferred tax liabilities 25 (3,848) (2,329)
(70,526) (73,526)
Total liabilities (88,081) (90,597)
Net assets  56,710  48,631



Consolidated Balance Sheet
at 31 December 2017

Notes 2017
£’000
2016
£’000

   

Equity attributable to the owners of the parent
Share capital 26  8,554  8,554
Share premium account  4,866  4,866
Translation reserve (Bisichi Mining PLC) (695) (728)
Capital redemption reserve  47  47
Retained earnings (excluding treasury shares)  33,227  25,648
Treasury shares 26 (145) (145)
Retained earnings  33,082  25,503
Total equity attributable to equity shareholders  45,854  38,242
Non–controlling interest 27  10,856  10,389
Total equity  56,710  48,631
Net assets per share 9 53.74p 44.83p
Diluted net assets per share 9 53.74p 44.83p

These financial statements were approved by the board of directors and authorised for issue on 27 April 2018 and signed on its behalf by:

Sir Michael Heller                       Anil Thapar                                                                                             Company Registration No. 341829
Director                                       Director                                                            



Consolidated Statement of Changes in Shareholders’ Equity
for the year ended 31 December 2017

Share
capital
£’000
Share
premium
£’000
Translation
reserves
£’000
Capital
redemption
reserve
£’000
Treasury
shares
£’000
Retained
earnings
excluding
treasury
shares
£’000
Total
excluding
Non–
Controlling
Interests
£’000
Non–
controlling
Interests
£’000
Total
equity
£’000
Balance at 1 January 2016  8,554  4,866 (1,145)  47 (482)  28,238  40,078  9,574  49,652
Loss for year –  –  –  –  –  (2,357) (2,357)  208 (2,149)
Other comprehensive expense:
Currency translation –  –   417 –  –  –   417  689  1,106
Gain on available for sale investments (net of tax) –  –  –  –  –   76  76  104  180
Total other comprehensive expense –  –   417 –  –   76  493  793  1,286
Total comprehensive expense –  –   417 –  –  (2,281) (1,864)  1,001 (863)
Transactions with owners:
Share options charge –  –  –  –  –   45  45  64  109
Dividends – equity holders –  –  –  –  –  (136) (136) –  (136)
Dividends – non–controlling interests –  –  –  –  –  –  –  (250) (250)
Disposal of own shares –  –  –  –   119 –   119 –   119
Loss on transfer of own shares –  –  –  –   218 (218) –  –  – 
Transactions with owners –  –  –  –   337 (309)  28 (186) (158)
Balance at 31 December 2016  8,554  4,866 (728)  47 (145)  25,648  38,242  10,389  48,631
Profit for year –  –  –  –  –   7,686  7,686  610  8,296
Other comprehensive income:
Currency translation –  –   33 –  –  –   33  58  91
Gain on available for sale investments (net of tax) –  –  –  –  –   34  34  49  83
Total other comprehensive income –  –   33 –  –   34  67  107  174
Total comprehensive income/ (expense) –  –   33 –  –   7,720  7,753  717  8,470
Transactions with owners:
Dividends – equity holders –  –  –  –  –  (141) (141) –  (141)
Dividends – non–controlling interests –  –  –  –  –  –  –  (250) (250)
Transactions with owners –  –  –  –  –  (141) (141) (250) (391)
Balance at 31 December 2017  8,554  4,866 (695)  47 (145)  33,227  45,854  10,856  56,710



Consolidated Cash Flow Statement
for the year ended 31 December 2017 

2017
£’000
2016 
£’000
Operating activities
Profit/(loss) for the year before taxation  11,278 (974)
Finance income (105) (144)
Finance expense  4,268  4,292
Debenture break cost  14 – 
Realised gain on disposal of other investments (3) – 
Decrease in value of investment properties (9,373) (532)
Write off investment in joint venture  1,827 – 
Increase in trading investments –  (1)
Increase in value of other investments –  (12)
Adjustment to interest rate derivative (355)  217
Depreciation  1,804  1,818
Profit on disposal of non-current assets (3) (32)
Share based payment expense –   109
Gain on investment held for trading –   4
Exchange adjustments  258 (449)
Change in inventories  896 (258)
Change in receivables  196  468
Change in payables (415)  1,080
Cash generated from operations  10,287  5,586
Income tax paid (14) (57)
Cash inflows from operating activities  10,273  5,529
Investing activities
Disposal of shares and loans held to maturity –   121
Disposal of assets held for sale (56)  2,275
Share of profit in joint ventures (assets held for sale) –   60
Acquisition of investment properties, mining reserves, plant and equipment (1,771) (3,022)
Sale of plant and equipment  29  32
Residual receipt from Windsor Shopping Centre disposal –   414
Interest received  137  133
Cash (outflows)/inflows from investing activities (1,661)  13

   

Financing activities
Sale of treasury shares –   119
Interest paid (3,963) (3,943)
Interest obligation under finance leases (178) (216)
Debenture stock break costs paid (14) – 
Receipt of bank loan - Bisichi Mining PLC  23  37
Repayment of bank loan - Bisichi Mining PLC (25) (131)
Short term loan from joint ventures and related parties (30) – 
Repayment of debenture stocks (750) – 
Equity dividends paid (141) (136)
Equity dividends paid - non-controlling interests (250) (250)
Cash outflows from financing activities (5,328) (4,520)
Net increase in cash and cash equivalents  3,284  1,022
Cash and cash equivalents at beginning of year  2,931  2,575
Exchange adjustment  51 (666)
Cash and cash equivalents at end of year  6,266  2,931

The cash flows above relate to continuing and discontinued operations. See note 7 for information on discontinued operations.

Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents comprise the following balance sheet amounts:

2017 2016
£’000 £’000
Cash and cash equivalents (before bank overdrafts)  7,528  6,265
Bank overdrafts (1,262) (3,334)
Cash and cash equivalents at end of year  6,266  2,931

£120,000 of cash deposits at 31 December 2017 were charged as security to debenture stocks.

financial statements

group accounting policies

The following are the principal Group accounting policies:

Basis of accounting

The Group financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The Company has elected to prepare the parent company’s financial statements in accordance with Financial Reporting Standard 101 ’Reduced Disclosure Framework’ (FRS 101) and Companies Act 2006 and these are presented in note 33. The financial statements are prepared under the historical cost convention, except for the revaluation of freehold and leasehold properties and financial assets held for trading as well as fair value of interest derivatives.

The Group financial statements are presented in Pounds Sterling and all values are rounded to the nearest thousand pounds (£’000) except when otherwise stated.

The functional currency for each entity in the Group, and for joint arrangements, is the currency of the country in which the entity has been incorporated. Details of the country in which each entity has been incorporated can be found in note 15 for subsidiaries and note 12 for joint ventures.

The exchange rates used in the accounts were as follows:

£1 Sterling: Rand £1 Sterling: Dollar
2017 2016  2017 2016
Year-end rate 16.6686 16.9472 1.35028 1.23321
Annual average 17.1540 19.9269 1.29174 1.35477

London & Associated Properties PLC (“LAP”), the parent company, is a listed public company incorporated and domiciled in England and quoted on the London Stock Exchange. The Company registration number is 341829. LAP and its subsidiaries (“the Group”) consists of LAP, all of its subsidiary undertakings, including Bisichi Mining PLC (“Bisichi”) and Dragon Retail Properties Limited (“Dragon”). The Group without Bisichi and Dragon is referred to as LAP Group.

Going concern

In reviewing going concern it is necessary to consider separately the position of LAP Group and Bisichi.  Although both are consolidated into group accounts (as required by IFRS 10), they are managed independently and in the unlikely event that Bisichi was unable to continue trading this would not affect the ability of LAP Group to continue operating as a going concern.  The same would be true for Bisichi in reverse.

The directors have reviewed the cash flow forecasts of the LAP Group and the underlying assumptions on which they are based. The LAP Group’s business activities, together with the factors likely to affect its future development, are set out in the Chairman and Chief Executive’s Statement and Financial Review. In addition, note 23 to the financial statements sets out the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk.

The directors believe that the LAP Group has adequate resources to continue in operational existence for the foreseeable future and that the LAP Group is well placed to manage its business risks. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

The Bisichi directors continue to adopt the going concern basis of accounting in preparing the Bisichi annual financial statements.

International Accounting Standards (IAS/IFRS)

The Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (“IASB”) that are relevant to its operations and effective for accounting periods beginning 1 January 2017. An amendment to IAS 7 “Statement of Cash Flows: Disclosure Initiative”, which is mandatory for 2017, requires entities to provide disclosures about changes in liabilities arising from financing activities, including changes from financing cash flows and non-cash changes (such as foreign exchange gains or losses). This amendment has been endorsed by the EU. The adoption of this amendment and other new and revised Standards and Interpretations had no material effect on the profit or loss or financial position of the Group.

The Group has not adopted any Standards or Interpretations in advance of the required implementation dates.

IFRS 15 ‘Revenue from Contracts with Customers’ was issued by the IASB in May 2014. It is effective for accounting periods beginning on or after 1 January 2018. The new standard will replace existing accounting standards, and provides enhanced detail on the principle of recognising revenue to reflect the transfer of goods and services to customers at a value which the company expects to be entitled to receive. The standard also updates revenue disclosure requirements. The standard was endorsed by the EU on 22 September 2017. The Directors are continuing to assess the impact of IFRS 15 on the results of the Group. Whilst management do not envisage a material impact, the impact of adopting this standard cannot be reliably estimated until the transition review is complete.

IFRS 9 was published in July 2014 and will be effective for the Group from 1 January 2018. The standard was endorsed by the EU on 22 November 2017. It is applicable to financial assets and financial liabilities, and covers the classification, measurement, impairment and de-recognition of financial assets and financial liabilities together with a new hedge accounting model. IFRS 9 also introduces the expected credit loss model for impairment of financial assets. Application of the IFRS 9 impairment model is expected to have minimal impact given the Group’s credit risk management policies. The Directors are continuing to assess the impact on the results of the Group and will complete the assessment during H1 2018.

IFRS 16 ‘Leases’ – IFRS 16 ‘Leases’ was issued by the IASB in January 2017 and is effective for accounting periods beginning on or after 1 January 2019. The new standard will replace IAS 17 ‘Leases’ and will eliminate the classification of leases as either operating leases or finance leases and, instead, introduce a single lessee accounting model. The standard, which has been endorsed by the EU, provides a single lessee accounting model, specifying how leases are recognised, measured, presented and disclosed. The Directors are currently evaluating the financial and operational impact of this standard including the application to service contracts at the mine containing leases. The review of the impact of IFRS 16 will require an assessment of all leases and the impact of adopting this standard cannot be reliably estimated until this work is substantially complete.

The Directors do not anticipate that the adoption of the other standards and interpretations not listed above will have a material impact on the accounts. Certain of these standards and interpretations will, when adopted, require addition to or amendment of disclosures in the accounts.

We are committed to improving disclosure and transparency and will continue to work with our different stakeholders to ensure they understand the detail of these accounting changes. We continue to remain committed to a robust financial policy

Key judgements and estimates

The preparation of the financial statements requires management to make assumptions and estimates that may affect the reported amounts of assets and liabilities and the reported income and expenses, further details of which are set out below. Although management believes that the assumptions and estimates used are reasonable, the actual results may differ from those estimates. Further details of the estimates are contained in the Directors’ Report.

Property operations

Fair value measurements of investment properties and investments

An assessment of the fair value of certain assets and liabilities, in particular investment properties, is required to be performed. In such instances, fair value measurements are estimated based on the amounts for which the assets and liabilities could be exchanged between market participants. To the extent possible, the assumptions and inputs used take into account externally verifiable inputs. However, such information is by nature subject to uncertainty.

Mining operations

Life of mine and reserves

The directors consider their judgements and estimates surrounding the life of the mine and its reserves to have significant effect on the amounts recognised in the financial statements and to be an area where the financial statements are at most risk of a significant estimation uncertainty. The life of the mine remaining is currently estimated at 4 years. This life of mine is based on the Groups existing coal reserves and excludes future coal purchases and coal reserve acquisitions. The Group’s estimates of proven and probable reserves are prepared and subject to assessment by an independent Competent Person experienced in the field of coal geology and specifically opencast and pillar coal extraction. Estimates of coal reserves impact assessments of the carrying value of property, plant and equipment, depreciation calculations and rehabilitation and decommissioning provisions. There are numerous uncertainties inherent in estimating coal reserves and changes to these assumptions may result in restatement of reserves. These assumptions include geotechnical factors as well as economic factors such as commodity prices, production costs and yield.

Depreciation, amortisation of mineral rights, mining development costs and plant & equipment

The annual depreciation/amortisation charge is dependent on estimates, including coal reserves and the related life of the mine, expected development expenditure for probable reserves, the allocation of certain assets to relevant ore reserves and estimates of residual values of the processing plant. The charge can fluctuate when there are significant changes in any of the factors or assumptions used, such as estimating mineral reserves which in turn affects the life of mine or the expected life of reserves. Estimates of proven and probable reserves are prepared by an independent Competent Person. Assessments of depreciation/amortisation rates against the estimated reserve base are performed regularly. Details of the depreciation/amortisation charge can be found in note 11.

