Annual Report • Dec 31, 2016
Annual Report
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Capital & Counties Properties PLC Annual Report & Accounts 2016
Competitive strengths
Capital & Counties Properties PLC (Capco) is one of the largest listed property companies in central London. Our key assets are the Covent Garden and Earls Court estates. We create and grow value through a combination of asset management, strategic investment and selective development.
• A focus on prime central London, concentrated in large estates
• Conservative leverage and substantial liquidity
• Strong track record
• Strong commitment to effective corporate governance
For more information visit: www.capitalandcounties.com
North Piazza Covent Garden
Demolition progress Earls Court, November 2016
First units complete Lillie Square, December 2016
Directors' report
Directors' responsibilities
Governance
1. Market value on Group share basis
Royal Opera House Arcade Covent Garden
Artist's impression of improved plans for Empress Place, Earls Court
Capco is a property company with a strong emphasis on distinctive place-making. It unlocks, creates and grows value to deliver sustainable growth and deliver long-term market-leading returns for shareholders.
| BUSINESS MODEL | |
|---|---|
| GROUP STRATEGY | |
| ESTATE STRATEGIES | |
| Covent Garden | |
| Earls Court Properties | |
| Venues | |
See page 12
Ian Hawksworth Situl Jobanputra
Capco's experienced management team leads the Group in delivering its strategy. The Executive Directors aim to deliver strong returns for shareholders and are supported by a senior management team which leads the Group's business units. The Non-executive Directors bring extensive knowledge to the Board's discussions.
See page 56
FINANCIAL RESULTS
Equity attributable
£2.8bn
to owners
Total return
-6%
-2%
Total property return
Property valuation movement on a like-for-like basis
The framework of oversight, controls and reporting provided by Capco's governance structure supports the business and allows Capco to operate with transparency to achieve its objectives.
See page 58
EPRA net asset value per share
340p
Total dividend per share
1.5p
Total shareholder return
-32%
Loan to value (LTV)
See pages 13 & 40
-4%
NARS signs lease Luxury beauty brand NARS signs lease on King Street for its first stand-alone boutique, joining Covent Garden's Beauty Quarter
SUSHISAMBA signs to the Opera Terrace SUSHISAMBA agrees terms to occupy the
Opera Terrace site in the Market Building, one of the most prominent dining locations in London, set to open in 2017
RedFarm signs to Russell Street Acclaimed New York Chinese restaurant RedFarm signs to the unit next to Balthazar on Russell Street. The restaurant is to open in 2017
Petersham Nurseries first anchor tenant for Floral Court
Petersham Nurseries signs to the Floral Court development, taking over 16,000 sq ft across four units. Petersham Nurseries will create new bespoke retail and dining concepts at Covent Garden, adding to the strong dining offer
The Wellington Hotel planning permission granted Capco, together with Robert De Niro and BD Hotels, is granted planning approval by Westminster City Council to create a visionary new 83-room luxury boutique hotel
Covent Garden After Hours shopping campaign A four-week late night shopping campaign, which resulted in an increase in footfall and positive sales. The campaign included a series of events with street food pop-ups and an installation by fashion designer Jean-Charles de Castelbajac
Covent Garden
Progress at Floral Court Topping out of Floral Court development achieved in August
ECPL Funding community event £150 million HCA loan facility signed to fund infrastructure-related works on ECPL land interests
Project Rooms open to the community Earls Court Project Rooms open for the first monthly 'Second Saturdays'
Lillie Square Garden Collection launches The launch of the Lillie Square Garden Collection offering duplex homes with exclusive private outdoor spaces designed by Andy Sturgeon
New Homes Space opens New purpose-built engagement facility for residents of the West Kensington and Gibbs Green estates opens to provide information about the Earls Court development
Earls Court Properties
Public consultation for Exhibition Square Plans brought forward for the detailed design of Exhibition Square – the gateway to the Earls Court development from Warwick Road. Detailed consent achieved in January 2017
Acquisition of Tower House Capco purchases Tower House, a substantial corner building at 10 Southampton Street, from Derwent London plc for £67.5 million
£175 million US Private Placement debt Signed agreement with five US institutional investors for a private placement of £175 million 10-year and 12-year senior unsecured notes
Repositioning of the Royal Opera House Arcade The UK's leading independent luxury watch retailer The Watch Gallery opens
in the Royal Opera House Arcade, joining Mulberry and Lulu Guinness, to introduce luxury accessories to the Arcade for the first time
Covent Garden Christmas Launch In partnership with the Royal Opera House, Christmas at Covent Garden launches with a public open air performance on the Piazza from the Royal Opera Chorus, followed by excerpts from The Nutcracker performed by artists of the Royal Ballet
Covent Garden
Hotel Chocolat and Atelier Cologne open in the Market Building The openings from the new chocolate store and the premium fragrance brand enhance the retail offer in the Market Building
Covent Garden
New brands join the estate US 'gastro-fast' restaurant Buns & Buns signs to the Market Building and outerwear brand K-Way agrees lease for Henrietta Street, while Tom Davies and N. Peal sign to the Royal Opera House Arcade
Luxury beauty offer strengthened in the Market Building Signings from Tom Ford, DECIEM and Giorgio Armani Beauty's Armani Box London strengthen the luxury beauty offering on the North side of the Market Building, joining established beauty
boutiques from Chanel, Dior and Burberry
First phase of demolition complete Demolition of both former Earls Court Exhibition Centres to ground level is complete
Debt facility New £100 million debt facility secured Venues
Heavy Lifting Crane arrives in Earls Court
The largest crane ever used in London arrives in Earls Court to remove the portal beams from over the London Underground lines
London Plan submissions Representations made to the GLA 'London Plan' consultation, highlighting that Earls Court can accommodate 10,000 homes
Lillie Square first completions First residents move into their new homes at Lillie Square as the first units complete
Empress Place consultation ECPL engaged in public consultations on proposals for 400 new homes at Empress Place
Ian Durant, Chairman
Total return
Dividend
2016 was a year of notable political and economic dislocation which has affected the London property market. London remains a very attractive investment market, a desirable retail destination and residential location. Looking through short-term market movements Capco's long-term strategy for its two unique estates remains unchanged. During 2016, Capco achieved good progress at both Covent Garden and Earls Court and, although it was a challenging year in the residential market, I am confident that Capco will deliver value creation for our shareholders over the coming years.
Despite strong rental growth at Covent Garden and significant progress on site at Earls Court, Capco's total shareholder return for the year, which comprises share price performance plus the dividends paid during the year, was -32.3 per cent. Total return for the year was -5.5 per cent, which represents the change in net assets plus the dividends paid during the year. The total value of Capco's property portfolio fell by 4.4 per cent on a like-for-like basis to £3.7 billion.
Covent Garden delivered ERV growth of 7.9 per cent during the year resulting in a valuation increase of 6.4 per cent on a like-forlike basis. The excellent performance of Covent Garden was not sufficient to offset the decline in land values at Earls Court which fell by 20.4 per cent like-for-like due to adverse conditions in the
London residential market following stamp duty changes and the outcome of the EU Referendum.
The Covent Garden team continues to focus on achieving rental growth through creative asset management, strategic investment and place-making. Covent Garden is an internationally renowned destination successfully attracting global brands and visitors. Following a record year of leasing activity, new Zone A rental levels were achieved across the estate and management has released a new ERV target of £125 million to be achieved by December 2020. Work on the Floral Court development continues on schedule and will create high quality retail, restaurant and residential space on the estate.
It has been another year of progress on the ground at Earls Court. The demolition to ground level of the former Exhibition Centres was completed during the year and land enablement works are now underway preparing the site for future development. The first residential completions at Lillie Square took place at the end of 2016 with the first units being handed over in time for Christmas. The strategy remains focused on value creation by exploring opportunities to evolve and enhance the Earls Court Masterplan.
The Venues business continues to strengthen with a reliable and growing income stream reflecting its excellent prospects as a central London venue.
The Board and I would like to thank Capco's employees for their work during the year and the achievements made in delivering Capco's business plans at Covent Garden, Earls Court and Venues.
Capco's financial position is strong with low leverage, high liquidity and modest capital commitments. Responsible management of capital and prudent financing from a variety of sources is a key feature of Capco's strategy to ensure the Company maintains a strong balance sheet. During the year, Capco's liquidity was significantly strengthened by the completion of a £100 million financing of the Olympia business, a US Private Placement totalling £175 million and the £150 million (£95 million Capco share) HCA facility at Earls Court to fund infrastructure works on site. The business is well positioned to support its future activities and withstand periods of uncertainty.
The Directors are proposing a final dividend of 1.0 pence per share, which brings the total dividend for 2016 to 1.5 pence per share.
There were a number of changes to the Board in 2016. In March we welcomed Anthony Steains as a new independent Non-executive Director. He brings a diverse perspective to the Board, being resident in Asia and experienced in corporate finance activity. Following the retirement of Ian Henderson at the AGM, Gerry Murphy became Chairman of the Remuneration Committee and Henry Staunton became Senior Independent Director.
Situl Jobanputra was appointed as Chief Financial Officer with effect from 1 January 2017, following Soumen Das' departure at the end of the year. Soumen had been with the Company since its listing in 2010 and we are grateful for his substantial contribution. Situl's appointment reflects Capco's commitment to developing the talent of our employees and promoting from within the Company where possible. I am delighted to welcome him to the Board.
The Board is committed to encouraging diversity and the development of our people across the business.
During the year Gerry Murphy has led a review of our remuneration arrangements for Executive Directors and the Remuneration Committee is proposing a revised remuneration package that will simplify our existing arrangements whilst seeking to incentivise management and align their interests with those of our shareholders. The proposals will be put to shareholders for approval at our forthcoming AGM.
You can read more about the proposals in the Directors' Remuneration Report on page 70.
The Board and individual Directors regularly take opportunities to visit Capco's assets and see for ourselves the transformations that are taking place. This and the regular briefings we receive from operational management help us gain a real understanding of the business challenges and opportunities.
In taking its decisions the Board assesses and balances the interests of the different stakeholders who have involvement with Capco, its properties and the surrounding communities. As well as our shareholders, this includes our employees, partners, tenants, lenders, government and the communities where we operate. In developing and delivering our plans we undertake significant stakeholder engagement and the Board is kept fully informed of feedback received.
The delivery of Capco's strategy is underpinned by comprehensive policies designed to ensure that the business plan is delivered in line with the Board's expectations. These policies are promoted across the Company to create a culture of accountability and responsibility and to ensure that all of our employees understand their role within the business and the standards to which they must operate. Reflecting this, I am pleased to report that the Group's revised risk management structure which was implemented in 2016 is operating effectively and efficiently and the Board is pleased with the health and safety record achieved at the Group's project sites.
Despite macro-economic uncertainty and challenging market conditions, Capco's strategy remains clear and focused. London is an outstanding global city and we have two of its best estates. Capco's strong balance sheet and unique assets are well-placed for management to create and deliver long-term value for shareholders.
Ian Durant Chairman 21 February 2017
Ian Hawksworth, Chief Executive
2016 has been a challenging year but despite macro-economic and political upheaval, Covent Garden has continued to deliver excellent growth and is now established as one of the best retail estates in the world. The success of our investment strategy at Covent Garden was not sufficient to offset the decline in land value at Earls Court, which was affected negatively by the correction in the London residential market as a result of stamp duty increases and the outcome of the EU Referendum. As a result, EPRA net asset value fell by 5.9 per cent over the year to 340 pence per share with 4.7 per cent of this occurring in the first six months of 2016.
Covent Garden continues to deliver excellent rental and value growth. Demand for the estate from retailers, restaurateurs and consumers is very strong as reflected in a record amount of leasing activity in 2016 resulting in an increase in value of 6.4 per cent like-for like.
The London residential market has been affected negatively by the EU Referendum and the substantial increase in stamp duty taxation. These factors were the major contributors to the decline in our Earls Court interests which decreased by 20.4 per cent (like-for-like) of which 14 per cent (like-for-like) was in the first six months of the year.
Our disciplined approach to capital allocation has meant Capco is in a robust financial position with a low loan to value of 23 per cent. The balance sheet has been further strengthened by the financing activities across the Group this year resulting in high liquidity of £556 million, an extension of our loan maturities to 5.9 years and a lower average cost of debt of 2.7 per cent.
Our strategy remains clear and focused on driving long-term value creation from our two unique central London estates. London is a growing and global city and underpinned by a clear strategy; Capco's two estates are well-placed for long-term success.
Capco regularly considers opportunities where its core skills of place-making and masterplanning can be utilised and in 2015 acquired a 50 per cent interest in the Solum Developments joint venture with Network Rail which is exploring potential opportunities for future redevelopments at significant railway station sites across London.
| Covent Garden | 2,275 | ||
|---|---|---|---|
| 2,005 | 6.4% | ||
| Earls Court Properties | |||
| Earls Court Partnership Limited ("ECPL")2 |
644 | 803 | (22.6)% |
| Lillie Square3 | 223 | 222 | (17.0)% |
| Empress State | 230 | 286 | (20.0)% |
| Other | 45 | 46 | (4.2)% |
| Group share of Earls Court Properties |
1,142 | 1,357 | (20.4)% |
| Venues | 293 | 295 | (1.3)% |
| Other | – | 5 | – |
| Group share of total property4 | 3,710 | 3,662 | (4.4)% |
1. Valuation change takes account of amortisation of tenant lease incentives, capital expenditure, fixed head leases and unrecognised trading surplus.
2. Represents the Group's 63 per cent interest in ECPL.
3. Represents the Group's 50 per cent interest in Lillie Square.
4. A reconciliation of the carrying value of investment, development and trading property to the market value is shown in note 14 'Property Portfolio' within the consolidated financial statements.
The total property value of the Group declined 4.4 per cent (like-for-like) in the year to 31 December 2016 to £3.7 billion. The December 2016 valuations incorporate the 1 per cent increase in Stamp Duty Land Tax ("SDLT") that was enacted earlier this year, which was applicable to most of our portfolio and had an impact of £32.4 million (0.9 per cent of property value).
The valuation of Covent Garden has risen by 6.4 per cent (like-forlike) to £2.3 billion, driven by ERV growth of 7.9 per cent achieved over the year. The equivalent yield is 3.5 per cent, reflecting the valuers' current view of the strength of demand for central London retail investments.
The valuation of Earls Court Properties is £1.1 billion, a decrease of 20.4 per cent (like-for-like) principally driven by a greater risk premium through a higher developer's margin for consented development land, trimming of sales values, as well as some cost inflation. This reflects the valuer's assessment of weakened sentiment and a correction in the central London residential market.
The Group has a 63 per cent controlling interest in Earls Court Partnership Limited ("ECPL"), the investment vehicle with Transport for London ("TfL") which owns the land formerly occupied by the Earls Court Exhibition Centres ("EC1 & EC2"). As a result, it is fully consolidated in the financial statements and TfL's interest is represented as a non-controlling interest. See page 40 of the Financial Review for further information.
Covent Garden has been transformed into one of the leading destinations for global 'street retail' and its success has continued throughout 2016. The uncompromising asset management strategy has driven strong leasing momentum, attracting global premium brands, many of which choose Covent Garden as their first or only London store, resulting in solid rental performance across the estate. Our creative approach to managing Covent Garden continues to create value for our retailers through attracting high quality footfall and positive sales growth.
We achieved a record level of leasing activity in 2016 with 95 new lettings and renewals agreed, securing £13.3 million of rent at 9.3 per cent above December 2015 ERV. The ERV of the estate is £96 million, up 7.9 per cent on a like-for-like basis. A new ERV target of £125 million to be achieved by December 2020 has been set, reflecting the positive growth prospects of the estate.
Following positive leasing progress across the estate, new Zone A levels have been achieved reflecting the strong demand for space in this iconic setting. Tom Ford, Giorgio Armani Beauty's Armani Box London ("Armani Box London") and Hotel Chocolat are the latest signings to the Market Building while the strategy to reposition the Royal Opera House Arcade with a luxury accessories focus has seen the introduction of The Watch Gallery, Mulberry and N.Peal.
The dining offering at Covent Garden has further strengthened this year. We are delighted to welcome Michelin-starred chef Ollie Dabbous to the estate through the restaurant at the Henrietta Hotel on Henrietta Street, while SushiSamba, RedFarm and VyTA add to the depth of variety and quality on the estate.
The Floral Court development (formerly Kings Court) is on track for completion towards the end of 2017 and will transform the pedestrian flows on the northern side of the estate. Petersham
Nurseries, the renowned lifestyle brand, will open later in 2017 following a pre-lease for 60 per cent of the commercial space reflecting the strong appeal of the Floral Court development.
We have continued to expand our presence on the estate through strategic acquisitions, investing £85 million in properties located at key access points to the estate and will continue to seek opportunities to further enhance our footprint on the area. The estate now comprises over 1.1 million square feet of lettable space, establishing itself as one of the largest managed retail-led estates in London.
At Earls Court, the complex demolition of the former Earls Court Exhibition Centres to ground level completed on schedule after almost two years of intensive work on the site. Demolition to basement level has commenced which further de-risks the site and enables the land for its future development.
The Earls Court Masterplan is a unique opportunity to create the next great estate in London. The Masterplan is one of the Greater London Authority's ("GLA") designated Opportunity Areas making it a strategic scheme for London. Representations have been submitted by Capco to the GLA's London Plan signalling Earls Court's potential to deliver an additional 2,500 homes above the current consented scheme, bringing the total number of new homes to 10,000.
Further to Capco's ambitions for Earls Court, during 2016 ECPL engaged in public consultations on proposals to redevelop Empress Place. These are strategic assets located on or around the Lillie Road which ECPL has acquired in recent years. These consultations relate to a scheme comprising 400 new homes and retail space, covering circa 500,000 square feet (GEA), creating one of the key access points to the Earls Court Masterplan and Lillie Square. Plans are progressing to submit a detailed planning
at Earls Court
application in spring 2017, signalling the start of the enhancements to the Earls Court Masterplan.
At Lillie Square, construction of Phase 1 is progressing well and the scheme recently welcomed its first residents. Sales of Phase 2 have continued with 59 apartments now reserved or exchanged and levels of enquiries remain positive. Preparations are being made for the next release of apartments in the coming months. The residential sales market remains challenging as a result of stamp duty increases and the EU Referendum result which has impacted buyers' decision making. Nevertheless, reflecting the strong location and transport connectivity of the scheme, sales prices achieved in Phase 2 have been at a modest premium to comparable units in Phase 1.
The Venues business continues to strengthen with EBITDA of £19 million up 29 per cent compared to 2015 reflecting its excellent prospects as a central London venue.
Olympia London has re-established itself as London's venue of choice for premium exhibitions attracting 1.5 million visitors to the historic venue in 2016. Olympia London played host to the UK's largest exhibition, the Ideal Home Show, and continues to attract new business welcoming 5G World for the first time this year.
Capco is very well positioned with two significant prime estates in central London. London remains a very attractive investment market and whilst we expect market challenges to continue into 2017, Capco has a clear strategy to deliver long-term value creation from its two estates in Covent Garden and Earls Court.
Covent Garden has been transformed into one of the leading destinations for global 'street retail'. Following the strong demand in 2016 from excellent brands and dining concepts, 2017 will be one of our most active years for retail and dining openings across the estate, further underpinning the estate's reputation as a premier global retail and dining destination. We remain focused on our ambitious strategy to introduce the best brands for our visitors, invest in strategically expanding the portfolio and manage the estate to create value for our retailers to underpin rental growth. The estate remains well-placed for continued success and accordingly we will be focused on achieving a new ERV target of £125 million by December 2020.
The Earls Court Masterplan is the only central London GLA Opportunity Area of scale and is a strategic scheme for the Capital. With its excellent existing transport infrastructure, it has the potential to deliver much-needed homes across various tenures and places for Londoners to enjoy. Our strategy remains focused on maximising the potential of this strategically important mixed-use scheme and de-risking the site through land enablement, preparing it for future development.
Capco's financial position has been strengthened by the financing activities undertaken during the year. With low leverage, high liquidity and modest capital commitments, the Group is well positioned to take advantage of opportunities as they arise. We enter a new year focused on our strategy to deliver long-term value creation for our shareholders from our two exceptional central London estates.
Ideal Home Show at Olympia London
Ian Hawksworth Chief Executive 21 February 2017
Governance
Business model and strategy
Our unique business model underpins our strategy to drive value creation
Capco is a property company with a strong emphasis on distinctive place-making. It unlocks, creates and grows value to deliver sustainable growth and long-term market-leading returns for shareholders
Continue to drive rental growth through asset management, acquisitions and selective development. Attract new tenants to grow ERV and NRI, and set new pricing levels for residential space
Continue the enhancement of Olympia London and maximise its performance by winning new customers
Read more on page 38
Continue to drive value creation through planning, land assembly, land enablement and selective development
Read more on page 28
The Group's Key Performance Indicators are selected to ensure clear alignment between its strategy, shareholder interests and remuneration of its employees
Total property return is calculated as capital growth including gains and losses on disposal plus rents received less associated costs, including ground rent
This metric allows comparability with the IPD Total Return All Property Index
ONE OF THE PERFORMANCE MEASURES FOR THE EXECUTIVE DIRECTORS' 2016 ANNUAL BONUS
2016 TARGET 2016 TARGET 2016 TARGET 1.5 per cent per annum outperformance 2.5 per cent per annum outperformance
PERFORMANCE PERFORMANCE PERFORMANCE During the year the Group has underperformed by 4.9 per cent
TOTAL SHAREHOLDER RETURN
15
Total return is the growth in EPRA NAV per share plus dividends per share during the year
Outperformance over a three-year period, versus the median of a comparator group of the nine largest constituents of the FTSE 350 Real Estate Index, is identified as a key measure of the success of Capco's strategy
PART OF EXECUTIVE DIRECTORS' LONG-TERM INCENTIVE, TOGETHER WITH SPECIFIC ANNUAL NAV TARGETS RELATING TO 2016 BONUS
on a rolling three-year basis
The Group has generated a total return of 11.5 per cent per annum on a rolling three-year basis, underperforming the comparator group by 2.0 per cent1
Total shareholder return is the increase in the price of an ordinary share plus dividends during the year
The Group's total shareholder return is benchmarked against the median total shareholder return of a comparator group of the nine largest constituents of the FTSE 350 Real Estate Index
As a key metric for the long-term equitybased compensation for the Group's employees, total shareholder return aligns incentives with shareholder interest
PART OF EXECUTIVE DIRECTORS' LONG-TERM INCENTIVE
4.0 per cent per annum outperformance on a rolling three-year basis
The Group generated a total shareholder return of -5.3 per cent per annum on a rolling three-year basis, underperforming the comparator group by 9.2 per cent
1. Based on consensus estimates at 16 February 2017 for comparator group where results unavailable.
The three-year total property return is calculated assuming annual reinvestment. Annualised three-year total return and total shareholder return are calculated on a basis consistent with the Group's long-term incentive plans. A number of other indicators of performance are considered by the Board either at a Group level (including underlying earnings per share) or specifically relevant to each estate, for example ERV at Covent Garden and EBITDA at Venues. These are discussed further in the asset-specific operating reviews in the Strategic Report.
All three key performance indicators are directly linked to Executive Directors' remuneration. These three indicators are carefully aligned with the Group's strategy of creating and growing value and delivering market-leading total returns over the longer term. Total property return, underlying earnings per share and net asset value are linked to annual bonuses available to certain of the Group's employees.
Through risk management and internal control systems the Group is able to identify, assess and prioritise risk within the business and seeks to minimise, control and monitor their impact on profitability whilst maximising the opportunities they present
The Board has overall responsibility for Group risk management. It determines its risk appetite and reviews principal risks and uncertainties regularly, together with the actions taken to mitigate them. The Board has delegated responsibility for the review of the adequacy and effectiveness of the Group's internal control framework to the Audit Committee.
Following a comprehensive review of risk management undertaken in 2015, risk is a standing agenda item at all management meetings. This gives rise to a more risk aware culture and consistency in decision making across the organisation in line with the corporate strategy and risk appetite. All corporate decision making takes risk into account, in a measured way, while continuing to drive an entrepreneurial culture.
The Executive Directors are responsible for the day to day operational and commercial activity across the Group and are therefore responsible for the management of business risk. The Executive Risk Committee, comprising the Executive Directors, the General Counsel and the Financial Controller, is the executive level management forum for the review and discussion of risks, controls and mitigation measures. The corporate and business division risks are reviewed on a quarterly basis by the Executive Risk Committee so that trends and emerging risks can be identified and reported to the Board.
Senior management from every division and corporate function of the business identify and manage the risks for their division or function and complete and maintain a risk register. The severity of each risk is assessed through a combination of each risk's likelihood of an adverse outcome and its impact. In assessing impact, consideration is given to financial, reputational and regulatory factors and risk mitigation plans established. A full
risk review is undertaken annually in which the risk registers are aggregated and reviewed by the Executive Risk Committee. The Directors confirm that they have
completed a robust assessment of the principal risks faced by the business, assisted by the work performed by the Executive Risk Committee.
The Group's principal risks and uncertainties, which are set out on the following pages, are reflective of where the Board has invested time during the year. These principal risks are not exhaustive. The Group monitors a number of additional risks and adjusts those considered 'principal' as the risk profile of the business changes. See also the risks inherent in the compilation of financial information, as disclosed within note 1 'Principal Accounting Policies' to the consolidated financial statements, 'Critical accounting judgements and key sources of estimation and uncertainty'.
The EU Referendum has resulted in economic and political uncertainty during 2016 and this is expected to continue into the foreseeable future. To date there has been no adverse impact on occupier demand, footfall or the trading results of our tenants at the Covent Garden estate, which has seen strong rental growth, although the valuation of residential-led development land has been impacted by the overall economic and political backdrop. London, as a highly desirable global city, continues to attract businesses and people and we would expect this leading position to be maintained over time. Uncertainty remains, however, around the exit mechanism and longer term implications of Brexit, and this will continue to have a direct or indirect impact on a number of the principal risks set out on the following pages.
