DJ Urban Exposure plc: Financial results for the year ended 31 December 2019
Urban Exposure plc (UEX)
Urban Exposure plc: Financial results for the year ended 31 December 2019
26-Jun-2020 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
26 June 2020
Urban Exposure Plc
Financial results for the year ended 31 December 2019
Urban Exposure Plc ("the Company") and its subsidiaries (together "the
Group" or "Urban Exposure" or "we") a specialist residential development
financier and asset manager, today announces its audited Group financial
results for the year ended 31 December 2019.
The Group's financial year ends on 31 December each year. These results are
being published in accordance with AIM Rule 19.
Business Highlights
· After carrying out a strategic review, and in light of the impact of
changing market conditions as a result of COVID-19, the Board has
concluded that the Group will focus entirely on an orderly wind down of
the loan book and return of capital to shareholders.
· The Company believes that an orderly wind-down of the Company has the
potential to produce net returns for Shareholders in a range of 70p to 83p
per ordinary share on a fully diluted basis. The Group estimates that 80%
of proceeds should be returned to shareholders within 7 to 15 months.
· In light of the revised strategy and requirements of the Group there
have been a number of changes to the Board with Randeesh Sandhu stepping
down as Chief Executive Officer, William McKee retiring as Chairman (to be
replaced by Graham Warner subject to appointment), Ravi Takhar leaving the
business as a result of redundancy.
· Both Andrew Baddeley and Nigel Greenaway remain as Independent
Non-Executive Directors and Sam Dobbyn has taken over as Chief Executive
Officer.
· Current committed loan book has a Weighted Average LTGDV of 68% (2018:
67%).
· New committed loans during the year totaling GBP498m (2018: GBP525m). As a
result of specific borrower performance post 31 December 2019 new
committed loans now stand at GBP191m.
Financial Highlights
GBP11.1m (2018: GBP3.9m)
· Revenue:
GBP10.8m (2018: GBP5.9m)
· Operating costs (including
exceptional costs of GBP0.5m and
share-based expenses of GBP0.3m)
(2018: including exceptional costs of
GBP0.9m and share-based expenses of
GBP0.5m)
GBP0.1m (2018: Loss GBP1.7m)
· Profit after tax for the year:
0.09p (2018: (1.18p))
· Basic profit/(loss) per share:
GBP133.1m (2018: GBP137.8m)
· Net tangible assets (*note 1)
84p (2018: 87p)
· Net tangible asset value per share:
14p (2018: 29p)
· Cash and cash equivalents per
share:
70p (2018:586p)
· Loans receivable and Investments
per share:
*Note 1: Net tangible assets equates to total net assets excluding
intangible assets.
Enquiries:
Urban Exposure plc Tel: +44(0)207 408 0022
William McKee, Chairman
Sam Dobbyn, Chief Executive Officer
Liberum (NOMAD and Corporate Broker) Tel: +44(0)203 100 2000
Neil Patel
Gillian Martin
Jonathan Wilkes-Green
Louis Davies
UrbanExposure@liberum.com
MHP Communications (Financial Public Relations) Tel: +44(0)203 128 8540/
+44(0)203 128 8731
Charlie Barker
Sophia Samaras
UrbanExposure@mhpc.com
This announcement is released by Urban Exposure Plc and contains information
that qualified or may have qualified as inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 ("MAR"). For the
purposes of MAR and Article 2 of Commission Implementing Regulation (EU)
2016/1055, this announcement is made by Sam Dobbyn, Chief Executive Officer
of Urban Exposure Plc.
Chief Executive Officer's Review
Trading and dividend
The Group reported an operating profit before exceptional items of GBP0.8m for
the year (2018: loss of GBP1.1m). Overall, the Group reported a small profit
after tax in its first full year of trading. The Group paid an interim
dividend of 1.67 pence per share for the year ended 31 December 2019. Due to
the impact of COVID-19 and the market uncertainty it has created the Board
will not proceed with payment of the final instalment of the proposed 2019
dividend of 3.33 pence per share.
New Committed Loans and Pipeline
The real estate development finance industry is typically seasonal with a
greater weighting of deals being completed in the last quarter of the year.
This was very much the case in H2 2019, with uncertainty surrounding Brexit
and the UK general election compounding the trend for transactions to close
towards year end.
However, despite the market uncertainty experienced over the course of 2019,
the Group was able to complete GBP498m of new committed loans (2018: GBP525m),
of which GBP400m of new commitments were completed in H2 2019. Due to specific
borrower performance these new committed loans were reduced to GBP191m post
the year end.
The new committed loans, as reduced to GBP191m post year end, are expected to
translate into GBP13.3m of projected aggregate income, which will eventually
be recognised in earnings over the life of the loans.
Loan Credit Quality
The credit quality of underwritten loans is critical to any lender, however
as a specialist real estate development provider we place additional
emphasis on the importance of maintaining excellent underwriting standards.
Our focus on risk and loan portfolio quality, can be measured by the
weighted average loan to gross development value (WA LTGDV), which was 68%
at FY 2019 (2018: 67%). This represents a conservative position and is below
our stated guidelines of a maximum WALTGDV of 75%.
A number of the residential schemes that we are supporting with a
development loan also benefit from unit pre-sales. As these sales are
secured with a deposit paid by the pre-purchaser, they help to reduce the
overall sales-risk of the loans. In total pre-sold units (by value) account
for 28% of the gross development value of residential schemes currently
being funded.
It should also be noted that in addition to the underlying property security
we will often obtain additional recourse, in the form of guarantees or cash
on deposit, which further enhances the risk profile of the loans.
When viewed in conjunction with the Group's WA IRR of 11% (2018: 10%) and WA
Money Multiple of 1.15x (FY 2018: 1.15x), it demonstrates our ability to
generate attractive risk-adjusted returns on our loan portfolio.
Capital
Over the course of 2019 the Group managed to raise further capital for
deployment into property development loans. Our senior secure debt facility
with UBS into the Kohlberg Kravis Roberts ("KKR") partnership was increased
from GBP165m to GBP300m, with the advance rate provided by UBS also increased.
Capital has also been raised from institutional investors to support
individual loans. With co-funding agreements put in place in total raising
GBP9.7m and a further GBP42.4m raised on two new loans early in 2020.
Sale to Honeycomb Holdings Limited ("HHL")
On March 2020 the Group announced the proposed the disposal of Urban
Exposure Lendco Limited ("Lendco") to Honeycomb Holdings Limited ("HHL").
Lendco owns the Group's loan portfolio and its interest in the Group's
partnership with KKR & Co. We believed at the time that this sale was in the
best interest of shareholders given how the share price had performed during
the year. This disposal was subject to shareholder approval which was
obtained at a general meeting of the Group on 30 March 2020.
The Group received a purported notice of termination from HHL of the SPA
between the Group, HHL and Urban Exposure Amco Limited ("Amco") dated 10
March 2020 for the purchase by HHL of the issued share capital of Lendco.