Provision for mining rehabilitation including restoration and de-commissioning costs

A provision for future rehabilitation including restoration and decommissioning costs requires estimates and assumptions to be made around the relevant regulatory framework, the timing, extent and costs of the rehabilitation activities and of the risk free rates used to determine the present value of the future cash outflows. The provisions, including the estimates and assumptions contained therein, are reviewed regularly by management. The Group engages an independent expert to assess the cost of restoration and decommissioning annually as part of management’s assessment of the provision. Details of the provision for mining rehabilitation can be found in note 22.

Mining impairment

Property, plant and equipment representing the Group’s mining assets in South Africa are reviewed for impairment at each reporting date. The impairment test is performed using the approved Life of Mine plan and those future cash flow estimates are discounted using asset specific discount rates and are based on expectations about future operations. The impairment test requires estimates about production and sales volumes, commodity prices, proven and probable reserves (as assessed by the Competent Person), operating costs and capital expenditures necessary to extract reserves in the approved Life of Mine plan. Changes in such estimates could impact recoverable values of these assets. Details of the carrying value of property, plant and equipment can be found in note 11.

The impairment test indicated significant headroom as at 31 December 2017 and therefore no impairment is considered appropriate.  The key assumptions include:  coal prices, including domestic coal prices based on recent pricing and assessment of market forecasts for export coal; production based on proven and probable reserves assessed by the independent Competent Person and yields associated with mining areas based on assessments by the Competent Person and empirical data. A 9% reduction in average forecast coal prices or a 9% reduction in yield would give rise to a breakeven scenario. However, the Bisichi directors consider the forecasted yield levels and pricing to be achievable.

EZIMBOKODWENI JOINT VENTURE

During the year the Group wrote off its £1.8million (2016: £1.8million) investment in Ezimbokodweni Mining (Pty) Limited (“Ezimbokodweni”) made up of a £1.35million loan (2016: £1.35million) and a £0.45million (2016: £0.45million) joint venture investment.

The carrying value of the investment was dependent upon the completion of the acquisition of the Pegasus coal project (“the project”) in South Africa. Although a proposed sale and purchase agreement had been negotiated and a deposit paid for the project, the conclusion of the transaction had been delayed pending the commercial transfer of the prospecting right from the current owners of the project to Ezimbokodweni. Although the Group has always remained committed to completing the transaction, previous negotiations to complete the commercial acquisition of the project had been beset by various delays outside of its control and at the beginning of 2017, the current owners of the project notified Ezimbokodweni that they no longer wished to divest the project. More recently, the Group was notified that an agreement was reached between the current owners of the project and the directors of Ezimbokodweni for the deposit for the project to be returned and any further negotiations with Ezimbokodweni to acquire the project to be terminated.

Although, a legal claim by the Group has been issued against Ezimbokodweni and its representatives, in order for the Group to recover some of the investment, the Bisichi Board has exercised its judgement and decided that it is appropriate and prudent to write off the investment in full at this time.

DEFERRED TAX

The calculation of deferred tax involves the exercise of judgement in relation to the amount of income and gains which will be realised in future to support the recognition of a deferred tax asset in respect of unrelieved losses.

INTEREST RATE HEDGES

All interest rate hedges are held at fair value as valued by the hedge provider.

Further detail is provided in notes 21 and 23.

Basis of consolidation

The Group accounts incorporate the accounts of LAP and all of its subsidiary undertakings, together with the Group’s share of the results and net assets of its joint ventures.

Non–controlling interests in subsidiaries are presented separately from the equity attributable to equity owners of the parent company. When changes in ownership in a subsidiary do not result in a loss of control, the non–controlling shareholders’ interests are initially measured at the non–controlling interests’ proportionate share of the subsidiaries’ net assets. Subsequent to this, the carrying amount of non–controlling interests is the amount of those interests at initial recognition plus the non–controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non–controlling interests even if this results in the non–controlling interests having a deficit balance.

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries acquired during the year are consolidated using the acquisition method. Their results are incorporated from the date that control passes.

All intra Group transactions, balances, income and expenses are eliminated on consolidation. Details of the Group’s trading subsidiary companies are set out in note 15.

The directors are required to consider the implications of IFRS 10 on the LAP investment in Bisichi Mining PLC (“Bisichi”). Related parties also have shareholdings in Bisichi. When combined with the 42% held by LAP and, taking account of the wide disposition of other shareholders, there is potential for LAP and these related parties to exercise voting control over Bisichi. IFRS 10 makes it clear that possible voting control is of more significance than actual management control.

For this reason the directors have concluded that there is a requirement to consolidate Bisichi with LAP. While, in theory, they could achieve control, in practice they do not get involved in the day to day operations of Bisichi. The directors have presented consolidated accounts using the published accounts of Bisichi but it is important to note that any figures, risks and assumptions attributable to that company are the responsibility of the Bisichi Board of directors who are independent from LAP.

As a result of treating Bisichi as a subsidiary, Dragon Retail Properties Limited is also a subsidiary for accounting purposes, as LAP and Bisichi each own 50% of that joint venture business.

Joint ventures

Investments in joint ventures, being those entities over whose activities the Group has joint control, as established by contractual agreement, include the appropriate share of the results and net assets of those undertakings.

Loans to joint ventures are classified as non-current assets when they are not expected to be received in the normal working capital cycle.

Goodwill

Goodwill arising on acquisition is recognised as an intangible asset and initially measured at cost, being the excess of the cost of the acquired entity over the Group’s interest in the fair value of the assets and liabilities acquired. Goodwill is carried at cost less accumulated impairment losses. Goodwill arising from the difference in the calculation of deferred tax for accounting purposes and fair value in negotiations is judged not to be an asset and is accordingly impaired on completion of the relevant acquisition.

Revenue

Revenue comprises sales of coal, property rental income and property management fees.

Rental income

Rental income arises from operating leases granted to tenants. An operating lease is a lease other than a finance lease. A finance lease is one whereby substantially all the risks and rewards of ownership are passed to the lessee. Rental income is recognised in the Group income statement on a straight–line basis over the term of the lease. This includes the effect of lease incentives to tenants, which are normally in the form of rent free periods. Contingent rents, being the difference between the rent currently receivable and the minimum lease payments, are recognised in property income in the periods in which they are receivable. Rent reviews are recognised when such reviews have been agreed with tenants.

Reverse surrender premiums

Payments received from tenants to surrender their lease obligations are recognised immediately in the income statement.

Dilapidations

Dilapidations monies received from tenants in respect of their lease obligations are recognised immediately in the income statement.

Other revenue

Revenue in respect of listed investments held for trading represents investment dividends received and profit or loss recognised on realisation. Dividends are recognised in the income statement when the dividend is received.

Property operating expenses

Operating expenses are expensed as incurred and any property operating expenditure not recovered from tenants through service charges is charged to the income statement.

Employee benefits

Share based remuneration

The Company operates a long–term incentive plan and two share option schemes. The fair value of the conditional awards on shares granted under the long–term incentive plan and the options granted under the share option scheme is determined at the date of grant. This fair value is then expensed on a straight–line basis over the vesting period, based on an estimate of the number of shares that will eventually vest. At each reporting date, the fair value of the non–market based performance criteria of the long–term incentive plan is recalculated and the expense is revised. In respect of the share option scheme, the fair value of options granted is calculated using a binomial method.

Pensions

The Company operates a defined contribution pension scheme. The contributions payable to the scheme are expensed in the period to which they relate.

Foreign currencies

Monetary assets and liabilities are translated at year end exchange rates and the resulting exchange rate differences are included in the consolidated income statement within the results of operating activities if arising from trading activities, including inter-company trading balances and within finance cost / income if arising from financing.

For consolidation purposes, income and expense items are included in the consolidated income statement at average rates, and assets and liabilities are translated at year end exchange rates. Translation differences arising on consolidation are recognised in other comprehensive income. Foreign exchange differences on intercompany loans are recorded in other comprehensive income when the loans are not considered trading balances and are not expected to be repaid in the foreseeable future.  Where foreign operations are sold or closed, the cumulative exchange differences attributable to that foreign operation are recognised in the consolidated income statement when the gain or loss on disposal is recognised.

Transactions in foreign currencies are translated at the exchange rate ruling on transaction date.

Financial instruments

Investments

Held to maturity investments are stated at amortised cost using the effective interest rate method.

Investments held for trading are included in current assets at fair value. For listed investments, fair value is the bid market listed value at the balance sheet date. Realised and unrealised gains or losses arising from changes in fair value are included in the income statement of the period in which they arise.

Trade and other receivables

Trade and other receivables are recognised initially at fair value. A provision for impairment of trade receivables is made when there is evidence that the Group will not be able to collect all amounts due. Trade receivables do not carry any interest, as any interest that would be recognised from discounting future cash payments over the short period is not considered to be material.

Trade and other payables

Trade and other payables are non-interest bearing and are stated at their nominal value, as the interest that would be recognised from discounting future cash payments over the short payment period is not considered to be material.

Bank loans and overdrafts

Bank loans and overdrafts are included as financial liabilities on the Group balance sheet net of the unamortised discount and costs of issue. The cost of issue is recognised in the Group income Statement over the life of the bank loan. Interest payable on those facilities is expensed as a finance cost in the period to which it relates.

Debenture loans

The debenture loans are included as a financial liability on the balance sheet net of the unamortised costs on issue. The cost of issue is recognised in the Group income statement over the life of the debenture. Interest payable to debenture holders is expensed in the period to which it relates.

Finance lease liabilities

Finance lease liabilities arise for those investment properties held under a leasehold interest and accounted for as investment property. The liability is calculated as the present value of the minimum lease payments, reducing in subsequent reporting periods by the apportionment of payments to the lessor. Lease payments are allocated between the liability and finance charges so as to achieve a constant financing rate. Contingent rents payable, such as rent reviews or those related to rental income, are charged as an expense in the period in which they are incurred.

Interest rate derivatives

The Group uses derivative financial instruments to hedge the interest rate risk associated with the financing of the Group’s business. No trading in such financial instruments is undertaken. At each reporting date, these interest rate derivatives are recognised at their fair value to the business, being the Net Present Value of the difference between the hedged rate of interest and the market rate of interest for the remaining period of the hedge.

Ordinary shares

Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

Treasury shares

When the Group’s own equity instruments are repurchased, consideration paid is deducted from equity as treasury shares until they are cancelled. When such shares are subsequently sold or reissued, any consideration received is included in equity.

Investment properties

Valuation

Investment properties are those that are held either to earn rental income or for capital appreciation or both, including those that are undergoing redevelopment. They are reported on the Group balance sheet at fair value, being the amount for which an investment property could be exchanged between knowledgeable and willing parties in an arm’s length transaction. The directors’ property valuation is at fair value.

The external valuation of properties is undertaken by independent valuers who hold recognised and relevant professional qualifications and have recent experience in the locations and categories of properties being valued. Surpluses or deficits resulting from changes in the fair value of investment property are reported in the Group income statement in the period in which they arise.

Capital expenditure

Investment properties are measured initially at cost, including related transaction costs. Additions to capital expenditure, being costs of a capital nature, directly attributable to the redevelopment or refurbishment of an investment property, up to the point of it being completed for its intended use, are capitalised in the carrying value of that property. The redevelopment of an existing investment property will remain an investment property measured at fair value and is not reclassified. Capitalised interest is calculated with reference to the actual rate payable on borrowings for development purposes, or for that part of the development costs financed out of borrowings the capitalised interest is calculated on the basis of the average rate of interest paid on the relevant debt outstanding.

Disposal

The disposal of investment properties is recorded on completion of the contract. On disposal, any gain or loss is calculated as the difference between the net disposal proceeds and the valuation at the last year end plus subsequent capitalised expenditure in the period.

Depreciation and amortisation

In applying the fair value model to the measurement of investment properties, depreciation and amortisation are not provided in respect of investment properties.

Other assets and depreciation

The cost, less estimated residual value, of other property, plant and equipment is written off on a straight–line basis over the asset’s expected useful life. Residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Changes to the estimated residual values or useful lives are accounted for prospectively.  The depreciation rates generally applied are:

Motor vehicles 25–33 per cent per annum
Office equipment 10–33 per cent per annum

Assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather through continuing use. Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs of sale. Any impairment loss on a disposal group is allocated first to goodwill and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets, or investment property which continues to be measured in accordance with the Group’s other accounting policies. Impairment losses on initial classification as assets held-for-sale and subsequent gains and losses on remeasurement are recognised in profit or loss. Once classified as held-for-sale, intangible assets and property, plant and equipment are no longer amortised or depreciated, and any equity-accounted investment is no longer equity accounted.

Available for sale assets

Financial assets available for sale are measured at fair value.  Any changes in fair value above cost are recognised in other comprehensive income and accumulated in the available-for-sale reserve. For any changes in fair value below cost a provision for impairment is recognised in the profit or loss account.

Other investments classified as non-current available for sale investments comprise shares in listed companies and are carried at fair value.

Income taxes

The charge for current taxation is based on the results for the year as adjusted for disallowed or non–assessable items. Tax payable upon realisation of revaluation gains recognised in prior periods is recorded as a current tax charge with a release of the associated deferred tax. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the tax computations and is recorded using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. In respect of the deferred tax on the revaluation surplus, this is calculated on the basis of the chargeable gains that would crystallise on the sale of the investment portfolio as at the reporting date. The calculation takes account of indexation on the historic cost of properties and any available capital losses. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Group income statement, except when it relates to items charged or credited directly to equity, in which case it is also dealt with in equity.