Key Increase Stable Decrease
| Risk | Impact on strategy | Mitigation | Change in 2016 |
|---|---|---|---|
| Political climate and public opinion | 4 6 |
||
| Uncertain political climate or changes to legislation |
Prosecution for non-compliance |
Monitoring proposals and emerging policy and legislation |
EU Referendum result, election of new London |
| The Group's business (or aspects of it) is | Litigation | Engagement with key stakeholders and politicians | Mayor and change of Prime Minister result in |
| opposed or challenged by public interest or activist groups |
Reputational damage | Review activity and communications of | increased uncertainty over future policy |
| Distraction of management | activist groups | and legislation | |
| Catastrophic external event | 2 3 5 |
||
| Such as a terrorist attack, health pandemic | Diminishing | Terrorist insurance | |
| or cyber crime | London's status | On-site security | |
| Heightened by concentration |
Health and safety policies and procedures | ||
| of investments | Close liaison with police, National Counter Terrorism Security Office (NaCTSO) and |
||
| Reduced rental income and/or capital values |
local authorities | ||
| Business disruption or damage to property |
Regular training | ||
| Reputational damage | |||
| People | 2 3 4 6 |
||
| Inability to retain the right people and develop leadership skills within |
Inability to execute strategy and business plan |
Succession planning, performance evaluations, training and development |
|
| the business | Constrained growth, lost opportunities |
Long-term and competitive incentive rewards | |
| Health, safety & the environment | 3 5 6 |
||
| Accidents causing loss of life or very | Prosecution for non | Health and safety procedures across the Group | |
| serious injury to employees, contractors, occupiers and visitors to the |
compliance with legislation | Appointment of reputable contractors | |
| Group's properties | Litigation or fines | External consultants undertake annual audits | |
| Activities at the Group's properties causing detrimental impact on the environment |
Reputational damage Distraction of management |
in all locations Adequate insurance held to cover the risks inherent |
|
| in construction projects | |||
| Compliance with law, regulations | 2 6 |
||
| and contracts | |||
| Breach of legislation, regulation or contract |
Prosecution for non compliance with legislation |
Appointment of external advisers to monitor changes in law or regulation |
|
| Inability to monitor or anticipate legal | Litigation or fines | Members of staff attend external briefings | |
| or regulatory changes | Reputational damage | to remain cognisant of legislative and regulatory changes |
|
| Distraction of management |
| Risk | Impact on strategy | Mitigation | Change in 2016 |
|---|---|---|---|
| Leasing | 3 5 |
||
| Inability to achieve target rents or to | Decline in tenant demand | Quality tenant mix | |
| attract target tenants due to market conditions |
for the Group's properties | Strategic focus on creating retail destinations with | |
| Competition from other locations | Reduced income | unique attributes | |
| Expansion of yield | |||
| Planning | 3 4 5 |
||
| Unfavourable planning policy or legislation impacting on the ability to |
Delay or failure to achieve growth in land valuation |
Outline planning permission already granted for the Earls Court Masterplan |
|
| secure future planning approvals or consents |
Engagement with local and national authorities | ||
| Secretary of State or Mayoral intervention or judicial review |
Pre-application and consultation with key stakeholders and landowners |
||
| Engagement with local community bodies | |||
| Development | 3 4 5 |
||
| Decline in returns from development and | Lower development returns | Focus on prime assets | Greater uncertainty |
| impact on land valuations due to: | due to lower sales proceeds, higher costs or delay |
Regular assessment of market conditions, pricing | over macro-economic conditions and central |
| • Market conditions | and sales strategy | London residential | |
| • Increased construction costs or delays | Business strategy based on long-term returns | market following the EU Referendum |
|
| (including as a result of complexity of developing adjacent to and above public transport infrastructure) |
Professional teams in place to manage costs and deliver programme |
result | |
| • Failure to implement strategic land deals with adjacent landowners on |
Earls Court Masterplan designed to allow phased implementation |
acceptable terms
The Directors have assessed the viability of the Group over a three-year period to December 2019, the period covered by the latest business plan, taking account of the Group's current position, individual asset performance forecasts and the potential impact of the principal risks disclosed on pages 15-17. Based on this assessment, the Directors have a reasonable expectation that the Group and Company will be able to continue in operation and meet its liabilities as they fall due over the period to December 2019. In making this statement the Directors have considered the resilience of the Group, taking account of its current position, the risk appetite, the principal risks facing the business in severe but reasonable scenarios, and the effectiveness of any mitigating actions.
The business plan considers the Group's cash flow, capital commitments, financial resources, debt covenants and other key financial risks. A sensitivity analysis was carried out which involved flexing a number of the main assumptions to consider alternative macro-economic conditions, both positive and negative. This analysis was carried out to evaluate the potential impact of the Group's principal risks actually occurring. The Directors believe that the Group is well-placed to manage its principal risks successfully. The Group also considered the impact of significant economic downturn leading to asset value and rental income decline, as well as rising interest rates. This assessment has considered the potential impacts of these risks on the business model, future performance, solvency and liquidity over the period.
The Directors have determined that the three-year period to December 2019 is an appropriate period over which to provide its viability statement. In making their assessment, the Directors have taken account of the Group's robust and flexible balance sheet position with a debt to asset ratio well below the 40 per cent limit set, substantial cash and available facilities, the Group's ability to raise new finance and the flexibility of future development expenditure.
Our assets are concentrated around two prime estates in central London with a combined value of £3.7 billion
The Covent Garden area has been magnified by 1.4 times.
TfL
2
3
Venues
including Lillie Square
View of the Market Building and West Piazza
£2,275m
Contribution to portfolio value
Covent Garden has established itself as a leading retail and dining address in the heart of London's West End. Visitors are drawn to its unique retail, dining and cultural experience within a historic setting. The estate is home to Mulberry, Apple and Balthazar, as well as welcoming new tenants such as Petersham Nurseries and SUSHISAMBA
"Covent Garden is one of the world's leading destinations for global 'street retail.' The strength of demand over 2016 has resulted in a record year of leasing, setting new rental tones across the estate." Ian Hawksworth, Chief Executive
Covent Garden capital value
100 75.1 86.2 96.0 £96.0m +7.9% (LfL)
Covent Garden net rental income
2014 2015 2016
0
Covent Garden has established itself as a leading global retail and dining address in the heart of London's West End. Visitors are drawn to its unique retail, dining and cultural experience within a historic setting. Capco's distinct approach to creative asset management and place-making continues to attract the best retail and dining brands.
Providing over 1.1 million square feet of lettable space in the heart of London's West End, the Covent Garden estate represents 61 per cent of Capco's portfolio by value. At Covent Garden, Capco drives value creation through asset management, strategic investment and creativity, underpinned by a vision to establish the estate as a global destination for brands and visitors.
2016 was another year of significant progress for Covent Garden as the business continued to implement its leasing and investment strategy. The value of the estate increased by 6.4 per cent on a like-for-like basis to £2.3 billion. ERV is £96 million, a like-for-like increase of 7.9 per cent. 2016 was a record year of leasing which reflects the success of the innovative repositioning strategy through asset management and strategic investment. A new ERV target of £125 million has been set, reflecting the positive growth prospects of the estate.
Reflecting the demand for space in this iconic setting, 95 leasing transactions including new leases and renewals representing £13.3 million of rental income per annum were transacted at 9.3 per cent above 31 December 2015 ERV. Net rental income is £41.5 million, up 5.3 per cent (like-for-like) compared to 2015. Occupancy on the estate remains high at 97 per cent.
As the owner of the Covent Garden estate, Capco regularly hosts events on the Piazza attracting footfall to the estate. This year 'Reflect London' has been created to offer striking new perspectives of the Market Building while concealing renovation building works which will house an iconic new restaurant from SushiSamba with stunning views overlooking the Piazza.
Capco continues to work closely with the community stakeholders including Westminster City Council ("WCC") and Covent Garden Area Trust ("CGAT") to maintain and celebrate the attributes which make the area unique. This year was marked by the opening of a pedestrianised King Street, improving the pedestrian flow on the estate.
Petersham Nurseries
Petersham Nurseries will bring bespoke new retail and al fresco dining concepts to the Floral Court public courtyard, to open in 2017
MAPER SS Tower House Major acquisition of the significant corner building in Southampton Street with views of the Piazza 3
The prestigious British handmade eyewear brand will stock a limited edition range of sunglasses in the Royal Opera House Arcade store
Global restaurant SUSHISAMBA will bring its unique blend of Japanese, Brazilian and Peruvian culture and cuisine to the Opera Terrace, providing diners with exceptional views of the Piazza
Armani Box, the Giorgio Armani Beauty pop-up, opens its first London store, showcasing the brand's stunning make-up universe
The Watch Gallery 2
The UK's leading independent luxury watch retailer opened in the Royal Opera House Arcade, with half of the store dedicated to Rolex
STRINGFELLOWS
LK BENNETT JACK WILLS BARBOUR VACANT DISHOOM JAMIE'S ITALIAN BILL'S PRODUCE THE WHITE COMPANY JOULES The British lifestyle brand, known for their craftsmanship and leather goods, has opened a new store in Covent Garden's Royal Opera House Arcade
EAST INDIA CO
LONG ACRE
GAP KIDS
PANDORA ENTRANCE JIGSAW
CARLUCCIOS
UNDER DEVELOPMENT ENTRANCE
U/D
ROUNDHOUSE CYBER CANDY
TESCO
PETERSHAM NURSERIES
U/D U/D
FLORAL COURT
PETERSHAM NURSERIES
BEDFORD ST. OFFICES ADVENTURE
MLS BUSINESS CENTRE
THREE CADENZZA
SHERMAN BEN RUSSELL & BROMLEY
CALVIN KLEIN
CARRIAGE HALL UNDER DEVELOPMENT
LULULEMON ATHLETICA
MASSIMO DUTTI JACK WOLFSKIN
SWAROVSKI
LONG ACRE
KING STREET
HACKETT
MARIAGE FRÈRES
UNITED NUDE
FLORAL STREET
ECCO MUJI VODAFONE VACANT
MARKS & SPENCER
KATE SPADE
JONES AGNES B NIGEL HALL
RADLEY
PS BY PAUL SMITH
LES NEREIDES
ASPINAL'S
HOBBS
REEBOK FITHUB
THE TINTIN SHOP
UNDER DEVELOPMENT TO LET
SOUTHERN JOE'S
CLOS MAGGIORE
PETERSHAM NURSERIES
SANDRO
OFFICE
NIGEL HALL
PETERSHAM NURSERIES
U/D U/D
1
RESI
GAP
REISS
H&M
STEFANEL
CLAUDIE PIERLOT
HSBC
PAUL CAFE
KING STREET
JO MALONE 7 FOR ALL MANKIND
ENT.
PALM COURT
NARS
UNDER DEVELOPMENT
CAMPER
BLOOM
DIPTYQUE
UNDER DEVELOPMENT
BURBERRY MOLESKINE
SHOES ASH URBAN DECAY
AESOP
GALERIA MELISSA
OAKLEY
TED BAKER VACANT VACANT
SUNGLASS HUT OFFICE OASIS
ORIGINAL PENGUIN SCRIBBLER CARDS
LONDON TCG
CHARLOTTE TILBURY
THE NAGS HEAD PUB
BUSABA EATHAI
COVENT GARDEN
LONDON THEATRE BOOKINGS KIKO WHITE LION PUB
GEOX
PAUL SMITH
BEDFORD STREET
MAXWELL'S RESTAURANT HQ
STA TRAVEL PASTA BROWN 2 HOTEL
BEDFORD STREET
PATISSERIE VALERIE OFFICE TONI & GUY OFFICE
OFFICE
NANDOS WAHACA
CHANDOS PLACE
CAFFÈ NERO
CHANDOS PLACE
B E DFO RD B U
BEDFORDBURY
HENRIETTA STREET
13
THE REAL McCOY'S
HENRIETTA HOTEL OFFICE
RUFFIANS CINNAMON
FRENCHIE
THE LADY MAGAZINE MABELS
PORTER HOUSE PING PONG EAT
FLAT IRON
CHEANEY
ENT.
11
ALL BAR ONE HOLLAND & BARRETT
12
LUCHMUN KEVIN EDWIN HENRIETTA STREET
ST PAUL'S CHURCH
APPLE
MICHAEL KORS RITUALS BODY SHOP CAMBRIDGE SATCHEL COMPANY
MAC
JAMES STREET
JAMES STREET
MAXWELLS
WEST PIAZZA
OLIVER SWEENEY
FIRE & STONE
THE HENRIETTA
ENT. BELLA ITALIA MONACO CLUB CABOURN NIGEL
MASTERS TO LET
ENDELL STREET
ENDELL STREET
R TINS LANE Hotel Chocolat brings its new flagship store to the Market Building, with a café concept and school of chocolate launching in 2017
MAIDEN LANE
ENCANT MREALE SOLICITORS CONDESA GOURMET BURGER KITCHEN
THE BIG EASY
NICHOLSON SEARCH
POLPO
HUNGARIAN CULTURAL CENTRE
THAI PIN
RULES
FIRE & STONE
ADELPHI THEATRE
Atelier Cologne Premium fragrance brand Atelier Cologne opens its first stand-alone UK store in the Market Building 9 10
CATHERINE STREET
THE OPERA TAVERN
CICCHETTI MAMIE'S
STRADA BELLA ITALIA
COTE
VACANT VACANT
BOW STREET
BOULEVARD BRASSERIE
SAGAR NELL OF OLD DRURY EAT TOKYO MISHKIN'S
COACH & HORSES
PEYTON & BYRNE GELATORINO VACANT AUGUSTUS HARRIS
CORAL
THE GLOBE WILDWOOD
OF ANGLESEY MARQUESS
BT
CAFE ROUGE ON THE BAB
CICCHETTI
BYRON BURGERS
WELLINGTON STREET
KRYOLAN UK
PENHALIGON'S
The brand behind the original rainproof classic 'Pac-a-Mac', K-Way is the latest store to join Henrietta Street
CATHERINE STREET British fine shoe brand Cheaney signs to Henrietta Street selling men's and ladies' footwear
Award-winning British hair stylist Kevin Luchmun signs to Henrietta Street for a new men's hairdressers and barber shop concept including a bar and basement studio
Henrietta Hotel will be the first UK boutique hotel by the Experimental Group, with an 80-cover restaurant led by Michelin-starred chef Ollie Dabbous
The Italian boulangerie and restaurant takes a prominent café pitch on the West Piazza side of the Market Building, to offer al fresco informal dining upon opening in 2017
BURLEIGH STREET
JOE ALLEN
SOPHIE'S STEAKHOUSE
OFFICE REST. ENT.
PETERSHAM BE AT ONE OFFICE
BILL'S
ORSO
The celebrated French brasserie, with its own patisserie and boulangerie, launched the first Aubaine Deli in the heart of the Market building with a seasonally changing menu
U/D U/D WASABI ENT.
Floral Court and Carriage Hall
This scheme, which exceeds 100,000 square foot, will connect Long Acre to King Street via a new public passage, creating a new public courtyard and new retail, restaurant and residential space.
TAVISTOCK STREET
LONDON TRANSPORT MUSEUM
BALTHAZAR LONDON FILM MUSEUM
TAVISTOCK STREET
BRAVISSIMO LINGERIE
BOW STREET
OFFICE
AVEDA
THE RUSSELL
STARBUCKS BOULANGERIE BALTHAZAR
REDFARM
LTM GIFTSHOP
ENT.
COTSWOLD OUTDOOR
FLIGHT CENTRE VACANT THE EXETER CAFE ENT.
KAFENEO
LONDON I LOVE
Long-term development opportunities Capco owned as at 31 December 2016
Capco has successfully transformed the Royal Opera House Arcade through its strategy of a luxury accessories and gifting focus. The Watch Gallery, the UK's leading independent luxury watch retailer, and British lifestyle brand, Mulberry, have opened stores this year. The latest signings to complement this offering are luxury British cashmere brand N.Peal and British eyewear brand, Tom Davies, which are due to open later in 2017.
The iconic Market Building has seen strong demand over the year and a new Zone A rental level of £675 per square foot has been achieved. Hotel Chocolat opened in November, offering Covent Garden inspired recipes and bespoke gift collections which reference the historic Market Building. There have been a number of premium beauty brand lettings in the Market Building, including the luxury beauty boutique Tom Ford, fragrance brand Atelier Cologne, the first Armani Box London store and the beauty company Deciem.
Covent Garden has now become the premier Beauty Quarter for London, with more stand-alone beauty boutiques in one square mile than anywhere else in the Capital. New signings in the Market Building add to the existing strong line-up of Chanel, Dior, NARS and Charlotte Tilbury.
Henrietta Street continues to strengthen its retail offer, following an array of new signings including luxury men's shoe brand, Cheaney, award-winning British hair stylist, Kevin Luchmun and Parisian outerwear clothing concept K-Way. These signings continue the successful transformation of Henrietta Street following the implementation of a menswear and complementary dining strategy.
Covent Garden has strengthened its reputation as a global dining destination with a number of new concepts signed this year.
The Market Building's dining offering has evolved and enhanced following a new letting to acclaimed US fast casual restaurant Buns & Buns. The Miami based 'breadery' and grill will be another London first for Covent Garden and will offer an all-day casual foodie destination. This builds upon restaurant signings in the Market Building earlier in the year including Italian-style boulangerie VyTA Santa Margherita, French delicatessen Aubaine and renowned fusion dining restaurant SushiSamba which will open on the iconic Opera Terrace, one of the most prominent dining locations in London.
Acclaimed New York restaurant, RedFarm, has taken space alongside Balthazar on Russell Street. The new restaurant, the group's first outside of New York, will bring RedFarm's famed menu of modern and inventive Chinese food to London's West End and is due to open later in 2017.
The Royal Opera House Arcade has transformed with a new focus on luxury accessories and gifting, evidenced by brands such as The Watch Gallery, Mulberry, Lulu Guinness and Tom Davies opening stores in the Arcade
A new letting to Experimental Group will see the opening of their latest concept in London on Henrietta Street. Plans from the team behind The Experimental Cocktail Club include a new restaurant and bar as well as an 18 bedroom hotel. The Experimental Group is partnering with Michelin-starred chef Ollie Dabbous to create a French seasonal menu. Adding to the leisure offering is Z Hotels which has taken space on Bedford Street and will provide luxurious yet compact rooms for visitors. In addition, Capco together with Robert De Niro and BD Hotels, were granted planning approval by Westminster City Council to create The Wellington, a visionary new 83-room luxury boutique hotel on Wellington Street.
The arrival of the much-celebrated Frenchie and Flat Iron has elevated the dining mix on Henrietta Street, with a new restaurant by Ollie Dabbous to open at Henrietta Hotel in 2017
Floral Court will provide over 85,000 square feet (NIA) of space with eight retail and two restaurant units as well as 45 premium apartments above the development. The Floral Court development continues to make positive progress and is on track for completion towards the end of 2017 at an expected total cost of £105 million. At Carriage Hall, the refurbishment of 15,000 square feet (NIA) nears completion.
The schemes will transform pedestrian flow, creating a new connecting passage between Long Acre and King Street providing the opportunity to unlock Floral Street's place-making potential.
Highlighting the strong appeal of the scheme, worldrenowned lifestyle brand Petersham Nurseries have pre-leased approximately 60 per cent of the commercial space at Floral Court. Petersham Nurseries will occupy over 16,000 square feet (NIA), creating new bespoke retail and dining concepts across four units.
The redevelopment of 11-12 Floral Street, the building formerly occupied by The Sanctuary, is well underway and will include the creation of two new retail units with flagship potential.
Capco has continued to expand its footprint on the estate, most notably through the strategic acquisition of Tower House, on Southampton Street, a key access point of the estate, for £67.5 million before purchaser's costs.
The property is a substantial corner building well located at the junction of Southampton Street and Tavistock Street with views towards the Piazza. The property offers prime retail frontage with repositioning opportunities and further enhances Capco's presence on Southampton Street, a key access point to the Piazza.
Capco continues to restore the estate's residential heritage. The lettings market has been very active with strong demand for Capco's brand of premium residential product across the estate with average rents between £70 and £85 per square foot setting new rental tones for the area.
This year saw the sale of three apartments, including two penthouses, at The Beecham, a luxury development overlooking the Piazza. The average price achieved for the scheme is in excess of £2,800 per square foot, with one of the penthouse apartments achieving over £3,000 per square foot.
The most recent conversion is at 26-27 Southampton Street, a premium residential development, which is due to complete shortly and will offer 10 apartments to let.
The strategy for Covent Garden remains focused on driving value through its creative asset management and investment strategy. The focus will be on continuing to attract excellent brands and dining concepts to the estate as well as continued investment through strategic acquisitions to expand the footprint of the estate. Completing the repositioning strategy for the Royal Opera House Arcade, as well as adding further retail and dining depth to Henrietta Street are key areas of priority.
Further to this, the Floral Court and Carriage Hall developments will complete in 2017 which will transform pedestrian flow in the area and will provide the opportunity to extend Capco's place-making approach to Floral Street, realising the unlocked potential in this part of the estate. Reflecting the positive growth prospects of the estate, a new ERV target of £125 million to be achieved by December 2020, has been set.
Following a record year of leasing activity, 2017 will see a large number of retail and dining openings across the estate with brands such as SushiSamba, Petersham Nurseries, Henrietta Hotel, Tom Ford and Armani Box London providing additional animation and quality to the portfolio, further underpinning the estate's reputation as a premier global retail and dining destination.
Work continued to progress at Floral Court throughout 2016. The new mixed-use development will open up a public courtyard with new high quality residential, retail and restaurant space, anchored by dining and retail concepts from Petersham Nurseries
Capital value
CHELSEA
£1,142m1
Contribution to portfolio value
Earls Court is one of the most important and exciting development opportunities in the Capital, with the potential to evolve in line with London's growing needs
The Earls Court Opportunity Area including Lillie Square as per the Greater London Authority (GLA). The Empress State Building has been approved for residential conversion
FULHAM
"2016 has been a year of good progress at Earls Court. We completed the first phase of demolition of the former Exhibition Centres and commenced enabling works to prepare the site for its development potential. We are delighted to have welcomed our first residents to the area following completion of the first apartments at Lillie Square." Gary Yardley, Managing Director & Chief Investment Officer
Earls Court Properties capital value
The landowners' map is indicative.
Covering over 70 acres of prime, strategic land in Chelsea and Fulham, the consented Earls Court Masterplan is the largest redevelopment opportunity in central London. The site is located in an established London neighbourhood and provides excellent transport infrastructure. Underpinned by Capco's distinct approach to place-making, the Earls Court Masterplan represents an opportunity to create the next great estate of London.
The mixed-use scheme is a GLA 'Opportunity Area', making it a key strategic scheme for the Capital and is currently consented to provide 7,500 new homes, creating 10,000 jobs and will deliver over £450 million in community benefits. The scheme is the only central London Opportunity Area of scale with the potential to deliver substantially more housing. Accordingly, representations have been made by Capco to the GLA's London Plan to deliver 10,000 new homes, an additional 2,500 homes above the current consented scheme.
Against the backdrop of London's growing housing needs, maximising Opportunity Areas is seen as vital in order to meet London's demands. The current GLA London Plan estimates that London's population will grow by two million by 2036 and the provision of housing a key priority with the Capital requiring over 40,000 new homes per annum.
Earls Court Properties represents Capco's interests in Earls Court, which principally comprise:
In addition, in 2013, Capco exercised its option under the Conditional Land Sale Agreement ("CLSA"), a binding agreement in relation to the West Kensington and Gibbs Green Estates.
The valuation of Earls Court Properties is £1.1 billion, a decrease of 20.4 per cent (like-for-like) principally driven by a greater risk premium through a higher developer's margin for consented development land, trimming of sales values, as well as some cost inflation. This reflects the valuer's assessment of weakened sentiment and a correction in the central London residential market.
The Masterplan is located in two London Boroughs, the Royal Borough of Kensington and Chelsea and the London Borough of Hammersmith & Fulham. Capco remains committed to working positively and constructively with all its stakeholders.
Earls Court Properties saw continued operational progress and achieved a number of milestones throughout 2016.
The Earls Court site is the largest regeneration project in central London transforming over 70 acres of prime real estate into a visionary, mixed-use district
Artist's impression of Empress Place Garden Square Artist's impression of improved plans for Empress Place, Earls Court
As a designated GLA Opportunity Area, The Earls Court Masterplan is a strategic scheme for the Capital with outline planning consent for 10.7 million square feet (including The Empress State Building). In preparation for the next revision of the London Plan, which is expected next year, representations have been submitted by Capco to the GLA outlining The Earls Court Masterplan's ability to deliver a minimum of 10,000 new homes, well in excess of the 7,500 currently consented, demonstrating the site's potential to deliver more housing and maximise this important London scheme. The additional density will deliver much needed homes for all Londoners including additional affordable housing and a diversity of residential tenures.
ECPL has consolidated its ownership in the Masterplan area in recent years, acquiring a number of smaller assets on and around Empress Place. During 2016, ECPL engaged in public consultations on proposals for 400 new homes and retail space, covering circa 500,000 square feet (GEA), creating one of the key access points to the Earls Court Masterplan and Lillie Square. Preparations are being made for the submission of the planning application by ECPL for the Empress Place scheme. The application is expected to be submitted in spring 2017 and could add an additional circa 200,000 square feet (GEA) of space to the Masterplan area, aligning with Earls Court's ability to deliver greater density.
In October 2016, a detailed planning application was submitted to the Royal Borough of Kensington and Chelsea for Exhibition Square which is located at the entrance of the Earls Court estate adjacent to Earls Court Underground station. Detailed planning consent was granted in January 2017. The consent which covers 1.8 acres will create an important gateway to the Earls Court scheme and its new high street, including a public square and gardens, a signature hotel, offices and an entrance to Earl's Court Underground station.
Due to the scale of the Earls Court Masterplan, there will remain a risk of protests and legal challenges (ranging from complaints about noise through to judicial reviews or applications for listing) against specific aspects of the scheme as it is progressed. It should be noted that all such challenges to date have been successfully defended however future challenges of this nature cannot be discounted.
ECPL, the venture with TfL in respect of EC1 & EC2 owns 999 year leases over the EC1 & EC2 land together with certain adjacent properties primarily located on or around Lillie Road. Capco owns 63 per cent share and is leading the venture in its role as business and development manager.
ECPL has made significant progress in the enablement of land interests at Earls Court. The first phase of the complex demolition of the former Earls Court Exhibition Centres to ground level completed this year at a cost of £60 million. Demolition to basement level will further de-risk the site and prepares the land for future development. This final phase of demolition is expected to take 12 months at a cost of circa £40 million.
In 2013, Capco exercised its option under the CLSA, a binding agreement in relation to the West Kensington and Gibbs Green Estates. To date, Capco has paid £60 million of the £105 million cash consideration payable to LBHF including two of the five annual instalments of £15 million. Enabling works have commenced on Block D of Lillie Square foundations to facilitate the first phase of replacement housing for the West Kensington and Gibbs Green estates residents.