The Group and Amco consider that there was no valid basis for the purported
termination of the SPA by HHL and that HHL has acted in repudiatory breach
of the SPA. The Group and Amco have accepted this repudiatory breach of
contract by HHL and accordingly the Group and Amco consider themselves
discharged from further performance of the SPA. The Group and Amco are
claiming damages against HHL for breach of contract. In addition, the Group
and Amco intend to seek relief from other entities within or connected to
the Pollen Street Capital group, including Honeycomb Investment Trust plc,
Shawbrook Bank Limited, Pollen Street Capital Limited and Pollen Street
Capital Holdings Limited, for procuring or inducing the breach by HHL of the
SPA, as well as reserving their position to take all other measures against
and seek other relief from HHL and its connected entities in respect of
HHL's breach of the SPA.
COVID-19
The welfare of our colleagues, clients and partners has been our priority
since the outbreak of the COVID-19 pandemic. We have been in close
communication with our client base in connection with their response to the
advice of Government and health authorities to help prevent the spread of
the virus, in particular in respect of Health & Safety measures on
construction sites.
The Group continues to operate with its business continuity plan in place.
Our workforce is now working remotely from home with the same functionality
they would have in the office. Inevitably the business will be impacted by
COVID-19 and the issues that it is causing across the real estate market,
and beyond in the wider economy. Along with many other businesses, the Group
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DJ Urban Exposure plc: Financial results for the -2-
has taken action to reduce costs and manage its cash flow to ensure the
Group is well prepared for any possible further disruption from the impact
of COVID-19.
The Group has conducted a comprehensive review of all loan facilities,
insurances and contracts, and has conducted a detailed stress test of the
loan portfolio. The Group believes that the loan portfolio is resilient in
the face of the unprecedented market conditions.
Furthermore, our funding facilities and partnership arrangements remain in
place, and our balance sheet has no debt against it. We are working closely
with our funding partners to continue to assess and mitigate any risks that
may arise in the future.
UK Housing Market
Despite the resilience of the sector, it is clear that the uncertainty
created by Brexit and the UK general election cast a shadow on the UK
housing market for much of 2019.
As the uncertainty dissipated, a resurgence in confidence saw the housing
market steadily gather momentum in the opening months of 2020. Activity
levels and price growth were edging up thanks to continued robust labour
market conditions, low borrowing costs and a more stable political backdrop.
The Covid-19 pandemic has however no doubt had an impact on the UK housing
market. In March we saw lenders reduce the availability of mortgages and
would be purchasers/vendors unable to transact due to the social distancing
measures put in place by the UK government. Whilst we have since seen an
improvement in mortgage lending, with some lenders reverting back to
previous upper LTVs, we expect the ability of parties to transact on
property sales to remain limited until social distancing measures are eased.
Whilst the impact of the pandemic on the value of UK residential property is
yet to be fully determined, we do feel that sales rates and prices may face
downward pressure in the near term. Although, to date we have been
encouraged by borrowers reporting the completion of existing sales at
pre-agreed prices and new sales being made with no material discount to
marketed prices. Government measures to further support the housing market
if necessary are also widely being discussed by commentators including the
extension of the Government Help to Buy scheme plus possible Stamp Duty Land
Tax reforms.
Looking forward
Following the strategic review, the Group has decided to focus entirely on
the management of its existing loan portfolio to maturity in order to
maximise the returns from the portfolio and return capital to the
shareholders. To that end we believe that an orderly wind-down of the Group
has the potential to produce net returns to shareholders in a range of 70p
to 83p per ordinary share on a fully diluted basis. The Company estimates
that 80% of proceeds should be returned to shareholders within 7 to 15
months. The Group will update shareholders on this at our half-yearly
results announcement later in 2020.
The Strategic Report includes the Business Model, Market Review, Strategic
Framework, Key Performance Indicators, Chairman's Statement, Chief Executive
Officer's Review, Finance Review, Principal Risks and Uncertainties and
Corporate Social Responsibility and has been reviewed by the Board and
signed on its behalf by:
Sam Dobbyn
Chief Executive Officer
Financial Review
The Group's operating profit before exceptional items was GBP0.8m (2018: loss
of GBP1.1m) and total reported profit after tax was GBP0.1m (2018: loss of
GBP1.7m). This was primarily driven by an increase in income to GBP11.1m (2018:
GBP3.9m) as both lending on balance sheet and the drawdown of loans increased
on the prior Period. A full year's run rate versus the shorter comparative
period also contributed to the increases in both income and operating costs.
The headline financial results for the year ended 31 December 2019 and the
comparatives for the period from incorporation on 10 April 2018 to 31
December 2018 are presented below:
Income
GBP'm Year Period
ended ended
31 31
Decembe December
r 2019 2018
Income 11.1 3.9
Operating costs (10.3) (5.0)
Operating profit/(loss) 0.8 (1.1)
before exceptional items
Exceptional items (0.5) (0.9)
Finance costs (0.1) 0.0
Profit/(loss) before taxation 0.2 (2.0)
Taxation (0.1) 0.3
Profit/(loss) after taxation 0.1 (1.7)
Basic EPS 0.09p (1.18p)
Diluted EPS 0.09p (1.18p)
Dividend per share 1.67p 0.83p
Capital
GBP'm Year Period
ended ended
31 31
Decemb Decemb
er er
2019 2018
Committed loan 918.9 524.5
capital
Funds raised 144.7 371.0
Cash and cash equivalents 22.8 46.8
Tangible net assets 133.1 137.8
Tangible NAV per share - 84p 87p
pence
Number of shares in issue 165.0 165.0
(millions)
Number of shares in issue 158.5 158.5
(excluding treasury shares) (millions)
Income
Income for the year was GBP11.1m (2018: GBP3.9m) including income from legacy
contract receivables for the year of GBP0.1m (2018: GBP0.7m). Income includes
GBP10.2m (2018: GBP3.2m) fair value income from loan receivables in the Group's
balance sheet as result of a greater utilisation of the balance sheet as
loans were deployed during the year.
Income from management fees and other income was GBP0.8m (2018: GBPnil)
principally from fees earned on the Group's partnership with KKR. The
increase in fees resulted from the deployment and draw down of loans
throughout the year. A fair value loss of GBP0.2m was reported for the
co-investment stake in this vehicle, which amounted to GBP6.7m at the year
end. The fair value loss recognises the fact that the partnership incurred
up front set up costs.
PAI for 2019's additional committed loans were GBP21.2m, which has been
subsequently revised down to GBP13.3m post year end due to the cancellation of
loan commitments (2018: GBP26.9m). The decrease in PAI compared to 2018 was as
a result of lower lending as well as a greater proportion of that lending
being completed through an asset management structure, for which the Group
earns management fees. The 2018 PAI of GBP26.9m is now expected to increase to
GBP33.6m as the loans written in 2018 have spent a greater proportion of time
on balance sheet, earning interest and fees, than previously expected.
Operating expenses
The Group adopted a strategy for 2019 to invest significantly in its
operations so that it had the capabilities to meet the growing demand for
real estate development finance over the medium term. At the year end, total
operating costs excluding exceptional items were GBP10.3m (2018: GBP5.0m) of
which GBP4.9m represented staff costs and share based payments (2018: GBP3.6m)
and GBP2.1m related to the fair value reduction of contract assets
(2018:GBPnil). Costs on a like for like basis (adjusted for the impact of the
shorter 2018 comparative period) decreased due to a reduction in variable
compensation. Post the year end, the Group took the decision to reduce the
bonus pool to GBP0.3m in response to the growing COVID-19 pandemic. It was
noted that whilst the metrics set for 2019 had been partially met, given the
current market uncertainties that are being experienced as a result of
COVID-19, it would not be appropriate to make bonus payments at this time.