Dividends

Dividends payable on the ordinary share capital are recognised as a liability in the period in which they are approved.

Cash and cash equivalents

Cash comprises cash in hand and on-demand deposits. Cash and cash equivalents comprises short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and original maturities of three months or less. The cash and cash equivalents shown in the cashflow statement are stated net of bank overdrafts that are repayable on demand as per IAS 7. This includes the structured trade finance facility held in South Africa as detailed in note 21. These facilities are considered to form an integral part of the treasury management of the Group and can fluctuate from positive to negative balances during the period.

Bisichi Mining PLC

Mining revenue

Revenue is recognised when the customer has a legally binding obligation to settle under the terms of the contract and has assumed all significant risks and rewards of ownership.

Revenue is only recognised on individual sales of coal when all of the significant risks and rewards of ownership have been transferred
to a third party. Export revenue is generally recognised when the product is delivered to the export terminal location specified by the customer, at which point the customer assumes risks and rewards under the contract.  Domestic coal revenues are generally recognised on collection by the customer from the mine when loaded into transport, where the customer pays the transportation costs.

MINING COSTS

Expenditure is recognised in respect of goods and services received.  Where coal is purchased from third parties at point of extraction the expenditure is only recognised when the coal is extracted and all of the significant risks and rewards of ownership have been transferred.

Mining reserves, plant and equipment

The cost of property, plant and equipment comprises its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in accordance with agreed specifications. Freehold land is not depreciated. Other property, plant and equipment is stated at historical cost less accumulated depreciation.  The cost recognised includes the recognition of any decommissioning assets related to property, plant and equipment.

Heavy surface mining and other plant and equipment is depreciated at varying rates depending upon its expected usage. The depreciation rates generally applied are between 5-10 per cent per annum, but limited to the shorter of its useful life or the life of the mine.

Other non–current assets, comprising motor vehicles and office equipment, are depreciated at a rate of between 10% and 33% per annum which is calculated to write off the cost, less estimated residual value of the assets, on a straight line basis over their expected useful lives.

Mine inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes materials, direct labour and overheads relevant to the stage of production. Cost is determined using the weighted average method. Net realisable value is based on estimated selling price less all further costs to completion and all relevant marketing, selling and distribution costs.

Mine provisions

Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reliably estimated.

A provision for rehabilitation of the mine is initially recorded at present value and the discounting effect is unwound over time as a finance cost.  Changes to the provision as a result of changes in estimates are recorded as an increase/decrease in the provision and associated decommissioning asset. The decommissioning asset is depreciated in line with the Group’s depreciation policy over the life of mine. The provision includes the restoration of the underground, opencast, surface operations and de-commissioning of plant and equipment. The timing and final cost of the rehabilitation is uncertain and will depend on the duration of the mine life and the quantities of coal extracted from the reserves.

Mine impairment

Whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable that asset is reviewed for impairment. This includes mining reserves, plant and equipment and net investments in joint ventures. A review involves determining whether the carrying amounts are in excess of the recoverable amounts.

An asset’s recoverable amount is determined as the higher of its fair value less costs of disposal and its value in use. Such reviews are undertaken on an asset-by-asset basis, except where assets do not generate cash flows independent of other assets, in which case the review is undertaken on a company or Group level.

If the carrying amount of an asset exceeds its recoverable amount an asset’s carrying value is written down to its estimated recoverable amount (being the higher of the fair value less cost to sell and value in use). Any change in carrying value is recognised in the comprehensive income statement.

Mine reserves and development cost

The purpose of mine development is to establish secure working conditions and infrastructure to allow the safe and efficient extraction of recoverable reserves. Depreciation on mine development is not charged until production commences or the assets are put to use. On commencement of full commercial production, depreciation is charged over the life of the associated mine reserves extractable using the asset on a unit of production basis.  The unit of production calculation is based on tonnes mined as a ratio to proven and probable reserves and also includes future forecast capital expenditure.  The cost recognised includes the recognition of any decommissioning assets related to mine development.

Post production stripping

In surface mining operations, the Group may find it necessary to remove waste materials to gain access to coal reserves prior to and after production commences.  Prior to production commencing, stripping costs are capitalised until the point where the overburden has been removed and access to the coal seam commences.  Subsequent to production, waste stripping continues as part of the extraction process as a run of mine activity.  There are two benefits accruing to the Group from stripping activity during the production phase: extraction of coal that can be used to produce inventory and improved access to further quantities of material that will be mined in future periods.  Economic coal extracted is accounted for as inventory.  The production stripping costs relating to improved access to further quantities in future periods are capitalised as a stripping activity asset, if and only if, all of the following are met:

  • it is probable that the future economic benefit associated with the stripping activity will flow to the Group;
  • the Group can identify the component of the ore body for which access has been improved; and
  • the costs relating to the stripping activity associated with that component or components can be measured reliably.

In determining the relevant component of the coal reserve for which access is improved, the Group componentises its mine into geographically distinct sections or phases to which the stripping activities being undertaken within that component are allocated. Such phases are determined based on assessment of factors such as geology and mine planning.

The Group depreciates deferred costs capitalised as stripping assets on a unit of production method, with reference to the tons mined and reserve of the relevant ore body component or phase.

Segmental reporting

For management reporting purposes, the Group is organised into business segments distinguishable by economic activity. The Group’s business segments are LAP operations, Bisichi operations and Dragon operations. These business segments are subject to risks and returns that are different from those of other business segments and are the primary basis on which the Group reports its segmental information. This is consistent with the way the Group is managed and with the format of the Group’s internal financial reporting. Significant revenue from transactions with any individual customer, which makes up 10 per cent or more of the total revenue of the Group, is separately disclosed within each segment.  All coal exports are sales to coal traders at Richard Bay’s terminal in South Africa with the risks and rewards passing to the coal trader at the terminal.  Whilst the coal traders will ultimately sell the coal on the international markets the Group has no visibility over the ultimate destination of the coal.  Accordingly, the export sales are recorded as South Africa revenue.



Notes to the Financial Statements
for the year ended 31 December 2017

1.  Results for the year and segmental analysis

Operating Segments are based on the internal reporting and operational management of the Group. LAP is focused primarily on property activities (which generate trading income), but it also holds and manages investments. IFRS 10 requires the Group to treat Bisichi as a subsidiary and therefore it is consolidated, rather than being included in the accounts as an associate using the equity method. The Group has also consolidated Dragon, a company which the Company jointly controls with Bisichi; Bisichi is a coal mining company with operations in South Africa and also holds investment property in the United Kingdom and derives income from property rentals. Dragon is a property investment company and derives its income from property rentals. These operating segments (LAP, Bisichi and Dragon) are each viewed separately and have been so reported below.

Business segments

2017
LAP   BISICHI DRAGON TOTAL
£'000  £'000  £'000  £'000 
BUSINESS ANALYSIS
Rental income  6,825  1,112  166  8,103
Management income from third party properties  542 –  –   542
Mining –   36,334 –   36,334
Group Revenue  7,367  37,446  166  44,979
Direct property costs (926) (152) (1) (1,079)
Direct mining costs –  (25,664) –  (25,664)
Overheads (2,869) (5,589) (164) (8,622)
Exchange losses –  (256) –  (256)
Depreciation (13) (1,790) (1) (1,804)
Operating profit  3,559  3,995 –   7,554
Finance income  38  67 –   105
Finance expenses (3,713) (526) (29) (4,268)
Debenture break costs (14) –  –  (14)
Result before valuation movements (130)  3,536 (29)  3,377
Other segment items
Net increase/(decrease) on revaluation of investment properties  9,386 (13) –   9,373
Write off investment in joint venture –  (1,827) –  (1,827)
Adjustment to interest rate derivative  358 –  (3)  355
Revaluation and other movements  9,744 (1,840) (3)  7,901
Profit/(loss) for the year before taxation  9,614  1,696 (32)  11,278

   

Segment assets
- Non-current assets - property  65,231  13,397  2,630  81,258
- Non-current assets - plant & equipment  116  8,613  6  8,735
- Cash & cash equivalents  2,109  5,327  92  7,528
- Non-current assets - other  1,748  51 –   1,799
- Current assets - others  2,715  6,285  30  9,030
Total assets excluding investment in joint ventures and assets held for sale  71,919  33,673  2,758  108,350
Segment liabilities
Borrowings (57,571) (7,160) (1,218) (65,949)
Current liabilities (5,588) (7,556) (123) (13,267)
Non-current liabilities (4,806) (3,986) (73) (8,865)
Total liabilities (67,965) (18,702) (1,414) (88,081)
Net assets  3,954  14,971  1,344  20,269
Assets held for sale  36,441 –  –   36,441
Net assets as per balance sheet  56,710
Major customers
Customer A –   27,528 –   27,528
Customer B –   7,226 –   7,226
These customers are for mining revenue in South Africa.
United South  2017
Kingdom Africa Total 
Geographic analysis £’000 £’000 £’000 
Revenue  8,692  36,287  44,979
Operating profit  4,645  2,909  7,554
Non-current assets excluding investments  81,383  8,610  89,993
Total net assets  52,452  4,258  56,710
Capital expenditure  30  1,741  1,771

   


LAP
£’000
BISICHI
£’000
DRAGON
£’000
2016
TOTAL
£’000
BUSINESS ANALYSIS
Rental income 6,241 1,060 171 7,472
Management income from third party properties 501 501
Mining 21,731 21,731
Group Revenue 6,742 22,791 171 29,704
Direct property costs (1,168) (187) 5 (1,350)
Direct mining costs (16,184) (16,184)
Overheads (2,926) (4,903) (128) (7,957)
Exchange gains 449 449
Depreciation (25) (1,785) (8) (1,818)
Operating profit before listed investments held for trading 2,623 181 40 2,844
Listed investments held for trading 2 2
Operating profit 2,625 181 40 2,846
Finance income 11 132 1 144
Finance expenses (3,706) (554) (32) (4,292)
Result before valuation movements (1,070) (241) 9 (1,302)
Other segment items
Net increase/(decrease) on revaluation of investment properties 125 445 (38) 532
Increase in value of other investments 12 12
Net increase on revaluation of investments held for trading 1 1
Adjustment to interest rate derivative (206) (11) (217)
Revaluation and other movements (80) 457 (49) 328
(Loss)/profit for the year before taxation (1,150) 216 (40) (974)
Segment assets
- Non – current assets – property 93,791 13,426 2,630 109,847
- Non – current assets – plant and equipment 112 8,520 21 8,653
- Cash and cash equivalents 3,706 2,444 115 6,265
- Non – current assets – other 1,874 32 1,906
- Non – current assets – deferred tax asset 1,134 1,134
- Current assets – others 1,853 7,745 20 9,618
Total assets excluding investment in joint ventures and assets held for sale 102,470 32,167 2,786 137,423
Segment liabilities
Borrowings (58,068) (9,234) (1,207) (68,509)
Current liabilities (6,074) (6,811) (78) (12,963)
Non-current liabilities (5,379) (3,665) (81) (9,125)
Total liabilities (69,521) (19,710) (1,366) (90,597)
Net assets 32,949 12,457 1,420 46,826
Investment in joint ventures non segmental 1,805
Net assets as per balance sheet 48,631
Major customer
Customer A 14,543 14,543

This customer is for mining revenue in South Africa.

Geographic analysis United
Kingdom
£’000
South
Africa
£’000
2016
Total
£’000
Revenue 8,025 21,679 29,704
Operating profit/(loss) 3,441 (595) 2,846
Non–current assets excluding investments 111,117 8,517 119,634
Total net assets 43,916 4,715 48,631
Capital expenditure 164 2,858 3,022

Group revenue is external to the Group and the directors consider that inter segmental revenues are not material. Revenue includes contingent rents of £0.7 million (2016: £0.2 million).

2.  Profit/(Loss) before taxation

2017 2016
£'000 £'000
Profit/(loss) before taxation is stated after charging/(crediting):
Staff costs (see note 29)  8,113  7,173
Depreciation on tangible fixed assets - owned assets  1,804  1,818
Operating lease rentals - land and buildings  411  442
Exchange loss/(gain)  256 (449)
Profit on disposal of motor vehicles and office equipment (3) (32)
Amounts payable to the auditor in respect of both audit and non-audit services
Audit services
Statutory - Company and consolidation  83  88
Subsidiaries - audited by RSM  17  20
Subsidiaries - audited by other auditors  51  50
Further assurance services  4  4
Other services  5  32
 160  194

Staff costs are included in overheads.

3.  Listed investments held for trading

2017 2016
£'000 £'000
Dividends receivable –   2
Net profit from listed investments –   2


4.  Directors’ emoluments

2017 2016
£'000 £'000
Emoluments  894  988
Defined contribution pension scheme contributions  27  45
 921  1,033

Sir Michael Heller received £75,000 (2016: £75,000) as a Director of Bisichi Mining PLC.

Details of directors’ emoluments and share options are set out in the remuneration report.