The first phase of demolition of the former Earls Court Exhibition Centres Artist's impression of the Lost River Park completed in 2016. The Heavy Lifting Crane was introduced for enabling works to prepare the site for further use
DETAILED DESIGNS FOR THE EARLS COURT MASTERPLAN
Artist's impression of the High Street
Artist's impression of the Lost River Park Artist's impression of Exhibition Square
Lillie Square capital value
£223m -17.0% (LfL)
First units complete at Lillie Square
Governance
Lillie Square will offer modern garden square living through over 800 new homes
The Lillie Square development is a one million square feet (GEA) residential scheme located adjacent to the Earls Court Masterplan. The development will deliver 608 private and 200 affordable homes across three phases.
The valuation of Capco's 50 per cent interest in Lillie Square, which is held in a joint venture with the Kwok Family Interests ("KFI"), decreased to £223 million, a like-for-like decrease of 17.0 per cent over the year.
Phase 1 launched in 2014 and is substantially pre-sold. The average price per square foot of Phase 1 is approximately £1,500 with the range of pricing achieved at £1,200 – £2,800 per square foot including a penthouse pre-sold for £6.3 million. Construction of Phase 1 nears completion and the scheme welcomed its first residents in December 2016. Over £125 million of sales proceeds (Capco's share) are expected in the coming year on completion of handovers of Phase 1.
Sales of Phase 2 have continued with 59 apartments now reserved or exchanged. Sales prices achieved in Phase 2 have remained positive with prices at a modest premium to comparable units in Phase 1. Preparations are being made to enable the next release in the coming months while plans are progressing to enable construction of Phase 2.
Construction costs in relation to the private element of the Lillie Square scheme are currently expected to be in the order of £420 million, reflecting market conditions in the construction industry.
Lillie Square
Capco's strategy at Earls Court is to drive long-term value creation through planning, land assembly, land enablement and selective development activities.
At Earls Court, the focus of activities will be the completion of the complex demolition of the former Earls Court Exhibition Centres to below ground level, preparing the land for its future development potential. At Empress Place, the priority is to obtain approval for the planning application which could increase the potential consented Masterplan area by circa 200,000 square feet (GEA).
The Earls Court Masterplan is currently consented to deliver 7,500 new homes and is the only designated GLA Opportunity Area of scale in central London making it a strategic scheme for the Capital. Representations recently made by Capco to the GLA's London Plan outline the ability of The Earls Court Masterplan to deliver a minimum of 10,000 new homes, well in excess of the currently consented scheme. Capco remains focused on maximising the potential of this important London scheme.
At Lillie Square, the focus will be to complete and deliver Phase 1, continue sales of Phase 2 through the next release of units later in 2017 and progress plans to enable the construction of Phase 2.
First residents welcomed to Lillie Square
◦ Maximise performance by continuing to attract new shows
Venues capital value
0
2014 2015 2016
A leading central London venue Olympia London is now established as a preferred central London venue for premium shows welcoming over 1.5 million visitors each year. The business has performed very well during 2016, delivering EBITDA of £19 million, up 29 per cent compared to 2015 driven by improved pricing and utilisation as well as a business rates rebate. The valuation of the Venues business, which includes Olympia London property assets and Maclise Road, decreased to £293 million, a like-for-like decrease of 1.3 per cent.
This year, Olympia London played host to inspiring showcases for L'Oreal and Samsung and also the UK's largest exhibition: the Ideal Home Show and it continues to attract some of the best shows in the exhibition industry.
Olympia Horse Show
Situl Jobanputra, Chief Financial Officer
◦ EPRA NAV of 340 pence per share, a 5.9% decrease
"Capco maintains a robust and disciplined financial position with low leverage of 23 per cent and available liquidity of £556 million. Our capital structure positions the Group to withstand prevailing market conditions and deliver long-term returns to shareholders by driving value across our assets."
1. Group share
During 2016 political and economic uncertainties have had a negative impact on the property sector, in particular London residential property, which is reflected in the fall in valuations.
EPRA net asset value per share fell by 5.9 per cent during the year, decreasing from 361 pence at 31 December 2015 to 340 pence. This 21 pence decrease together with the 1.5 pence dividend paid during the year represents a total return of -5.5 per cent.
At Covent Garden rental growth achieved during the year was the main driver of the increase in value of the estate by 6.0 per cent (6.4 per cent like-for-like).
The market value of Earls Court Properties, which comprises the Group's interests at Earls Court, has decreased by 20.4 per cent, reflecting the valuers' assessment of the weakened sentiment in the central London residential market.
In line with the requirements of IFRS 11 'Joint Arrangements', the Group is required to present its joint ventures under the equity method in the consolidated financial statements. Under the equity method, the Group's interest in joint ventures is disclosed as a single line item in both the consolidated balance sheet and consolidated income statement rather than proportionally consolidating the Group's share of assets, liabilities, income and expenses on a line-by-line basis.
Internally, the Board focuses on and reviews information and reports prepared on a Group share basis, which includes the Group's share of joint ventures but excludes the non-controlling interest share of our subsidiaries. Therefore, to align with the way the Group is managed, this financial review presents the financial position, performance and cash flow analysis on a Group share basis. In previous years the Board focused on and reviewed information on a proportionally consolidated basis therefore the comparative summary income statement and summary cash flow statements have been re-presented.
EPRA net assets per share
At 31 December 2016 the Group's EPRA net asset value was £2.9 billion (31 December 2015: £3.1 billion) representing 340 pence per share (31 December 2015: 361 pence).
The Group presents EPRA net asset value in addition to the net assets attributable to owners of the Parent. The EPRA alternative performance measures are widely used by public real estate companies in Europe and therefore assist with comparability.
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| IFRS £m |
Joint ventures1 £m |
NCI2 £m |
Group share £m |
IFRS £m |
Joint ventures1 £m |
NCI2 £m |
Group share £m |
|
| Investment, development and trading property | 3,822.8 | 176.0 | (378.5) | 3,620.3 | 3,870.7 | 130.9 | (471.6) 3,530.0 | |
| Net debt | (815.4) | (40.1) | 8.2 | (847.3) | (559.2) | (9.4) | (10.3) | (578.9) |
| Other assets and liabilities3 | 165.8 | (135.9) | 2.1 | 32.0 | 91.3 | (121.5) | 13.1 | (17.1) |
| Non-controlling interest | (368.2) | – | 368.2 | – | (468.8) | – | 468.8 | – |
| Net assets attributable to owners of the Parent | 2,805.0 | – | – | 2,805.0 | 2,934.0 | – | – | 2,934.0 |
| Adjustments: | ||||||||
| Fair value of derivative financial instruments | 13.7 | 2.4 | ||||||
| Unrecognised surplus on trading property | 48.1 | 99.9 | ||||||
| Deferred tax adjustments | 11.5 | 28.9 | ||||||
| Non-controlling interest in respect of the adjustments | – | (5.8) | ||||||
| EPRA net asset value | 2,878.3 | 3,059.4 | ||||||
| EPRA net asset value per share (pence)4 | 340 | 361 |
1. Primarily Lillie Square.
2. Non-controlling interest represents Tf L's 37 per cent share of ECPL.
3. IFRS includes amounts receivable from joint ventures which eliminate on a Group share basis.
4. Adjusted, diluted number of shares in issue at 31 December 2016 was 847.6 million (31 December 2015: £847.7 million).
The revaluation deficit on the Group's property portfolio was £170.4 million for the year, representing a 4.4 per cent decrease in value on a like-for-like basis compared with the IPD Capital Return for the equivalent period of a 2.8 per cent loss. Revaluation gains at Covent Garden of £129.4 million were not sufficient to offset revaluation loss at Earls Court of £292.7 million. On an IFRS basis, which includes ECPL at 100 per cent and Lillie Square at 50 per cent, revaluation loss and sale of investment property was £235.0 million.
Total property return for the year was a deficit of 2.3 per cent. The IPD Total Return index recorded a 2.6 per cent gain for the corresponding period. The 2016 valuations incorporate the increased SDLT levels that were enacted earlier this year which had an impact of £32.4 million (0.9 per cent of property value).
Trading property is carried on the consolidated balance sheet at the lower of cost and market value, therefore valuation surpluses on trading property are not recorded. Any unrecognised surplus is however reflected within the EPRA net asset value measure. At 31 December 2016, the unrecognised surplus on trading property was £48.1 million (31 December 2015: £99.9 million). This arises primarily on trading property at Lillie Square.
During the year the Group increased its share of available facilities by £425 million, with five new agreements.
The Group's cash and undrawn committed facilities at 31 December 2016 were £556.3 million (31 December 2015: £412.1 million). A reconciliation between IFRS and Group share is shown below:
| 2016 | 2015 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| IFRS £m |
Joint ventures1 £m |
NCI2 £m |
Group share £m |
IFRS £m |
Joint ventures1 £m |
NCI2 £m |
Group share £m |
||
| Cash and cash equivalents | 30.9 | 37.4 | (3.5) | 64.8 | 66.9 | 34.4 | (10.3) | 91.0 | |
| Undrawn committed facilities | 532.7 | 2.4 | (43.6) | 491.5 | 300.0 | 21.1 | – | 321.1 | |
| Cash and undrawn committed facilities | 563.6 | 39.8 | (47.1) | 556.3 | 366.9 | 55.5 | (10.3) | 412.1 |
1. Primarily Lillie Square.
2. Non-controlling interest represents Tf L's 37 per cent share of ECPL.
Net debt increased by £268.4 million to £847.3 million, principally as a result of further investment in and the acquisition of property. As set out in the summary adjusted balance sheet net debt on an IFRS basis was £815.4 million.
The gearing measure most widely used in the industry is loan to value ("LTV"). LTV is calculated on the basis of net debt divided by the carrying value of the Group's property portfolio. The Group focuses most on an LTV measure that includes the notional share of joint venture interests but excludes the share of the non-controlling interest. The LTV of 23.4 per cent remains comfortably within the Group's limit of no more than 40 per cent.
| 2016 | 2015 | |
|---|---|---|
| Loan to value | 23.4% | 16.4% |
| Interest cover | 173% | 124% |
| Weighted average debt maturity | 5.9 years | 4.1 years |
| Weighted average cost of debt | 2.7% | 3.3% |
| Gross debt with interest rate protection | 86% | 91% |
The Group's policy is to substantially eliminate the medium and long-term risk arising from interest rate volatility. The Group's banking facilities are arranged on a floating rate basis but are generally swapped to fixed rate or capped using derivative contracts. At 31 December 2016 the proportion of gross debt with interest rate protection was 86 per cent (31 December 2015: 91 per cent).
The Group remains compliant with all of its debt covenants and has substantial levels of headroom against its covenants across all its debt facilities. Details of the covenants are included on page 143.
At 31 December 2016 the Group had capital commitments of £156.6 million compared to £206.5 million at 31 December 2015, of which Covent Garden represents £74.2 million, Earls Court Properties £64.2 million (including the £45.0 million of CLSA instalments) and Lillie Square £18.2 million. The pipeline has been significantly de-risked, for example at Floral Court where approximately 60 per cent of the commercial space has been pre-let to Petersham Nurseries, and through over £300 million (£150 million Group share) of pre-sales at Lillie Square. On a pro forma basis, not taking into account any property valuation movements or any receipts, expenditure on capital commitments would increase the LTV from 23.4 per cent to 27.7 per cent.
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| IFRS £m |
Joint ventures1 £m |
NCI2 £m |
Group share £m |
IFRS £m |
Joint ventures1 £m |
NCI2 £m |
Group share £m |
|
| Capital commitments | 149.2 | 18.2 | (10.8) | 156.6 | 162.5 | 48.6 | (4.6) | 206.5 |
1. Primarily Lillie Square.
2. Non-controlling interest represents Tf L's 37 per cent share of ECPL.
In November 2013 the Group exercised its option under the CLSA, which it entered into with the London Borough of Hammersmith & Fulham ("LBHF"), for the purchase of the West Kensington and Gibbs Green housing estates (the "Estates"). The overall consideration payable is expected to be £105 million cash plus the planning requirement to provide up to 760 replacement homes.
The CLSA remains unrecognised in the consolidated financial statements of the Group as its main underlying asset (the land relating to the Estates) does not currently meet the recognition criteria under IFRS required for investment and development property. Annual payments of £15 million commenced in December 2015 and will run through to December 2019. Where amounts are paid prior to the transfer of property, they will be carried on the Group's balance sheet as prepayments against future land draw down. Of the £60 million paid to date, £15 million relates to the acquisition of two properties and £45 million is held as a prepayment. The remaining future payments totalling £45 million are disclosed as a capital commitment. A transfer from prepayment to investment and development property will occur once the risks and rewards of ownership have passed to the Group. Once this occurs, in line with the Group's accounting policy, the land will become subject to bi-annual valuation with any changes reflected in the Group's reported net asset measure.
A summary of the Group's cash flow for the year ended 31 December 2016 is presented below:
| 2016 | Re-presented1 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| IFRS £m |
Joint ventures2 £m |
NCI3 £m |
Group share £m |
IFRS £m |
Joint ventures2 £m |
NCI3 £m |
Group share £m |
|
| Operating cash flows after interest and tax | (29.5) | 1.4 | (2.5) | (30.6) | (2.3) | (4.3) | (16.0) | (22.6) |
| Purchase and development of property, plant and equipment | (216.1) | (41.4) | 16.8 | (240.7) | (250.2) | (32.7) | 12.8 | (270.1) |
| Transactions with joint venture partners and non-controlling interests |
(12.3) | 6.4 | 3.9 | (2.0) | (16.7) | 4.2 | – | (12.5) |
| Net sales proceeds from property and investments | 19.4 | 1.3 | – | 20.7 | 17.7 | (1.6) | – | 16.1 |
| Deferred consideration on purchase of subsidiary | – | – | – | – | (7.1) | – | – | (7.1) |
| Net cash flow before financing | (238.5) | (32.3) | 18.2 | (252.6) | (258.6) | (34.4) | (3.2) | (296.2) |
| Issue of shares | 0.1 | – | – | 0.1 | 0.1 | – | – | 0.1 |
| Financing | 209.9 | 31.6 | (11.4) | 230.1 | 238.3 | 36.9 | – | 275.2 |
| Dividends paid | (7.5) | – | – | (7.5) | (7.7) | – | – | (7.7) |
| Net cash flow4 | (36.0) | (0.7) | 6.8 | (29.9) | (27.9) | 2.5 | (3.2) | (28.6) |
1. The 31 December 2015 summary cash flow has been prepared on a Group share basis. In the 'Annual Report for the year ended 31 December 2015' the summary cash flow was presented on a proportionate consolidation basis.
2. Primarily Lillie Square.
3. Non-controlling interest represents Tf L's 37 per cent share of ECPL.
4. Net cash flow is based on unrestricted cash and cash equivalents and therefore does not include the movement in Lillie Square deposits on a Group share basis of £3.7 million (2015: £14.9 million).
Operating cash outflows of £30.6 million, of which £15.0 million relates to the CLSA annual payment, have increased from £22.6 million for the year to 31 December 2015 as a result of changes to net working capital requirements.
During the year, £164.0 million was invested at Covent Garden for the purchase of two properties and subsequent expenditure for the development of property predominantly at Floral Court. At Earls Court £75.0 million was spent on subsequent expenditure for the construction of Lillie Square Phase 1 and the demolition of the Earls Court Exhibition Centres.
Net sales proceeds from property and investments comprise the disposal of three residential units at The Beecham, Covent Garden and five residential units at Lillie Square, net of sales and marketing fees. Marketing fees include costs for units that have not yet completed.
Net borrowings drawn during the year were £239.7 million. Refinancing activities and purchase of derivatives resulted in a cash outflow of £9.6 million.
Dividends paid of £7.5 million reflect the final dividend payment made in respect of the 2015 financial year and the 2016 interim dividend paid in September. This was lower than the previous year due to a higher take up of the scrip dividend alternative, 41 per cent versus 38 per cent in 2015.
Undrawn facilities
The Group presents underlying earnings and underlying earnings per share in addition to the amounts reported on a Group share basis. The Group considers this presentation to provide useful information as it removes unrealised and other one-off items and therefore represents the recurring, underlying performance of the business.
Summary income statement
| 2016 | Re-presented1 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| IFRS £m |
Joint ventures2 £m |
NCI3 £m |
Group share £m |
IFRS £m |
Joint ventures2 £m |
NCI3 £m |
Group share £m |
|
| Net rental income | 82.0 | (0.1) | (0.4) | 81.5 | 75.3 | – | (0.4) | 74.9 |
| (Loss)/gain on revaluation and sale of investment and development property |
(235.0) | (0.1) | 110.3 | (124.8) | 453.9 | 0.1 | (32.2) | 421.8 |
| Administration expenses | (50.6) | (0.8) | 0.9 | (50.5) | (52.1) | (0.7) | 0.3 | (52.5) |
| Net finance costs | (19.3) | (0.2) | – | (19.5) | (20.1) | – | – | (20.1) |
| Taxation | 16.8 | – | (5.9) | 10.9 | (2.7) | – | 5.8 | 3.1 |
| Other | (17.4) | 1.2 | – | (16.2) | 2.9 | 0.6 | 0.4 | 3.9 |
| Non-controlling interest | 104.9 | – | (104.9) | – | (26.1) | – | 26.1 | – |
| (Loss)/profit for the period attributable to owners of the Parent | (118.6) | – | – | (118.6) | 431.1 | – | – | 431.1 |
| Adjustments: | ||||||||
| Loss/(gain) on revaluation and sale of investment and development property |
124.8 | (421.8) | ||||||
| Other | 18.9 | (1.4) | ||||||
| Taxation on non-underlying items | (13.3) | (0.1) | ||||||
| Underlying earnings | 11.8 | 7.8 | ||||||
| Underlying earnings per share (pence) | 1.4 | 0.9 | ||||||
| Weighted average number of shares | 844.4m | 841.1m |
1. The 31 December 2015 summary income statement has been prepared on a Group share basis. In the 'Annual Report for the year ended 31 December 2015' the summary income statement was presented on a proportionate consolidation basis.
2. Lillie Square and Solum Developments.
3. Non-controlling interest represents Tf L's 37 per cent share of ECPL.
Net rental income has increased by £6.6 million (7.8 per cent like-for-like) during the year as a result of strong performances at Covent Garden and Olympia London.
The loss on revaluation and sale of the Group's investment and development property was £124.8 million. Covent Garden recorded a gain on revaluation of £126.1 million as a result of rental growth. The loss on revaluation at Earls Court of £247.2 million reflects the valuers' assessment of the weakened sentiment and corrections in the central London residential market with the major contributors being market uncertainty following the result of the EU Referendum and the increase in SDLT.
Administration expenses have decreased by £2.0 million due to a reduction in performance related employment costs, which have been partly offset by an increase in establishment costs. It is expected that there will be further reduction in administration expenses as efficiency initiatives are pursued.
Net finance costs have decreased by 3.0 per cent to £19.5 million, with a lower weighted average cost of debt offsetting an increased level of net debt.
The total tax credit is made up of both underlying tax and non-underlying tax and for the year is £10.9 million. This credit predominantly arises from the loss on revaluation of the Group's investment and development property at Earls Court.
Tax on underlying profits of the Group was £2.4 million, which reflects a rate in line with the current rate of UK corporation tax being 20 per cent. Following the enactment of Finance (No. 2) Act 2015 and Finance Act 2016 the corporation tax rate will reduce to 19 per cent from April 2017 and 17 per cent from April 2020.
| Measure | Definition of Measure | 2016 | 2015 |
|---|---|---|---|
| EPRA earnings1 | Recurring earnings from core operational activity | £9.1m | £6.0m |
| EPRA earnings per share1 | EPRA earnings per weighted number of ordinary shares | 1.1p | 0.7p |
| Underlying earnings1 | Profit for the year excluding unrealised and one-off items | £11.8m | £7.8m |
| Underlying earnings per share1 | Underlying earnings per weighted number of ordinary shares | 1.4p | 0.9p |
| EPRA NAV1 | Net asset value adjusted to include properties and other investment interests at fair value and to exclude certain items not expected to crystallise in a long-term investment property business model |
£2,878m | £3,059m |
| EPRA NAV per share1 | EPRA NAV per the diluted number of ordinary shares | 340p | 361p |
| EPRA triple net assets1 | EPRA NAV amended to include the fair value of financial instruments and debt | £2,841m | £3,016m |
| EPRA triple net assets per share1 Diluted triple net assets per the diluted number of ordinary shares | 335p | 356p | |
| EPRA net initial yield | Annualised rental income less non-recoverable costs as a percentage of market value plus assumed purchaser's costs |
2.5% | 2.6% |
| EPRA topped-up initial yield | Net initial yield adjusted for the expiration of rent-free periods | 2.7% | 2.7% |
| Occupancy | ERV of occupied space as a percentage of ERV of combined portfolio | 97.1% | 97.8% |
These are alternative performance measures as defined by the FRC. Please refer to the Glossary for further detail on the definition of each measure.
1. A reconciliation between IFRS and the above performance measures can be found in note 13 to the accounts.
Contingent tax, the amount of tax that would become payable on a theoretical disposal of all investment property held by the Group, was £nil (31 December 2015: £17.6 million). A disposal of the Group's trading property at market value would result in a corporation tax charge to the Group of £9.6 million (20 per cent of £48.1 million).
The provisions of IAS 12 provide for the recognition of a deferred tax asset where it is probable there will be future taxable profit against which a deductible temporary difference can be utilised. As a result of the application of this provision, the Group has not recognised the deferred tax asset on decreases to the carrying value of investment property and certain losses carried forward.
The Group's tax policy, which has been approved by the Board and has been disclosed to HM Revenue & Customs, is aligned with the business strategy. The Group seeks to protect shareholder value by structuring operations in a tax efficient manner, with external advice as appropriate, which complies with all relevant tax law and regulations and does not adversely impact our reputation as a responsible taxpayer. As a Group, we are committed to acting in an open and transparent manner.
Consistent with the Group's policy of complying with relevant tax obligations and its goal in respect of its stakeholders, the Group maintains a constructive and open working relationship with HM Revenue & Customs which regularly includes obtaining advance clearance on key transactions where the tax treatment may be uncertain.
The Board has proposed a final dividend of 1.0 pence per share to be paid on 31 May 2017 to shareholders on the register at 21 April 2017. Subject to SARB approval, a scrip dividend alternative will be offered. Together with the interim dividend paid in September this brings the total dividend for the year to 1.5 pence per share.
At 31 December 2016 the Group's cash and undrawn committed facilities were £556.3 million and its capital commitments were £156.6 million. With weighted average debt maturity of nearly six years, LTV of 23.4 per cent and sufficient headroom against all financial covenants, there continues to be a reasonable expectation that the Company and Group will have adequate resources to meet both ongoing and future commitments over a period of at least 12 months from the date of approval of the financial statements.
Accordingly, the Directors have prepared the 2016 Annual Report & Accounts on a going concern basis.
Situl Jobanputra Chief Financial Officer
21 February 2017
The Company's Corporate Responsibility ("CR") strategy remains at the heart of what we do and our programme of activities ensures that Capco is making a positive social and environmental impact in the Capital.
Our programme of community outreach reflects our desire to improve key social problems in London, namely youth employment, homelessness and the support of ex-military personnel. As responsible stewards of leading London estates, enhancement of the environment is an important priority across the Group.
We are committed to providing the highest standards of health and safety at our assets and for our employees and expect our suppliers to support us in achieving this commitment.
CR activity across the business is driven by the operational committees that focus on environmental and community strategy and report to the CR Executive Committee.
Our talented people are at the core of our success and we continue to develop people by building individual careers in order to further embed our entrepreneurial culture.
We report on performance against our key targets for 2016 in this report and further information can be found on our website.
Hours of training activities
462
Volunteer hours on CR activities
882
Support of charitable causes
£156k
Reduction in absolute greenhouse gas emissions across our portfolio
14%
We monitor and assess the effectiveness of our CR strategy and measure impact in three fundamental areas: people, community and environment. In addition we monitor health and safety standards across the Group.
See pages 49 & 50 See pages 51 & 52
PEOPLE
Our teams of highly skilled and motivated people are critical to the successful delivery of our business plan. We aim to develop careers within the Company and promote from within whenever possible.
We benchmark our remuneration and aim to be at upper quartile in our sector. We reward performance against objectives set through competitive salaries, discretionary bonus and share awards.
With constant momentum the business is both fast-moving and entrepreneurial. We have a high performance culture in which innovation and creativity are encouraged.
We aim to make a difference in the Capital's society and have well-established associations with our volunteer organisations and chosen charities. We make every effort to identify volunteering opportunities for our staff and we are proud of their commitment and engagement with our CR programme.
We work hand-in-hand with the community in the areas of London in which we invest, and have bespoke programmes centred on youth employment, the homeless and military veterans.
We deliver an education programme to primary and secondary schools in Covent Garden and Earls Court, designed to introduce children of school age to specific issues affecting their areas of London.
We have long-standing relationships with selected charities which are aligned with our CR strategy. We remain focused on benefiting young people, veterans and the homeless.
A summary of progress against all our 2016 targets can be found in the Responsibility
It is our intention to benefit the communities in which our assets are located, providing development opportunities to our talented
people and respecting the environment.
section of the Capco corporate website.
COMMUNITY ENVIRONMENT
We are committed to improving the energy efficiency of our portfolio and to lowering our carbon emissions. In 2016 we made a number of upgrades to install energy efficient equipment and continue to increase our purchasing of green tariff electricity.
We are committed to integrating responsible and sustainable practices into the delivery of projects and development. We achieved BREEAM Very Good certification for the refurbishment of Grade II listed retail unit 38 King Street, installed solar panels as part of the refurbishment works at 26-27 Southampton Street and installed rainwater harvesting at Lillie Square.
We continue to monitor and report performance in line with industry sustainability reporting benchmarks. We remain a participant of the FTSE4Good Index and achieved a B rating in the CDP Climate Change Programme. In 2016 we made our first submission to the Global Real Estate Sustainability Benchmark (GRESB) and achieved a Green Star rating.
We continue to strive for health and safety excellence across all of our property activities in order to offer the highest levels of protection for our employees, supply chain partners and the members of the public who interact with our business operations.