Exceptional items
Exceptional items of GBP0.5m for the year related to costs incurred in
relation to the postponed retail bond of GBP0.3m and GBP0.4m cost to settle a
legal dispute, offset by a recovery of GBP0.2m exceptional legal and
professional fees in respect of the set-up of the KKR arrangement.
Exceptional costs for 2018 were in relation to the Group 's IPO costs of
GBP0.6m plus one-off professional fees of GBP0.3m.
Earnings per share
The basic profit per share for the year is 0.09p (2018: basic loss per share
1.18p) and the diluted profit per share is 0.09p (2018: diluted loss per
share 1.18p), based on a weighted average number of shares in issue of
158,494,130 (2018: 145,793,865) and weighted average number of diluted
shares in issue of 159,769,744 (2018: 145,793,865).
Dividends
During the year, the final dividend for 2018 of 1.67 pence was approved at
the AGM and paid in May. The Board approved an interim dividend for the
period ended 30 June 2019 of 1.67 pence per ordinary share which was paid
October 2019. The Board is not recommending a final dividend for the year
given the nature of the current COVID-19 pandemic and the market uncertainty
it has created.
Balance sheet
GBP'm At 31 December 2019 At 31 December 2018
Non-current asset 22.8 18.9
Fair value of loans 103.6 89.5
Contract assets 0.3 3.2
Cash and cash 22.8 46.8
equivalents
Other assets and (3.9) (7.9)
liabilities
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Net assets 145.6 150.5
Cash flow
GBP'm Year ended Period ended
31 December 2019 31 December 2018
Operating cash flows 3.2 (1.4)
before movement in
working capital
Change in working (20.2) (89.5)
capital
Net cash outflow from (17.0) (90.9)
operating activities
Capital expenditure (0.1) (0.4)
Net cash outflow from (0.1) (0.4)
investing activities
Proceeds from issue of - 150.0
share capital
Share issue expenses - (6.7)
Share buyback - (5.2)
Lease liabilities paid (0.3) -
Dividends paid (6.6) -
Net cash (outflow) / (6.9) 138.1
inflow from financing
activities
Net (decrease) / (24.0) 46.8
increase in cash and
cash equivalents
Cash and cash 46.8 0.0
equivalents brought
forward
Cash and cash 22.8 46.8
equivalents carried
forward
Investments
During the year our investment in the partnership with KKR increased to
GBP6.7m from GBP1.9m at 31 December 2018. This includes investments of GBP4.8m for
the year offset by a fair value loss of GBP0.2m (2018: GBPnil).
To date GBP74.0m has been invested by the partnership to fund loan drawdowns
of which the Group has a 9.1% share.
Loans receivable
The fair value of loans at the year end was GBP103.6m (2018: GBP89.5m). As at
the year end none of these loans had credit issues impacting fair values.
Due to the impact of COVID-19 it is possible that the fair values of some of
these loans may be adversely affected in future periods.
Tangible fixed assets
The Group had tangible fixed assets of GBP3.7m at the year end (2018: GBP4.3m)
of which GBP3.2m (2018: GBP3.8m) represents the right of use leasehold asset for
the Group's offices. The remaining GBP0.5m (2018: GBP0.4m) represents furniture,
fixtures and fittings and computer equipment.
Cash flow
The operating cash flows before movement in working capital of GBP3.2m (2018:
negative GBP1.4m) reflects the fact that the Group's made an operating profit
before a GBP2.1m (2018: GBPnil) non cash reduction in the fair value of contract
assets. This was as a result of a reduction in the expected returns, due to
delays to the project, and lower expected market values related to the
project.
The change in working capital reflects the increase in funds advanced on
loans and other receivables as well an increase in fair values of GBP14..2m
(2018: GBP89.7m) as well as the increase in investment in the KKR partnership
of GBP4.8m (2018: GBP1.9m).
Other notable cash movements for 2019 include the payment of the interim and
final dividend for 2018 of 2.5 pence per share plus the payment of the 2019
interim dividend of 1.67 pence per share. Total dividend outflow in the year
was GBP6.6m (2018: GBPnil).
The net outflow of cash for the year was GBP24.0m (2018: net inflow of GBP46.8m)
resulting in cash and cash equivalents at year end of GBP22.8m (2018: GBP46.8m).
Sam Dobbyn
Chief Executive Officer
Consolidated Statement of Comprehensive Income
For the Year Ended 31 December 2019
Year ended Period ended
31 December 31 December
2019 2018
Note GBP000 GBP000
Income 5 11,072 3,903
Operating costs (10,337) (5,011)
before exceptional
items
Operating costs - 9 (474) (869)
Exceptional items
Operating costs - 7 (10,811) (5,880)
Total
Operating profit / 6 261 (1,977)
(loss)
Finance costs 10 (94) (12)
Profit/(loss) before 167 (1,989)
taxation
Taxation 11 (23) 273
Profit/(loss) after 144 (1,716)
taxation and total
comprehensive income
EARNINGS PER SHARE
Basic EPS 12 0.09p (1.18p)
Diluted EPS 12 0.09p (1.18p)
All activities derive from the continuing operations of the Group.
The comparatives are for the period from incorporation on 10 April 2018 to
31 December 2018.
The notes form an integral part of this financial information.
Consolidated Statement of Financial Position
As at 31 December 2019
31 December 2019 31 December 2018
GBP000 GBP000
Non-current assets Note
Intangible assets 14 12,488 12,674
Tangible assets 15 3,702 4,276
Investments 16 6,570 1,949
Total non-current assets 22,760 18,899
Current Assets
Loans receivable 18 103,630 89,544
Trade and other 19 1,745 3,693
receivables
Cash and cash equivalents 20 22,787 46,806
Total current assets 128,162 140,043
Total assets 150,922 158,942
Current liabilities
Trade and other payables 21 1,829 3,217
Lease liabilities 22 295 229
Dividends payable 13 - 1,316
Total current liabilities 2,124 4,762
Total Assets less Current 148,798 154,180
liabilities
Non-current liabilities
Lease liabilities 22 3,068 3,576
Deferred tax 23 107 83
Total non-current 3,175 3,659
liabilities
Net assets 145,623 150,521
Equity and reserves
Share capital 24 1,700 1,700
Retained earnings 143,923 148,821
Total equity and reserves 145,623 150,521
The comparatives are for the period from incorporation on 10 April 2018 to
31 December 2018.
The notes form an integral part of this financial information. The Company
Registration Number is 11302859.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Note Share Share Retained Total
capital premium earnings equity
GBP000 GBP000 GBP000 GBP000
Balance brought 1,700 - 148,821 150,521
forward 1
January 2019
Profit for the - - 144 144
year
Share-based 26 - - 252 252
payments
Dividends 13 - - -
payable
Dividends paid 13 - - (5,294) (5,294)
Balance at 31 1,700 - 143,923 145,623
December 2019
On - - - -
incorporation
at 10 April
2018
Loss for the - - (1,716) (1,716)
Period
Share-based 26 - - 480 480
payments
Dividends 13 - - (1,316) (1,316)
payable
Issue of share 24 1,700 163,300 - 165,000
capital
IPO costs - (6,722) - (6,722)
related to
equity issue
Capital 25 - (156,578) 156,578 -
reduction
Share buyback 25 - - (5,205) (5,205)
Balance at 31 1,700 - 148,821 150,521
December 2018
The comparatives are for the period from incorporation on 10 April 2018 to
31 December 2018.
The notes form an integral part of this financial information.