5.  Finance income and expenses

2017 2016
£'000 £'000
Finance income  105  144
Finance expenses
Interest on bank loans and overdrafts (2,223) (2,243)
Unwinding of discount (Bisichi) (92) (78)
Other loans (1,414) (1,420)
Interest on derivatives (337) (302)
Interest on obligations under finance leases (202) (249)
Total finance expenses (4,268) (4,292)
(4,163) (4,148)


6.  Income tax

2017 2016
£'000 £'000
Current tax
Corporation tax on profit of the period  369  73
Corporation tax on profit/(loss) of previous periods (5) – 
Total current tax  364  73
Deferred tax
Origination of timing differences (35)  874
Revaluation of investment properties  2,348  472
Accelerated capital allowances  235 (48)
Fair value of interest derivatives  68 (40)
Adjustment in respect of prior years  2 (156)
Total deferred tax (notes 24 and 25)  2,618  1,102
Tax on profit on ordinary activities  2,982  1,175

The 2016 deferred tax recognised in income of £1,102,000 includes a credit of £168,000 arising in the Bisichi Group on the correction of an error in the calculation of deferred tax in 2015 related to the accounting of a deferred tax liability incorrectly recognised in respect of management fees. The Group adjusted the effect of this error in its 2016 financial statements by reducing the tax charge for the year by £168,000 and reducing the associated deferred tax liability as it was not considered to be material to the current or prior year financial statements.

Factors affecting tax charge for the year

The corporation tax assessed for the year is different from that at the effective rate of corporation tax in the United Kingdom of 19.25 per cent
(2016: 20 per cent). The differences are explained below:

2017 2016
£'000 £'000
Profit/(loss) for the year before taxation  11,278 (974)
Taxation at 19.25 per cent (2016: 20 per cent)  2,171 (195)
Effects of:
Capital gains  1,792  800
Other differences (785)  506
Adjustment in respect of prior years (3) (157)
Deferred tax rate adjustment (193)  221
Income tax charge for the year  2,982  1,175

Analysis of United Kingdom and overseas tax:

United Kingdom tax included in above:

2017
£’000
2016
£’000
Corporation tax 233 13
Adjustment in respect of prior years (5)
Current tax 228 13
Deferred tax 2,219 1,241
2,447 1,254

Overseas tax included above:

2017
£’000
2016
£’000
Corporation tax 136 60
Current tax 136 60
Deferred tax 397 (139)
Adjustment in respect of prior years 2
Deferred tax 399 (139)
535 (79)

Factors that may affect future tax charges:

Based on current capital expenditure plans, the Group expects to continue to be able to claim capital allowances in excess of depreciation in future years, but at a slightly lower level than in the current year.

A deferred tax provision has been made for gains on revaluing investment properties.

The Finance Bill 2016 was substantively enacted on 7 September 2016.  This includes a reduction in the rate of Corporation tax from 19% effective 1 April 2017 to 17% from 1 April 2020.

The Finance (no. 2) Act 2017 was substantively enacted on 16 November 2017. This includes a restriction on the utilisation of brought forward tax losses and corporate interest in certain circumstances effective from 1 April 2017.

7.  Discontinued operations

As part of the Group’s strategy to focus on core assets, the Group disposed of King Edward Court, Windsor in 2013. The profits and losses arising from this disposal were classified as discontinued operations. Contracts for the sale of King Edward Court had been exchanged in 2013 and completion took place in January 2014.  Following the settlement of a dispute additional proceeds of £414,000 were received by the Group in 2016.

8.  Dividend

2017 2016
Per share £'000 Per share £'000
Dividends paid during the year relating to the prior period 0.165p  141 0.16p  136
Dividends to be paid:
Proposed final dividend for the year 0.175p  149 0.165p  141
Proposed special dividend for the year 0.125p  107 –  – 

9.  Profit/(Loss) per share and net assets per share

Profit/(loss) per share has been calculated as follows:
2017 2016
Profit / (loss) for the year for the purposes of basic and diluted profit/(loss) per share (£’000)  7,686 (2,357)
Weighted average number of ordinary shares in issue for the purpose of basic profit/(loss) per share (’000)  85,322  85,107
Basic profit / (loss) per share 9.01p (2.77)p
Weighted average number of ordinary shares in issue for the purpose of diluted profit/(loss) per share (’000)  85,322  85,107
Fully diluted profit /(loss) per share 9.01p (2.77)p

Weighted average number of shares in issue is calculated after excluding treasury shares of 221,061 (2016: 221,061).

Net assets per share have been calculated as follows:

2017 2016
Net assets (£’000)  45,854  38,242
Shares in issue (’000)  85,322  85,322
Basic net assets per share 53.74p 44.83p
Net assets diluted (£’000)  45,854  38,242
Shares in issue (’000)  85,322  85,322
Diluted net assets per share 53.74p 44.83p

10.         Investment properties

Leasehold Leasehold
Total Freehold over 50 years under 50 years
£'000 £'000 £'000 £'000
Cost or valuation at 1 January 2017  109,847  88,585  19,620  1,642
Transfer to assets held for sale (note 14) (36,441) (36,441) –  – 
Additions in year  13  13 –  – 
(Decrease)/increase in present value of head leases (1,534) –  (1,839)  305
Increase/(decrease) on revaluation  9,373  10,268 (925)  30
At 31 December 2017  81,258  62,425  16,856  1,977
Representing assets stated at:
Valuation  78,025  62,425  14,570  1,030
Present value of head leases  3,233 –   2,286  947
 81,258  62,425  16,856  1,977
At 31 December 2017  81,258  62,425  16,856  1,977
At 31 December 2016  109,847  88,585  19,620  1,642

   

Total
£’000
Freehold
£’000
Leasehold
over
50 years
£’000
Leasehold
under
50 years
£’000
Cost or valuation at 1 January 2016 109,172 86,468 21,060 1,644
Additions in year 160 160
Decrease in present value of head leases (17) (15) (2)
Increase/(decrease) on revaluation 532 1,957 (1,425)
At 31 December 2016 109,847 88,585 19,620 1,642
Representing assets stated at:
Valuation 105,080 88,585 15,495 1,000
Present value of head leases 4,767 4,125 642
109,847 88,585 19,620 1,642
At 31 December 2016 109,847 88,585 19,620 1,642
At 31 December 2015 109,172 86,468 21,060 1,644

The leasehold and freehold properties, excluding the present value of head leases and directors’ valuations, were valued as at 31 December 2017 by professional firms of chartered surveyors. The valuations were made at fair value. The directors’ property valuations were made at fair value.

2017 2016
£'000 £'000
Allsop LLP 62,955 90,010
Carter Towler 13,245 13,245
Directors' valuations 1,825 1,825
78,025 105,080
Add: present value of headleases 3,233 4,767
81,258 109,847

The historical cost of investment properties, including total capitalised interest of £1,161,000 (2016: £1,161,000) was as follows:

2017 2016
Leasehold Leasehold Leasehold Leasehold
Over 50 under 50 Over 50 under 50
Freehold years years Freehold years years
£'000 £'000 £'000 £'000 £'000 £'000
Cost at 1 January  72,711  17,653  1,939  72,551  17,653  1,939
Transfer to assets held for sale (note 14) (5,022) –  –  –  –  – 
Additions  13 –  –   160 –  – 
Cost at 31 December  67,702  17,653  1,939  72,711  17,653  1,939

Each year external valuers are appointed by the executive directors on behalf of the Board. The valuers are selected based upon their knowledge, independence and reputation for valuing assets such as those held by the Group.

Valuations are performed annually and are performed consistently across all properties in the Group’s portfolio. At each reporting date appropriately qualified employees of the Group verify all significant inputs and review the computational outputs. Valuers submit their report to the Board on the outcome of each valuation.

Valuations take into account tenure, lease terms and structural condition. The inputs underlying the valuations include market rent or business profitability, likely incentives offered to tenants, forecast growth rates, yields, EBITDA, discount rates, construction costs including any specific site costs (for example section 106), professional fees, developer’s profit including contingencies, planning and construction timelines, lease regear costs, planning risk and sales prices based on known market transactions for similar properties to those being valued.

Valuations are based on what is determined to be the highest and best use. When considering the highest and best use the valuer will consider, on a property by property basis, its actual and potential uses which are physically, legally and financially viable. Where the highest and best use differs from the existing use, the valuer will consider the cost and likelihood of achieving and implementing this change in arriving at the valuation.

There are often restrictions on Freehold and Leasehold property which could have a material impact on the realisation of these assets. The most significant of these occur when planning permission or lease extension and renegotiation of use are required or when a credit facility is in place. These restrictions are factored into the property’s valuation by the external valuer.

The methods of fair value measurement are classified into a hierarchy based on the reliability of the information used to determine the valuation, as follows:

Level 1:   valuation based on inputs on quoted market prices in active markets.

Level 2:   valuation based on inputs other than quoted prices included within level 1 that maximise the use of observable data directly or from market prices or indirectly derived from market prices.

Level 3:   where one or more significant inputs to valuations are not based on observable market data.

Class of property
Level 3
Carrying /
Fair value
2017
£’000
Carrying/ Fair value 2016
£’000
Valuation technique Key unobservable
inputs
Range (weighted average)
2017

Range (weighted average) 2016
Freehold – external valuation 60,600 86,760 Income capitalisation Estimated Rental Value
Per sq ft p.a
Equivalent Yield

£5 – £39
(£19)
4.9% – 12.9%
(8.4%)

£5 – £37
(£19)
5% – 14%
(8%)
Leasehold over 50 years – external valuation 14,570 15,495 Income capitalisation Estimated Rental Value
Per sq ft p.a
Equivalent Yield

£5 – £10
(£9)
5.8% – 17.6%
(9%)

£5 – £11
(£9)
7% – 18%
(11%)
Leasehold under 50 years – external valuation 1,030 1,000 Income capitalisation Estimated Rental Value
Per sq ft p.a
Equivalent Yield

£4 – £5
(£5)
25.4% – 25.8%
(25.5%)

£3 – £5
(£4)
18% – 23%
(19%)
Freehold – Directors’ valuation 1,825 1,825 Income capitalisation Estimated Rental Value
Per sq ft p.a
Equivalent Yield

£5 – £5
(£5)
6.1% – 6.1%
(6.1%)

£5 – £5
(£5)
6% – 6%
(6%)
At 31 December 78,025 105,080

There are interrelationships between all these inputs as they are determined by market conditions. The existence of an increase in more than one input would be to magnify the input on the valuation. The impact on the valuation will be mitigated by the interrelationship of two inputs in opposite directions, for example, an increase in rent may be offset by an increase in yield.

The table below illustrates the impact of changes in key unobservable inputs on the carrying / fair value of the Group’s properties.

Estimated rental value
10% increase or (decrease)
Equivalent yield
25 basis point contraction
or (expansion)
2017
£’000
2016
£’000
2017
£’000
2016
£’000
Freehold – external valuation 6,055/(6,055) 8,671/(8,671) 2,095/(1,956) 3,585/(3,298)
Leasehold over 50 years – external valuation 1,457/(1,457) 1,545/(1,545) 355/(338) 394/(375)
Leasehold under 50 years – external valuation 103/(103) 100/(100) 10/(10) 13/(13)
Freehold – Directors’ valuation 183/(183) 183/(183) 78/(71) 78/(72)

11.  Mining reserves, plant and equipment

Office
equipment
Mining Mining and motor
Total reserves equipment vehicles
£'000 £'000 £'000 £'000
Cost at 1 January 2017  25,817  1,344  23,724  749
Exchange adjustment  474  22  447  5
Additions  1,758 –   1,731  27
Disposals (53) –  –  (53)
At 31 December 2017  27,996  1,366  25,902  728
Accumulated depreciation at 1 January 2017  17,164  1,287  15,370  507
Exchange adjustment  332  21  308  3
Charge for the year  1,804  1  1,763  40
Disposals in year (39) (1) –  (38)
Accumulated depreciation at 31 December 2017  19,261  1,308  17,441  512
Net book value at 31 December 2017  8,735  58  8,461  216
Cost at 1 January 2016  17,188  995  15,453  740
Exchange adjustment  6,273  349  5,858  66
Additions  2,862 –   2,814  48
Disposals (506) –  (401) (105)
Cost at 31 December 2016  25,817  1,344  23,724  749
Accumulated depreciation at 1 January 2016  11,636  949  10,201  486
Exchange adjustment  4,202  336  3,824  42
Charge for the year  1,818  2  1,746  70
Disposals (492) –  (401) (91)
Accumulated depreciation at 31 December 2016  17,164  1,287  15,370  507
Net book value at 31 December 2016  8,653  57  8,354  242

12.         Investment in joint venture

Shares in joint venture:

2017 2016
£’000 £’000
At 1 January  455  325
Write off of investment (447) – 
Exchange adjustment (8)  130
At 31 December –   455

At 31 December 2017 the joint venture had non-current assets of £nil (2016: £1,346,000), current assets of £nil (2016: £3,000) and current liabilities of £nil (2016: £,1,349,000).

2017 2016
£’000 £’000
At 1 January  455  325
Write off of investment (447) – 
Exchange adjustment (8)  130
At 31 December –   455

Bisichi owned 49% of the issued share capital of Ezimbokodweni (an unlisted coal production company in South Africa). The Directors of Bisichi have now concluded that the joint venture (which has not traded to date) is unlikely to generate income in the foreseeable future. For that reason, the investment and the loan (note 13) have been written off.