THE COVENT GARDEN ESTATE RELAUNCHED A STREET CLEANING PROGRAMME
The Lord Mayor of Westminster joined our team to clean King Street and helped launch the new heritage style cleaners' uniforms
WE AIM TO BENEFIT YOUNG PEOPLE IN AREAS WHERE OUR ASSETS ARE LOCATED
Local primary schools took part in this year's Apple Market Challenge and the finalists met with traders and presented their ideas to a panel of judges
The Earls Court project team put their landscaping and construction skills to good use by helping to plant some of Hammersmith Community Gardens Association's (HCGA's) 8,000 spring bulbs in Wormholt Park
People are the key to our success and we are proud of our team ethos and results oriented approach.
We aim to develop careers by promoting talented individuals to positions of leadership.
Our aim is to manage talent effectively and ensure that we have sufficient capability to realise our ambitious strategy. We regularly undertake succession planning exercises to review the talent pipeline and progress individuals according to capability.
We recruit top graduates each year who pursue an internal programme of training and mentoring, which will ensure they are well prepared for the Royal Institution of Chartered Surveyors ("RICS") Assessment of Professional Competence ("APC"). Each graduate is assigned an experienced Capco counsellor and supervisor who guides them through the APC process.
New opportunities that arise in the business are advertised internally and we aim to promote internal candidates in order to enhance career development and encourage mobility across the company. We have extended our approach to induction to include transition coaching to those in new roles.
Capco training and development programmes are designed to augment the bench strength of our teams and challenge aspiring leaders.
Individual training and development needs are identified and discussed at performance review meetings with line managers. During 2016, our employees spent 462 hours on training activity.
Through our sponsorship of individuals undertaking further professional qualifications, we encourage continuous learning, reflecting our intention to create a knowledgeable environment.
In order to promote knowledge transfer across the Company, we run a series of 'lunch and learn' sessions, where business leaders showcase their strategy to other employees, in order to enhance understanding of wider business objectives.
We recognise that coaching and mentoring can have significant impact on behaviours and key staff continue to benefit from bespoke coaching programmes.
Annual performance objectives for individuals are agreed at performance review meetings which take place at the beginning of the calendar year. Performance is measured against objectives set for the previous year and individual performance ratings underpin discretionary bonus awards which are paid in April of each year.
We regard the giving of regular and direct feedback as a core competency of effective leadership and encourage line managers to appraise performance regularly during the year.
We engaged a new pension provider, giving staff access to enhanced tools for their pension arrangements.
Recognising that effective line management is a key component of business success, we ran a series of manager toolkit sessions which received positive feedback across the business.
We continue to hand pick top graduates to join our development programme and enjoy the challenge of early responsibility.
In 2017 we will introduce a revised performance review process that will support meaningful individual discussion regarding past and future performance.
We will make further investment in the recruitment of new graduates and the on-going extension of the graduate development programme to preserve our talent pipeline.
We will further enhance the capability of the leadership team through mentoring and a series of internally delivered bespoke workshops.
The high performance culture at Capco is reflective of our ambitious and innovative business strategy. Typically, Capco people are results-driven and brave in their approach to new ideas. Many of our people are in new roles and have assumed increased levels of responsibility since joining Capco.
We have a good track record of supporting staff development and promoting from within the business. We aim to fill vacancies from our existing people where possible.
We support new parents returning to the workplace and encourage our people to adopt a healthy attitude to work-life balance.
We believe that every person in the Company has a part to play in generating value and we understand fully the benefits of a diverse workforce. Diversity is considered when making appointments at all levels. As a sign of our commitment to diversity in the work place we have signed up to the RICS Inclusive Employer Quality Mark and we work with peer companies to promote diversity and equal opportunities within the property sector.
We are keen to develop female talent across the business and provide mentoring to management. We are proud that 50 per cent of the senior management team are female. A summary of gender diversity across the Company is set out on page 50.
We support a number of initiatives which aim to increase diversity in business including the University of Reading Pathways to Property Programme.
In addition to core elements, we reward people with an attractive package of additional benefits.
Our competitive package of benefits includes private medical insurance and also covers dental treatment. The Company contributes up to 10 per cent of salary into the MyCapco pension scheme.
Our policy is to enable employees to take their full annual leave entitlement of 28 days per annum, rising to 30 days after four years' service.
The lifestyle programme continued during 2016 with sessions on the importance of balanced nutrition and further information on financial matters such as mortgages and financial planning.
The aim of our reward strategy is to compensate people for high performance and to incentivise them to strive to improve.
Core compensation packages at Capco comprise three elements of base salary, discretionary performance bonus and discretionary share awards.
We regularly benchmark our approach to reward to ensure that we remain competitive in the market and we aim to remain within the upper quartile range of our sector.
Awards are made in April of each year and take account of performance ratings discussed at performance review meetings in January.
All Capco employees are eligible to receive share awards so that everyone can participate in the success of the Company. These awards have a three-year performance period and are subject to corporate performance conditions.
This report does not contain specific information on human rights issues as this is not considered necessary for an understanding of the development, performance or position of the Company's business. However, Capco has adopted a CR policy and a supply chain policy which reflect a responsible approach to human rights.
In accordance with the Modern Slavery Act 2015, the Board has approved a Modern Slavery and Human Trafficking Statement which has been published on our website. The statement details the steps we take to avoid slavery and human trafficking in our own operations and in our supply chain. We believe that our own operations present minimal risk, but recognise that a higher level of risk is posed by the suppliers we engage with to provide goods and services. In 2016 we undertook to review our suppliers in order to establish any areas of risk. In the year ahead we plan to update relevant policies to include specific reference to modern slavery and we will continue to raise awareness by engaging with our supply chain and our employees.
WE ENCOURAGE COLLABORATIVE WORKING WITHIN AND ACROSS TEAMS
The Annual Finance CR day took place during September, with 30 employees preparing activities and socialising with 30 Equal People Mencap clients. The events of the day were aimed at assisting members of the charity with communication skills and confidence
During 2016, Capco continued to work to benefit the communities in which we operate and to support our chosen charities. Capco staff committed a total of 882 hours to CR related activity (against a target of 450 hours) and volunteered to help with CR projects.
Benefiting the communities in which our assets are located is the cornerstone of the stewardship of our estates.
Workplace Coordinators recruitment breakfast In January 2016, Capco sponsored a breakfast for local businesses, jointly hosted by Councillor Astaire from Westminster City Council, promoting both the Recruit London initiative and an apprenticeship scheme run by FM Conway, Westminster's maintenance supplier. Capco has supported Westminster City Council in the employment of a Workplace Coordinator under the Recruit London scheme who has successfully placed 32 candidates, including 11 long-term unemployed, all of whom live in Westminster.
The Covent Garden team took part in the cleaning of the district in August. Each team member spent two hours with a member of the cleaning team picking up litter, emptying bins, cleaning pavements or removing chewing gum. The Lord Mayor of Westminster joined Andy Hicks, Estate Director, to clean King Street and help launch the new heritage style cleaners' uniform. Our cleaning teams continue to supplement Westminster City Council's street cleaning activities throughout the district.
We have delivered a range of local community and education projects on our estates that have benefited people of all ages.
This year we have developed close ties with our chosen charities which align with our overarching CR strategy, and have provided £156,000 of support to charitable causes.
Capco staff remain committed to participating in CR related activities and undertook 882 hours of CR related activity during the year.
We will continue to identify opportunities for apprenticeships for local young people across our assets and encourage our contractors to support this initiative.
We will extend the number of schools that participate in the Capco Education Programme, building further on our success with school children of all ages.
We will promote a volunteering programme with Bishop Creighton House, an active community-based charity in Earls Court, working with disadvantaged people of all ages.
We will encourage employees to engage in CR initiatives and contribute 500 employee hours to supporting CR related projects.
Capco continues to fund additional security teams patrolling the estate following an increase in the national security threat level. This includes 24 hour monitoring of CCTV and extensive patrolling of the estate throughout the day and night.
Working with Westminster City Council, Capco initiated the pedestrianisation of King Street in Covent Garden. Businesses have seen an increase in trade and we hope that by removing vehicles during trading hours there will be an improvement in air quality and the environment for residents and visitors.
A total of 10 primary schools took part in this year's challenge to design a product that could be sold in the Apple Market in the Covent Garden Market Building. The finalists visited the Apple Market to meet traders and then present their ideas to a panel of judges. This year's winner was St Clement Danes School with their multi-function designer glasses incorporating tourist information. Santa made a surprise visit to hand out the prizes.
When collaborating with Enabling Enterprise, we hosted an event for Year 5 pupils of Wendell Primary School. Students researched and created plans for the renovation of a fictitious town within budgetary constraints
We once again co-hosted the annual Sir Simon Milton Foundation quiz night, raising £37,860, the highest amount to date, with 18 Capco employees taking part and volunteering at the event.
Covent Garden teams went up against our consultants and contractors in a bid to be crowned champion of the spy themed treasure hunt.
Ten teams raced around Covent Garden with GPS tablets answering clues, raising £5,000 for St Paul's Church in Covent Garden.
Capco once again sponsored London Poppy Day, hosting a range of activities on the Piazza, including the Spitfire choir and the Central Band of the Royal Air Force, raising £6,878. Capco contributed a further £16,000.
We launched a volunteering programme with the homeless centre, The Connection at St. Martin's, with employees serving lunches each Friday.
The Fulham Primary School project explored how the Earls Court development would impact children in the future. The children explored the history of the Earls Court development and visited the Lillie Square marketing suite and show apartments, discussing the details of the project with a Capco representative. Their work was presented at Hammersmith and Fulham Town Hall.
During the Fulham Boys School project, the students were able to become familiar with real life case studies of changing urban landscapes and visited the Lillie Square construction site.
In the summer of 2016, we worked with Year 4 at Sir John Lillie Primary School and Year 5 at Bousfield Primary School. At Sir John Lillie Primary School, the pupils learned about the history of Normand Park and the Clem Attlee Estate, and the Bousfield Primary School project focused on learning about the plans for Earls Court. The children visited Earls Court and carried out shop and traffic surveys.
The Little Architect project continued in 2016, working with St Joseph's Primary School, Covent Garden and Queens Manor Primary School, Fulham. The aim of the project was to foster enjoyment in the built environment at an early age.
Capco once again co-hosted the Sir Simon Milton Foundation quiz night, raising £37,860
During the year we collaborated with a not-for-profit social organisation called Enabling Enterprise by hosting an event led by Enabling Enterprise for Year 5 pupils from Wendell Park Primary School in Hammersmith. The students researched and created plans for the renovation of a fictitious town within budgetary constraints and Capco volunteers assisted with the facilitation of the session.
We collaborated with the Urban Land Institute on their Urban Plan Project which introduced students to the various market and non-market forces involved in the built environment industry. Working in teams, students formed a property development company and responded to a brief to redevelop a blighted site. The first project was based at Fulham College.
Capco aims to minimise the impact of our operations on the environment. We apply a responsible and forward-looking approach to environmental issues and the principles of sustainability.
We met our target to reduce energy use by 3 per cent on a likefor-like basis compared to 2015. Implementing energy efficiency measures has contributed towards meeting our target, including installing new efficient lighting at a number of assets in Covent Garden and recommissioning energy controls at Olympia London.
To minimise our carbon impact, we have taken steps to purchase electricity through green energy tariffs where possible. At Covent Garden, we have in place our first green gas tariff, where biogas is sourced through our supplier from processes such as anaerobic digestion.
We monitor assets with an Energy Performance Certificate (EPC) lower than an E rating. Although many of our assets are listed and exempt from the Minimum Energy Efficiency Standards, we are regularly reviewing opportunities to improve energy efficiency and to lower tenant energy bills.
Across our estates, we have continued to drive improvements in recycling and achieved zero operational non-hazardous waste to landfill at Olympia London, the Covent Garden estate and our 15 Grosvenor Street office.
A key focus in 2016 has been developing a waste consolidation strategy for the Covent Garden estate. By engaging with tenants and employees, we have made a strong start by lowering waste vehicle collections, improving street cleanliness and recycling rates. We will continue our consolidation activities in 2017.
We continue to monitor water consumption across our estates and are committed to installing water efficient equipment during refurbishment works and in new assets. We recognise that our main opportunity to influence water efficiency in the longer term is by designing for water efficiency.
Reduced energy use by 3 per cent compared to 2015 on a like-for-like basis, meeting our 3 per cent reduction target.
Achieved BREEAM Very Good certification for the refurbishment of Grade II listed 38 King Street and attained design-stage BREEAM Excellent certification for the residential refurbishments at Floral Court and 26-27 Southampton Street.
71 per cent of electricity purchased via green energy tariffs and switched to a green gas energy tariff for the Covent Garden estate.
Lillie Square Phase 1 scored an exemplary Considerate Constructors Score of 45 out of 50, which puts the site in the top 1 per cent of all participating construction sites in the country.
100 per cent of operational non-hazardous waste diverted from landfill at Olympia London, the Covent Garden estate and our 15 Grosvenor Street office.
Participated in the Global Real Estate Sustainability Benchmark (GRESB) for the first time and achieved a Green Star rating.
Continue to identify opportunities to reduce energy use across our estate and maintain a target of 3 per cent energy reduction for managed assets on a like-for-like basis compared to 2016.
Aim to minimise waste to landfill from our managed properties and continue with the development of the Covent Garden estate waste consolidation strategy.
Divert at least 90 per cent of non-hazardous waste from landfill in major refurbishment and construction projects.
Continue to work towards achieving a minimum rating of BREEAM Very Good on major construction projects and, where existing planning conditions apply, Code for Sustainable Homes Level 4 certification.
To understand opportunities to reduce carbon impacts over a building's life cycle, undertake an embodied carbon assessment of a project.
In accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, Capco continues to monitor and report on the greenhouse gas emissions associated with its operations. We have used DEFRA Environmental Reporting Guidelines and the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard to calculate emissions. We have adopted the operational control consolidation method, as this reflects where we have the ability to influence energy use, and we have set a materiality threshold of 5 per cent for greenhouse gas reporting purposes.
Capco has engaged with Carbon Credentials Energy Services Limited to provide independent verification of the 2016 greenhouse gas emissions assertion in accordance with industry recognised standard ISO14064-3.
| Market-based method (tCO2) 1 |
Location-based method (tCO2e)2 |
|||
|---|---|---|---|---|
| Emission Source | 2016 | 2015 | 2016 | 2015 |
| Scope 1 emissions: Direct emissions including fuel combustion in owned or controlled boilers and vehicles |
– | – | 1,289 | 1,356 |
| Scope 2 emissions: Indirect emissions released into the atmosphere including purchased electricity |
277 | 801 | 4,645 | 5,553 |
| Total annual scope 1 and 2 emissions: | – | – | 5,934 | 6,909 |
| Intensity Ratio: Tonnes of CO2e per £m of Net Assets |
– | – | 1.87 | 2.03 |
1 Tonnes of carbon dioxide (tCO2)
2 Tonnes of carbon dioxide equivalent (tCO2e)
Capco is committed to integrating responsible and sustainable practices into the delivery of our projects and development. In 2016 we launched our Sustainability Framework that sets out our approach to embedding sustainability principles into the design and construction of our developments. Notable achievements this year include attaining BREEAM Very Good certification for the refurbishment of a Grade II listed retail unit 38 King Street, installing our first solar panels at 26-27 Southampton Street and installing our first rainwater harvesting system at Lillie Square. At Floral Court and Lillie Square, we continue to work towards achieving a minimum of BREEAM Very Good and Code for Sustainable Homes Level 4 certification.
On-site projects are participants in the Considerate Constructors Scheme and in 2016 Lillie Square scored an exemplary 45 out of 50, which puts the site in the top 1 per cent of all participating construction sites in the country. We continue to meet our target to divert at least 85 per cent of waste from landfill and at the Earls Court demolition site we have achieved 99 per cent diversion rate to date.
Capco remains an active member of the UK Green Building Council, participating in the creation of the Council's new guidance on embodied carbon in development.
We monitor and report our performance in line with industry sustainability benchmarks. In 2016 we remained a participant in the FTSE4Good Index and responded to the CDP Climate Change Programme, achieving a B rating. To further our reporting, we participated in the Global Real Estate Sustainability Benchmark and achieved a Green Star rating. We are also reporting in line with EPRA Sustainability Best Practice Recommendations. For more information on our reporting visit www.capitalandcounties.com/ responsibility/environment.
Earls Court Project Rooms
We are committed to providing the highest standards of health and safety at our assets to minimise the risk to our employees, contractors, consultants and visitors. We expect our supply chain to support us in achieving this commitment by applying a responsible risk based approach to the management of health and safety
2016 saw a number of key project milestones safely accomplished in partnership with our contractors, including the completion of the main demolition works at Earls Court and significant works carried out at Floral Court, Covent Garden. The completion of the first phase of residential units at Lillie Square accomplished the significant milestone of achieving two million man hours worked without a RIDDOR reportable incident.
Three of our development projects won Bronze awards at the Considerate Constructors Scheme 2016 National Awards ceremony in London. The winning projects were Lillie Square Phase 1 at Earls Court, and Floral Court and 23/24 Henrietta Street at Covent Garden. In May 2016 Olympia London undertook the British Safety Council 5* Audit programme and was awarded all five stars with an overall compliance score of 92 per cent.
At a Group level the reinvigorated governance and reporting framework was fully implemented during 2016 with Sector Safety Leadership Teams ("SSLT"s) established for each asset, overseen by the Group Safety Leadership Team ("GSLT"), which is chaired by our General Counsel and championed by the Managing Director and Chief Investment Officer.
The GSLT continued to regularly review the health and safety performance across the Group during the year and facilitated the sharing of lessons learnt and best practice across the management team.
The Board continues to take a keen interest in health and safety risks and achievements across the Group, receiving regular formal reports on health and safety, summarising health and safety performance.
As well as updating our governance and reporting framework, the overarching Occupational Health and Safety Management System has also been reviewed and updated to create better alignment to OHSAS 18001.
Our resilience to respond to incidents was enhanced during 2016 with specific health and safety incident response plans being integrated into the Group-wide business continuity and major incident response planning processes. Scenario based desk top exercises were held at each asset to familiarise the major incident response teams with the enhanced plans.
No work related fatalities were recorded in 2016. There was a total of 11 RIDDOR reportable injuries reported across the Group during 2016. Five RIDDOR incidents on the Covent Garden estate were reported, all caused by slips and trips involving members of the public. At Olympia London there were three RIDDOR incidents reported, two involving event contractor employees and one involving an event exhibitor employee.
Successful completion of the main Earls Court demolition works with a good health and safety performance.
Achievement of two million man hours worked at Lillie Square Phase 1, RIDDOR free.
Enhancing our focus on the health and safety standards on our small works projects to ensure that high levels of performance are maintained.
Olympia London achieved British Safety Council 5* Audit.
Embedding the enhanced governance and reporting framework across the business.
A decrease in total RIDDOR injuries from 13 in 2015 to 11 in 2016.
Continue to develop and embed health and safety strategies at sector levels to support business plans and further develop key performance indicators to enhance the measurement of continual improvement. In addition to this commitment, our 2017 health and safety objectives are to:
There were three RIDDOR reportable injuries recorded involving contractor employees on Capco development projects. The Accident Frequency Rate (AFR) for Capco development projects at the end of 2016 stood at 0.13 and the Lost Time Incident Frequency Rate (LTIFR) for 2016 was 0.35.
Members of operational management have attended the Institution of Occupational Safety and Health (IOSH) Directing Safely course and delivery of the IOSH Managing Safely course to the property and project management teams commenced in 2016.
The sections of the Annual Report which make up the Strategic Report are set out on page 89. The Strategic Report has been approved for issue by the Board of Directors on 21 February 2017.
Ian Hawksworth Chief Executive
Chief Executive Age 51
Ian has led Capco since inception, shaping strategy and driving performance. He has over 30 years' experience in global real estate investment, development, asset and corporate management, having been a senior director of Hongkong Land and a managing executive of Liberty International. Ian is a Chartered Surveyor and a member of leading international industry bodies.
Chief Financial Officer Age 43
Situl leads the Capco finance function, which includes reporting, treasury, corporate finance and tax. Having joined Capco in 2014, he became finance director for Earls Court and Lillie Square in 2015 and was appointed as CFO in 2017. Situl is an experienced corporate financier having led Deutsche Bank's UK real estate investment banking team before joining Capco.
Gary leads Capco's real estate investment and development activities. He is a Chartered Surveyor with over 30 years' experience in UK real estate. He is a former CIO of Liberty International and former partner of King Sturge.
Audit Committee Nomination Committee Remuneration Committee Committee Chairman 1 2 3
Ian is responsible for the leadership of the Board, ensuring its effectiveness and setting its agenda. Ian is a Chartered Accountant with a background in international financial and commercial management. Ian's career includes leadership roles with the retail division of Hanson, and Jardine Matheson, Hongkong Land, Dairy Farm International, Thistle Hotels, Sea Containers and Liberty International.
Henry was appointed to the Board in June 2010 and became Chairman of the Audit Committee shortly after in July 2010. A Chartered Accountant, he was Finance Director of Granada and ITV, Chairman of Ashtead Group and Vice Chairman of Legal & General.
Graeme was a Non-executive Director of Liberty International for 14 years before joining the Board of Capco in 2010. He is the son of Sir Donald Gordon, the founder of Liberty International, and represents the Gordon Family Interests on the Board.
A former Deloitte LLP partner with direct industry experience in consumer business, retail and technology, media and telecommunications. Gerry was a member of the Deloitte Board for a number of years and is a Director of Dixons Carphone and a member of the Department of Health Board.
A former partner of McKinsey & Co, Demetra was leader of McKinsey's European Apparel, Fashion and Luxury Goods Practice for five years and has also acted as an adviser to emerging British luxury businesses. Demetra is CEO of Charlotte Tilbury Beauty.
1
2
1 2 3
3
2
3
Anthony Steains is the CEO of Comprador, a strategic corporate finance advisory firm based in Hong Kong, and has over 20 years of corporate finance experience. A Chartered Accountant, prior to founding Comprador, Anthony was a Senior Managing Director and Head of Blackstone Advisory Partners in Asia and held senior positions in Asia at Lehman Brothers, Deutsche Bank and ING Barings.
Independent Non-executive Director Age 64 Andrew is a Chartered Surveyor and was Managing Director of Threadneedle Property Investments Limited for 17 years until January 2008. He was Executive Chairman of Hermes Real Estate Investment Management until 2011.
External appointments Chairman of Greggs plc
Chairman of Brighthouse Group PLC, Phoenix Group Holdings and WH Smith PLC
Director of Creative Investments Limited and Mymarket Limited
Non-executive Director of Dixons Carphone plc, Non-executive member of the Department of Health Board
CEO of Charlotte Tilbury Beauty Limited, and Director of The Diana, Princess of Wales Memorial Fund Trustee Company and The Royal Foundation of the Duke and Duchess of Cambridge and Prince Harry
CEO of Comprador Limited and Chair of the FilmAid Asia Board
Member of the Investment and Governance Committees of AEW UK, Non-executive Director of Intu Properties plc and member of the Norges Bank Investment Management Real Estate Advisory Board
Ian Durant, Chairman
I am pleased to introduce Capco's 2016 Corporate Governance Report.
The geopolitical climate of 2016 resulted in a challenging year for Capco, and the economic environment continues to be uncertain. Against this backdrop the importance of a robust governance framework comes to the fore, and I am pleased to confirm that Capco's system of controls and reporting, which is overseen by the Board, continues to ensure the Company operates effectively.
In this report, and the Committee reports that follow, we explain the operation of Capco's Board and its Committees, and how the Company applied the principles of the UK Corporate Governance Code during the year. We also provide information on some of the management committees that strengthen the controls and reporting framework across the Group. During the year, with increased construction and demolition activity across the business, the Board paid particular attention to health and safety. There was also a continued focus on risk management to ensure that the alignment of risk and strategy remains appropriate in the changing market environment.
In anticipation of the introduction of the new Market Abuse Regulations, a Disclosure Committee was established to oversee the Company's compliance with the new regulations.
The main matter considered by the Nomination Committee during 2016 was the appointment of a new Chief Financial Officer following Soumen Das' departure from the Company at the end of the year. Descriptions of the recruitment process followed when appointing Situl Jobanputra and the tailored inductions that we provide to new Directors are included in the Nomination Committee report from page 67.
The Board regularly reviews its composition to ensure the Directors continue to have an appropriate mix of skills and experience to deliver Capco's strategic goals, and a clear succession plan is being prepared. During 2016 Ian Henderson retired from the Board, and we welcomed Anthony Steains as a new independent Non-executive Director. Anthony's corporate finance career in Asia brings a diverse perspective to the Board's discussions. As I reported last year, the Board would like to
appoint an additional Non-executive Director with a property background, and we will seek to make an appointment when an opportunity arises.
As in previous years, all of the Directors will be seeking election or re-election at our AGM. This year, Andrew Strang, Henry Staunton and Graeme Gordon will each have served on the Board for more than six years. Accordingly, before recommending that they be reappointed, the Nomination Committee gave particular consideration to the continued contribution of each Director and the balance of independence of the Board.
Gerry Murphy became Chairman of the Remuneration Committee during the year, and has led the Committee in a review of executive remuneration. Details of the proposed simplified remuneration policy which is aligned with shareholder interests, and includes a new single performance share plan, are included in the Directors' Remuneration Report from page 70.
As we move into 2017, the economic and political conditions remain uncertain, however I am confident that Capco's Board and governance structures provide a sound base for Capco to respond to the challenges and opportunities ahead.
Ian Durant Chairman
21 February 2017
STATEMENT OF COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE The Company has applied the principles and complied with the provisions of the UK Corporate Governance Code (the "Code") during 2016.
The Board is collectively responsible for the long-term success of the Company, and for its leadership, strategy, values, standards, control and management. Day-to-day management of the Group is delegated to the Executive Directors, subject to formal delegated authority limits; however, certain matters have been reserved for Board approval. These matters are reviewed annually and include Board and Committee composition, strategy, significant funding decisions and corporate transactions, delegated authority limits and dividend policy.
As at 31 December 2016, the Board comprised the Chairman, three Executive Directors and six Non-executive Directors. The table on page 60 summarises the membership of the Board and Committees.
Biographies of each of the Directors, which include information on their skills and experience, can be found on pages 56 and 57.
The Code requires that, excluding the Chairman, at least half of the Board should comprise Non-executive Directors determined to be independent.
The Board has considered the independence of the Non-executive Directors, including potential conflicts of interest, and the table on page 60 sets out those Directors considered to be independent in character and judgement. Each of these Directors has also confirmed that there is no reason why they should not continue to be considered independent.
In considering Director independence, the Board concluded that Directors' tenure should be counted from the date of their first election by shareholders to the Capco Board.
The key responsibilities of Board members are set out in the table on page 61.