Consolidated Cash Flow Statement
For the year ended December 2019
Year ended Period to
31 December 31 December
2019 2018
Note GBP000 GBP000
Cash flows from
operating activities
Profit / (loss) for 144 (1,716)
the year/Period after
taxation
Adjustments for
non-cash items:
Amortisation of 6 186 122
intangible assets
Depreciation of 6 442 -
tangible assets
Fair value reduction 6 2,095 -
in contract assets
Share-based payments 7 252 480
Finance costs 10 94 12
Deferred tax charge / 11 23 (273)
(credit) for year /
Period
3,236 (1,375)
Changes in working
capital
(Decrease) / increase (1,386) 2,160
in payables
Increase trade (4,621) (1,949)
investments
Increase in (14,234) (89,693)
receivables
Net cash outflow from (17,005) (90,857)
operating activities
Cash flows from
investing activities
Payments for purchase 15 (97) (410)
of tangible assets
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Net cash outflow from (97) (410)
investing activities
Cash flows from
financing activities
Proceeds from the 24 - 150,000
issue of share
capital
Share issue expenses 25 - (6,722)
Share buyback - (5,205)
Payments of lease 22 (307) -
liabilities
Dividends paid (6,610) -
Net cash (outflow) / inflow from (6,917) 138,073
financing activities
Net (decrease) / increase in cash (24,019) 46,806
and cash equivalents
Cash and cash 46,806 -
equivalents brought
forward
Cash and cash 20 22,787 46,806
equivalents at 31
December 2019
The comparatives are for the period from incorporation on 10 April 2018 to
31 December 2018.
The notes form an integral part of this financial information.
Notes to the Consolidated Financial Information
For the year ended 31 December 2019
1. General Information and Basis of Preparation
General information
Urban Exposure Plc is a public limited Company in England and Wales with
Company registration number 11302859. The Company's Ordinary Shares are
traded on the Alternative Investment Market ("AIM"), operated by the London
Stock Exchange.
The registered office of the Company is 6 Duke Street St. James's, London
SW1Y 6BN. The Group's principal activity is the underwriting and management
of loans to UK residential developers.
Year of account and Comparative Period of account
The condensed Group Financial Statements are in respect of the year ended 31
December 2019.
The comparatives are for the period ("the Period") from incorporation on 10
April 2018 to 31 December 2018.
Basis of preparation
The condensed Group financial statements for the year ended 31 December 2019
included in this report do not constitute the Group's statutory accounts for
the year ended 31 December 2019 but are derived from those accounts. The
auditor has reported on those accounts; their report was unqualified, but
drew attention to by way of emphasis of matter 1) post balance sheet events
in relation to the decision to realise the Group's loan book through an
orderly wind down and to subsequently return capital to shareholders and the
post balance sheet impact of Covid-19; and 2) the transaction with a related
party undertaken without the prior approval of shareholders and therefore in
contravention of Section 200 of the Companies Act 2006 and Rule 13 of the
AIM Rules for Companies. Their report and did not contain statements under
s498(2) or (3) Companies Act 2006 or equivalent preceding legislation.
While the financial information included in this announcement has been
prepared in accordance with the recognition and measurement criteria of
International Financial Reporting Standards (IFRSs), this announcement does
not itself contain sufficient information to comply with IFRSs.
The condensed Group Financial Information has been prepared on a basis
consistent with that adopted in the previous year's published financial
statements and in accordance with IFRSs.
The Group expects to publish statutory financial statements for the year
ended 31 December 2019 that comply with both IFRSs as adopted for use in the
European Union and IFRSs as compliant with the Companies Act 2006 based on
the information presented in this announcement.
The condensed Financial Information in this report was approved by the Board
on 25 June 2020.
Audited statutory accounts for the period ended 31 December 2018 have been
delivered to the registrar of companies. The Independent Auditors' Report on
the Annual Report and Financial Statements for 2018 was unqualified, did not
draw attention to any matters by way of emphasis without qualifying their
report and did not contain a statement under s498(2) or (3) of the Companies
Act 2006 or equivalent preceding legislation.
The financial statements of Urban Exposure Plc for the year ended 31
December 2019 were authorised for issue by the Board of Directors on 25 June
2020and the balance sheet was signed on behalf of the Board by Sam Dobbyn,
Chief Executive Officer.
The financial information presented in the document has been prepared in
accordance with International Financial Reporting Standards ("IFRSs") and
International Financial Reporting Interpretations Committee ("IFRIC")
interpretations as adopted by the European Union as they apply to the
financial statements of the Group for the year ended 31 December 2019 and
the comparative Period.
The consolidated Financial Information of the Group comprise the results of
Urban Exposure Plc (the "Company") and its subsidiaries (together, the
"Group"). This Financial Information has been prepared on a going concern
basis and in accordance with IFRSs as issued by the International Accounting
Standards Board ("IASB") and as adopted by the European Union.
The Financial Information has been prepared on the historical cost basis,
except for the trade investments and loan receivables held at fair value at
the end of each reporting period, as explained in the accounting policies
and in note 3. Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services.
The functional and presentational currency of the Group is Sterling.
Going concern
In preparing this Financial Information, the Directors have considered the
uncertainty created by COVID-19. Whilst there are many unknowns at the time
of writing, it is clear that the extent and nature of the impacts to the
Group will be determined by both the number of people infected, national and
individual responses as well as our own business continuity actions.
The Group has successfully activated its business continuity plans to
minimise the risk of disruption to business operations, considering
Government advice and the need to safeguard the health of its employees as
well as its borrowers.
The Directors have performed cash flow forecasts for a period of at least
twelve months from the date of approval of the Financial Information which
take account of reasonably possible downsides in relation to the timing and
recovery of Loan Receivables. They have also considered the Group's latest
budget and forecasts, current and forecast cash balances, and the results of
sensitivity analysis and stress testing.
Consequently, the Directors are confident that the Group will have
sufficient funds to continue to meet its liabilities as they fall due for at
least twelve months from the date of approval of the financial statements
and therefore have prepared the Financial Information on a going concern
basis. As a result of the impact of COVID-19 and the non-completion of the
proposed Transaction with HHL the Group carried out a strategic review of
its options in April 2020. Having completed the review, the Board took the
decision to realise the value of the loan book through an orderly wind down
and to subsequently return capital to shareholders. These actions may have
an impact on the carrying value of the Group's assets which may require
impairment although it is not possible for the Group to estimate this impact
with a high degree of certainty.
New standards, interpretations and amendments effective from the beginning
of the year
New standards, interpretations and amendments effective from 1 January 2019
* IFRIC 23 Uncertainty over Income Tax Treatments (IFRIC 23)
The taxation accounting policy reflects the amended Group policy. Note 3
gives further details the estimates and assumptions regarding current tax.