13.  Loan to joint venture

2017
Joint
ventures
assets
£’000
2016
Joint
ventures
assets
£’000
Loan to Ezimbokodweni Mining (Pty) Limited
At 1 January 1,350  900
Exchange adjustment (16)  336
Additions – interest 46  114
Write-off (1,380) – 
At 31 December –   1,350

14.         Assets held for sale

2017 2016
£’000 £’000
 At 1 January –   2,335
 Transfer from investment property (note 10) 36,441 – 
 Disposal –  (2,335)
At 31 December 36,441 – 

   

In March 2018 contracts were exchanged for the sale of both Brixton markets for a combined price of £37.25 million. The properties were held at a valuation of £24.52 million at 31 December 2016 and a revaluation gain of £11.92 million is recognised in note 10 prior to the transfer of the property to assets held for sale. Following the Market Row completion on 23 April 2018, £15.9 million of bank loans related to those properties have been repaid as required by the terms of the loan agreements. The Brixton Village completion was on 26 April 2018. As required under IFRS, these properties have been reclassified from investment properties to assets held for sale, at fair value less costs to sell of £36.44 million. Related loans are classified as non-current in note 23.

15.          Subsidiary companies

In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, the principal activity, the country of incorporation and the percentage of equity owned, as at 31 December 2017 is disclosed below:

Entity Activity Percentage of
share capital

Registered address
Country of
incorporation
Analytical Investments Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
Analytical Portfolios Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
Analytical Properties Holdings Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Analytical Properties Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Analytical Ventures Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
24 Bruton Place Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
24 BPL (Harrogate) Limited Investment 88% 24 Bruton Place, London, W1J 6NE England and Wales
24 BPL (Harrogate ) Two Limited Investment 100% 24 Bruton Place, London, W1J 6NE England and Wales
Brixton Village Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Market Row Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Newincco 1243 Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Newincco 1244 Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Newincco 1245 Limited Property Management Services 100% 24 Bruton Place, London, W1J 6NE England and Wales
Newincco 1299 Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Newincco 1300 Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
LAP Ocean Holdings Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
LAP Ocean Two Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
London & Associated Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
London & Associated (Rugeley) Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
London & Associated Securities Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
London & Associated Management Services Limited Property Management Services 100% 24 Bruton Place, London, W1J 6NE England and Wales
London & African Investments Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
Orchard Chambers Residential Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
Bisichi Mining PLC (note D) Coal mining 41.52% 24 Bruton Place, London, W1J 6NE England and Wales
Mineral Products Limited (note A)(note D) Share dealing 100% 24 Bruton Place, London, W1J 6NE England and Wales
Bisichi (Properties) Limited (note A)(note D) Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Bisichi Mining (Exploration) Limited (note A)(note D) Holding company 100% 24 Bruton Place, London, W1J 6NE England and Wales
Black Wattle Colliery (Pty) Limited (note A)(note D) Coal mining 62.5% Samora Machel Street, Bethal Road, Middelburg, Mpumalanga, 1050 South Africa
Bisichi Coal Mining (Pty) Limited (note A)(note D) Coal mining 100% Samora Machel Street, Bethal Road, Middelburg, Mpumalanga, 1050 South Africa
Urban First (Northampton) Limited (note A)(note D) Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
Bisichi Trustee Limited (note A)(note D) Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Bisichi Mining Management Services Limited (note A)
(note D)
Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
Ninghi Marketing Limited (note A)(note D) Dormant 90.1% 24 Bruton Place, London, W1J 6NE England and Wales
Bisichi Northampton Limited (note A)(note D) Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Amandla Ehtu Mineral Resource Development (Pty) Limited (note A)(note D) Dormant 70% Samora Machel Street, Bethal Road, Middelburg, Mpumalanga, 1050 South Africa
Black Wattle Klipfontein (Pty) Limited (note A)(note D) Coal mining 62.5% Samora Machel Street, Bethal Road, Middelburg, Mpumalanga, 1050 South Africa
Dragon Retail Properties Limited (note B)(note D) Property 50% 24 Bruton Place, London, W1J 6NE England and Wales
Newincco 1338 Limited (note C) Property 100% 24 Bruton Place, London, W1J 6NE England and Wales

Details on the non–controlling interest in subsidiaries are shown under note 27.

Note A: these companies are owned by Bisichi and the equity shareholdings disclosed relate to that company.

Note B: this entity is a joint venture owned 50% by LAP and 50% by Bisichi.

Note C: this company is owned by Dragon and the equity shareholdings disclosed relate to that company.

Note D: Bisichi and Dragon and their subsidiaries are included in the consolidated financial statements in accordance with IFRS 10.

16.  Inventories

2017 2016
£'000 £'000
Coal
Washed  301  1,139
Mining production  286  83
Work in progress  227  458
Other  14  41
 828  1,721

17.         Held to maturity investments and other investments

Held to maturity investments:

2017 Unlisted Loan 2016 Unlisted Loan
Total shares stock Total shares stock
£'000 £'000 £'000 £'000 £'000 £'000
At 1 January  1,874  1  1,873  1,995  1  1,994
Repayments (126) –  (126) (121) –  (121)
At 31 December 1,748  1  1,747 1,874  1  1,873

The Group owns a 3.17% (2016: 6.95%) interest in the equity and loans of HRGT Shopping Centres LP (HRGT), a limited partnership set up in England to acquire and own 3 shopping centres in Dunfermline, Kings Lynn and Loughborough. 96.4% (2016: 92.10%) of the equity and loans are owned by Oaktree Capital Management and 0.43% (2016: 0.95%) by Gooch Cunliffe Whale LLP. London & Associated Management Services Limited has a management contract to manage the properties on behalf of HRGT.

OTHER INVESTMENTS:
2017 2016
£'000 £'000
Net book and market value of investments listed on overseas stock exchange  51  32

18.         Trade and other receivables

2017 2016
£'000 £'000
Trade receivables  4,920  4,701
Other receivables  736  1,010
Prepayments and accrued income  1,476  1,350
 7,132  7,061

The directors consider that the carrying amount of trade and other receivables approximates to their fair value.

19.         Investments available for sale and held for trading

2017 2016
£'000 £'000
Market bid value of the listed investment portfolio - available for sale  1,050  781
Market bid value of the listed investment portfolio - held for trading  19  19
Unrealised gain of market value over cost  129  45
Listed investment portfolio at cost  940  755

Investments are listed on the London Stock Exchange with the exception of £47,000 (2016: £60,000) listed outside Great Britain.

The directors have reviewed the individual investments for impairment and do not consider the investments which are below cost to be impaired.

20.         Trade and other payables

2017 2016
£'000 £'000
Trade payables  3,937  3,618
Other taxation and social security costs  629  739
Other payables  2,842  2,815
Accruals and deferred income  5,501  5,770
 12,909  12,942

The directors consider that the carrying amount of trade and other payables approximates to their fair value.

21.         Borrowings

2017 2017 2016 2016
£’000 £’000 £’000 £’000
Current Non-current Current Non-current
Other loans (Bisichi)  26 –   24 – 
£1.25 million term bank loan (secured) repayable by 2020 (Dragon)* –   1,218 –   1,207
£3.75 million first mortgage debenture stock 2018 at 11.6 per cent  3,000 –   750  3,000
Bank overdrafts (secured) (Bisichi)  1,262 –   3,334 – 
Bank loan (secured)(Bisich) –  –  –   66
£10 million first mortgage debenture stock 2022 at 8.109 per cent* –   9,922 –   9,905
£5.876 million term bank loan (secured) repayable by 2019 (Bisichi)* –   5,872 –   5,810
£34.897 million term bank loan (secured) repayable by 2019* –   34,640 –   34,468
£10.105 million term bank loan (secured) repayable by 2019 at 9.5 per cent* –   10,009 –   9,945
 4,288  61,661  4,108  64,401

Borrowings analysis by origin:

2017
£’000
2016
£’000
United Kingdom 64,621 65,085
South Africa 1,328 3,424
65,949 68,509

*  The £10 million debenture and bank loans are shown after deduction of un-amortised issue costs.

Interest payable on the term bank loans is variable being based upon the London inter–bank offered rate (LIBOR) plus margin.

In June 2017, the Group repaid early £0.75 million of the £5 million first mortgage debenture stock 2018, at an additional cost of £14,000.

First Mortgage Debenture Stocks August 2018 and 2022 and the Santander £34.897 million and Europa £10.105 million term bank loans repayable in July 2019 are secured by way of a charge on specific freehold and leasehold properties which are included in the financial statements at a value of £96.52 million.  In addition, £0.12 million of cash deposits are charged as security to debenture stocks. The £34.897 million bank loan has an interest cost of 2 per cent above LIBOR.  An interest rate swap and cap agreements are in place as detailed in note 23. Santander bank loans of £12.8 million and Europa bank loans of £3.1m related to Brixton Markets sales are repayable on completion in accordance with the terms of the loan agreements.

The Bisichi United Kingdom bank loans of £5.832 million (2016: £5.810 million) are secured by way of a first charge over the investment properties in the UK which are included in the financial statements at a value of £13.2 million. The interest cost of the bank loan is 2.35 per cent above LIBOR.

The Bisichi South African bank loans and overdrafts of £1.328 million (2016: £3.424 million) are secured by way of a first charge over specific pieces of mining equipment, inventory and the debtors of the relevant company which holds the loan which are included in the financial statements at a value of £6.1 million.

The bank loan of £1.25 million (Dragon) which is repayable in November 2020 is secured by way of a first charge on specific freehold property and which is included in the financial statements at a value of £2.58 million. The interest cost of the loan is 2 per cent above LIBOR.

The Group’s objectives when managing capital are:

–    To safeguard the Group’s ability to continue as a going concern, so that it may provide returns for shareholders and benefits for other stakeholders; and

–    To provide adequate returns to shareholders by ensuring returns are commensurate with the risk.

Analysis of the changes in liabilities arising from financing activities:

2017 2017 2016 2016
£’000 £’000 £’000 £’000
BORROWINGS FINANCE LEASES BORROWINGS FINANCE LEASES
Balance at 1 January  68,509  4,767  67,218  4,784
Exchange adjustments (4) –   854 – 
Cash movements excluding exchange adjustments (2,820) –   173 – 
Valuation movements  264 (1,534)  264 (17)
Balance at 31 December  65,949  3,233  68,509  4,767

22.        Provisions

2017 2016
£'000 £'000
At 1 January  1,236  847
Exchange adjustment  21  311
Unwinding of discount  92  78
At 31 December  1,349  1,236

The above provision relates to mine rehabilitation costs in Bisichi.

23.         Financial instruments

Total financial assets and liabilities

The Group’s financial assets and liabilities and their fair values are as follows:

2017 2016
Fair Carrying Fair Carrying
value value value value
£’000 £’000 £’000 £’000
Cash and cash equivalents  7,528  7,528  6,265  6,265
Assets held for sale  36,441  36,441 –  – 
Investments held to maturity  1,748  1,748  1,874  1,874
Loan to joint venture –  –   1,350  1,350
Other investments  51  51  32  32
Investments held for trading  19  19  19  19
Available for sale investments  1,050  1,050  781  781
Derivative assets  1  1  4  4
Other assets  5,656  5,656  5,711  5,711
Derivative liabilities (435) (435) (793) (793)
Bank overdrafts (1,262) (1,262) (3,334) (3,334)
Bank loans (52,218) (51,765) (52,218) (51,520)
Present value of head leases on properties (3,233) (3,233) (4,767) (4,767)
Other liabilities (6,779) (6,779) (6,432) (6,432)
Total financial liabilities before debentures (11,433) (10,980) (51,508) (50,810)

Fair value of debenture stocks

Fair value of the Group’s debenture liabilities:

2017 2016
Book Fair Fair value  Fair value
value value adjustment adjustment
£’000 £’000 £’000 £’000
Debenture stocks (13,000) (15,686) (2,686) (3,526)
Tax at 19.25 per cent (2016: 20 per cent) –  –   517  705
Post tax fair value adjustment –  –  (2,169) (2,821)
Post tax fair value adjustment – basic pence per share –  –  (2.54)p (3.3)p

There is no material difference in respect of other financial liabilities or any financial assets.

The fair values were calculated by the directors as at 31 December 2017 and reflect the replacement value of the financial instruments used to manage the Group’s exposure to adverse rate movements.

The fair values of the debentures are based on the net present value at the relevant gilt interest rate of the future payments of interest on the debentures. The bank loans and overdrafts are at variable rates and there is no material difference between book values and fair values.

Investments held for trading and available for sale fall under level 1 of the fair value hierarchy into which fair value measurements are recognised in accordance with the levels set out in IFRS 7. Held to maturity investments are held at cost and other investments are held at fair value. The directors are of the opinion that the difference in value between cost and fair value of other investments is not significant or material. The comparative figures for 2016 fall under the same category of financial instrument as 2017.

The carrying amount of short term (less than 12 months) trade receivable and other liabilities approximates its fair values. The fair value of non-current borrowings in note 21 approximates its carrying value and was determined under level 2 of the fair value hierarchy and is estimated by discounting the future contractual cash flows at the current market interest rates for UK borrowings and for the South African overdraft facility. The fair value of the finance lease liabilities in note 31 approximates its carrying value and was determined under level 2 of the fair value hierarchy and is estimated by discounting the future contractual cash flows at the current market interest rates.

Treasury policy

The Group enters into derivative transactions such as interest rate swaps and forward exchange contracts in order to help manage the financial risks arising from the Group’s activities. The main risks arising from the Group’s financing structure are interest rate risk, liquidity risk and market price risk, credit risk, commodity price risk and foreign exchange risk. The policies for managing each of these risks and the principal effects of these policies on the results are summarised below.