The Board met formally throughout the year with main meetings timed around the financial calendar, and additional meetings convened to consider specific matters as required. Attendance at Board and Committee meetings held during 2016 is shown on page 60.
The annual Board calendar includes a two-day strategy meeting. At this meeting the Board receives detailed updates from external advisers and the business units, and is able to consider strategic issues in depth, and spend time with members of senior management in a less formal environment.
Board papers are circulated a week in advance of meetings to ensure that Directors have sufficient time to consider their content prior to the meeting. If matters require approval at short notice, written approval is sought from the Directors.
The Chairman meets regularly with the Non-executive Directors without the Executive Directors being present and maintains regular contact with both the Chief Executive and members of senior management.
As matters that require the Board's decision are often large, complex and evolve over a period of time, informal update meetings are held between Board meetings to allow Board members adequate time to explore, understand and challenge matters under consideration. These are often combined with site visits and provide an opportunity for the Non-executive Directors to meet senior management. Four such updates were held during 2016, including a presentation on health and safety matters.
During 2016, the Board received regular asset, financial and performance updates from the Executive Directors and reports from the Company Secretary, General Counsel, Director of HR & CR and Committee Chairmen. The table below shows the key areas considered by the Board during the year.
The Board has established Audit, Remuneration and Nomination Committees to enable the Board to operate effectively and ensure a strong governance framework for decision making.
Each Committee has written terms of reference which were reviewed during the year. The terms of reference can be viewed on the Company's website www.capitalandcounties.com. Minutes of all Committee meetings are made available to all Directors. The Committee Chairmen attend the AGM to answer any questions on the Committees' activities.
A summary of the role of each Committee is shown on page 60, and the activity of each Committee during 2016 is described on pages 64 to 88.
| Business Strategy, New Business and Directors |
Properties | Financial Performance |
Governance, Internal Controls and Risk |
|---|---|---|---|
| Strategy | Property valuations | Annual and half year results | Risk appetite and principal risks |
| Change of CFO | Covent Garden performance | and dividends | Health & Safety, Security Risk and IT security updates |
| New business opportunities | Floral Court and Carriage Hall developments |
Treasury and cash management including refinancings |
Board evaluation and action plan |
| Key investment decisions | Group tax position Market and Broker updates |
Legal and regulatory updates | |
| Board composition and succession planning |
Earls Court demolition and Lillie Square completions |
The Market Abuse Regulations 2016 | |
| Planning consents and | Budget | AGM resolutions and voting | |
| submissions | Modern Slavery Act 2015 | ||
| Board Committees' terms of reference and schedule of matters reserved for the Board |
| Name | Year of first election |
Independent | Audit Committee |
Nomination Committee |
Remuneration Committee |
|---|---|---|---|---|---|
| Ian Durant (Chairman) | 2011 | n/a | |||
| Ian Hawksworth (Chief Executive) | 2011 | No | |||
| Situl Jobanputra | n/a | No | |||
| Gary Yardley | 2011 | No | |||
| Graeme Gordon | 2011 | No | |||
| Gerry Murphy | 2015 | Yes | |||
| Demetra Pinsent | 2013 | Yes | |||
| Henry Staunton (SID) | 2011 | Yes | |||
| Anthony Steains | 2016 | Yes | |||
| Andrew Strang | 2011 | Yes | |||
| 56% independent |
The following table sets out the key responsibilities of Board members:
Roles of Board Members
| Position | Name | Responsibilities |
|---|---|---|
| Chairman | Ian Durant | Leads the Board, ensures its effectiveness and sets its agenda. Ensures an effective link between shareholders, the Board and management. |
| Chief Executive | Ian Hawksworth | Develops the Company's strategic direction, implements policies and strategies agreed by the Board and manages the business. |
| Chief Financial Officer | Situl Jobanputra | Responsible for developing and implementing financial strategy for the Group. |
| Managing Director & Chief Investment Officer |
Gary Yardley | Responsible for leading the Group's real estate investment, overseeing significant real estate transactions. |
| Non-executive Directors | Graeme Gordon, Gerry Murphy, Demetra Pinsent, Henry Staunton, Anthony Steains, Andrew Strang |
Constructively challenge the Executive Directors and monitor the delivery of the agreed corporate strategy within the risk and control framework set by the Board. |
| All Directors have access to the advice and services of: | ||
| Company Secretary | Ruth Pavey | Advises the Board on corporate governance matters and ensures a good flow of information within the Board and its Committees and between senior management and the Non-executive Directors. |
| General Counsel | Anne Byrne | Provides legal advice and guidance to the Board; reports on business services activities. |
In September 2016, one of the Board updates was used to provide a briefing on health and safety. The presentation covered the safety culture at Capco, the role of the Board, Directors' duties in respect of health and safety, relevant legislation, governance and reporting.
The Directors found the refresher training beneficial, and hearing the details of Capco's highlights for 2016 and priorities for the coming year brought to life the matters covered in the regular health and safety updates included in the Board papers.
You can read more about Health & Safety at Capco in the Corporate Responsibility Report on page 55.
Recognising that Capco's Board must be effective, the Board conducts an annual evaluation of its own performance and that of its Committees and Directors. In 2016 the evaluation was externally facilitated by NJMD Corporate Services Limited ("NJMD"), which provides no other services to the Group. The Directors and Company Secretary were each asked to complete a questionnaire covering all matters relating to the performance of the Board, its Committees and its Directors, following which each participant was interviewed by NJMD with comments being noted on a confidential basis. A report was prepared by NJMD which concluded that the Board is effectively run and administered and the Board appears to have an open and honest culture reflecting the values held by the Company.
The report made a number of recommendations, although no areas of major concern were found. The outcomes of the evaluation were considered by the Board and a Board action plan for 2017 was agreed.
In addition, the Senior Independent Director conducted an appraisal of the Chairman's performance which confirmed the Board's continued confidence in the Chairman and outlined areas for future focus. The Chairman also undertook appraisals of the other Directors' performance.
The Board is keen to ensure that our shareholders and potential investors have a good understanding of Capco's business and performance, and that Directors are aware of any issues
and concerns which shareholders may have. The Company communicates with stakeholders in a number of ways:
Our corporate website www.capitalandcounties.com allows visitors to access Company information, annual reports, results presentations and webcasts. The site also includes links to our business unit websites and contact details for shareholder queries.
Our AGM allows the Board to update our shareholders on Capco's progress, and provides an opportunity for shareholders to pose questions to the Directors, and meet senior executives.
Shareholders are encouraged to vote on the resolutions put to the meeting, either in person, online or by submitting a proxy card. We publish the results of the votes on all resolutions on our website following the meeting.
Our 2017 AGM will be held on Friday 5 May 2017. The notice of Annual General Meeting will be issued to shareholders at least 20 working days before the meeting. Separate resolutions will be proposed on each issue and, in accordance with the Code, each Director will offer themselves for election or re-election.
The Chairman, Chairmen of the Board Committees and other Directors will be available at the AGM to meet shareholders and answer any questions.
Should shareholders have any concerns that they are unable to successfully resolve following communication with the Chairman, Chief Executive or Chief Financial Officer, they may raise them through the Senior Independent Director.
The Chairman and Company Secretary considered the approach to be taken for the 2016 Board Evaluation
The Nomination Committee considered the proposed approach and approved the appointment of NJMD
Each Director and the Company Secretary completed a questionnaire and structured interview with NJMD
A report was prepared by NJMD and provided to the Board for consideration
An action plan was agreed
The table below shows Directors' attendance at Board and Committee meetings held during 2016. In addition the General Counsel attends each Board and Audit Committee meeting and the Company Secretary attends each Board and Committee meeting:
| Name | Board | Audit | Remuneration | Nomination |
|---|---|---|---|---|
| Ian Durant (Chairman) | 5/5 | – | – | 5/5 |
| Ian Hawksworth (Chief Executive) | 5/5 | – | – | 5/5 |
| Soumen Das | 5/5 | – | – | – |
| Gary Yardley | 5/5 | – | – | – |
| Graeme Gordon | 5/5 | – | – | – |
| Ian Henderson (retired 6 May 2016) | 2/2 | 1/1 | 2/2 | 2/2 |
| Gerry Murphy | 5/5 | 3/3 | 7/7 | 5/5 |
| Demetra Pinsent1 | 5/5 | – | 4/4 | 5/5 |
| Henry Staunton (SID) | 5/5 | 3/3 | 7/7 | 5/5 |
| Anthony Steains (appointed 1 March 2016) | 4/4 | – | – | 3/3 |
| Andrew Strang | 5/5 | 3/3 | 7/7 | 5/5 |
| 5 | 3 | 7 | 5 |
1. Appointed to the Remuneration Committee in April 2016
Communications with shareholders and other stakeholders Communication with the Company's investors is a priority for the Board. The Company runs an extensive investor relations programme, and the Chief Executive, Chief Financial Officer and Director of Investor Relations hold meetings with institutional investors throughout the year, including results presentations, webcasts, road shows, one-to-one meetings and investor tours.
The Company's major shareholders are encouraged to meet with the Chairman and the Senior Independent Director to discuss any matters they may wish to raise. During 2016, the Chairman and Chairman of the Remuneration Committee held a number of meetings with shareholders, in connection with the review of executive remuneration.
The Directors receive regular updates on the Company's major shareholders, and receive reports on shareholder feedback at each Board meeting. The Non-executive Directors are invited to attend the Company's results presentations.
Private shareholders may raise questions through the Company Secretary's office either by telephone or by email ([email protected]).
The Company maintains active relations with community stakeholders.
Please see pages 51 and 52 in the CR Report for more details of Capco's stakeholder engagement.
The Company's Articles of Association permit the Board to authorise potential conflicts of interest that may arise. The Board has adopted a procedure under which Directors must notify the Chairman of any potential conflicts. The Chairman then decides
whether a conflict exists and recommends its authorisation by the Board where appropriate. In cases where there is a potential conflict of interest, an appropriate protocol to be followed where a conflict of interest may arise is agreed. In addition, a Director who had a conflict of interest would not be counted in the quorum or entitled to vote when the Board considered the matter in which the Director had an interest. The interests of new Directors are reviewed during the recruitment process and, if appropriate, authorised by the Board on appointment.
On appointment, and each subsequent year, Non-executive Directors are required to confirm in writing that they have sufficient time to devote to the Company's affairs. In addition, they are required to seek prior approval from the Chairman before taking on any additional external commitments which may affect their time available to devote to the Company, and the Board is advised of any changes.
The Chairman is also Chairman of Greggs plc. The Board is satisfied that the Chairman's additional commitments allow him to devote sufficient time to perform his duties as Chairman of Capco.
The Board is satisfied that all Non-executive Directors are contributing effectively to the operation of the Board.
The disclosures required under DTR 7.2 of the Disclosure and Transparency Rules are contained in this report, and the Audit Committee and Nomination Committee Reports, except for information required under DTR 7.2.6 which is contained in the Directors' Report on pages 89 and 90.
Henry Staunton, Chairman of the Audit Committee
I am pleased to introduce Capco's 2016 Audit Committee Report. The Committee plays a key oversight role for the Board, monitoring and reviewing all aspects of the Group's financial reporting, internal controls and risk management procedures.
This report provides an overview of the work undertaken by the Committee in the past year. During 2016, the most significant topics considered by the Committee included the Group's property valuations, taxation and the accounting treatment of various significant corporate transactions. The Committee also reviewed the updated risk disclosures and the viability statement disclosure before they were recommended to the Board.
Finally, following consideration of the matters reviewed during the year and the Group's significant risks, the Committee concluded, and made a recommendation to the Board that,
taken as a whole, the Group's Annual Report and Accounts are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.
Henry Staunton Chairman of the Audit Committee, 21 February 2017
Members: Henry Staunton (Chairman) Gerry Murphy Andrew Strang
The Audit Committee, reporting to the Board, oversees the financial reporting process, monitors the effectiveness of internal control, internal audit, risk management and the statutory audit and monitors the independence of the statutory auditors and the provision of non-audit services. As at 31 December 2016 and the date of this report, the Committee comprises three independent Non-executive Directors and is chaired by Henry Staunton who is considered to have significant, recent and relevant financial experience. The Board believes that the Committee as a whole has competence in real estate matters.
The Committee's meetings were also attended by the Company's Chairman, Chief Executive, Chief Financial Officer, General Counsel, Company Secretary and Financial Controller together with senior representatives of the external and internal auditors.
The valuers and members of senior management, including the Director of Finance, attended by invitation to present reports required for the Committee to discharge its responsibilities.
The Audit Committee met three times during 2016. Attendance at these meetings is shown in the table on page 63. The Committee also met privately during the year with both the external and internal auditors.
The Committee follows an annual programme, which is agreed with the Committee Chair, management and external auditors prior to each financial year, and ensures it gives thorough consideration to matters of particular importance to the Company, and additional matters are considered when appropriate. The Committee's 2016 agenda is shown in the table on the next page, and the significant matters considered by the Committee during the year are also explained on the next page.
During the year, as part of the Financial Reporting Council's ("FRC") normal cycle of reviews, the Group received a letter from the FRC arising from their review of the Group's 2015 annual report and accounts. No significant issues were identified and the enquiry was concluded by the inclusion of enhanced disclosure in this year's Annual Report and Accounts.
| Regular meeting items | February Meeting | July Meeting | December Meeting |
|---|---|---|---|
| Report from Financial Controller | Going concern assessment | Interim results announcement | Effectiveness of External Auditor |
| Accounting treatment | Preliminary results, | 2016 Audit Plan | and recommendation for re-appointment |
| of significant transactions | Annual Report and Management | Liquidity forecasting | Risk management review |
| Accounting standards and policies | Representation Letter Determining and recommending to the Board that the Annual Report taken as a whole was fair, balanced and understandable |
Risk management | Internal controls |
| Property valuations | Viability statement | ||
| External Auditor report including | Viability statement review | ||
| regulatory update | Corporate governance policies and Committee Terms of Reference |
||
| Internal Auditor report from BDO | Effectiveness of Internal Audit | ||
| Tax update | 2017 Internal Audit Plan |
| Matter considered | What the Committee did |
|---|---|
| Valuations | As in previous years, the independent external valuers presented the year end and half year valuations to the Committee at the February and July meetings respectively. The Committee reviewed the valuation process and component parts of the valuations, discussed the valuations with the external auditors and challenged the valuers on the assumptions used. The Committee also advised the Board on the independence of the valuers and obtained confirmation that management had provided all requested information. The Committee was satisfied that the approach taken by the valuers was appropriate. Further information can be found in note 14 on pages 115 to 118 of the notes to the accounts. |
| Tax | The Director of Finance presented a report to the Committee at the February and July meetings, explained the basis of the Group's tax position, identified key taxation risks to the Group and updated the Committee on the ongoing relationship with HMRC. The Committee challenged the assumptions made in arriving at the tax position and discussed with the external auditors the assumptions and judgements made in arriving at the deferred tax position. The Committee was satisfied that the policy was appropriate for the Group. Further information can be found in note 26 on page 129 of the notes to the accounts. |
| Significant and complex transactions |
As in previous years, the Committee received updates from the Financial Controller on significant and complex transactions at each meeting. With regard to each transaction, such as the CLSA, the Solum joint venture and the Olympia strategic review, the Committee discussed the accounting treatments with management and the external auditors and is satisfied that the appropriate approach has been taken. |
The Committee oversees the relationship with PricewaterhouseCoopers LLP ("PwC"), the external auditors, and is responsible for developing, implementing and monitoring the Company's policy on external audit, and for monitoring the auditors' independence, objectivity and compliance with ethical, professional and regulatory requirements. The external auditors are not permitted to perform any work that they may subsequently need to audit or which might either create a conflict of interest or affect the auditors' objectivity and independence.
The external auditors have direct access to the Audit Committee Chairman should they wish to raise any concerns outside formal Committee meetings.
The Committee monitored PwC's effectiveness and performance during 2016, and considered a paper prepared by the Financial Controller which confirmed that in management's view PwC were providing a good-quality audit service and continued to deliver against all facilities considered at their appointment.
The Committee is satisfied that the external auditors remain independent and objective and that the Group is receiving a robust and challenging objective audit and has therefore recommended to the Board that PwC be reappointed in 2017.
Capco tendered its external audit contract in 2010, and PwC were appointed as Group auditors on an annual rolling contract. The Directors plan to complete an audit tender by 2020, the date by which the external audit contract must be tendered to comply with regulatory requirements, unless issues are identified which require a tender to be undertaken earlier. This is in the best interest of the Company's members because it will ensure continuity of service from the external auditors.
The Company confirms that it complied with the provisions of the Competition and Markets Authority's Order for the financial year under review.
Non-audit services are normally limited to assignments that are closely related to the annual audit or where the work is of such a nature that a detailed understanding of the Group is necessary.
The Company has adopted a policy to ensure that the provision of non-audit services by the external auditor does not compromise its independence or objectivity. The policy requires the Audit Committee Chairman to pre-approve any non-audit work with a cost exceeding the lower of £50,000 or 15 per cent of the estimated annual level of the auditor's fees at that time. Services below this limit are pre-approved by the Audit Committee under the policy, subject to consideration and approval by an Executive Director. Approval is only given following a full and thorough assessment of the value case for using the auditor and the skills and experience the auditor would bring. Additionally, consideration must be given to the preservation of auditor independence; and the external auditors are required to confirm that they are acting independently and are not:
The Committee is satisfied that the policy remains effective.
The total fees paid and payable to PwC in 2016 were £464,000, of which £14,000 related to non-audit work. These fees primarily relate to corporate transactions and verification of performance against share scheme performance conditions. The total fees paid and payable to PwC in 2016 and 2015 are set out in the table below.
| 2016 | 2015 | |
|---|---|---|
| Total fees paid to PwC | £464,000 | £454,000 |
| Non-audit fees | £14,000 | £14,000 |
| Ratio of non-audit fees | 3.0% | 3.1% |
Internal Audit Plan
BDO LLP ("BDO") has been appointed to act as Capco's internal auditor. During 2016, BDO's audit plan included reviews of:
During 2017, it is expected that the audit plan will include reviews of payroll, employee benefits, health & safety, procurement, Bribery Act policies and procedures, Lillie Square completions and management, financial management and budgetary control, and IT controls.
The Committee reviews the work of the Internal Auditor, the audit plan, any matters identified as a result of internal audits and whether recommendations are addressed by management in a timely and appropriate way. The Committee is satisfied that the internal auditor was independent and its services effective.
The internal audit partner has direct access to the Audit Committee Chairman should they wish to raise any concerns outside formal
Committee meetings. The Committee meets with the internal auditors at least once per year without management being present.
The Board has overall responsibility for the Group's risk management framework and system of internal control and the ongoing review of their effectiveness; it also determines the risk appetite of the Group and regularly reviews principal risks and uncertainties. The framework is designed to manage rather than eliminate risk, and can only provide reasonable, and not absolute, assurance against material misstatement or loss. The Board has delegated responsibility for the review of the adequacy and effectiveness of the Group's internal controls relating to risk to the Committee and the Committee reviews the controls relating to risks and the proposed principal risk disclosures.
A description of the Group risk management framework and the review undertaken during the year is set out on page 14.
As part of its work in reviewing the Group's financial statements, the Committee reviewed the methodology for the preparation of the viability statement including the principal risks, supporting analysis, qualifications and assumptions to be disclosed.
The viability statement can be found on page 17.
The Audit Committee monitors and reviews the effectiveness of the Group's internal controls and reports regularly to the Board on its work and conclusions. In reviewing the effectiveness of the Group's internal controls, the Committee considers reports provided by the Financial Controller, external auditor and internal auditor. No significant failings or weaknesses were identified in the review process.
Details of the Group's internal controls are set out below:
The Committee is satisfied that the Group's internal controls are operating effectively and that systems are in accordance with FRC guidance.
Ian Durant, Chairman of the Nomination Committee
I am pleased to introduce Capco's 2016 Nomination Committee Report.
During 2016 the Committee's main task was to oversee the recruitment of a new Chief Financial Officer to succeed Soumen Das. In line with the Committee's policy on Board succession a rigorous selection process was followed, with a number of internal and external candidates being considered for the position. I am pleased that Situl Jobanputra's appointment reflects Capco's commitment to developing the talent of our employees and promoting from within the Company where possible.
In addition to Situl, in March 2016 we welcomed Anthony Steains to the Board. The Committee ensured that appropriate Board inductions were provided to each new Director.
The Committee also continued to consider Board composition to ensure that the Board has the right mix of skills and experience to deliver Capco's strategy. As I have previously reported, we are seeking to appoint an additional Non-executive Director with property expertise. However, a suitable candidate who is free to take up an appointment has not yet been found. The Committee is satisfied that there is currently no urgency in making the appointment and so will continue the search. A recommendation will be made to the Board as and when an appropriate candidate is found.
Andrew Strang, Henry Staunton and Graeme Gordon, who have each served on the Board for more than six years, will be seeking re-election at the forthcoming AGM. In recommending that each of these Directors be reappointed, the Nomination Committee carefully considered the continued contribution that each Director makes to the Board, as well as the balance of independence and overall Board composition.
Finally, the Committee has reviewed the Board's diversity policy and disclosures. The Committee was satisfied that the policy did not need to be updated, however, we have included more information on the Company's approach to diversity both in this report and the CR Report.
Ian Durant Chairman of the Nomination Committee, 21 February 2017
Members: Ian Durant (Chairman) Ian Hawksworth Gerry Murphy Demetra Pinsent
Henry Staunton Anthony Steains Andrew Strang
| ◦ Board and Committee composition, including diversity | ◦ Board evaluation |
|---|---|
| ◦ Appointment of new CFO | ◦ Directors' skills, experience and independence |
| ◦ Non-executive Director recruitment | ◦ Directors' time commitments |
| ◦ Succession planning | ◦ Committee terms of reference |
Nomination Committee considers Board composition and determines desired skills and experience
A shortlist of executive search firms is prepared and a selection process followed
A list of candidates is identified
The Chairman and Chief Executive meet with short-listed candidates and provide feedback to the Committee
All Directors, the General Counsel and the Company Secretary are given the opportunity to meet the preferred candidate
The Committee makes a formal recommendation to the Board
The Nomination Committee has responsibility for making recommendations on Board appointments and succession to the Board.
The members of the Committee as at 31 December 2016 and the date of this report are listed in the box on the previous page. The Nomination Committee met five times during the year, and attendance at these meetings is shown in the table on page 63.
The Committee regularly considers Board composition and succession planning for both Executive and Non-executive Directors. In considering Executive Director succession, the Board's strategy is to consider both internal and external candidates, whilst aiming to develop a choice of internal potential successors. The focus of Non-executive Director succession planning is to ensure that the Board and its Committees continue to have the right mix of skills and experience to deliver Capco's strategy. A summary of Directors' core areas of experience as at the date of this report is shown in the figure to the right. Board succession and composition will continue to be considered at Committee meetings during 2017, and the Committee will make recommendations to the Board where appropriate.
Capco operates a rigorous and transparent recruitment process for new Directors which is summarised above. Information about the Committee's activities in this area during the year is given below.
Following Soumen Das' decision to leave Capco, a rigorous internal and external search was undertaken to identify appropriate candidates to succeed him. The Zygos Partnership, which provides no other services to the Group, was engaged to assist with the external search. To ensure that the long-list of candidates reflected diversity of both gender and skills, a broad brief was provided to the Zygos Partnership. Following an interview process led by the Chairman and Chief Executive with the assistance of the Chairman of the Audit Committee, it was recommended to the Committee that Situl Jobanputra be appointed as Chief Financial Officer of the Company. After thorough consideration, the Committee made a formal recommendation of the appointment to the Board.
Non-executive Directors:
As reported in previous years, following a full review of the skills, experience, independence and knowledge of Board members, the Committee had agreed to seek two new Non-executive Directors, of whom at least one should have specific property expertise. As a result of this review Anthony Steains joined the Board in 2016. During the year the Committee continued to consider potential candidates, however at this time it has been unable to identify an appropriately qualified candidate who is free of conflicts of interest. The Committee is satisfied that the Board currently has sufficient property expertise, and will therefore continue to consider potential candidates, and recommend an appointment, when an opportunity arises.
An induction programme is provided for each new Director, which is tailored depending on the Director's experience and expected role on the Board. A typical induction programme for a Capco Non-executive Director will include individual meetings with the Chairman, Executive Directors, General Counsel, Company Secretary and members of senior management, site visits to Capco's estates, and an introduction by the Chairman to the Company's brokers, advisers and lawyers. The Director is also provided with copies of past Board and Committee papers and minutes, and individual briefings are arranged on topics such as Directors' duties and responsibilities and the property market. A tailored Board induction was provided to Situl Jobanputra on his promotion to the Board.
The Chairman and the Committee together ensure that Directors keep their skills and knowledge up to date to allow them to fulfil their roles on the Board and Board Committees. The General Counsel and Company Secretary regularly update the Board on legal and corporate governance matters, and information on training opportunities and seminars is circulated to Directors. The Company also arranges periodic briefings from external advisers, and Directors receive regular business updates from the Executive Directors. Directors may also take independent advice at the Company's expense where they feel this is appropriate.
Diversity is important to Capco and the Board recognises the business benefits that the experience of a diverse Board and workforce can bring.
The Committee regularly reviews the Board Diversity Policy to ensure it aligns with the Committee's aim of ensuring that the Board has the right mix of skills and experience to deliver Capco's strategy.
Capco currently has one female Director which does not meet the Hampton-Alexander Review target for women on boards or reflect the diversity within the Company. However, the Board remains committed to encouraging diversity, and although the Board does not feel that it would be appropriate to set targets on gender diversity as all appointments must be made on merit, diversity will continue to be considered in a broad context when evaluating the skills, knowledge and experience desirable to fill each Board vacancy.
The Company supports a number of initiatives to promote diversity within the property industry, including the RICS Inclusive Employer Quality Mark and working with peer companies to promote diversity and equal opportunities. We are keen to develop female talent across the business, and provide mentoring to management. We are proud that the ratio of women to men within Capco's senior management team is 1:1.
Please refer to pages 49 and 50 of the Corporate Responsibility Report for more information on Capco's people practices, and on our Community initiatives which promote diversity.
Both Executive and Non-executive Directors are included. Some Directors are represented in more than one category.
"A new, simplified, remuneration policy which will continue to incentivise our executive team to deliver market‑ leading levels of performance."
Gerry Murphy, Chairman of the Remuneration Committee
Dear Shareholder,
Having succeeded Ian Henderson as Chairman of the Remuneration Committee at the 2016 AGM, I am pleased to present both the Annual Report on Remuneration for 2016 and the new Directors' remuneration policy.