There is no significant impact as a result of the implementation of this
interpretation.
Other new and amended standards and Interpretations issued by the IASB that
will apply for the first time in the next annual financial statements are
not expected to impact the Group as they are either not relevant to the
Group's activities or require accounting which is consistent with the
Group's current accounting policies.
New standards, interpretations and amendments not yet effective
There are a number of standards, amendments to standards, and
interpretations which have been issued by the IASB that are effective in
future accounting periods that the group has decided not to adopt early.
The following amendments are effective for the period beginning 1 January
2020:
* IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors (Amendment - Definition of
Material)
* IFRS 3 Business Combinations (Amendment - Definition of Business)
* Revised Conceptual Framework for Financial Reporting
Urban Exposure Plc does not expect these new accounting standards and
amendments will have a material impact on the Group.
2. Significant Accounting Policies
Basis of consolidation
The Consolidated Financial information comprise the Financial Information of
the Company and entities controlled by the Company (its subsidiaries) as at
31 December 2019. Subsidiaries are all entities over which the Company has
control. The Company controls an investee when:
1. It has power over the investee
2. Is exposed, or has rights to variable returns from, its involvement with
the investee; and
3. Has the ability to affect those returns through its power over the
investee.
The Group reassesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control as stated above.
When the Company has less than a majority of the voting rights of an
investee, it considers that it has power over the investee when the voting
rights are sufficient to give it the ability to direct the relevant
activities of the investee.
Consolidation of a subsidiary begins when the Group obtains control over the
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subsidiary and ceases when the Group loses control of the subsidiary.
Specifically, the results of subsidiaries acquired or disposed of during the
year are included in the income statement from the date the Company gains
control until the date when the Company ceases to control the subsidiary.
Where necessary, adjustments are made to the Financial Statements of
subsidiaries to bring the accounting policies used into line with the
Group's accounting policies.
All intra-group assets and liabilities, equity, income, expenses and cash
flows relating to transactions between the members of the Group are
eliminated on consolidation.
Business combinations
Acquisitions of businesses are accounted for using the acquisition method.
The consideration transferred in a business combination is measured at fair
value, which is calculated as the sum of the acquisition date fair values of
assets transferred by the Group, liabilities incurred by the Group and the
equity interest issued by the Group in exchange for control of the business
or assets and liabilities. Acquisition-related costs are recognised in the
income statement as incurred.
The identifiable assets acquired and liabilities assumed are recognised at
their fair values at the acquisition date.
Goodwill is measured as the excess of the fair value of the consideration
transferred over the fair value of the acquired assets less liabilities
assumed at the acquisition date. If the fair value of the net assets
acquired exceeds the fair value of the consideration transferred by the
Group, this excess is recognised immediately in the income statement as a
bargain investment gain.
Income recognition
The majority of the Group's income arises from movements in the fair value
of loans receivable and trade investments which are held at fair value
through profit and loss.
Asset management fees received from third parties for managing loan
facilities are recognised in the income statement when the related service
has been performed. Fees are chargeable based on the value of assets under
management and are assessed and invoiced on a monthly basis.
The Group receives carried interest from third party loans it manages once
those loans exceed a performance target. The recognition of variable
consideration arising in relation to carried interest has been constrained
in order that it is highly probable that there will not be a future reversal
in the amount of revenue recognised when the final carried interest is
calculated.
Where there is a significant financing component included in the transaction
price (for example where fees are payable at the termination of a loan for
services provided at inception or during the period of the loan), the income
recognised is calculated by discounting the future cash flows at the
interest rate implicit in the loan.
Financial instruments
Financial assets and liabilities are recognised on the Group's statement of
financial position when the Group has become a party to the contractual
provision of the instrument.
Financial assets and financial liabilities are initially measured at fair
value. Transaction costs that are directly attributable to the acquisition
or issue of financial assets and financial liabilities (other than financial
assets and financial liabilities through profit and loss) are added to or
deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial
liabilities at fair value through the income statement are recognised
immediately in the income statement.
Financial assets
Under IFRS 9, the Group is required to classify and measure financial assets
according to the business model within which they are managed and the
contractual terms of the cash flows. Financial assets are measured at
amortised cost if they are held within a business model whose objective is
to hold financial assets in order to collect contractual cash flows, and
their contractual cash flows represent solely payments of principal and
interest. The Group has determined that trade and other receivables and cash
and cash equivalents are financial assets which are measured at amortised
cost.
Financial assets are measured at Fair Value Through Other Comprehensive
Income ("FVTOCI") if they are held within a business model whose objective
is achieved by both collecting contractual cash flows and selling financial
assets, and their contractual cash flows represent solely payments of
principal and interest. Other financial assets are measured at Fair Value
Through Profit and Loss ("FVTPL").
The Group has reviewed the business model within which each financial asset
is managed and concluded that loan receivables from primary operating
activities should be measured at the FVTPL. The Group has also determined
that certain trade investments and contract assets meet the criteria for
IFRS 9 and should be measured at FVTPL For assets measured at FVTPL, at
initial recognition, the Group measures the financial asset at its fair
value and any transaction costs are expensed to the income statement.
Following initial recognition, assets are subsequently valued at fair value
on a recurring basis with gains or losses arising from changes in fair value
recognised in the income statement.
Contract assets
Contract assets are purchased financial assets. On acquisition these are
recognised by discounting the estimated future cash flows at a rate
reflecting the risk associated with the cash flows. These assets are
subsequently measured at fair value with changes in fair value recorded in
the income statement.
De-recognition of financial assets
A financial asset is derecognised when either the contractual rights to the
cash flows expire, or the asset is transferred. The Group holds loan
receivables until a suitable institutional capital provider gains control
and assumes the risks and rewards of the loan receivable. At that point, the
transfer is recorded at the transfer value. This proportion of the loan
qualifies for de-recognition. The proportion of the loan which is not
transferred will remain as a loan receivable and continue to be valued at
fair value.
Financial liabilities
Trade payables and other short-term monetary liabilities are initially
recognised at fair value, and subsequently carried at amortised cost using
the effective interest rate method.
Intangible assets
Goodwill
Goodwill arising on the acquisition of subsidiaries or following a business
combination is determined as detailed in the business combination accounting
policy.
Goodwill is not amortised but is reviewed for impairment at least annually.
For the purpose of impairment testing, goodwill is allocated to the Group's
'Cash Generating Unit's (CGU's) expected to benefit from the synergies of
the business combination. The CGUs to which goodwill have been allocated are
tested for impairment annually, or more frequently when there is an
indication that a unit may be impaired. If the recoverable amount of the CGU
is less than the carrying amount of the unit, the impairment loss is
allocated to reduce the carrying amount of any goodwill allocated to the
unit and recognised as an impairment in the income statement. Once an
impairment loss is recognised, it cannot be reversed in a subsequent period.
On disposal of a CGU, the attributable amount of goodwill is included in the
determination of the profit or loss on disposal of that unit.
Other intangible assets
Intangible assets with finite lives are acquired separately at cost less
accumulated amortisation and accumulated impairment losses. The Group's
intangible assets comprise of the brand name acquired by the Group.