Sensitivity analysis

LAP and Dragon have variable interest term debts which are covered by derivatives.  Additionally, LAP has variable interest term debt covered by interest caps.  At 31 December 2017, with other variables unchanged, a 1% increase in interest rates would change the profit/loss for the year by £175,000 (2016: £173,000).  Bisichi has variable loans and a 1% increase in interest rates would change the profit/loss for the year by £82,000 (2016: £56,000).

Interest rate risk

Treasury activities take place under procedures and policies approved and monitored by the Board to minimise the financial risk faced by the Group. The £34.897 million bank loan and Bisichi United Kingdom bank loans and overdraft are secured by way of a first charge on certain fixed assets. The rates of interest vary based on LIBOR in the UK.

The £10.105 million term bank loan is secured by way of a second charge on certain fixed assets. This loan is based on a fixed interest rate.

The Bisichi South African bank loans are secured by way of a first charge over specific pieces of mining equipment, inventory and the debtors of the relevant company which holds the loan. The rates of interest vary based on PRIME in South Africa.

The £1.25 million bank loan (Dragon) is secured by way of a first charge on specific freehold property. The rate of interest varies based on LIBOR in the UK.

Liquidity risk

The Group’s policy is to minimise refinancing risk by balancing its exposure to interest risk and to refinancing risk. In effect the Group seeks to borrow for as long as possible at the lowest acceptable cost. Efficient treasury management and strict credit control minimise the costs and risks associated with this policy which ensures that funds are available to meet commitments as they fall due. Cash and cash equivalents earn interest at rates based on LIBOR in the UK. These facilities are considered adequate to meet the Group’s anticipated cash flow requirements for the foreseeable future.

In South Africa, an increased structured trade finance facility for R100million was signed by Black Wattle Colliery (Pty) Limited in July 2017 with Absa Bank Limited. The facility is renewable annually at 30 June and is secured against inventory, debtors and cash that are held by Black Wattle Colliery (Pty) Limited. The trade facility, which is repayable on demand, is included in cash and cash equivalents within the cashflow statement.

The table below analyses the Group’s financial liabilities (excluding interest rate derivatives) into maturity Groupings and also provides details of the liabilities that bear interest at fixed, floating and non–interest bearing rates.

2017 Less than 2-5 years Over
Total 1 year 5 years
£’000 £’000 £’000 £’000
Bank overdrafts (floating)  1,262  1,262 –  – 
Debentures (fixed)  12,922  3,000  9,922 – 
Bank loans (fixed)  10,009 –   10,009 – 
Bank loans (floating)*  41,756  26  41,730 – 
Trade and other payables (non–interest)  6,779  6,779 –  – 
 72,728  11,067  61,661 – 
2016 Less than 2-5 years Over
Total 1 year 5 years
£’000 £’000 £’000 £’000
Bank overdrafts (floating)  3,334  3,334 –  – 
Debentures (fixed)  13,655  750  3,000  9,905
Bank loans (fixed)  9,945 –   9,945 – 
Bank loans (floating)*  41,575  24  41,551 – 
Trade and other payables (non–interest)  6,432  6,432 –  – 
 74,941  10,540  54,496  9,905

The Group would normally expect that sufficient cash is generated in the operating cycle to meet the contractual cash flows as disclosed above through effective cash management.

*Certain bank loans are fully hedged with appropriate interest derivatives. Details of all hedges are shown below.

Market price risk

The Group is exposed to market price risk through interest rate and currency fluctuations.

Credit risk

At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. The Group only deposits surplus cash with well–established financial institutions of high quality credit standing.

Foreign exchange risk

Only Bisichi is subject to this risk. All trading is undertaken in the local currencies except for certain export sales which are invoiced in US Dollars. It is not the Bisichi Group’s policy to obtain forward contracts to mitigate foreign exchange risk on these contracts as payment terms are within 15 days of invoice or earlier. Funding is also in local currencies other than inter-company investments and loans and it is also not the Bisichi Group’s policy to obtain forward contracts to mitigate foreign exchange risk on these amounts. During 2017 and 2016 the Bisichi Group did not hedge its exposure of foreign investments held in foreign currencies.

The Bisichi directors consider there to be no significant risk from exchange rate movements of foreign currencies against the functional currencies of the reporting companies within the Bisichi Group, excluding inter-company balances. The principal currency risk to which the Bisichi Group is exposed in regard to inter-company balances is the exchange rate between Pounds Sterling and South African Rand. It arises as a result of the retranslation of Rand denominated inter-company trade receivable balances held within the UK which are payable by South African Rand functional currency subsidiaries.

Based on the Bisichi Group’s net financial assets and liabilities as at 31 December 2017, a 25% strengthening of Sterling against the South African Rand, with all other variables held constant, would decrease the Bisichi Group’s profit after taxation by £34,000 (2016: £435,000). A 25% weakening of Sterling against the South African Rand, with all other variables held constant would increase the Bisichi Group’s profit after taxation by £56,000 (2016: £725,000).

The 25% sensitivity has been determined based on the average historic volatility of the exchange rate for 2016 and 2017. 

The table below shows the Bisichi currency profiles of cash and cash equivalents:

2017
£’000
2016
£’000
Sterling 3,402 1,717
South African Rand 1,923 725
US Dollar 2 2
5,327 2,444

Cash and cash equivalents earn interest at rates based on LIBOR in Sterling and Prime in Rand.

The tables below shows the Bisichi currency profiles of net monetary assets and liabilities by functional currency:

2017: UK
£’000
South Africa
£’000
Sterling (832)
South African Rand 54 (1,304)
US Dollar 13
(765) (1,304)

   

2016: UK
£’000
South Africa
£’000
Sterling (2,522)
South African Rand 36 (2,262)
US Dollar 35
(2,451) (2,262)

Borrowing facilities

At 31 December 2017 the Group was within its bank borrowing facilities and was not in breach of any of the covenants. Term loan repayments are as set out on the next page. Details of other financial liabilities are shown in notes 20 and 21.

Interest rate and hedge profile

2017 2016
£’000 £’000
Fixed rate borrowings  23,105  23,855
Floating rate borrowings
– Subject to interest rate swap  36,147  36,147
– Other borrowings  7,160  9,300
 66,412  69,302
Average fixed interest rate 9.17% 9.24%
Weighted average swapped interest rate 3.32% 3.30%
Weighted average cost of debt on overdrafts, bank loans and debentures 5.45% 5.80%
Average period for which borrowing rate is fixed 2.9 years 3.8 years
Average period for which borrowing rate is swapped 1.5 years 2.5 years

The Group’s floating rate debt bears interest based on LIBOR for the term bank loans and bank base rate for the overdraft.

At 31 December 2017 the Group had hedges totalling £34.897 million to cover the £34.9 million bank loan. These consisted of a 5 year swap for £17.5 million, at 2.25% and a £17.397 million cap agreement at 2.25% to July 2019.

At the year end the fair value liability in the accounts was £435,000 (2016: £793,000) as valued by the hedge provider.

At 31 December 2017, Dragon had hedges of £1.25 million to cover the £1.25 million bank loan.  This consists of a 5 year £1.25 million cap agreement taken out in November 2016 at 2.5%.  At the year end, the fair value asset in the accounts was £1,000 (2016: £4,000), as valued by the hedge provider.

Fair value of financial instruments

Fair value estimation

The Group has adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value. This requires the methods of fair value measurement to be classified into a hierarchy based on the reliability of the information used to determine the valuation, as follows:

–    Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

–    Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

–    Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3).

Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
2017
Gain/(loss)
to income
statement
£’000
Financial assets
Other financial assets held for trading and available for sale
Quoted equities 1,069 1,069 -
Derivative financial instruments
Interest rate swaps 1 1 (3)
Financial liabilities
Derivative financial instruments
Interest rate swaps 435 435 358

   

Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
2016
Gain/(loss)
to income
statement
£’000
Financial assets
Other financial assets held for trading and available for sale
Quoted equities 832 832 13
Derivative financial instruments
Interest rate swaps 4 4 (11)
Financial liabilities
Derivative financial instruments
Interest rate swaps 793 793 (206)

Capital structure

The Group sets the amount of capital in proportion to risk. It ensures that the capital structure is commensurate to the economic conditions and risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may vary the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group considers its capital to include share capital, share premium, capital redemption reserve, translation reserve and retained earnings, but excluding the interest rate derivatives.

Consistent with others in the industry, the Group monitors its capital by its debt to equity ratio (gearing levels). This is calculated as the net debt (loans less cash and cash equivalents) as a percentage of the equity calculated as follows:

2017
£’000
2016
£’000
Total debt 65,949 68,509
Less cash and cash equivalents (7,528) (6,265)
Net debt 58,421 62,244
Total equity 56,710 48,631
103.0% 128.0%

The Group does not have any externally imposed capital requirements.

Financial assets

The Group’s principal financial assets are bank balances and cash, trade and other receivables, investments and assets held for sale. The Group has no significant concentration of credit risk as exposure is spread over a large number of counterparties and customers. The credit risk in liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit–rating agencies. The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management based on prior experience and the current economic environment.

Financial assets maturity

Cash and cash equivalents all have a maturity of less than three months.

2017
£’000
2016
£’000
Cash at bank and in hand 7,528 6,265

These funds are primarily invested in short term bank deposits maturing within one year bearing interest at the bank’s variable rates.

Financial liabilities maturity

The following table sets out the maturity profile of contractual undiscounted cashflows of financial liabilities as at 31 December:

Repayment of borrowings

2017
£’000
2016
£’000
Bank loans and overdrafts:
Repayable on demand or within one year 1,288 3,358
Repayable between two and five years 51,739 51,496
53,027 54,854
Debentures:
Repayable within one year 3,000 750
Repayable between two and five years 9,922 3,000
Repayable in more than five years - 9,905
65,949 68,509

Certain borrowing agreements contain financial and other conditions that if contravened by the Group, could alter the repayment profile.

Bank loans of £15.9 million currently shown as repayable between two and five years related to Brixton markets sales are repayable on completion.

24.         Deferred tax asset

2017 2016
£'000 £'000
Balance at 1 January  1,134  2,390
Transferred to consolidated income statement (1,134) (1,256)
Balance at 31 December –   1,134
The deferred tax balance comprises the following:
Revaluation of properties –  (2,719)
Accelerated capital allowances –  (904)
Fair value of interest derivatives –   151
Short-term timing differences –  (124)
Loss relief –   4,730
Deferred tax asset at end of year: –   1,134

25.         Deferred tax liabilities

2017 2016
£'000 £'000
Balance at 1 January  2,329  2,106
Transferred from/(to) consolidated income statement  1,484 (154)
Transferred from other comprehensive income –   13
Exchange adjustment  35  364
Balance at 31 December  3,848  2,329
The deferred tax balance comprises the following:
Revaluation of properties  5,836  793
Accelerated capital allowances  2,522  1,347
Short-term timing differences  144  191
Unredeemed capital deductions (83) (642)
Losses and other deductions (4,571)  640
Deferred tax liability provision at end of year:  3,848  2,329

The directors consider the temporary differences arising in connection with the interests in joint ventures are insignificant. There is no time limit in respect of the Group tax loss relief.

In addition, the Group has unused losses and reliefs with a potential value of £5,427,000 (2016: £5,455,000), which have not been recognised as a deferred tax asset.   As the Group returns to profit, these losses and reliefs can be utilised.

26.         Share capital

The Company has one class of ordinary shares which carry no right to fixed income.

Number of Number of
ordinary 10p ordinary 10p
shares shares 2017 2016
2017 2016 £'000 £'000
Authorised:  ordinary shares of 10p each  110,000,000  110,000,000  11,000  11,000
Allotted, issued and fully paid share capital  85,542,711  85,542,711  8,554  8,554
Less: held in Treasury (see below) (221,061) (221,061) (22) (22)
"Issued share capital" for reporting purposes  85,321,650  85,321,650  8,532  8,532

Treasury shares

Number of ordinary Cost/issue value
10p shares
2017 2016
2017 2016 £'000 £'000
Shares held in Treasury at 1 January  221,061  734,816  145  482
Issued for share incentive plan -dividends investment (Jan 2016 - 25p) –  (1,936) –  (1)
Issued to meet directors bonuses (Jan 2016 - 24.50p) –  (69,225) –  (45)
Issued to meet staff bonuses (Jan 2016 - 24.50p) –  (154,073) –  (101)
Issued for new directors share incentive plan (Jan 2016 - 24.50p) –  (24,488) –  (16)
Issued for new staff share incentive plan (Jan 2016 - 24.50p) –  (36,732) –  (24)
Issued for share incentive plan -dividends investment (Nov 2016 - 21.25p) –  (2,831) –  (2)
Issued to meet directors bonuses (Nov 2016 - 21.25p) –  (224,470) –  (148)
Shares held in Treasury at 31 December  221,061  221,061  145  145

Share Option Schemes

Employees’ share option scheme (Approved scheme)

At 31 December 2017 there were no options to subscribe for ordinary shares outstanding, issued under the terms of the Employees’ Share Option Scheme.

This share option scheme was approved by members in 1986, and has been approved by Her Majesty’s Revenue and Customs (HMRC).

There are no performance criteria for the exercise of options under the Approved scheme, as this was set up before such requirements were considered to be necessary.