The Committee's key objectives, as in previous years, are to ensure that Capco's executive team is appropriately incentivised by remuneration arrangements that are fully aligned with the Company's strategy of providing long-term market-leading returns to shareholders. Management incentives are linked to the Key Performance Indicators ("KPIs") which the Company uses to measure the creation and growth of value for shareholders. These KPIs are described in full on page 13.
Since its establishment in 2010, Capco has delivered TSR performance which ranks in the top quartile when compared to its listed peers. However, in 2016 external market circumstances have impacted Capco's financial performance and therefore the variable remuneration outcomes for our executive team. The financial elements of the bonus paid out at 6.67 per cent of maximum, reflecting achievement of the EPS target but NAV and TPR results which were below threshold. In addition, the long-term incentive awards which would have vested in 2017 based on TSR and TR performance up to the end of 2016 are expected to lapse as neither the TSR or TR targets are expected to be met. These outcomes demonstrate that the performance measures are effective in aligning executive remuneration with shareholder returns.
Following the review of remuneration conducted in 2015 and 2016, and extensive shareholder consultation covering over 80 per cent of the share register, the Remuneration Committee has developed a new remuneration policy which will be submitted for shareholder approval at the 2017 AGM. I would like to thank those shareholders who provided feedback on the Committee's proposals.
The new policy has been designed to address shareholders' concerns regarding the Matching Share Plan ("MSP") and the complexity of the current remuneration arrangements, and also to provide variable remuneration which can continue to incentivise our executive team to deliver market-leading levels of performance.
In summary, the new policy:
No changes have been made to the policy regarding base salary, benefits or annual bonus. Fifty per cent of any bonus earned will continue to be deferred into shares for three years.
The key feature of this new policy is the change to the longterm incentive arrangements. The current long-term incentives comprise three schemes: the 2010 Performance Share Plan ("Existing PSP"), the MSP and the Co-Investment Plan ("CIP"). The Committee has taken account of shareholder feedback and believes that these arrangements are too complex. Therefore, under the new policy, these three schemes will be replaced with a single annual award under a new PSP. Shareholders will be asked to approve the PSP at Capco's 2017 AGM and a full description of the plan will be included in the notice of meeting.
Averaged over three years, the current policy allowed the Committee to grant an annual long-term incentive award of up to 450 per cent of base salary, but in practice the actual historical level of annual award for the Chief Executive was just under 350 per cent of base salary. These historical awards have been a key factor in incentivising our executive team to deliver a market-leading level of TSR, and the Committee believes it is important that any new long-term incentive plan continues to provide a similar level of incentive opportunity in order to continue to drive exceptional performance for our shareholders. As a result, under the new PSP, the maximum annual award will be 350 per cent of base salary, which is broadly in line with the average award level received by Executive Directors since Capco's establishment in 2010. The Committee believes that this level of PSP award is appropriate because it does not increase quantum above historical levels, provides a reduction in the level of long-term incentive award that can be made in any one year, removes the exceptional award facility and replaces the matching schemes all with a single annual award.
Awards made under the PSP will continue to be subject to a relative TSR performance measure and a relative TR performance measure. The Committee did consider introducing absolute measures of performance, but believes that relative measures remain most appropriate as they ensure that management are rewarded for outperformance against other property companies rather than for changes in market conditions.
The new policy also incorporates a number of areas of best practice in corporate governance and strengthens alignment between our executives and shareholders. All awards made under the new PSP will be subject to a two-year post-vesting holding period, and will be subject to clawback as well as malus. Pension contributions for new Executive Directors appointed after the 2017 AGM will be reduced from 24 per cent to 10 per cent of base salary, which is in line with the contribution level available for employees at Capco Head Office (including Earls Court Properties) and Covent Garden.
As part of the review, the Committee also considered the base salary positioning of the Chief Executive. On Capco's establishment in 2010, the Chief Executive's base salary was initially set at the bottom of the market because the management team was untested. His base salary was then frozen for three years and market positioning worsened. Thereafter, whilst above market salary increases were made, these have been insufficient to bring the base salary to the Committee's desired market positioning and appropriately reflect the contribution and performance of the Chief Executive. As a result, the positioning of the Chief Executive's base salary continues to be below the level that the Committee believes to be appropriate. However, in light of current market conditions and the need to keep fixed costs under control, the Committee has concluded that it would not be justifiable to make a significant increase to the Chief Executive's base salary at present. Accordingly the Committee will only increase his base salary by 2.9 per cent, in line with increases awarded to the rest of the workforce.
The Remuneration Committee believes that the proposed remuneration policy will continue to motivate Capco's exceptional executive team to drive the future success of the Company, whilst achieving the aims of the review to simplify remuneration, reduce complexity, and remove the exceptional award opportunities. It also introduces elements of best practice such as holding periods, clawback and reduced pension contributions, which will sit alongside our 300 per cent of base salary shareholding guideline for the Chief Executive, and 200 per cent of base salary shareholding guideline for our executive team. The Committee believes that these proposals do not represent an increase to remuneration when compared to historical grant levels, and can continue to provide a strong incentive for our executives over the next three-year period.
The Committee intends to operate the new remuneration policy in 2017, subject to the new remuneration policy being approved at the 2017 AGM. Base salary increases for Executive Directors will be in line with those for the general workforce, and there will be no change to the operation of benefits, pension and annual bonus when compared to prior years. In anticipation of the introduction of the new remuneration policy, no long-term incentive awards will be made until after the AGM.
In 2017, following shareholder approval, we intend to make the first grant under the new PSP of 350 per cent of base salary. Half of this award will be subject to a relative TSR performance condition, whilst the remainder will be subject to a relative TR performance measure. Threshold and maximum targets will be set for both the TSR and TR performance measures and are explained below.
As part of the remuneration review, the Committee considered the appropriate level of challenge for the TSR and TR targets. The Committee determined that the current threshold performance target for both the TSR and TR performance measures, under which 33 per cent of an award will vest for median performance, and the current maximum TSR target of median +4 per cent per annum remained appropriately challenging, and these will continue to be the threshold TR and TSR targets and maximum TSR targets for awards under the new PSP.
In reviewing the TR maximum target, the Committee noted that the current target of median + 2.5 per cent per annum was above normal market practice at other companies which use similar relative metrics. In addition, current broker forecasts for Capco and the comparator group suggest that the difficulty in achieving the current target of median +2.5 per cent will increase substantially over the next two years as a result of the changing outlook for the property sector. Accordingly, for awards granted in 2017, the Committee intends to set the maximum TR target at median +2 per cent per annum. This target remains above market practice for relative outperformance targets at other property companies, and the Committee believes that it maintains an equivalent level of challenge to previous years. However, the Committee will keep this target under review and the remuneration policy provides flexibility for the Committee to increase this target for future awards if market conditions change.
Situl Jobanputra was appointed as Chief Financial Officer of the Company on 1 January 2017 at a base salary of £325,000. Situl's base salary has been initially positioned at below market rate for equivalent roles, and it will be brought to market levels over time subject to his performance and development in the role. As a result, his base salary will be subject to review by up to 15 per cent in 2019, to recognise the experience gained.
Capco's current remuneration policy was approved by shareholders at the 2014 AGM held on 2 May 2014. This year, we are asking shareholders to vote for the resolution regarding the Annual Report on Remuneration and this Annual Statement, and also to vote for the resolution regarding the new Directors' remuneration policy, and the resolution to approve the new PSP. The Committee believes that this new remuneration policy achieves our aims to simplify remuneration whilst providing an appropriate level of incentive to drive future performance. We look forward to receiving your support at the forthcoming AGM to be held on 5 May 2017.
Gerry Murphy Chairman of Remuneration Committee, 21 February 2017
Members: Gerry Murphy (Chairman) Demetra Pinsent
Henry Staunton Andrew Strang
This section of the Directors' Remuneration Report sets out Capco's new remuneration policy which will take effect from the 2017 AGM, subject to shareholder approval. Details of actual remuneration paid, share awards made, and the approach to remuneration for 2017 are set out within the Annual Report on Remuneration which starts on page 78.
The key objectives of the Company's remuneration policy are to:
The Committee aims to achieve an appropriate balance between fixed and variable remuneration, and between variable remuneration based on short-term and longerterm performance. Fixed remuneration includes base salary, benefits and pension. Variable remuneration includes an annual bonus, half of which is deferred in shares, and awards under the Performance Share Plan ("PSP").
The remuneration policy is aligned to the strategy and nature of the Company, and reflects the importance of total return and the long-term nature of Capco's business, rewarding the Executive Directors for delivering strong performance against the Company's Key Performance Indicators ("KPIs").
Details of each element of remuneration, their operation, purpose, link to strategy and performance metrics are set out in this section.
The table below summarises each of the components of the remuneration package for the Executive Directors:
| Purpose and link to strategy | Operation |
|---|---|
| Base Salary | |
| To provide an appropriately competitive base salary, whilst placing emphasis on the performance related elements of remuneration. The Committee believes base salary for high-performing experienced Executive Directors should be at least median. |
Base salaries are normally reviewed on an annual basis, with any increase normally taking effect from 1 April. The Committee reviews base salaries with reference to: • other property companies (including the constituents of the long-term incentive plan's comparator group) • UK companies of a similar size • each Executive Director's performance and contribution during the year • scope of each Executive Director's responsibilities • changes to the remuneration and overall conditions of other employees When reviewing base salaries, the Committee is mindful of the gearing effect that increases in base salary will have on the potential total remuneration of the Executive Directors. |
| Benefits | |
| To be appropriately competitive with those offered at comparator companies. |
Benefits will be in line with those offered to some or all employees and may include private dental and healthcare, life insurance, personal accident cover, travel insurance, income protection and a car allowance, currently paid in cash. Other benefits may be introduced from time to time to ensure the benefits package is appropriately competitive and reflects individual circumstances. For example, Directors may be offered relocation and/or expatriate benefits should a Director be required to relocate as a result of emerging business requirements. |
| Pension | |
| To be appropriately competitive with that offered by comparator companies. |
Capco offers a defined contribution pension scheme. Executive Directors may elect to be paid some or all of their entitlement in cash. |
| Annual Bonus | |
| To incentivise and reward performance. The Committee selects performance measures and targets each year to reinforce the strategic business priorities for the year. The deferral of half of the bonus into shares is designed to further align executives with shareholders' interests. |
The annual bonus arrangements are reviewed at the start of each financial year to ensure performance measures and weightings are appropriate and support the business strategy. The Committee reviews performance against the annual bonus targets but has the ability to take into account broader factors and, subject to the 150 per cent of salary maximum, may exercise two-way discretion to ensure that the annual bonus awarded properly reflects the performance of the Company and each Director. Adjudication of bonuses will be explained in the Directors' Remuneration Report. 50 per cent of any bonus earned is deferred in Capco shares or nil cost options for three years under the Performance Share Plan without further performance conditions but subject to risk of forfeiture should an Executive Director leave the Company in certain circumstances. Directors may be entitled to be paid dividend equivalents on deferred bonus. Deferred bonus is subject to malus as described in the notes to this table. |
| Performance Share Plan "PSP" | |
| To incentivise and reward long-term outperformance, and help retain Executive Directors over the longer term. |
Executive Directors are eligible to receive awards of shares under the PSP, which may be made as awards of shares or nil cost options, at the discretion of the Committee. In assessing the outcome of the performance conditions, the Committee must satisfy itself that the figures are a genuine reflection of underlying financial performance, and may exercise downwards discretion when determining the proportion of an award that will vest. Dividend equivalents may be paid. The Committee has the discretion in certain circumstances to grant and/or settle an award in cash. In practice this will only be used in exceptional circumstances for Executive Directors. PSP awards are subject to malus and clawback as described in the notes to this table. |
All Employee Share Schemes
The Company does not currently operate any All Employee Share Schemes, however if such a scheme were introduced the Executive Directors would be able to participate on the same terms as other employees.
| Maximum opportunity | Performance metrics |
|---|---|
| Base salary increases will be applied in line with the outcome of the annual review and will normally be in line with increases awarded to other employees. However, the Committee may make additional adjustments in certain circumstances to reflect, for example, an increase in scope or responsibility, development in role, to address an increase in size or complexity of the business, to address a gap in market positioning and/or to reward the long-term performance of an individual. For the purposes of stating a maximum as required by the remuneration regulations, no increase will be applied to an Executive Director's base salary if the resulting base salary would be above the upper quartile base salary for CEOs at companies in the FTSE 350. |
The Committee considers individual and Company performance when setting base salary, as well as the general increase awarded to other employees. |
| Set at a level which the Committee considers appropriate in light of relevant market practice for the role and individual circumstances. The cost of all benefits will not normally exceed 10 per cent of base salary, with the exception of any future expatriate and/or relocation benefits, which would be disclosed in the annual report on remuneration. Any reasonable business related expenses (including tax thereon) can be reimbursed if determined to be a taxable benefit. |
N/A |
| The maximum contribution is 10 per cent of base salary for any Executive Director appointed on or after the 2017 AGM, in line with the level available for other head office and Covent Garden employees. Executive Directors appointed before the 2017 AGM receive 24 per cent of base salary as a defined contribution. |
N/A |
| The maximum bonus opportunity for Executive Directors is 150 per cent of annual salary with a bonus of 75 per cent of salary payable for achieving target levels of performance. No bonus is payable for below threshold performance. The payment for threshold performance will not exceed 10 per cent of maximum. Awards are made on a straight-line basis for performance between threshold and target, and on a separate straight-line basis for performance between target and maximum. |
Executives' performance is measured relative to challenging one-year targets in key financial, operational and strategic measures. The measures selected and their weightings vary each year according to the strategic priorities. At least 75 per cent of the bonus will be measured against financial performance. Measures and respective weightings used for the annual bonus for 2016 and proposed for next year's annual bonus are set out in the Annual Report on Remuneration on pages 80 and 81, and 84. An explanation of how the performance measures were chosen and how the performance targets are set is given on page 74. |
| Each year participants may be granted up to 350 per cent of salary in awards or nil cost options. |
PSP awards vest on the third anniversary of the date of grant, and are subject to a two-year post-vesting holding period. |
| 33 per cent of an award vests for threshold performance, with full vesting taking place for equalling or exceeding maximum performance conditions and straight-line vesting between |
The vesting of awards is subject to continued employment and the Company's performance over a three-year performance period based: |
| threshold and maximum. | • 50 per cent on relative Total Return (Net Asset Value growth plus dividends); and • 50 per cent on relative Total Shareholder Return |
| For both measures, performance is measured relative to a comparator group comprising the largest FTSE350 property companies. |
|
| The performance measures and weightings which apply to the PSP are reviewed by the Committee annually, and, subject to consultation with shareholders, the Committee has discretion to make changes to the measures, the weightings and/or comparator group for future awards to ensure that they remain relevant to the Company strategy and are suitably stretching. |
|
| Details of the performance conditions for previous years' awards, and those proposed for 2017 awards, are set out in the Annual Report on Remuneration on page 82. |
|
| An explanation of how the performance measures were chosen and how the |
A full explanation of the changes made from the previous remuneration policy is set out in the letter from the Chairman on pages 70 and 71. The changes made, which are intended to simplify Capco's executive remuneration arrangements, are:
Executive Directors may earn bonuses depending on the Company's financial performance and performance against individual performance targets designed to deliver strategic goals. The current structure of the annual bonus performance conditions is illustrated within the Annual Report on Remuneration on page 81. The financial performance measures and the importance of each are set out in the table below. The Remuneration Committee has discretion to change the performance conditions in the annual bonus, but within the bounds set out in the Remuneration Policy Table.
The annual financial performance targets are set by the Committee in the first quarter of each year following an analysis of external and internal expectations compiled by the Committee's independent adviser. The
Committee sets targets it believes to be appropriately stretching, but achievable.
As mentioned above, the performance conditions for the PSP currently comprise two measures:
The Committee believes that these two measures are currently the most appropriate measures of long-term success for Capco as long-term relative performance provides an appropriately objective and relevant measure of Capco's success which is strongly aligned with shareholders' interests.
The Committee believes that NAV growth is the most important internal measure of success for Capco at this time. Accordingly, the Committee considered it appropriate to reward NAV performance in both the short and long-term incentive arrangements, with one-year absolute NAV growth being used in respect of the annual bonus arrangements and three-year relative NAV (as the main component of three-year Total Return) being used in respect of the long-term incentives. NAV is used as a performance measure by over half of FTSE350 property companies in their long-term incentive arrangements. The Company's NAV is based on independent external valuations carried out in accordance with RICS Valuation Professional Standards.
Relative TSR helps align the interests of Executive Directors with shareholders by incentivising share price growth and, in the Committee's view, provides an objective measure of the Company's long-term success.
The current long-term incentive performance conditions are summarised within the Annual Report on Remuneration on page 82. Performance is measured relative to a comparator group comprising the largest FTSE350 property companies and Capco. The members of the comparator group are shown in Figure 4 on page 82.
In order for any awards to vest, the Committee must also satisfy itself that the TR and TSR figures are a genuine reflection of underlying financial performance. In assessing the extent to which the performance conditions have been met, the Committee consults with its independent remuneration adviser. The calculation of the returns is also reviewed by the Company's auditors as appropriate. The performance targets are set by the Committee following an analysis of internal and external expectations, and are believed to be appropriately stretching.
For future awards, the Remuneration Committee has discretion to change the performance measures and weightings. However, any such changes would only be made after consulting with shareholders.
Under the Annual Bonus Scheme and the PSP the Company has the standard discretions to take appropriate action in the event of unforeseen events which affect the schemes such as a variation in share capital as well as terminations and on a change in control as described in the policy. The Committee does not intend to make adjustments to the methods by which it measures the performance conditions, however, it reserves the discretion to make adjustments in very exceptional circumstances. Shareholders would be given details of any exercise of discretion.
| Why are the current annual bonus performance measures appropriate for Capco? | ||
|---|---|---|
| Measure | Reason | |
| Growth in Net Asset Value per share |
Considered by the Committee to be the most important driver of value creation for Capco at the present time. | |
| Relative Total Property Return | Rewards the additional portfolio value created by management over and above any changes in value from tracking the property market as a whole, as measured by the IPD Total Return All Property Index, an external benchmark widely used in the property industry. |
|
| Underlying Earnings Per Share | Rewards value growth in net rental income as well as the management of financing and other costs. However, given the current stage of the Company's development, the Committee considers EPS to be less relevant as an indicator of value creation than growth in Net Asset Value per share. |
The Committee may make any remuneration payments and payments for loss of office (including exercising any discretions it has relating to such payments) even though they are not in line with the policy set out in this report. This will apply where the entitlement to the payment arose: (i) before the 2014 AGM; (ii) at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company; or (iii) under a remuneration policy previously approved by the Company's shareholders. For these purposes entitlements arising under the Company's current remuneration policy (as approved by shareholders at the 2014 AGM) will be incorporated into this policy, 'payments' includes the Committee satisfying awards of variable remuneration, and an entitlement under an award over shares arises at the time the award is granted.
Awards granted under the long-term incentive arrangements are subject to malus and clawback until the end of the respective holding periods. Deferred bonus awards are subject to malus prior to vesting. Reasons for malus and clawback include: in the event of gross misconduct of a Director, in the event of a material misstatement in the audited accounts of the Company for a period that was wholly or partly before the end of the financial year by reference to which any performance condition was assessed, or in the event that the assessment of the satisfaction of any performance condition was based on error or inaccurate or misleading information. In the latter two
scenarios, to the extent an overpayment resulted. The application of any malus or clawback is at the discretion of the Remuneration Committee.
No element of remuneration is operated solely for Executive Directors. Capco head office (including Earls Court Properties) and Covent Garden employees below the Board receive base salary, benefits, annual bonus, and participate in the PSP. The pension contribution for new Executive Directors has been set at the same level as available to employees at Capco head office (including Earls Court Properties) and Covent Garden. However, there are some differences in operation as set out below:
The Venues business has separate remuneration arrangements appropriate for that business. These comprise salary, separate pension arrangements and discretionary bonuses.
The Chief Executive is required to achieve a shareholding in the Company equivalent to 300 per cent of salary and the other Executive Directors are required to achieve a shareholding in the Company equivalent to 200 per cent of base salary, to be achieved by retaining at least 50 per cent of any vested share awards (net of tax) or within three years. The current shareholdings of the Executive Directors are set out on page 86. The current Chairman is required to maintain a shareholding in the Company equivalent to 100 per cent of his base fee, but this would be reviewed on any new appointment.
The potential reward opportunities illustrated in Figure 1 are based on the policy which will apply in 2017, applied to the base salary at the salary review date, 1 April 2017, and provide estimates of the potential future reward opportunity for each Executive Director, and the potential split between the different elements of remuneration under three different performance scenarios: 'Below Threshold', 'Target' and 'Maximum'.
The Below Threshold scenario includes base salary, pension and benefits (fixed pay). No annual bonus or PSP elements are included (variable pay). The Target scenario includes fixed pay, on target bonus and threshold vesting of PSP awards. The Maximum scenario includes fixed pay, maximum bonus and full vesting of PSP awards. For variable pay, the amounts illustrated are the normal maximum opportunities.
It should be noted that the PSP awards granted in a year do not normally vest until the third anniversary of the date of grant and are subject to a two-year post-vesting holding period. The projected values of long-term incentives shown here exclude the impact of share price movement and dividends.
Salary for Chief Executive assumes a 2.9 per cent increase on prior year
Salary for Managing Director and Chief Investment Officer
assumes a 2.9 per cent increase on prior year
Salary for Chief Financial Officer assumes a 0 per cent increase on prior year
When hiring or appointing a new Executive Director, the Committee may make use of any of the existing components of remuneration, as follows:
| Element of remuneration | Policy on recruitment | Maximum opportunity |
|---|---|---|
| Salary | Based on scope and nature of responsibilities of the proposed role; the candidate's experience; implications for total remuneration positioning vs. market pay levels for comparable roles; internal relativities; and the candidate's current salary. |
N/A |
| A new Director may be appointed at a salary which is less than the prevailing market rate but increased over a period to the desired positioning subject to satisfactory performance. |
||
| Pension | A contribution of up to 10 per cent of salary may be offered, consistent with policy. |
|
| Benefits | Appropriate benefits will be provided, which may include the continuation of benefits received in a previous role. |
|
| Annual Bonus | Executive Directors will be eligible to participate in the annual bonus scheme on the same basis as existing Executive Directors, pro-rated for proportion of year served. |
The maximum opportunity will be 150 per cent of salary, consistent with policy. |
| Depending on the timing of the appointment, the Committee may deem it appropriate to set different annual bonus performance conditions to the current Executive Directors in the first performance year of appointment. |
In exceptional circumstances, normal policy table limits may be exceeded on recruitment. The maximum additional bonus opportunity will be limited to 50 per cent of salary. |
|
| Performance Share Plan | New Executive Directors will be eligible to participate in the long-term incentive scheme set out in the remuneration policy table. |
The opportunity levels will be consistent with those disclosed |
| A PSP award can be made shortly following an appointment (assuming the Company is not in a prohibited period). |
in the table. | |
| Other | In determining appropriate remuneration for new Executive Directors, the Committee will take into consideration all relevant factors (including quantum, the nature of remuneration and where the candidate was recruited from) to ensure that arrangements are in the best interests of Capco and its shareholders. |
|
| Remuneration may include: | ||
| • An award made in respect of a new appointment to "buy out" existing incentive awards forfeited on leaving a previous employer. In such cases the compensatory award would typically be a like-for-like award with similar time-to-vesting, performance conditions and likelihood of those conditions being met. The fair value of the compensatory award would not be greater than the awards being replaced. To facilitate such a buyout, the Committee may use an award under a different structure or an additional award under the PSP; |
||
| • A relocation package, should this be required; | ||
| • For an overseas appointment, the Committee will have discretion to offer cost-effective benefits and pension provisions which reflect local market practice and relevant legislation; and |
||
| • In the event that an employee is promoted to the Board, the Company would honour any existing contractual arrangements. |
The service contracts of Executive Directors are approved by the Remuneration Committee and are one-year rolling contracts. The commencement dates of the current contracts are shown below. The service contracts may be terminated by either party giving one year's notice to the other. It is the Company's policy that termination payments should not exceed the Director's current salary and benefits for the notice period. The service contracts may be viewed at the Company's registered office.
Where a Director may be entitled to pursue a claim against the Company in respect of his/her statutory employment rights or any other claim arising from the employment or its termination, the Committee will be entitled to enter into a settlement agreement with the Director. The Company may pay a Director's legal fees in relation to any settlement agreement.
The Committee may pay reasonable outplacement fees where considered appropriate.
When considering exit payments, the Committee reviews all potential incentive outcomes to ensure they are fair to both shareholders and participants. The payment of any annual bonus is subject to the discretion of the Committee, and both the cash and deferred share elements of an annual bonus would normally be payable at the normal payment date. Any deferred share element could be paid in cash. Any outstanding deferred bonus may be released or paid in cash, subject to clawback for a period of three years from the date of grant.
| Commencement date | Notice period | |
|---|---|---|
| Ian Hawksworth | 17 May 2010 | 12 months |
| Situl Jobanputra | 1 January 2017 | 12 months |
| Gary Yardley | 17 May 2010 | 12 months |
An individual would generally be considered a 'good leaver' if they left the Group's employment for reasons including injury, ill-health, disability approved by the Committee, redundancy or retirement with the agreement of the employing company. The table below summarises how PSP awards are typically treated in specific leaver circumstances, with the final treatment remaining subject to the Committee's discretion, for example an individual may be considered a 'good leaver' for any other reason at the absolute discretion of the Committee, and the vesting of awards may be reduced for 'good leavers'.
| Reason for leaving | Timing of vesting | Treatment of awards |
|---|---|---|
| Good leaver | Normal vesting date, although the Committee has discretion to accelerate. |
Payments are normally pro-rated for time and remain subject to outstanding performance conditions. Where vesting is accelerated, payments are further pro-rated to reflect the extent to which the performance conditions had been satisfied at the date of leaving. The holding period would continue to apply. |
| Change of control | Immediately | Vesting will be pro-rated for time and remain subject to performance conditions. However, the Committee has discretion to allow awards to vest in full in such circumstances if it deems this to be fair and reasonable. The holding period would cease to apply. |
| Any other reason | Awards lapse |
There are no obligations on the Company contained within the existing Directors' service contracts which would give rise to payments not disclosed in this report.