Amortisation is calculated to write off the cost of intangible assets less
their estimated residual value using the straight-line method over their
estimated useful lives and is recognised as a charge in the income
statement. Amortisation methods, useful lives and residual values are
reviewed at each reporting date and are adjusted where appropriate.
The estimated useful economic lives for the intangible assets are as
follows:
Brands: 10 years
Leased assets
Leases are recognised when the Group enters a contractual lease which
conveys the right to control the use of identifiable assets for a period of
time in exchange for consideration.
Upon lease commencement, a lessee recognises a right-of-use asset. If the
right-of-use asset is an investment property, it is valued at fair value.
Where the asset is property, plant or equipment, it is valued at the present
value of the lease payment within tangible assets and separately identified
as a right-of use tangible asset. Where the lease provides for variable
elements, such as a rent review or rate increases linked to a specific
index, the lease payments are initially measured at current rates. When the
rate varies, this is a re-measuring event and the lease asset and liability
is re-measured and treated as an adjustment to the right-of-use asset and
lease liability.
The lease liability is initially measured at the present value of the lease
payments payable over the lease term and discounted at the rate implicit in
the lease if this can be readily determined. Where this cannot be readily
determined, the Company's incremental borrowing rate is estimated and used
to arrive at the present value of the lease payments. When a re-measurement
event occurs, the lease liability is re-measured at this time.
The Group has elected not to apply IFRS 16 to leases with a lease term of
less than 12 months or where the underlying asset has a low value when new.
In such circumstances, the lease payments are expensed to the income
statement as incurred and disclosed in the operating profit note.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held at call with
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banks, and other short-term highly liquid investments with a maturity of
three months or less at the date of acquisition. The carrying value of these
assets approximates their fair value.
Employee benefits
Share-based payments
The Group issues compensation to its employees under equity-settled
share-based Long-Term Incentive Plans ("LTIP"). The fair value of
equity-settled share-based payment arrangements granted to employees is
recognised as an expense, with a corresponding increase in equity and spread
over the vesting period of the plan on a straight-line basis. The total
amount to be expensed is determined by reference to the fair value of the
awards made at the grant date, and is adjusted to reflect the number of
awards for which the related service and non-market performance conditions
are expected to be met, such that the amount ultimately recognised is based
on the number of awards that meet the related service and non-market
performance conditions at the vesting date. At each reporting date, the
Group revises its estimate of the number of equity instruments expected to
vest as a result of non-market based vesting conditions. It recognises the
impact of the revision to the original estimates, if any, in the income
statement with a corresponding adjustment to equity over the remaining
vesting period.
Market vesting conditions are factored into the fair value of the options
granted. The fair value of the awards and ultimate expense are not adjusted
on a change in market vesting conditions during the vesting period. If all
other vesting conditions are satisfied, a charge is made irrespective of
whether the market vesting conditions are satisfied. The cumulative expense
is not adjusted for failure to achieve a market vesting condition.
Defined contribution plans
Obligations for contributions to defined contribution plans are expensed as
the related service is provided.
Equity
The share capital represents the nominal value of the issued share capital
of Urban Exposure Plc.
Treasury Shares
Where the Company purchases its own share capital (Treasury Shares), the
consideration paid is set off against share premium. Where the share premium
is nil, consideration above the nominal value of shares is debited against
retained earnings. The proceeds from the sale of own shares held increase
equity. Neither the purchase, cancellation nor sale of own shares leads to a
gain or loss being recognised in the income statement.
Dividend and capital distributions
Dividend and capital distributions to the shareholders are recognised in the
Group's Financial Statements in the period in which they are declared and
appropriately approved. Once approved, dividends are recognised as a
liability and as a deduction from equity.
Taxation
Tax expense comprises current and deferred tax.
Current tax
Current income tax assets and liabilities are measured at the amount
expected to be recovered or paid to the taxation authorities. The tax rates
and tax laws used to compute the amount are those that are enacted or
substantively enacted.
Deferred tax
Deferred tax is provided on the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amount
for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary
differences. Deferred tax assets are recognised to the extent that it is
probable that future taxable profits will be available against which the
deferred tax asset can be utilised.
Deferred tax assets and liabilities are measured at the rates that are
expected to apply in the period when the asset is realised or the liability
is settled, based on tax rates and tax laws that have been enacted or
substantively enacted at the reporting date.
When there is uncertainty concerning the Group's filing position regarding
the tax bases of assets or liabilities, the taxability of certain
transactions or other tax-related assumptions, then the Group:
· Considers whether uncertain tax treatments should be considered
separately, or together as a group, based on which approach provides
better predictions of the resolution.
· Determines if it is probable that the tax authorities will accept the
uncertain tax treatment; and
· If it is not probable that the uncertain tax treatment will be accepted,
measure the tax uncertainty based on the most likely amount or expected
value, depending on whichever method better predicts the resolution of the
uncertainty.
This measurement is required to be based on the assumption that each of the
tax authorities will examine amounts they have a right to examine and have
full knowledge of all related information when making those examinations.
Earnings per share
Basic earnings per share is calculated by dividing profit after tax
attributable to equity shareholders of the parent Company by the weighted
average number of Ordinary Shares in issue during the period.
Diluted earnings per share requires that the weighted average number of
Ordinary Shares in issue is adjusted to assume conversion of all dilutive
potential Ordinary Shares. These arise from awards made under share-based
incentive schemes. Share awards with performance conditions attached to them
are not considered to be dilutive if the share price on their exercise is
above market price.
Provisions and contingencies
Provisions are liabilities with uncertainties in the amount or timing of
payments. Provisions are recognised if there is a present obligation as a
result of past events, if it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation, and
if a reliable estimate of the amount of the obligation can be made at the
date of the statement of financial position.
A contingent liability is a possible obligation that arises from past events
or a present obligation that is not recognised as it is not probable that an
outflow of resources will be required to settle the obligation or the amount
of obligation cannot be measured with sufficient reliability. A contingent
liability is disclosed but not recognised.
IPO expenses
Qualifying costs attributable to the primary issuance of shares are debited
directly to equity. They include incremental costs that are directly
attributable to issuing the primary shares, such as advisory and
underwriting fees.
All other non-qualifying costs are taken to the statement of comprehensive
income.
Tangible assets
Leasehold assets, furniture, fixtures, equipment and motor vehicles are
stated at cost less accumulated depreciation and any recognised impairment
loss.
Depreciation is provided on all tangible fixed assets at rates calculated to
write off the cost, less estimated residual value based on prices prevailing
at the date of acquisition, of each asset on a straight-line basis over its
expected useful life as follows:
Right-of-use assets are depreciated over their expected useful life based on
the relevant lease term. Where a break clause is contained within the lease,
an assessment is made as to whether this is likely to be exercised or not
and the lease is depreciated based on the expected lease term.
The useful lives and depreciation rates applicable are as follows:
* Right-of-use leasehold 10 years
* Fixtures and fittings 10 years
* Furniture and office equipment 5 years
* Computer equipment 5 years
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in income.
Trade payables
Trade payables are obligations to pay for goods or services that have been
acquired in the ordinary course of business from suppliers. Trade payables
are classified as current liabilities if payments are due within one year,
otherwise they are classified as non-current liabilities.