A summary of the shares allocated and options issued under the scheme up to 31 December 2017 is as follows:

Changes during the year
At 1 At 31
January Options Options Options December
2017 Exercised granted lapsed 2017
Shares issued to date  2,367,604 –  –  –   2,367,604
Shares allocated over which options have not been granted  1,549,955 –  –  –   1,549,955
Total shares allocated for issue to employees under the scheme  3,917,559 –  –  –   3,917,559

Non–approved Executive Share Option Scheme (Unapproved scheme)

A share option scheme known as the “Non–approved Executive Share Option Scheme” which does not have HMRC approval was set up during 2000. At 31 December 2017 there were no options to subscribe for ordinary shares outstanding.

The exercise of options under the Unapproved scheme is subject to the satisfaction of objective performance conditions specified by the remuneration committee which confirms to institutional shareholder guidelines and best practice provisions.

A summary of the shares allocated and options issued under the scheme up to 31 December 2017 is as follows:

Changes during the year
At 1 At 31
January Options Options Options December
2017 Exercised granted lapsed 2017
Shares issued to date  450,000 –  –  –   450,000
Shares allocated over which options have not yet been granted  550,000 –  –  –   550,000
Total shares allocated for issue to employees under the scheme  1,000,000 –  –  –   1,000,000

The Bisichi Mining PLC Unapproved Option Schemes

Details of the share option schemes in Bisichi are as follows:

Number of
Number of shares share options Number of shares
Period within for which options issued/exercised/ for which options
Subscription which options outstanding at (cancelled) outstanding at
Year of grant price per share exercisable 31 December 2016 during year 31 December 2017
2010 202.5p Aug 2013 – Aug 2020  80,000 –   80,000
2015 87.0p Sep 2015 – Sep 2025  300,000 –   300,000

The exercise of options under the Unapproved Share Option Schemes, for certain option issues, is subject to the satisfaction of the objective performance conditions specified by the remuneration committee, which will conform to institutional shareholder guidelines and best practice provisions in force from time to time.

On the 5 February 2018 Bisichi entered into an agreement with G.Casey to surrender the 80,000 options which were granted in 2010. The aggregate consideration paid by the Group to effect the cancellation was £1. There are no performance or service conditions attached to 2015 options which are outstanding at 31 December 2017 which vested in 2015.

On 6 February 2018 Bisichi granted additional options to the following directors:

  • A.Heller 150,000 options at an exercise price of 73.50p per share.
  • G.Casey 230,000 options at an exercise price of 73.50p per share.

The above options vest on date of grant and are exercisable within a period of 10 years from date of grant. There are no performance or service conditions attached to the options.

2017 2016
Weighted Weighted
2017 average 2016 average
Number exercise price Number exercise price
Outstanding at 1 January  380,000 111.3p  705,000 133.1p
Lapsed during the year –  –  (325,000) 237.5p
Outstanding at 31 December  380,000 111.3p  380,000 111.3p
Exercisable at 31 December  380,000 111.3p  380,000 111.3p

27.         Non–controlling interest (“NCI”)

2017 2016
£'000 £'000
As at 1 January  10,389  9,574
Share of profit for the year  610  208
Share of gain on available for sale investments  49  104
Dividends received (250) (250)
Shares issued –   64
Exchange movement  58  689
As at 31 December  10,856  10,389

The following subsidiaries had material NCI:

Bisichi Mining PLC
Black Wattle Colliery (Pty) Ltd

Summarised financial information for these subsidiaries is set out below. The information is before inter–company eliminations with other companies in the Group.

2017 2016
BISICHI MINING PLC £'000 £'000
Revenue  37,446  22,791
Profit for the year attributable to owners of the parent  749  479
Profit/(loss) for the year attributable to NCI  172 (72)
Profit for the year  921  407
Other comprehensive income attributable to owners of the parent  163  1,186
Other comprehensive income attributable to NCI  11  100
Other comprehensive income for the year  174  1,286
Balance sheet
Non–current assets  22,935  24,649
Current assets  13,622  12,224
Total assets  36,557  36,873
Current liabilities (9,025) (10,326)
Non–current liabilities (9,858) (9,541)
Total liabilities (18,883) (19,867)
Net current assets at 31 December  17,674  17,006
Cash flows
From operating activities  7,692  2,941
From investing activities (1,812) (1,570)
From financing activities (975) (969)
Net cash flows  4,905  402

The non–controlling interest comprises of a 37.5% shareholding in Black Wattle Colliery (Pty) Ltd, a coal mining company incorporated in South Africa.

Summarised financial information reflecting 100% of the underlying subsidiary’s relevant figures, is set out below.

2017 2016
Black Wattle Colliery (Pty) Limited (“Black Wattle”) £'000 £'000
Revenue  36,300  21,703
Expenses (35,150) (22,185)
Profit/(loss) for the year  1,150 (482)
Total comprehensive income/(expense) for the year  1,150 (482)
Balance sheet
Non–current assets  8,613  8,516
Current assets  6,747  8,600
Current liabilities (8,652) (12,151)
Non–current liabilities (3,155) (2,635)
Net assets at 31 December  3,553  2,330

The non–controlling interest relates to the disposal of a 37.5% shareholding in Black Wattle in 2010. The total issued share capital in Black Wattle Colliery (Pty) Ltd was increased from 136 shares to 1,000 shares at par of ZAR1 (South African Rand) through the following shares issue:

–    a subscription for 489 ordinary shares at par by Bisichi Mining (Exploration) Limited increasing the number of shares held from 136 ordinary shares to a total of 625 ordinary shares;

–    a subscription for 110 ordinary shares at par by Vunani Mining (Pty) Ltd;

–    a subscription for 265 “A” shares at par by Vunani Mining (Pty) Ltd

Bisichi Mining (Exploration) Limited is a wholly owned subsidiary of Bisichi Mining PLC incorporated in England and Wales.

Vunani Mining (Pty) Ltd is a South African Black Economic Empowerment company and minority shareholder in Black Wattle.

The “A” shares rank pari passu with the ordinary shares save that they will have no dividend rights until such time as the dividends paid by Black Wattle Colliery (Pty) Ltd on the ordinary shares subsequent to 30 October 2008 will equate to ZAR832,075,000.

A non–controlling interest of 15% in Black Wattle is recognised for all profits distributable to the 110 ordinary shares held by Vunani Mining (Pty) Ltd from the date of issue of the shares (18 October 2010). An additional non–controlling interest will be recognised for all profits distributable to the 265 “A” shares held by Vunani Mining (Pty) Ltd after such time as the profits available for distribution, in Black Wattle Colliery (Pty) Ltd, before any payment of dividends after 30 October 2008, exceeds ZAR832,075,000.

28.         Related party transactions

Cost recharged Amounts owed Advanced to
to (by) related by (to) related (by) related
party party party
£'000 £'000 £'000
Related party:
Dragon Retail Properties Limited
Current account –   24 (84)
Loan account (1) –  – 
Bisichi Mining PLC
Current account –  –  – 
Simon Heller Charitable Trust
Current account (63) –  – 
Loan account –  (700) – 
Directors and key management
M A Heller and J A Heller  15 (i)  1 – 
H D Goldring (Delmore Holdings Limited) (15) (ii) –  – 
C A Parritt (18) (ii) (4) – 
R Priest (35) (ii) –  – 
Ezimbokodweni Mining (pty) Limited - see note 12  46 –  – 
Totals at 31 December 2017 (71) (679) (84)
Totals at 31 December 2016  53  340 (208)

Nature of costs recharged – (i) Property management fees (ii) Consultancy fees.

Directors    

London & Associated Properties PLC provides office premises, property management, general management, accounting and administration services for a number of private property companies in which Sir Michael Heller and J A Heller have an interest. Under an agreement with Sir Michael Heller no charge is made for these services on the basis that he reduces by an equivalent amount the charge for his services to London & Associated Properties PLC. The board estimates that the value of these services, if supplied to a third party, would have been £300,000 for the year (2016: £300,000).

The companies for which services are provided are: Barmik Properties Limited, Cawgate Limited, Clerewell Limited, Cloathgate Limited, Ken–Crav Investments Limited, London & South Yorkshire Securities Limited, Metroc Limited, Penrith Retail Limited, Shop.com Limited, South Yorkshire Property Trust Limited, Wasdon Investments Limited, Wasdon (Dover) Limited, and Wasdon (Leeds) Limited.

In addition the Company receives management fees of £10,000 (2016: £10,000) for work done for two charitable foundations, the Michael & Morven Heller Charitable Foundation and the Simon Heller Charitable Trust.

The Simon Heller Trust has placed on deposit with LAP £700,000 at an interest rate of 9% which is refundable on demand.

Delmore Holdings Limited (Delmore) is a Company in which H D Goldring is a majority shareholder and director. Delmore provides consultancy services to the Company on an invoiced fee basis.

R Priest provided consultancy services to the Company on an invoiced fee basis.

In 2012 a loan of £116,000 was made by Bisichi to one of the Bisichi directors - A R Heller. The loan amount outstanding at the year end was £56,000 (2016: £71,000) and a repayment of £15,000 (2016: £15,000) was made during the year. Interest is payable on the loan at a rate of 6.14 percent.  There is no fixed repayment date for the loan.

The directors are considered to be the only key management personnel and their remuneration including employer’s national insurance for the year were £949,000 (2016: £1,103,000). All other disclosures required including interest in share options in respect of those directors are included within the remuneration report.

29.         Employees

The average number of employees, including directors, of the Group during the year was as follows:

2017 2016
Production 192 185
Administration 45 46
237 231

Staff costs during the year were as follows:

2017 2016
£’000 £’000 
Salaries and other costs 7,426 6,397
Social security costs 327 332
Pension costs 360 335
Share based payments - 109
8,113 7,173

30.         Capital Commitments

2017 2016
£'000 £'000
Commitments for capital expenditure approved and contracted for at the year end –   762
Share of commitment of capital expenditure in joint venture –   1,489

All the above relates to Bisichi Mining PLC.

31.         Operating and finance leases

Operating leases on land and buildings

At 31 December 2017 the Group had commitments under non–cancellable operating leases on land and buildings expiring as follows:

2017 2016
£’000 £’000
Within one year  240  240
Second to fifth year  960  960
After five years  240  480

Operating lease payments represent rentals payable by the Group for its office premises.

The leases are for an average term of ten years and rentals are fixed for an average of five years.

Present value of head leases on properties

Present value
Minimum lease of minimum
Payments lease payments
2017 2016 2017 2016
£’000 £’000 £’000 £’000
Within one year  211  305  211  305
Second to fifth year  841  1,222  776  1,130
After five years  16,682  29,734  2,246  3,332
 17,734  31,261  3,233  4,767
Future finance charges on finance leases (14,501) (26,494) –  – 
Present value of finance lease liabilities  3,233  4,767  3,233  4,767

Finance lease liabilities are in respect of leased investment property. Many leases provide for contingent rent in addition to the rents above, usually a proportion of rental income.

Finance lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

Future aggregate minimum rentals receivable

The Group leases out its investment properties to tenants under operating leases. The future aggregate minimum rentals receivable under non–cancellable operating leases are as follows:

2017 2016
£’000 £’000
Within one year 5,088 6,684
Second to fifth year 14,597 20,104
After five years 18,519 36,736
38,204 63,524

32.         Contingent liabilities and events after the reporting period

There were no contingent liabilities at 31 December 2017 (2016: £Nil), except as disclosed in note 23.

Bank guarantees have been issued by the bankers of Black Wattle Colliery (Pty) Limited on behalf of the Company to third parties. The guarantees are secured against the assets of the Company and have been issued in respect of the following:

2017 2016
£’000 £’000
Rail siding & transportation 64 63
Rehabilitation of mining land 1,387 1,364
Water & electricity 58 57
1,509 1,484

In March 2018 contracts were exchanged for the sale of both Brixton markets for a combined sale price of £37.25 million. Following the Market Row completion on 23 April 2018, £15.9 million of bank loans related to those properties have been repaid. The Brixton Village completion was on 26 April 2018. As required under IFRS, these properties have been reclassified from Investment properties to Assets held for sale at their net disposal value of £36.44 million.

33.        Company financial statements

Company balance sheet at 31 December 2017

2017 2016
Notes £'000 £'000
Fixed assets
Tangible assets 33.3  25,397  27,383
Other investments:
Associated company – Bisichi Mining PLC 33.4  489  489
Subsidiaries and others including Dragon Retail Properties Limited 33.4  42,598  42,492
 43,087  42,981
 68,484  70,364
Current assets
Debtors 33.5  1,025  1,130
Deferred tax due after more than one year 33.9  2,059  2,082
Investments 33.6  19  19
Bank balances  1,233  2,625
 4,336  5,856
Creditors
Amounts falling due within one year 33.7 (35,540) (34,790)
Borrowings 33.8 (3,000) (750)
Net current liabilities (34,204) (29,684)
Total assets less current liabilities  34,280  40,680
Creditors
Amounts falling due after more than one year 33.8 (13,003) (17,491)
Net assets  21,277  23,189
Capital and reserves
Share capital 33.10  8,554  8,554
Share premium account  4,866  4,866
Capital redemption reserve  47  47
Treasury shares 33.10 (145) (145)
Retained earnings  7,955  9,867
Shareholders’ funds  21,277  23,189

The loss for the financial year, before dividends was £1,771,000 (2016: profit of £1,418,000)

These financial statements were approved by the board of directors and authorised for issue on 27 April 2018 and signed on its behalf by:

Sir Michael Heller                                  Anil Thapar                                                                                  Company Registration No. 341829
Director                                                  Director


COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017

Retained
earnings
Capital excluding
Share Share redemption Treasury treasury Total
capital premium reserve shares shares equity
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2016  8,554  4,866  47 (482)  8,803  21,788
Profit for the year –  –  –  –   1,418  1,418
Total comprehensive income –  –  –  –   1,418  1,418
Transactions with owners:
Dividends – equity holders –  –  –  –  (136) (136)
Disposal of own shares –  –  –   119 –   119
Loss on transfer of own shares –  –  –   218 (218) – 
Transactions with owners –  –  –   337 (354) (17)
Balance at 31 December 2016  8,554  4,866  47 (145)  9,867  23,189
Loss for the year –  –  –  –  (1,771) (1,771)
Total comprehensive expense –  –  –  –  (1,771) (1,771)
Transaction with owners:
Dividends – equity holders –  –  –  –  (141) (141)
Transactions with owners –  –  –  –  (141) (141)
Balance at 31 December 2017  8,554  4,866  47 (145)  7,955  21,277

£6.5 million (2016: £7.9 million) of retained earnings (excluding treasury shares) is distributable.