The service contracts of any future-appointed Directors will provide for mitigation in the event of termination.
The Non-executive Directors do not have service contracts but instead have letters of appointment. The letters of appointment of the Non-executive Directors are reviewed by the Board annually and contain a one-month notice period. The Chairman's letter of appointment contains a 12-month notice period. The letters of appointment may be viewed at the Company's registered office.
Non-executive Directors' dates of appointment and unexpired terms
| Date of appointment | Date of most recent letter of appointment |
Unexpired term as at 31 December 2016 |
|
|---|---|---|---|
| Graeme Gordon | 23 February 2010 | 6 May 2016 | 4 months |
| Gerry Murphy | 1 March 2015 | 6 May 2016 | 4 months |
| Demetra Pinsent | 1 May 2012 | 6 May 2016 | 4 months |
| Henry Staunton | 2 June 2010 | 6 May 2016 | 4 months |
| Anthony Steains | 1 March 2016 | 26 February 2016 | 4 months |
| Andrew Strang | 23 February 2010 | 6 May 2016 | 4 months |
The table below summarises each of the components of the remuneration package for the Non-executive Directors. The Non-executive Directors do not receive any pension, bonus or long-term incentive benefits from the Company.
| Purpose and link to strategy | Operation | Maximum opportunity | Performance metrics |
|---|---|---|---|
| Fee | |||
| To recruit and retain appropriately qualified Non-executive Directors. |
The Chairman and Non-executive Director fees are reviewed on an annual basis, with any increase taking effect from 1 May. The Board and Committee review fees with reference to: • other property companies; • UK companies of a similar size; and • the time that Non-executive Directors are required to devote to the role. In exceptional circumstances, if there is a temporary yet material increase in the time commitments for Non-Executive Directors, the Board may pay extra fees on a pro-rata basis to recognise the additional workload. |
Non-executive Director fees may include a basic fee and Committee/ SID fees as disclosed in the Annual Report on Remuneration. These are set at a level that is considered appropriately competitive in light of market practice, and will not exceed the aggregate fees permitted by the Company's Articles of Association. |
N/A |
| Benefits | |||
| To be appropriately competitive with those offered at comparator companies. |
The Chairman's benefits include private healthcare and personal accident and travel insurance. Other Non-executive Directors will be covered by the Company's travel insurance policy should they be required to travel on Company business. Any reasonable business related expenses can be reimbursed (including tax thereon if determined to be a taxable benefit). |
The maximum value of the benefits provided to Non-executive Directors will be the cost of purchasing them in the market. |
N/A |
The Company's policy is to encourage each Executive Director to take up one or more Non-executive Directorships, subject to Board approval. Fees received for serving as a Non-executive Director of a company outside the Capco Group are retained by the Executive Director.
This section of the Directors' Remuneration Report explains how Capco's current remuneration policy has been implemented during the year.
The Remuneration Committee is responsible for determining and recommending to the Board the policy for the remuneration of the Executive Directors, setting targets for the Company's incentive schemes and determining the total individual remuneration package for each Executive Director. Membership of the Committee as at 31 December 2016 and the date of this report is set out on page 71. In addition, the Company Chairman, Chief Executive, Company Secretary and the Director of HR & CR are invited to attend Committee meetings and contribute, except on matters relating to their own remuneration. Attendance at the seven meetings held during the year is shown in the table on page 63 and a summary of the matters considered by the Committee during the year is set out in the adjacent shaded box in column 3.
The Committee appointed Aon Hewitt (formerly New Bridge Street) as its
elsewhere in the Company When setting Executive Director pay the Committee considers the remuneration and overall conditions of all employees. As Capco has a relatively small workforce, the Committee does not consult with employees when deciding remuneration policy, but it receives regular updates from the HR Director on salary increases, bonus and share awards made to Group employees and is
independent remuneration adviser in 2014 following a competitive process. During the year, the Committee received advice on matters including remuneration structure, incentive design and target setting from Aon Hewitt. Aon Hewitt is a member of the Remuneration Consultants Group and adheres to its code of conduct. The Committee has received confirmation of independence from Aon Hewitt, and is satisfied that the advice received was objective and independent. In addition to advice provided to the Committee, Aon Hewitt also provided share award valuation services to the Company. During 2016, the Company was charged a total of £124,345 by Aon Hewitt in respect of advice to the Committee. Fees were charged on a time basis.
The table below shows the results of the advisory vote on the 2015 Directors' Remuneration Report at the 2016 AGM and the binding vote on remuneration policy at the 2014 AGM.
The table on page 79 shows the single figures of total remuneration paid to each Director in 2016 and 2015. The charts in Figure 2 on page 80 illustrate the contribution that each element of remuneration made to the total remuneration of the Executive Directors. aware of how the remuneration of Directors compares to that of other employees; for example, salary increases are generally in line with increases awarded to other employees, which are set with reference to market data.
1.10 Consideration of shareholder views It is the Committee's policy to consult with major shareholders as appropriate, for example, prior to finalising any major changes to its executive remuneration policy.
| Votes for | % For | Votes against | % Against | Total votes cast | Votes withheld (abstentions) |
|
|---|---|---|---|---|---|---|
| Approval of Remuneration Report | 632,017,361 | 97.94 | 13,297,296 | 2.06 | 645,314,657 | 1,571,113 |
| Voting on Remuneration Policy 2014 AGM | ||||||
| Votes for | % For | Votes against | % Against | Total votes cast | Votes withheld (abstentions) |
|
| Approval of Remuneration Policy | 434,538,113 | 80.33 | 106,423,033 | 19.67 | 540,961,146 | 29,203,785 |
| Base salary and fees | £000 | Taxable benefits1 £000 |
Single-year variable £000 |
Multiple-year variable2 £000 |
Pension related benefits3 £000 |
Other £000 |
Total £000 |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| Chairman | ||||||||||||||
| Ian Durant | 254 | 243 | 5 | 4 | – | – | – | – | – | – | – | – | 259 | 247 |
| Executive Directors |
||||||||||||||
| Ian Hawksworth | 573 | 550 | 23 | 22 | 184 | 764 | – | 1,213 | 138 | 132 | – | – | 918 | 2,681 |
| Gary Yardley | 513 | 489 | 24 | 23 | 165 | 660 | – | 1,061 | 123 | 117 | – | – | 825 | 2,350 |
| Non-executive Directors |
||||||||||||||
| Graeme Gordon | 50 | 48 | 20 | 14 | – | – | – | – | – | – | – | – | 70 | 62 |
| Gerry Murphy4 | 74 | 55 | – | – | – | – | – | – | – | – | – | – | 74 | 55 |
| Demetra Pinsent | 61 | 59 | – | – | – | – | – | – | – | – | – | – | 61 | 59 |
| Henry Staunton | 85 | 73 | – | – | – | – | – | – | – | – | – | – | 85 | 73 |
| Anthony Steains5 | 46 | – | 28 | – | – | – | – | – | – | – | – | – | 74 | – |
| Andrew Strang | 68 | 66 | 1 | 1 | – | – | – | – | – | – | – | – | 69 | 67 |
| Former Directors | ||||||||||||||
| Soumen Das6 | 440 | 401 | 22 | 22 | – | 561 | – | 711 | 106 | 96 | – | – | 568 | 1,791 |
| Ian Henderson7 | 32 | 97 | 1 | 3 | – | – | – | – | – | – | – | – | 33 | 100 |
| Andrew Huntley8 | – | 22 | – | 1 | – | – | – | – | – | – | – | – | – | 23 |
| Total | 2,196 | 2,103 | 124 | 90 | 349 | 1,985 | – | 2,985 | 367 | 345 | – | – | 3,036 | 7,508 |
1. Comprises Executive Director car allowance of £18,000, medical insurance and Non-executive Directors' travel expenses relating to Board meeting attendance where these are taxable or would be if the Director were resident in the UK for tax purposes. Where applicable the Company pays the tax payable on Non-executive Director travel expenses as they are incurred in the fulfilment of Directors' duties.
2. The 2016 disclosure comprises the expected value on maturity of the 2014 Existing PSP and MSP awards which have a performance period that ran from 2014 to 2016, and were expected to vest in early 2017. These awards have been included in the 2016 single figure as the performance conditions relating to these awards had been substantially (but not fully) completed during 2016. The disclosure has been calculated assuming that zero per cent of the Existing PSP awards and MSP awards will vest. As required under the remuneration regulations, the 2015 multi-year variable comparators (which were previously disclosed on the basis described above assuming vesting of 60 per cent for the Existing PSP awards and, depending on the award, 40 or 80 per cent for the MSP awards and using a price of £4.333, being the average share price for the last three months of 2015) have been restated with values calculated using the actual vesting outcome of 54.1 per cent of the Existing PSP awards and, depending on the award, 36 or 72 per cent of the MSP awards and the actual share prices on the date that the awards vested, which were £3.349 and £2.837 respectively. The previously disclosed 2015 multi-year variable figures were: Ian Hawksworth £1,807,394, Soumen Das £1,341,206, Gary Yardley £1,577,463.
3. Comprises payments in lieu of pension contributions.
The figures below illustrate the contribution that each element of the Executive Directors' remuneration made to the single figure disclosures.
Executive Directors can earn bonuses of up to 150 per cent of salary. 50 per cent of bonus earned is deferred in Capco shares or nil cost options for three years, subject to forfeiture should the Executive Director leave the Company.
Awards made in respect of the year ended 31 December 2016 were based 75 per cent on financial performance, and 25 per cent on individual performance.
Financial measures: The financial performance element for the year ended 31 December 2016 was based on growth in absolute NAV per share ("NAV"), Total Property Return relative to the IPD Total Return All Property Index ("TPR"), and underlying EPS ("EPS"). In determining the annual targets for these measures in 2016, the Committee recognised the long-term nature of some aspects of the Company's strategy, and the extent to which this would be reflected in these measures on a 12-month horizon. The performance measures, weightings and targets that applied in respect of the 2016 annual bonus are summarised in the table on page 81.
The Committee has previously committed to publish the financial performance targets once they cease to be commercially sensitive. The financial performance targets that applied in respect of the year ended 31 December 2014 are no longer commercially sensitive; accordingly, the targets and the Company's performance against these targets are set out on the following page, together with the 2016 measures and outcomes.
Personal measures: The Committee assessed individual performance against a set of KPIs which align with the Company's objectives outlined on page 13 of the Annual Report. These KPIs include:
◦ Corporate objectives: enhancing Capco's position and reputation in the market; identifying, monitoring and controlling risk including health and safety, progress towards meeting medium-term corporate objectives;
Outcome of 2016 annual bonus performance measures (Audited)
Outcome of financial objectives: In respect of the year ended 31 December 2016, the Company's performance did not meet the threshold performance targets for NAV or TPR, however the underlying EPS target was exceeded. Accordingly awards of 5.63 per cent of salary were made to Ian Hawksworth and Gary Yardley in respect of the financial performance measures.
Outcome of personal objectives: The Executive Directors were considered to have delivered good performance in 2016, including the achievement of targeted returns and expansion opportunities at Covent Garden, operation of joint ventures with TfL and Network Rail, optimisation of corporate liquidity, consideration of new business opportunities and control of costs and capital expenditure. Accordingly, awards of 26.25 per cent of salary were made to Ian Hawksworth and Gary Yardley in respect of the individual performance measures.
A summary of the overall outcomes of 2016 annual bonus performance measures is shown in Figure 3 on page 81.
As Soumen Das left the business, any annual bonus for the year was forfeited.
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Executive Director | Cash | Deferred shares1 | Total | Cash | Deferred shares1 | Total |
| Ian Hawksworth | £92,118 | £92,118 | £184,236 | £381,881 | £381,881 | £763,763 |
| Soumen Das | N/A | N/A | N/A | £280,500 | £280,500 | £561,000 |
| Gary Yardley | £82,556 | £82,556 | £165,112 | £330,000 | £330,000 | £660,000 |
1. 50 per cent of bonus earned is deferred in Capco shares or nil cost options for three years, subject to forfeiture should the Executive Director leave the Company.
| Performance measure | Weighting | Performance | Outcome | ||||
|---|---|---|---|---|---|---|---|
| Chief Executive |
MD & CIO | MD & CFO | Chief Executive |
MD & CIO | MD & CFO | ||
| Financial performance (% of max) |
|||||||
| Comprising: | 75% | 75% | 75% | ||||
| • Absolute Net Asset Value per share | 60% | 60% | 60% | Below threshold | Nil | Nil | N/A |
| • Relative Total Property Return | 35% | 35% | 35% | Below threshold | Nil | Nil | N/A |
| • Underlying Earnings per Share | 5% | 5% | 5% | Above the top end of the target range |
5% | 5% | N/A |
| Individual performance (% of max) |
25% | 25% | 25% | 17.5% | 17.5% | N/A | |
| Total performance outcome (% of salary) |
31.88% | 31.88% | N/A |
| Performance measure | Weighting | Target range | Actual performance | % of bonus opportunity awarded | ||
|---|---|---|---|---|---|---|
| Threshold (0% payout) |
Maximum (100% payout) |
|||||
| Absolute Net Asset Value per share |
55% | 260p | 281p | 311p | 100% | |
| Relative Total Property Return |
35% | 0p | 1.5% outperformance |
2.6% outperformance |
100% | |
| Underlying Earnings per Share |
10% | 1.1p | 1.5p | 1.6p | 100% |
Existing PSP Opportunity
In 2014 awards of 150 per cent of salary were made to Executive Directors under the Existing PSP.
Match of deferred 2013 bonus: In 2014, shares awarded in respect of Executive Directors' deferred 2013 bonus were matched under the MSP on a 2:1 basis.
Co-investment invitation: In 2013 the Committee offered Executive Directors an opportunity to invest up to 150 per cent of 2013 salary between 2013 and 2015 (subsequently extended to early 2016) when permitted by scheme headroom with an exceptional matching opportunity of 2:1.
Performance measures and outcomes for 2014 awards under the Existing PSP and MSP
Performance measures and targets: The performance conditions for the Existing PSP and MSP comprised two equally weighted measures:
Three-year relative Total Return (TR, growth in NAV per share plus dividends)
Three-year relative Total Shareholder Return (TSR, increase in price of an ordinary share plus dividends)
Where an exceptional award was made, the additional matching opportunity could only be earned for performance above the normal stretch targets. The performance targets are set out in Figure 4 below.
Performance outcome: In early 2017, the Committee determined that Capco's TR was not expected to equal the median of the comparator group (vs. an outperformance target of 2.5 per cent per annum or 3 per cent for exceptional awards), and that Capco's TSR was not expected to equal the median of the comparator group (vs. an outperformance target of 4 per cent per annum or 5 per cent for exceptional awards), and as such the performance conditions relating to the 2014 Existing PSP and MSP awards had not been met. Accordingly, the 2014 Existing PSP and MSP awards are expected to lapse and no value has been included in the single figure disclosures in respect of these awards.
The graphs below illustrate the proportion of a Matching Share Plan award tested against each performance measure that would vest at different levels of performance. 33 per cent of a non-exceptional award would vest at median performance.
50% on Total Return 133% 50% on TSR 133% of a non-exceptional award would vest at median performance.
The graphs below illustrate the proportion of an Existing PSP award that would vest at different levels of performance. 33 per cent
TR AND TSR COMPARATOR GROUP FOR THE EXISTING PSP, PSP AND MSP
British Land Capco Derwent London Great Portland Estates Hammerson Intu Properties
Land Securities Segro Shaftesbury
| Basis of award | Market price on date of grant2 |
Exercise price if any |
Face value of award |
Number awarded |
Performance period |
Threshold Vesting %3 |
Exercisable between |
|
|---|---|---|---|---|---|---|---|---|
| Ian Hawksworth | 150 per cent of salary |
315.3p | Nil | £866,999 | 274,976 | 2016 – 2019 | 16.5% | 11/03/19 – 10/03/26 |
| Soumen Das4 | 150 per cent of salary |
315.3p | Nil | £674,997 | 214,081 | 2016 – 2019 | 16.5% | 11/03/19 – 10/03/26 |
| Gary Yardley | 150 per cent of salary |
315.3p | Nil | £776,997 | 246,431 | 2016 – 2019 | 16.5% | 11/03/19 – 10/03/26 |
1. MSP and PSP awards are granted as nil cost options.
2. Average closing share price on three business days preceding the date of grant.
3. Assumes threshold vesting under one performance condition.
4. Awards lapsed in full on date Soumen Das gave notice of his intention to resign from the Company.
The performance measures and targets for awards made under the Existing PSP and MSP are set out on page 82.
No payments for loss of office or payments to previous Directors in respect of qualifying services were made during 2016. Soumen Das resigned as a Director with effect from 31 December 2016. His unvested long-term incentive awards lapsed. Any annual bonus for the year was forfeited and there were no payments for loss of office.
No Director participates in or has a deferred benefit under a defined benefit pension scheme.
No Executive Director currently serves as a Non-executive Director elsewhere (in 2015 Ian Hawksworth received a fee of £40,000 in respect of his former Non-executive Directorship of AIM-listed Japan Residential Investment Company Limited from which he stepped down on 30 December 2015).
The Executive Directors' salaries are reviewed annually. In April 2017 the salary of the Chief Executive and Managing Director and Chief Investment Officer will be increased by 2.9 per cent to £595,000 and £533,000 respectively, which is in line with the increase expected to be applied to Group employees. As explained in the Committee Chairman's letter on page 70, the salary of the Chief Financial Officer will be reviewed in April 2019 by up to 15 per cent.
The proposed revised salaries for the Executive Directors are set out in the table below:
| 2017 | 2016 | % Increase | |
|---|---|---|---|
| Ian Hawksworth | £595,000 | £578,000 | 2.9% |
| Soumen Das | N/A | £450,000 | N/A |
| Gary Yardley | £533,000 | £518,000 | 2.9% |
| Situl Jobanputra | £325,000 | N/A | N/A |
Pension and benefits
As described in the policy table on pages 72 and 73.
The annual bonus opportunity will remain unchanged for 2017.
The financial performance targets for the year ended 31 December 2016 were based on growth in absolute NAV per share, Total Property Return relative to the IPD Total Return All Property Index, and underlying EPS. The Committee has decided that, whilst NAV and TPR continue to be of greatest importance to Capco's strategy, in 2017 the weighting of EPS as a performance measure will be increased to 10 per cent of the financial performance measures, in line with years prior to 2016, in order to maintain appropriate focus on the Group's cost structure. The rebalancing of weightings of the financial performance measures for 2017 is shown in the table below. The relative weighting of financial and individual performance measures will remain unchanged. The Committee will consider the appropriate weighting of the EPS measure on an annual basis.
The TPR target is included in the Company's KPIs on page 13. The KPIs are in part dependent upon the occurrence of certain discrete events. Therefore, whilst the outperformance targets that apply to the long-term incentives are disclosed, the Board has decided that as the Group operates in three specific locations within the competitive central London property market, prospective disclosure of specific short-term NAV and EPS targets would provide a level of information to counterparties that could prejudice the Company's commercial interests. The Committee expects to publish the performance targets retrospectively once they have ceased to be commercially sensitive. Further information on the Company's KPIs can be found on page 13.
| Absolute Net Asset Value per share | 55% |
|---|---|
| Relative Total Property Return | 35% |
| Underlying Earnings per Share | 10% |
No further MSP awards will be made.
If the new remuneration policy is approved at the 2017 AGM, PSP awards of 350 per cent of salary will be made in May 2017 as awards or nil cost options. The applicable performance conditions are set out in the table below:
| Threshold | Maximum | |
|---|---|---|
| TR | Median | Median + 2% |
| TSR | Median | Median + 4% |
The Chairman has been appointed for a three-year term, subject to annual re-election by shareholders, which will expire at the 2019 AGM. The Chairman's annual base fee for 2016 was £257,000. The remuneration of the Chairman is reviewed annually. Following the 2016 review it was agreed that the Chairman's annual base fee would be increased to £265,000 with effect from 1 May 2017.
The remuneration of the Non-executive Directors is considered by the Chairman and the Chief Executive, with regard to market comparatives, and recommended to the Board as a whole. The Non-executive Director fees are reviewed annually. Following the 2016 review it was agreed that the Non-executive Director fees would be increased as set out in the table below with effect from 1 May 2017.
| 2017 | 2016 | |
|---|---|---|
| Basic fee | £51,500 £50,000 | |
| Committee member (except Nomination Committee) | £6,700 | £6,500 |
| Committee member (Nomination Committee) | £6,000 | £6,000 |
| Committee Chairman (Audit and Remuneration Committee) | £16,000 £15,500 | |
| Senior Independent Director | £12,900 £12,500 |
This graph shows the total shareholder return at 31 December 2016 of £100 invested in Capital & Counties Properties PLC at the start of the first day of trading in its shares following its demerger from Liberty International PLC (10 May 2010), compared to the FTSE 350 Real Estate Index. The Committee considers this benchmark to be the most appropriate for illustrating the Company's performance.
1. Depending on the award.
The table below shows the percentage change in the Chief Executive's remuneration from the prior year compared to the average percentage change in remuneration for employees at Capco Head Office (including Earls Court Properties) and Covent Garden, who have been selected as the comparator as they participate in similar remuneration arrangements to the Executive Directors. To allow a meaningful comparison, the analysis for employees is based on a consistent group of individuals.
| Chief Executive | ||||||
|---|---|---|---|---|---|---|
| 2016 £ |
2015 £ |
% change | % change | |||
| Salary | 573,000 | 549,750 | 4.23% | 5.66% | ||
| Taxable benefits | 23,430 | 22,218 | 5.46% | 24.94% | ||
| Single-year variable | 184,236 | 763,763 | -75.88% | -50.39% | ||
| Total | 780,666 | 1,335,731 |
The graphs in Figure 6 below illustrate Capco's dividends paid and total employee pay expenditure (this includes pension, variable pay, and social security) for the financial years ended 31 December 2015 and 31 December 2016, and the percentage change in each. The measures above are those prescribed by the remuneration disclosure regulations, however they do not reflect Capco's KPIs, which are explained on page 13. Accordingly, graphs showing Capco's one-year TPR and TR are also included below.
-24.4% change from 2015 to 2016
The beneficial interests in the shares of the Company for each Director who served during the year are set out in the table below. The Chief Executive is required to achieve a shareholding in the Company equivalent to 300 per cent of salary and the other Executive Directors are required to achieve a shareholding in the Company equivalent to 200 per cent of base salary, to be achieved by retaining at least 50 per cent of any vested share awards (net of tax) and/or within three years. The Chairman is required to maintain a shareholding equivalent to 100 per cent of his base fee. The current shareholdings of the Chairman and Executive Directors are illustrated in Figure 7.
| 2016 | 2015 | |
|---|---|---|
| Chairman | ||
| Ian Durant | 568,632 | 568,632 |
| Executive | ||
| Ian Hawksworth | 820,604 | 770,604 |
| Gary Yardley | 472,972 | 442,972 |
| Non-executive | ||
| Graeme Gordon | 30,450,061 | 30,450,061 |
| Gerry Murphy | 30,000 | – |
| Demetra Pinsent | – | – |
| Henry Staunton | 250,000 | 250,000 |
| Anthony Steains | – | – |
| Andrew Strang | – | – |
| Former Directors | ||
| Soumen Das1 | 282,018 | 252,018 |
| Ian Henderson2 | 37,601 | 37,601 |
1. Shareholdings as at 31 December 2016, being the date that Soumen Das stepped down from the Board.
2. Shareholdings as at 6 May 2016, being the date that Ian Henderson retired from the Board.
Details of Executive Directors' share scheme interests, including information on share awards that were exercised or vested during the year, are set out in the tables below.
(i) Summary of Executive Directors' interests in shares and share schemes (full details are set out on pages 87 and 88)
| Executive Director | Shares held | Share awards in respect of deferred bonus |
Share awards, no longer subject to performance conditions1 |
Share awards, subject to performance conditions2 |
Total |
|---|---|---|---|---|---|
| Ian Hawksworth | 820,604 | 315,536 | 585,778 | 1,515,341 | 3,237,259 |
| Soumen Das3 | 282,018 | – | – | – | 282,018 |
| Gary Yardley | 472,972 | 377,706 | 347,095 | 1,309,355 | 2,507,128 |
| Total | 1,575,594 | 693,242 | 932,873 | 2,824,696 | 6,026,405 |
1. Comprises vested but unexercised Existing PSP and MSP awards.
2. Comprises Existing PSP and MSP awards that remain subject to performance conditions.
3. Shares held as at the date that Soumen Das stepped down from the Board, being 31 December 2016.
| (ii) Outstanding awards made under Performance Share Plan1 | |||||||
|---|---|---|---|---|---|---|---|
| -- | -- | -- | -- | -- | ------------------------------------------------------------ | -- | -- |
| Name | Year granted |
Option price (pence) if any |
Held at 1 January 2016 |
Granted during the year |
Exercised during the year |
Lapsed during the year |
Held at 31 December 2016 |
Exercisable between |
|---|---|---|---|---|---|---|---|---|
| Ian Hawksworth2 | 2011 | 157.73 | 19,019 | – | – | – | 19,019 | 2014 – 2021 |
| Ian Hawksworth2 | 2012 | Nil | 329,535 | – | 52,558 | – | 276,977 | 2015 – 2022 |
| Ian Hawksworth2 | 2013 | Nil | 369,265 | – | – | 169,493 | 199,772 | 2016 – 2023 |
| Ian Hawksworth | 2014 | Nil | 223,766 | – | – | – | 223,766 | 2017 – 2024 |
| Ian Hawksworth | 2015 | Nil | 207,728 | – | – | – | 207,728 | 2018 – 2025 |
| Ian Hawksworth | 2016 | Nil | – | 274,976 | – | – | 274,976 | 2019 – 2026 |
| Soumen Das | 2012 | Nil | 219,689 | – | 219,689 | – | – | 2015 – 2022 |
| Soumen Das | 2013 | Nil | 268,556 | – | 145,288 | 123,268 | – | 2016 – 2023 |
| Soumen Das | 2014 | Nil | 159,561 | – | – | 159,561 | – | 2017 – 2024 |
| Soumen Das | 2015 | Nil | 152,631 | – | – | 152,631 | – | 2018 – 2025 |
| Soumen Das | 2016 | Nil | – | 214,081 | – | 214,081 | – | 2019 – 2026 |
| Gary Yardley2 | 2011 | 157.73 | 19,019 | – | – | – | 19,019 | 2014 – 2021 |
| Gary Yardley | 2012 | Nil | 292,920 | – | 292,920 | – | – | 2015 – 2022 |
| Gary Yardley | 2013 | Nil | 328,235 | – | – | 150,660 | 177,575 | 2016 – 2023 |
| Gary Yardley | 2014 | Nil | 195,020 | – | – | – | 195,020 | 2017 – 2024 |
| Gary Yardley | 2015 | Nil | 186,136 | – | – | – | 186,136 | 2018 – 2025 |
| Gary Yardley | 2016 | Nil | – | 246,431 | – | – | 246,431 | 2019 – 2025 |
| Total | 2,971,080 | 2,026,419 |
1. Subject to performance conditions that apply to awards made under the Existing PSP and MSP, as set out on pages 72 and 73.