The Directors consider that the carrying amount of trade payables
approximates to their fair value.
Segmental reporting
Under IFRS 8, operating segments are required to be determined based upon
the Group's internal organisation and management structure and the primary
way in which the Chief Operating Decision Maker (CODM) is provided with
financial information. In the case of the Group, the CODM is considered to
be the Executive Committee.
The Executive Committee reviews the activities of the Group as a single
operating segment.
The Group operates only in the United Kingdom and, as a result, no
geographical segments are reported. The Group does not rely on any
individual customer and so no additional customer information is reported.
The Group's Executive Committee is of the opinion that the Group is engaged
in a single segment of the business and the operations of the Group are
wholly within the United Kingdom.
Events after the balance sheet date
Post year-end events that provide additional information about the Group's
position at the balance sheet date and are adjusting events, are reflected
in the Financial Statements. Post year-end events that are not adjusting
events are disclosed in the notes, where material.
3. Significant Accounting Judgements, Estimates and Assumptions
The preparation of the Group's Financial Information requires management to
make judgements, estimates and assumptions that affect the reported amounts
of revenues, expenses, assets and liabilities, and the disclosure of
contingent liabilities, at the reporting date. However, uncertainty about
these assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of the asset or liability
affected in future periods.
Judgements and estimates
In the process of applying the Group's accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the Consolidated Financial Statements:
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(a) Determination of fair values
A number of assets and liabilities included in the Group's Financial
Statements require measurement at, and/or disclosure of, fair value. Fair
value is the amount for which an asset could be exchanged, or liability
settled, between knowledgeable, willing parties in an arm's-length
transaction at the measurement date. Fair value is the price that would be
received to sell an asset, or paid to transfer a liability, in an orderly
transaction between market participants at the measurement date, regardless
of whether that price is directly observable or estimated using another
valuation technique. In estimating the fair value of an asset or a
liability, the Group takes into account the characteristics of the asset or
liability if market participants would take those characteristics into
account when pricing the asset or liability at the measurement date. Fair
value for measurement and/or disclosure purposes in these Consolidated
Financial Statements, is determined on such a basis, except for share-based
payments that are within the scope of IFRS 2, leasing transactions that are
within the scope of IFRS 16, and measurements that have some similarities to
fair value but are not fair value, such as net realisable value in IAS 2 or
value in use in IAS 36.
For financial reporting purposes, fair value measurements are categorised
into Level 1, 2 or 3 based on the degree to which inputs to the fair value
measurements are observable and the significance of the inputs to the fair
value measurement in its entirety, which are described as follows:
· Level 1 inputs are quoted prices (unadjusted) in active markets for
identical assets or liabilities.
· Level 2 inputs are inputs, other than quoted prices included within
Level 1, that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
· Level 3 inputs are unobservable inputs for the asset or liability.
The classification of an item into the above levels is based on the lowest
level of the inputs that has a significant effect on the fair value
measurement of the item. Transfers of items between levels are recognised in
the period in which they occur. Further details of fair values are given in
note 4.
(b) Share-based payments
The Group operates two employee compensation schemes, settled in equity. The
fair value of equity-settled share-based payment arrangements requires
significant judgement in the determination of the valuation of options, or
the assumptions regarding vesting conditions being met, which will affect
the expense recognised during the period. These assumptions include the
future volatility of the Company's share price, future dividend yield and
the rate at which awards will lapse or be forfeited. These assumptions are
then applied to a recognised valuation model in order to calculate the fair
value of the awards. The fair value attributed to the awards and hence the
charge made to the income statement could be materially affected should
different assumptions be made to those applied by the Group. Details of
these assumptions are set out in note 26. The Group uses a professional
valuer in the determination of the fair value of options at grant date.
(c) Valuation adjustments
The Credit Committee reviews each financial asset in the Group's portfolio.
Assets which are underperforming are assessed for credit valuation
adjustments. Typical events include, but are not limited to, non-payment of
cash interest as it falls due, breach of loan covenants, construction cost
over-runs or significant reductions in gross development values.
(d) Current tax
During the ordinary course of business, there are transactions and
calculations for which the ultimate tax determination is uncertain. As a
result, the Group recognises tax liabilities based on estimates of whether
additional taxes and interest will be due.
The Group believes that its accruals for tax liabilities are adequate for
all open audit years based on its assessment of many factors including past
experience and interpretations of tax law.
No material uncertain tax positions exist as at 31 December 2019. This
assessment relies on estimates and assumptions and may involve a series of
complex judgments about future events. To the extent that the final tax
outcome of these matters is different than the amounts recorded, such
differences will impact income tax expense in the period in which such
determination is made.
(e) Deferred tax
In determining the quantum of deferred tax balances to be recognised,
judgement is required in assessing the extent to which it is probable that
future taxable profit will arise in the companies concerned and the timing
of transactions.
4. Financial Instruments - Fair Values and Risk Management
The Group is exposed through its operations to the following financial
risks:
· Credit risk
· Liquidity risk
· Market risk
In common with other businesses, the Group is exposed to risks that arise
from its use of financial instruments.
This note describes the Group's objectives, policies and processes for
managing those risks and the methods used to measure them. Further
quantitative information in respect of these risks is presented throughout
the Financial Information.
The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise the effect on
the Group's financial performance. Risk management is carried out by the
Board of Directors. It identifies, evaluates and mitigates financial risks.
The Board provides written policies for credit risk and liquidity risk.
(i) Principal financial instruments
The principal financial instruments used by the Group, from which financial
instrument risk arises, are as follows:
· Loan receivables
· Investments
· Trade and other receivables
· Cash and cash equivalents
· Trade and other payables
(ii) Financial instruments by category
Carrying amount
At 31 December 2019 Note FVTPL Amortised cost Total
GBP000 GBP000 GBP000
Financial assets
Investments 16 6,570 6,570
Loan receivables 18 103,630 103,630
Contract assets 19 306 306
Trade and other 19 1,292 1,292
receivables
Cash and cash equivalents 20 22,787 22,787
Total financial assets 110,506 24,079 134,585
Financial liabilities
Trade and other payables 21 1,829 1,829
Total financial - 1,829 1,829
liabilities
Carrying amount
At 31 December 2018 Note FVTPL Amortised cost Total
GBP000 GBP000 GBP000
Financial assets
Investments 16 1,949 - 1,949
Loan receivables 18 89,544 - 89,544
Contract assets 19 3,154 - 3,154
Trade and other 19 - 454 454
receivables
Cash and cash equivalents 20 - 46,806 46,806
Total financial assets 94,647 47,260 141,907
Financial liabilities
Trade and other payables 21 - 3,217 3,217
Total financial - 3,217 3,217
liabilities
(iii) Financial instruments not measured at fair value
Financial instruments not measured at fair value include cash and cash
equivalents, trade and other receivables, and trade and other payables. The
carrying value of the trade assets and other receivables has been amortised
to estimated net recoverable value where there are circumstances indicating
that the full value will not be recovered. Due to the short-term nature of
cash and cash equivalents and trade and other payables, the Directors
consider that their carrying value approximates to their fair value.
(iv) Financial instruments measured at fair value
The fair value hierarchy of financial instruments measured at fair value is
provided below.