33.1. Company

Accounting policies

The following are the main accounting policies of the Company:

Basis of Preparation

The financial statements have been prepared on a going concern basis and in accordance with Financial Reporting Standard 101 ’Reduced Disclosure Framework’ (FRS 101) and Companies Act 2006. The financial statements are prepared under the historical cost convention as modified to include the revaluation of freehold and leasehold properties and fair value adjustments in respect of current asset investments and interest rate hedges.

The results of the Company are included in the consolidated financial statements. No profit or loss is presented by the Company as permitted by Section 408 of the Companies Act 2006.

In these financial statements, the company has applied the exemptions available under FRS 101 in respect of the following disclosures:

  • Cash Flow Statement and related notes;
  • Comparative period reconciliations for share capital, tangible fixed assets and intangible assets;
  • Disclosures in respect of transactions with wholly owned subsidiaries;
  • Disclosures in respect of capital management;
  • The effects of new but not yet effective IFRSs;
  • Disclosures in respect of the compensation of Key Management Personnel.

As the consolidated financial statements include the equivalent disclosures, the Company has also taken the exemptions under FRS 101 available in respect of the following disclosures:

  • IFRS 2 Share Based Payments in respect of Group settled share based payments;
  • The disclosures required by IFRS 7 and IFRS 13 regarding financial instrument disclosures have not been provided apart from those which are relevant for the financial instruments which are held at fair value and are not either held as part of trading portfolio or derivatives.

Key judgements and estimates

The preparation of the financial statements requires management to make assumptions and estimates that may affect the reported amounts of assets and liabilities and the reported income and expenses, further details of which are set out below. Although management believes that the assumptions and estimates used are reasonable, the actual results may differ from those estimates. Further details of the estimates are contained in the Directors’ Report and in the Group accounting policies.

INVESTMENTS IN SUBSIDIARIES, ASSOCIATED UNDERTAKINGS AND JOINT VENTURES

Investments in subsidiaries, associated undertakings and joint ventures are held at cost less accumulated impairment losses.

Fair value measurements of investment properties and investments

An assessment of the fair value of certain assets and liabilities, in particular investment properties, is required to be performed. In such instances, fair value measurements are estimated based on the amounts for which the assets and liabilities could be exchanged between market participants. To the extent possible, the assumptions and inputs used take into account externally verifiable inputs. However, such information is by nature subject to uncertainty. The fair value measurement of the investment properties may be considered to be less judgemental where external valuers have been used as is the case with the Company.

The following accounting policies are consistent with those of the Group and are disclosed on page 36 to 41 of the Group financial statements.

  • Revenue
  • Property operating expenses
  • Employee benefits
  • Financial instruments
  • Investment properties
  • Other assets and depreciation
  • Assets held for sale
  • Income taxes
  • Leases

33.2. Result for the financial year

The Company’s result for the year was a loss of £1,771,000 (2016: profit of £1,418,000). In accordance with the exemption conferred by Section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account.

33.3. Tangible assets

Investment Properties Office
equipment
Leasehold Leasehold and motor
Total Freehold over 50 years under 50 years vehicles
£’000 £’000 £’000 £’000 £’000
Cost or valuation at 1 January 2017  27,618  8,885  16,744  1,642  347
Additions  17 –  –  –   17
(Decrease)/increase in present value of head leases (1,505) –  (1,810)  305 – 
(Decrease)/increase on revaluation (485)  410 (895) –  – 
Cost or valuation at 31 December 2017  25,645  9,295  14,039  1,947  364
Representing assets stated at:
Valuation  25,281  9,295  14,039  1,947
Cost  364 –  –  –    364
 25,645  9,295  14,039  1,947  364
Depreciation at 1 January 2017  235 –  –  –   235
Charge for the year  13 –  –  –   13
Depreciation at 31 December 2017  248 –  –  –   248
Net book value at 1 January 2017  27,383  8,885  16,744  1,642  112
Net book value at 31 December 2017  25,397  9,295  14,039  1,947  116

The freehold and leasehold properties, excluding the present value of head leases and directors’ valuations, were valued as at 31 December 2017 by professional firms of chartered surveyors. The valuations were made at fair value. The directors’ property valuations were made at fair value.

2017 2016
£’000 £’000
Allsop LLP 20,375 20,860
Directors’ valuation 1,825 1,825
22,200 22,685
Add: Present value of headleases 3,081 4,586
25,281 27,271

The historical cost of investment properties was as follows:

Leasehold Leasehold
Freehold over 50 years under 50 years
£’000 £’000 £’000
Cost at 1 January 2017  4,889  13,966  1,939
Cost at 31 December 2017  4,889  13,966  1,939

Long leasehold properties are held on leases with an unexpired term of more than fifty years at the balance sheet date.

33.4. Other investments

Cost or valuation Shares in Shares in
subsidiary joint Shares in
Total companies ventures associate
£’000 £’000 £’000 £’000
At 1 January 2017  42,981  42,328  164  489
Impairment provision  106  106 –   – 
At 31 December 2017  43,087  42,434  164  489

Subsidiary companies

Details of the Company’s subsidiaries are set out in note 15. Under IFRS 10, Bisichi Mining PLC and its subsidiaries and Dragon Retail Properties Limited are treated in the financial statements as subsidiaries of the Company.

Impairment reflects reduction in value of investment due to receipt of dividend of £15 million from a subsidiary.

In the opinion of the directors the value of the investment in subsidiaries is not less than the amount shown in these financial statements.

Details of the joint ventures are set out in notes 12 and 13.

33.5. Debtors

2017 2016
£’000 £’000
Trade debtors  366  343
Amounts due from associate and joint ventures  33  35
Amounts due from subsidiary companies  100  150
Other debtors  118  173
Prepayments and accrued income  408  429
 1,025  1,130

33.6. Investments

2017 2016
£’000 £’000
Market value of the listed investment portfolio  19  19
Unrealised gain of market value over cost  1  1
Listed investment portfolio at cost  18  18

All investments are listed on the London Stock Exchange.

33.7. Creditors: amounts falling due within one year

2017 2016
£’000 £’000
Amounts owed to subsidiary companies  29,775  28,750
Amounts owed to joint ventures  2,214  2,190
Other taxation and social security costs  278  388
Other creditors  1,400  1,323
Accruals and deferred income  1,873  2,139
 35,540  34,790

33.8. Creditors: amounts falling due after more than one year

2017 2016
£’000 £’000
Present value of head leases on properties  3,081  4,586
Term Debenture stocks:
£3.75 million First Mortgage Debenture Stock 2018 at 11.6 per cent –   3,000
£10 million First Mortgage Debenture Stock 2022 at 8.109 per cent*  9,922  9,905
 9,922  12,905
 13,003  17,491

*The £10 million debenture is shown after deduction of un–amortised issue costs.

Details of terms and security of overdrafts, loans and loan renewal and debentures are set out in note 21.

Repayment of borrowings: 2017
£’000
2016
£’000
Debentures:
Repayable within one year 3,000 750
Repayable between two and five years 9,922 3,000
Repayable in more than five years - 9,905
12,922 13,655

33.9. Deferred tax asset

2017 2016
£’000 £’000
Deferred Taxation
Balance at 1 January  2,082  3,055
Transfer to profit and loss account (23) (973)
Balance at 31 December  2,059  2,082

The deferred tax balance comprises the following:

Accelerated capital allowances (833) (823)
Short–term timing differences (124) (124)
Revaluation of investment properties  66  100
Loss relief  2,950  2,929
Deferred tax asset at year end  2,059  2,082


33.10. Share capital

Details of share capital, treasury shares and share options are set out in note 26.

33.11. Related party transactions

Cost recharged Amounts owed Advanced to
to (by) related by (to) related (by) related
party party party
£'000 £'000 £'000
Related party:
Dragon Retail Properties Limited
Current account (95) (i) (214) – 
Loan account –  (2,000) – 
Bisichi Mining PLC
Current account  138 (ii)  33 – 
Simon Heller Charitable Trust
Current account (63) –  – 
Loan account –  (700) – 
Directors and key management
M A Heller and J A Heller  15 (i)  1 – 
H D Goldring (Delmore Holdings Limited) (15) (iii) –  – 
C A Parritt (18) (iii) (4) – 
R Priest (35) (iii) –  – 
Totals at 31 December 2017 (73) (2,884) – 
Totals at 31 December 2016 (84) (2,916) (34)

Nature of costs recharged – (i) Management fees (ii) Property management fees (iii) Consultancy fees

During the period, the Company entered into transactions, in the ordinary course of business, with other related parties. The company has taken advantage of the exemption under paragraph 8(k) of FRS101 not to disclose transactions with wholly owned subsidiaries.

Dragon Retail Properties Limited – ‘Dragon’ is owned equally by the Company and Bisichi Mining PLC. During 2013 Dragon lent the company £2 million at 6.875 per cent annual interest.

Bisichi Mining PLC – The company has 41.52 per cent ownership of ‘Bisichi’.

Other details of related party transactions are given in note 28.

33.12. Employees

2017 2016
 The average weekly number of employees of the company during the year were as follows:
 Directors & Administration 24 25
Staff costs during the year were as follows: 2017 2016
£’000 £’000
 Salaries  1,375  1,474
 Social Security costs 163  178
 Pension costs  119  135

   

1,657 1,787

33.13. Capital commitments

There were no capital commitments at 31 December 2017 (2016: £Nil).

33.14. Operating and finance leases

At 31 December 2017 the Company had commitments under non–cancellable operating leases on land and buildings as follows:

2017
£’000
2016
£’000
Expiring in more than five years 1,440 1,680

In addition, the Company has an annual commitment to pay ground rents on its leasehold investment properties which amount to £201,000 (2016: £246,000).

Present value of head leases on properties

Present value
Minimum lease of minimum
payments lease payments
2017 2016 2017 2016
£’000 £’000 £’000 £’000
Within one year  201  294  201  294
Second to fifth year  803  1,177  746  1,094
After five years  15,483  28,298  2,134  3,198
 16,487  29,769  3,081  4,586
Future finance charges on finance leases (13,406) (25,183) –  – 
Present value of finance lease liabilities  3,081  4,586  3,081  4,586

Finance lease liabilities are in respect of leased investment property. A few leases provide for contingent rent in addition to the rents above, usually a proportion of rental income.

Finance lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

Future aggregate minimum rentals receivable

The Company leases out its investment properties to tenants under operating leases. The future aggregate minimum rentals receivable under non–cancellable operating leases are as follows:

33.15. Contingent liabilities and post balance sheet events

There were no contingent liabilities at 31 December 2017 (2016: £Nil). 



Five year financial summary

2017
£M
2016
£M
2015
£M
2014
£M
2013
£M
Portfolio size
Investment properties–LAP^ 62 89 89 89 87
Investment properties–joint ventures 19 20 16
Investment properties–Dragon Retail Properties 3 3 3 3 3
Investment properties–Bisichi Mining^ 13 13 13 12 12
78 105 124 124 118
Portfolio activity £M £M £M £M £M
Acquisitions 1.00 0.68
Disposals (0.40) (9.47)
Capital Expenditure 0.16 0.36
0.16 0.96 0.68 (9.47)
Consolidated income statement £M £M £M £M £M
Group income 44.98 29.70 32.67 33.53 43.29
Profit/(loss) before tax 11.28 (0.97) (2.09) (2.69) 1.14
Taxation (2.98) (1.18) 0.04 (3.70) 2.55
Profit/(loss) attributable to shareholders 7.69 (2.36) (1.90) (7.14) 3.47
Earnings/(loss) per share – basic and diluted 9.01p (2.77)p (2.24)p (8.45)p 4.12p
Dividend per share 0.300p 0.165p 0.160p 0.156p 0.125p
Consolidated balance sheet £M £M £M £M £M
Shareholders’ funds attributable to equity shareholders 45.86 38.24 40.08 42.55 49.73
Net borrowings 58.42 62.22 62.39 59.71 53.96
Net assets per share             – basic 53.74p 44.83p 47.26p 50.35p 59.00p
                                                               – fully diluted 53.74p 44.83p 47.26p 50.35p 59.00p
Consolidated cash flow statement £M £M £M £M £M
Cash generated from operations 10.29 5.59 4.37 2.96 12.23
Capital investment and financial investment (1.80)) (0.18) (2.77) 100.42 4.35

Notes:

^ Excluding the present value of head leases


Source: PR Newswire (April 30, 2018 - 3:00 AM EDT)

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