2019 2018
Fair value Fair value
At 31 December Level 3 Level 3
GBP000 GBP000
Financial assets
Investments 6,570 1,949
Loan receivables 103,630 89,544
Contract assets 306 3,154
Total financial assets 110,506 94,647
The valuation techniques and significant unobservable inputs used in
determining the fair value measurement at Level 2 and Level 3 financial
instruments, as well as the inter-relationship between key unobservable
inputs and fair value, are set out in the table below.
Financial Valuation Significant Inter-relationship As As at
instrument techniques unobservabl between key at
used e inputs unobservable
inputs and fair
value (Level 3 31
only) 31 Decem
(Level 3 Dece ber
only) mber 2018
2019
GBP000 GBP000
Loan Initial Profile and The earlier the 103, 89,54
receivable transaction timing of timing of the 630 4
s costs plus loan drawdowns and the
pro-rata drawdowns. higher the values
share of Assumption of the drawdown
fees plus that loan the higher the
accrued can be fair value of the
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interest syndicated loan receivables
adjusted to third
for changes parties at
in credit the fair
risks or value.
market
movements.
Equity Profile and The earlier the 6,57 1,949
investment timing of timing of the 0
s loan drawdowns and the
drawdowns higher the values
Initial which of the drawdown
transaction determine the higher the
costs profile and fair value of the
subsequentl timing of investment.
y value at investment
fair value and return
based on on
projected investment.
future
earnings
discounted
at an
appropriate
discount
rate.
Contract Expected The higher the 306 3,154
assets future cash cash flows the
receipts greater the
and risk valuation. A
Discounting adjusted higher discount
the discount rate results in a
estimated rate. lower valuation.
future cash
flows at a
rate
reflecting
the risk
associated
with the
cash flows.
Total financial 110, 94,64
assets 506 7
The reconciliation of the opening and closing fair value balance of Level 3
financial instruments is provided below:
Movement to 31 December 2019
Reconciliation of fair value Loan Investments Contract
balances - Level 3 receivabl assets
es
GBP'000 GBP'000 GBP'000
Balance at 1 January 2019 89,544 1,949 3,154
New loans advanced during year 59,033 4,777 -
Loan Repayments (47,020) - (887)
/ Contract asset
receipts
Loan Sold to Asset Management (8,227) - -
structures
Fair value reduction in - - (2,095)
contract assets
Fair value through income 10,300 (156) 134
statement
Balance at 31 December 2019 103,630 6,570 306
Movement to 31 December 2018
Reconciliation of fair value Loan Investments Contract
balances - Level 3 receivabl assets
es
GBP'000 GBP'000 GBP'000
Balance at 10 - - -
April 2018
New loans/investments advanced 104,823 1,949 -
during Period
Contract assets acquired at - - 3,544
fair value during Period
Loan Repayments / Contract (7,010) - (1,069)
asset receipts
Loan Sold to Asset Management (11,488) - -
structures
Fair value through income 3,219 - 679
statement
Balance at 31 December 2018 89,544 1,949 3,154
Risk management framework
The Board has overall responsibility for the determination of the Group's
risk management framework and, whilst retaining ultimate responsibility for
them, it has delegated the authority for designing and operating processes
that ensure the effective implementation of the objectives and policies to
the Chief Risk Officer ("CRO"). The Board receives regular updates from the
CRO through which it reviews the effectiveness of the processes put in place
and the appropriateness of the objectives and policies it sets. The
Executive Committee also reviews the risk management policies and processes
and reports its findings to the Audit Committee.
The overall objective of the Board is to set policies that seek to reduce
risk as far as possible without unduly affecting the Group's competitiveness
or flexibility.
The Audit Committee oversees how management monitors compliance with the
Group's risk management policies and procedures and reviews the adequacy of
the risk management framework in relation to the risks faced by the Group.
Further details regarding risk management policies are set out below:
(a) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations. The Group is mainly exposed to credit losses if borrowers are
unable to repay loans and outstanding interest and fees. The Group has
stringent underwriting criteria which include third party valuations and a
full legal documentation pack for each loan written by the Group.
The maximum exposure to credit risk for financial assets by geographic
region was as follows:
At 31 December 2019
Analysis Loan Investments Contract Trade Cash and Total
by receivab assets and cash
Geographi les other equivale
c Region receivab nts
les
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Greater 23,168 - - 1,204 22,787 47,159
London
East of 6,228 - - - - 6,228
England
Midlands 1,214 - - - - 1,214
South 39,348 - - - - 39,348
East
South 13,579 - 225 - - 13,804
West
North 2,097 - 81 - - 2,178
West
Wales 17,996 - - - - 17,996
Outside - 6,570 - 88 - 6,658
of UK
103,630 6,570 306 1,292 22,787 134,58
5
As at 31 December 2018
Analysis Loan Investments Contract Trade Cash and Total
by receivab assets and cash
Geographi les other equivale
c Region receivab nts
les
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Greater 1,222 - 2,180 454 46,806 50,662
London
East of 39,121 - - - - 39,121
England
Midlands - - 463 - - 463
South 21,826 - 237 - - 22,063
East
South 7,469 - 197 - - 7,666
West
North 1,419 - 77 - - 1,496
West
Wales 18,487 - - - - 18,487
Outside - 1,949 - - - 1,949
of UK
89,544 1,949 3,154 454 46,806 141,90
7
Four loan receivables represented GBP70,501,000 (2018: GBP72,330,000) of the
loan receivable balance. However, risk is mitigated on all loans as property
assets relating to those loans plus other securities and guarantees are
provided against all loans.
The cash and cash equivalents balances of GBP22,787,000 (2018: GBP46,806,000)
are held with a Regulated Bank given an A-1 rating by Standard & Poor's.
(b) Liquidity risk
Liquidity risk is the risk the Group will not be able to meet its financial
obligations as they fall due. The Group's policy is to ensure that it will
always have sufficient cash to allow it to meet its liabilities when they
become due. In order to manage liquidity risk, the Group prepares short-term
and medium-term cash flow forecasts. These forecasts are reviewed centrally
to ensure the Group has sufficient liquidity to meet its liabilities when
due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group's reputation.
The maturity analysis of the trade and other payables is given as below:
At 31 December 2019
0-1 month 1-3 3-6 Total
months months
GBP000 GBP000 GBP000 GBP000
Trade and other payables 640 669 520 1,829
640 669 520 1,829
At 31 December 2018
0-1 month 1-3 3-6 Total
months months
GBP000 GBP000 GBP000 GBP000
Trade and other payables 873 367 1,977 3,217
873 367 1,977 3,217
The Board receives cash flow projections on a monthly basis as well as
information regarding cash balances. At the end of the year these
projections indicated that the Group expected to have sufficient liquid
resources to meet its obligations under all reasonably expected
circumstances.
The Group does not commit to any loan to a borrower without clearly
identifying how the loan will be funded over its life. The Group maintains a
minimum level of liquidity to ensure that its projected operational costs
are fully funded for 12 months.
(c) Market risk
Market risk is the risk that a change in the Group's bank funding rates will
impact its return from lending. It is the risk that the fair value or future
cash flows of loans will fluctuate because of changes in interest rates
(interest rate risk).
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