2. Vested but unexercised or not exercised in full.
(c) Matching Share Plan (Audited)
The following awards made to Executive Directors in respect of annual bonus are outstanding:
| Year | Market price on date of grant |
Option price (pence) if |
Held at 1 January |
Granted during |
Exercised during |
Lapsed during |
Held at 31 December |
Exercisable | |
|---|---|---|---|---|---|---|---|---|---|
| Name | granted | (pence) | any | 2016 | the year | the year | the year | 2016 | between |
| Ian Hawksworth | 2012 | 190.70 | Nil | 176,979 | – | 176,979 | – | – | 2015 – 2022 |
| Ian Hawksworth | 2013 | 268.10 | Nil | 119,591 | – | 119,591 | – | – | 2016 – 2023 |
| Ian Hawksworth | 2014 | 351.93 | Nil | 99,863 | – | – | – | 99,863 | 2017 – 2024 |
| Ian Hawksworth | 2015 | 402.93 | Nil | 94,557 | – | – | – | 94,557 | 2018 – 2025 |
| Ian Hawksworth | 2016 | 315.30 | Nil | – | 121,116 | – | – | 121,116 | 2019 – 2026 |
| Soumen Das | 2012 | 190.70 | Nil | 117,986 | – | 117,986 | – | – | 2015 – 2022 |
| Soumen Das | 2013 | 268.10 | Nil | 93,248 | – | 93,248 | – | – | 2016 – 2023 |
| Soumen Das | 2014 | 351.93 | Nil | 72,628 | – | – | 72,628 | – | 2017 – 2024 |
| Soumen Das | 2015 | 402.93 | Nil | 68,374 | – | – | 68,374 | – | 2018 – 2025 |
| Soumen Das | 2016 | 315.30 | Nil | – | 88,962 | – | 88,962 | – | 2019 – 2026 |
| Gary Yardley | 2012 | 190.70 | Nil | 157,315 | – | 157,315 | – | – | 2015 – 2022 |
| Gary Yardley1 | 2013 | 268.10 | Nil | 106,303 | – | 3,305 | – | 102,998 | 2016 – 2023 |
| Gary Yardley | 2014 | 351.93 | Nil | 88,767 | – | – | – | 88,767 | 2017 – 2024 |
| Gary Yardley | 2015 | 402.93 | Nil | 81,279 | – | – | – | 81,279 | 2018 – 2025 |
| Gary Yardley | 2016 | 315.30 | Nil | – | 104,662 | – | – | 104,662 | 2019 – 2026 |
| Total | 1,276,890 | 693,242 |
1. Vested but unexercised or not exercised in full.
The following matching awards made to Executive Directors following their award of deferred bonus are outstanding:
| Name | Year granted |
Market price on date of grant (pence) |
Option price (pence) if any |
Held at 1 January 2016 |
Granted during the year |
Exercised during the year |
Lapsed during the year |
Held at 31 December 2016 |
Exercisable between |
|---|---|---|---|---|---|---|---|---|---|
| Ian Hawksworth | 2012 | 190.70 | Nil | 164,767 | – | 164,767 | – | – | 2015 – 2022 |
| Ian Hawksworth | 2013 | 268.10 | Nil | 119,591 | – | 86,105 | 33,486 | – | 2016 – 2023 |
| Ian Hawksworth | 2014 | 351.93 | Nil | 199,726 | – | – | – | 199,726 | 2017 – 2024 |
| Ian Hawksworth | 2015 | 402.93 | Nil | 94,557 | – | – | – | 94,557 | 2018 – 2021 |
| Ian Hawksworth | 2016 | 315.30 | Nil | – | 121,116 | – | – | 121,116 | 2019 – 2026 |
| Soumen Das | 2012 | 190.70 | Nil | 109,844 | – | 109,844 | – | – | 2015 – 2022 |
| Soumen Das | 2013 | 268.10 | Nil | 93,248 | – | 67,138 | 26,110 | – | 2016 – 2023 |
| Soumen Das | 2014 | 351.93 | Nil | 145,256 | – | – | 145,256 | – | 2017 – 2024 |
| Soumen Das | 2015 | 402.93 | Nil | 68,374 | – | – | 68,374 | – | 2018 – 2025 |
| Soumen Das | 2016 | 315.30 | Nil | – | 88,962 | – | 88,962 | – | 2019 – 2026 |
| Gary Yardley | 2012 | 190.70 | Nil | 146,460 | – | 146,460 | – | – | 2015 – 2022 |
| Gary Yardley2 | 2013 | 268.10 | Nil | 106,303 | – | – | 29,765 | 76,538 | 2016 – 2023 |
| Gary Yardley | 2014 | 351.93 | Nil | 177,534 | – | – | – | 177,534 | 2017 – 2024 |
| Gary Yardley | 2015 | 402.93 | Nil | 81,279 | – | – | – | 81,279 | 2018 – 2025 |
| Gary Yardley | 2016 | 315.30 | Nil | – | 104,662 | – | – | 104,662 | 2019 – 2026 |
| Total | 1,506,939 | 855,412 |
1. Subject to performance conditions that apply to awards made under the Existing PSP and MSP, as set out on pages 72 and 73.
2. Vested but unexercised.
The following matching awards made to Executive Directors following their co-investment in ordinary shares in the Company are outstanding:
| Name | Year granted |
Option price (pence) if any |
Held at 1 January 2016 |
Granted during the year |
Exercised during the year |
Lapsed during the year |
Held at 31 December 2016 |
Exercisable between |
|---|---|---|---|---|---|---|---|---|
| Ian Hawksworth2 | 2013 | Nil | 250,028 | – | – | 160,018 | 90,010 | 2016 – 2023 |
| Ian Hawksworth | 2014 | Nil | 27,916 | – | – | – | 27,916 | 2017 – 2024 |
| Ian Hawksworth | 2016 | Nil | – | 365,556 | – | – | 365,556 | 2019 – 2026 |
| Soumen Das | 2012 | Nil | 200,248 | – | 200,248 | – | – | 2015 –2022 |
| Soumen Das | 2013 | Nil | 184,738 | – | – | 184,738 | – | 2016 – 2023 |
| Soumen Das | 2014 | Nil | 47,858 | – | – | 47,858 | – | 2017 – 2024 |
| Soumen Das | 2016 | Nil | – | 147,461 | – | 147,461 | – | 2019 –2026 |
| Gary Yardley2 | 2013 | Nil | 205,454 | – | – | 131,491 | 73,963 | 2016 – 2023 |
| Gary Yardley | 2014 | Nil | 16,336 | – | – | – | 16,336 | 2017 – 2024 |
| Gary Yardley | 2015 | Nil | 152,788 | – | – | – | 152,788 | 2018 –2025 |
| Gary Yardley | 2016 | Nil | – | 149,169 | – | – | 149,169 | 2019 – 2026 |
| Total | 1,085,366 | 875,738 |
1. Subject to performance conditions that apply to awards made under the Existing PSP and MSP, as set out on pages 72 and 73.
2. Vested but unexercised.
The market price of Capital & Counties Properties PLC shares on 30 December 2016 (being the last day for trading during the year) was 297.1 pence and during the year the price varied between 433.0 pence and 263.1 pence. The aggregate gain made by the Executive Directors following the exercise of share options during the year was £7,281,881.50.
This Remuneration Report has been approved for issue by the Board of Directors on 21 February 2017.
Page
14
47
The Directors present their Annual Report, and the audited consolidated financial statements for the year ended 31 December 2016.
The Group's 2016 Strategic Report, which includes a review of the Group's business during the financial year, the Group's position at year end and a description of the principal risks and uncertainties facing the Group, comprises the following sections of the Annual Report:
The Directors of the Company who held office during the year and up to the date of signing the financial statements were as follows:
I.C. Durant
Executive Directors:
I.D. Hawksworth S. Das (Resigned 31 December 2016)
S. Jobanputra (Appointed 1 January 2017)
G.J. Yardley
I.J. Henderson (Retired 6 May 2016)
D. Pinsent
H.E. Staunton
A Steains (Appointed 1 March 2016)
A.D. Strang
Biographies of each Director can be found on pages 56 and 57 and details of each Director's interests in the Company's shares are set out on page 86.
The powers of the Directors are determined by UK legislation and the Company's Articles of Association together with any specific authorities that shareholders may approve from time to time.
The rules governing the appointment and replacement of Directors are contained in the Company's Articles and UK legislation. In compliance with the 2016 UK Corporate Governance Code, at the 2017 Annual General Meeting all the Directors will retire from office and will offer themselves for election or re-election.
The Company does not have any agreements with any Executive Director or employee
The Company has procedures in place for managing conflicts of interest. Should a Director become aware that they, or a connected party, have an interest in an existing or proposed transaction with the Group, they should notify the Company Secretary before the next meeting or at the meeting. Directors have a continuing obligation to update any changes to these conflicts.
In accordance with the Company's Articles, the Company has indemnified the Directors to the full extent allowed by law. The Company maintains Directors' and Officers' liability insurance which is reviewed annually.
Changes to the Articles of Association must be approved by shareholders in accordance with the Companies Act 2006.
following dividends:
| Interim Dividend paid on | 0.5p per |
|---|---|
| 30 September 2016 | ordinary share |
| Proposed Final Dividend to | 1p per |
| be paid on 31 May 2017 | ordinary share |
| Total proposed | 1.5p per |
| dividend for 2016 | ordinary share |
Subject to SARB approval, it is intended that a scrip dividend alternative be offered to shareholders in respect of the proposed final dividend for 2016. The proposed final dividend will be paid on 31 May 2017 to shareholders whose names are on the register at 21 April 2017.
Details of the Company's issued ordinary share capital, including details of movements in the issued share capital during the year, authorities to issue or repurchase shares and details of shares repurchased by the Company during the year, of which there were none, are shown in note 27 to the financial statements on page 130. Each share carries the right to one vote at general meetings of the Company.
There are no specific restrictions on the transfer of shares beyond those standard provisions set out in the Articles of Association. No shareholder holds shares carrying special rights with regard to control of the Company. Details of significant shareholdings are set out on page 90.
INSTRUMENTS
Information on risk management objectives and policies, including hedging policies, and exposure of the Company in relation to the use of financial instruments, can be found in note 25 on pages 125 to 129.
There are a number of agreements which take effect, alter or terminate upon a change of control of the Company. The agreements that would be considered significant are the £705 million Covent Garden facility, the Covent Garden £150 million and £175 million notes issued pursuant to a US Private Placement, the Empress State £118.5 million term and revolving facility and the Lillie Square development joint venture.
| Holder | Shares held at time of last notification |
Per cent held at time of last notification |
Nature of holding | Date of last notification |
|---|---|---|---|---|
| BlackRock, Inc. | 86,799,190 | 10.25% | Indirect Interest | 16 February 2017 |
| Coronation Asset Management (Pty) Limited | 92,894,111 | 10.98% | Direct Interest | 15 November 2016 |
| Foord Asset Management (Pty) Ltd | 85,342,860 | 10.09% | Indirect Interest | 10 October 2016 |
| Gordon Family Interests | 92,083,204 | 10.96% | Direct Interest | 3 March 2015 |
| Investec Asset Management (PTY) Ltd and Investec Asset Management Ltd |
41,951,373 | 4.96% | Indirect Interest | 28 June 2016 |
| Norges Bank | 67,715,767 | 8.00% | Direct Interest | 20 February 2017 |
| Old Mutual plc | 41,548,620 | 4.91% | Indirect Interest | 15 July 2016 |
| Public Investment Corporation SOC Limited | 60,613,380 | 7.16% | Direct Interest | 17 February 2017 |
The significant holdings of voting rights in the share capital of the Company notified and disclosed in accordance with Disclosure and Transparency Rule 5, as at 21 February 2017, are shown in the table above.
Capco's intranet, The Wire, and staff briefings are used to update employees on Capco's activities and financial performance during the year. Regular staff briefings are also held by the Olympia business.
Certain of the Group's employees are eligible to participate in annual bonus arrangements. These arrangements, which may include awards under the Group's Performance Share Plan, help to develop employees' interest in the Company's performance. Full details of the Performance Share Plan are contained in note 32 to the accounts on pages 132 to 134.
Capco operates a non-discriminatory employment policy and full and fair consideration is given to applications for employment made by disabled applicants, having regard to their particular aptitudes and abilities, and to the continued employment of staff who become disabled.
The Company encourages the continuous development and training of its employees and the provision of equal opportunities for the training and career development of all employees.
Further information on Group employees can be found on pages 49 and 50 and in note 7 on page 110. The Group provides retirement benefits for the majority of its employees. Details of the Group pension arrangements are set out in note 33 on pages 135 to 137.
Details of the Group's corporate responsibility policy and its aims and activities are described on the Company's website www.capitalandcounties.com. An overview of the Group's CR activity is on pages 47 to 55.
The Group recognises the importance of minimising the adverse impact of its operations on the environment and the management of energy consumption and waste recycling.
The Company strives to improve its environmental performance. The environmental management system is regularly reviewed to ensure that the Company maintains its commitment to environmental matters.
For the purposes of its listing on the Johannesburg Stock Exchange, the Company maintains an overseas branch register in South Africa.
The information required to be disclosed pursuant to LR 9.8.4R can be found in the following locations:
| Page | |
|---|---|
| ◦ Interest capitalised | 111 |
As set out on page 46, the Directors have a reasonable expectation that the Company and the Group will have adequate resources to meet both on-going and future
commitments over a period of at least 12 months from the date of approval of the financial statements. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.
So far as the Directors are aware, there is no relevant audit information of which the auditors are unaware and each Director has taken all steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the auditors are aware of that information.
The auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office and a resolution seeking to reappoint them will be proposed at the forthcoming Annual General Meeting.
The 2017 Annual General Meeting of the Company will be held from 11.30 am on 5 May 2017 at The Canary Riverside Plaza at Canary Wharf. The Notice of the Meeting, together with an explanation of the business to be dealt with at the Meeting, is included as a separate document sent to shareholders who have elected to receive hard copies of shareholder information and is also available on the Company's website.
By Order of the Board.
R.E. Pavey Secretary
130
21 February 2017
The Directors are responsible for preparing the Annual Report & Accounts, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose, with reasonable accuracy at any time, the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed in the Governance section, confirm that, to the best of their knowledge:
The financial statements on pages 97 to 139 were approved by the Board of Directors on 21 February 2017 and signed on its behalf by
Ian Hawksworth Situl Jobanputra Chief Executive Chief Financial Officer
Our opinion
In our opinion:
The financial statements, included within the Annual Report and Accounts (the "Annual Report"), comprise:
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006, and applicable law.
Our 2016 audit was planned and executed having regard to the fact that Capital & Counties Properties PLC's operations were largely unchanged in nature from the previous year; and that there have been no significant changes to the valuation methodology and accounting standards relevant to the Group. In light of this, our approach to the audit in terms of scoping and areas of focus was largely unchanged.
| Materiality | – Overall group materiality: £41 million (2015: £42 million) which represents 1% of total assets. |
|---|---|
| – For income statement line items that are deemed to be of particular relevance, we applied a lower materiality. | |
| Audit scope | – We audited the complete financial information of each of the Group's four business lines of which Covent Garden, Earls Court and Venues are financially significant. |
| Areas of focus | – Valuation of investment and development properties. |
| – Taxation. |
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ("ISAs (UK & Ireland)").
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as "areas of focus" in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.
Refer to pages 64 to 66 (Audit Committee Report), pages 103 to 107 (Principal Accounting Policies) and pages 103 to 139 (notes to the financial statements).
The valuation of the Group's investment and development properties is the key component of the net asset value and underpins the Group's result for the year. The result of the revaluation this year was a loss of £235m (2015: gain of £454m), which is accounted for within '(Loss)/Gain on revaluation and sale of investment and development property' and is a significant component of the result for the year. The Group's property portfolios, which comprise investment property (including retail, food and beverage, commercial, residential and exhibition space) as well as development property located in central London are not uniform in nature. Therefore, there are a number of different assumptions made by the Group's third party valuers, Jones Lang LaSalle and CB Richard Ellis (the "Valuers"), in determining fair value:
The fact that only a small percentage difference in individual property valuations, when aggregated, could result in a material misstatement, warrants specific audit focus on this area.
The Valuers were engaged by the Directors, in accordance with the RICS Valuation – Professional Standards ("RICS").
Refer to pages 64 to 66 (Audit Committee Report), pages 103 to 107 (Principal Accounting Policies) and pages 103 to 139 (notes to the financial statements).
Tax is a specific risk for the Group due to the degree of judgement involved in some of the ongoing activities of the Group and the wider Group restructuring. This gives rise to material tax considerations on the calculation, recognition, and classification of current and deferred tax balances from both a tax compliance and accounting perspective.
Judgements are made by management to arrive at the current and deferred tax position. These judgements include the impact of the transfer of investment properties and the Group holding structure.
We read the Valuers' reports from CB Richard Ellis and Jones Lang LaSalle. We confirmed that the approaches used were consistent with the RICS guidelines and the requirements of IFRSs as adopted by the European Union. We assessed the Valuers' competence and capabilities and read their terms of engagement with the Group, determining that there were no matters that affected their independence and objectivity or imposed scope limitations upon them.
For investment and development properties, we sample tested data provided to the Valuers by management and found that it was consistent with the information we audited. This data included tenancy schedules, capital expenditure details, cost schedules and square footage details which we agreed back to appropriate supporting documentation. For development properties, we agreed that the planned schemes being valued were consistent with the actual planned developments and, where appropriate, had achieved planning consents.
We met with the Valuers independently of management and gained an understanding of the valuation methods and assumptions used. We compared the movement in capital values over the period with market sector benchmarks to help identify significant changes in assumptions. The nature of assumptions used varied across the portfolio, depending on the nature of each property but they included estimated capital values, investment yields, estimated rental values, construction costs and developers' margins. In each of these areas, and on a sample basis, we compared the estimates and assumptions used by the Valuers against our own expectations, using evidence of comparable market transactions. Where we identified estimates and assumptions that were outside the typical ranges used, we discussed these with the Valuers to understand the rationale and then assessed, based on all the available evidence and our experience in this sector, whether the use of the estimate or assumption was justified.
Our testing which involved the use of our internal real estate valuation specialists, qualified chartered surveyors with deep market knowledge, indicated that the estimates and assumptions used were appropriate in the context of the Group's property portfolio and reflected the circumstances of the market in the year.
We assessed the principal assumptions and judgements made in arriving at the current and deferred tax position by using our experience of similar matters in the industry.
We used our tax specialists to evaluate tax provisions and potential exposures as at 31 December 2016, challenging the Group's assumptions and judgements through our knowledge of the tax circumstances and by reading relevant correspondence between the Group and Her Majesty's Revenue & Customs and the Group's external tax advisors.
We did not identify any matters that the Directors have not adequately reflected in their calculation of the necessary current and deferred tax provisions.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The Group is structured along four business lines, Covent Garden, Earls Court Properties (including the Lillie Square development joint venture), Venues and Other.
The Group engagement team audited all business lines except Venues (a significant component), where the audit procedures were performed by a component PwC engagement team. The Group team issued the Venues audit team with detailed instructions that explained the work that the Venues audit team needed to perform and highlighted, in particular, the areas of focus insofar as they were relevant to the Venues business line. Throughout the audit, the Group team communicated with the Venues team, and attended relevant meetings and reviewed the component team's electronic audit working papers, to ensure that we obtained sufficient appropriate audit evidence to form a basis for our opinion on the Group financial statements as a whole.
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Overall Group materiality | £41 million (2015: £42 million). |
|---|---|
| How we determined it | 1% of total assets. |
| Rationale for benchmark applied |
The key measure of the Group's performance is the valuation of investment and development properties and the balance sheet as a whole. Given this, consistent with the prior year, we set an overall Group materiality level based on total assets. |
In addition to overall Group materiality, a specific materiality was also applied to certain areas of the income statement. In 2016, we refined our approach to specific materiality to align with the metrics in the income statement that we believe are of particular interest to the members and determined those metrics to be Net rental income, Loss on revaluation and sale of investment and development property and Net finance costs. In order to reflect their specific characteristics, we applied materiality levels of 10% of the respective amounts of these line items.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £2 million (2015: £2 million) on balance sheet items as well as misstatements below that amount based on a proportionate value of the relevant materiality figures for income statement line items and other matters that, in our view, warranted reporting for qualitative reasons.
Under the Listing Rules we are required to review the Directors' Statement, set out on page 90, in relation to going concern. We have nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the Directors' statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing material to add or to draw attention to.
As noted in the Directors' statement, the Directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the Group and Company have adequate resources to remain in operation, and that the Directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the Directors' use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group's and Parent Company's ability to continue as a going concern.
Consistency of other information
Companies Act 2006 opinions
In our opinion, based on the work undertaken in the course of the audit:
In addition, in light of the knowledge and understanding of the Group, the Parent Company and their environment obtained in the course of the audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors' Report. We have nothing to report in this respect.
In our opinion, based on the work undertaken in the course of the audit:
In addition, in light of the knowledge and understanding of the Group, the Parent Company and their environment obtained in the course of the audit, we are required to report if we have identified any material misstatements in the information referred to above in the Corporate Governance Statement. We have nothing to report in this respect.
| Under ISAs (UK & Ireland) we are required to report to you if, in our opinion: | |
|---|---|
| – information in the Annual Report is: | We have no exceptions to report. |
| – materially inconsistent with the information in the audited financial statements; or | |
| – apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Company acquired in the course of performing our audit; or |
|
| – otherwise misleading. | |
| – the statement given by the Directors on page 91, in accordance with provision C.1.1 of the UK Corporate Governance Code (the "Code"), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group's and Company's position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and Parent Company acquired in the course of performing our audit. |
We have no exceptions to report. |
| – the section of the Annual Report on page 65, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. |
We have no exceptions to report. |
| The Directors' assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group |
|
| Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to: | |
| – the Directors' confirmation on page 14 of the Annual Report, in accordance with provision C.2.1 of the Code, that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. |
We have nothing material to add or to draw attention to. |
| – the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. |
We have nothing material to add or to draw attention to. |
– the Directors' explanation on page 17 of the Annual Report, in accordance with provision C.2.2 of the Code, as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We have nothing material to add or to draw attention to.
Under the Listing Rules we are required to review the Directors' statement that they have carried out a robust assessment of the principal risks facing the Group and the Directors' statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors' process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have no exceptions to report arising from this responsibility.
Directors' remuneration report – Companies Act 2006 opinion In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors' remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
Under the Companies Act 2006 we are required to report to you if, in our opinion, a corporate governance statement has not been prepared by the Parent Company. We have no exceptions to report arising from this responsibility.
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the Code. We have nothing to report having performed our review.
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors' Responsibilities set out on page 91, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Parent Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
We primarily focus our work in these areas by assessing the Directors' judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic Report, Directors' Report and Corporate Governance Statement, we consider whether those reports include the disclosures required by applicable legal requirements.
Jeremy Jensen (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London
21 February 2017
(a) The maintenance and integrity of the Capital & Counties Properties PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
For the year ended 31 December 2016
| Notes | 2016 £m |
2015 £m |
|
|---|---|---|---|
| Revenue | 2 | 127.4 | 114.9 |
| Rental income | 104.0 | 99.7 | |
| Rental expenses | (22.0) | (24.4) | |
| Net rental income | 2 | 82.0 | 75.3 |
| Profit on sale of trading property | 3 | 5.6 | 3.5 |
| Other income | 4.6 | 4.0 | |
| (Loss)/gain on revaluation and sale of investment and development property | 4 | (235.0) | 453.9 |
| Profit/(loss) on sale of available-for-sale investments | 0.4 | (0.2) | |
| Impairment of other receivables | 5 | (14.8) | (12.2) |
| Other costs | 6 | (5.0) | (0.2) |
| (162.2) | 524.1 | ||
| Administration expenses | (50.6) | (52.1) | |
| Operating (loss)/profit | (212.8) | 472.0 | |
| Finance income | 9 | 0.3 | 0.7 |
| Finance costs | 10 | (19.6) | (20.8) |
| Other finance income | 9 | 10.5 | 9.3 |
| Other finance costs | 10 | (5.3) | – |
| Change in fair value of derivative financial instruments | 25 | (13.1) | (0.6) |
| Net finance costs | (27.2) | (11.4) | |
| (240.0) | 460.6 | ||
| Share of post-tax loss from joint ventures | 16 | (0.3) | (0.7) |
| (Loss)/profit before tax | (240.3) | 459.9 | |
| Current tax | (1.0) | 2.2 | |
| Deferred tax | 17.8 | (4.9) | |
| Taxation | 11 | 16.8 | (2.7) |
| (Loss)/profit for the year | (223.5) | 457.2 | |
| (Loss)/profit attributable to: | |||
| Owners of the Parent | (118.6) | 431.1 | |
| Non-controlling interest | 17 | (104.9) | 26.1 |
| Earnings per share attributable to owners of the Parent | |||
| Basic (loss)/earnings per share | 13 | (14.0)p | 51.3p |
| Diluted (loss)/earnings per share | 13 | (14.0)p | 50.9p |
| Weighted average number of shares | 13 | 844.4m | 841.1m |
All results derive from continuing operations.
For the year ended 31 December 2016
| Notes | 2016 £m |
2015 £m |
|
|---|---|---|---|
| (Loss)/profit for the year | (223.5) | 457.2 | |
| Other comprehensive (expense)/income | |||
| Items that may be reclassified subsequently to the income statement | |||
| Realise revaluation reserves on available-for-sale investments | (0.2) | – | |
| Loss on cash flow hedge | (1.2) | – | |
| Tax relating to items that may be reclassified subsequently | 26 | 0.3 | – |
| Items that will not be reclassified subsequently to the income statement | |||
| Actuarial (loss)/gain on defined benefit pension scheme | 33 | (1.6) | 0.8 |
| Tax relating to items that will not be reclassified | 26 | 0.3 | (0.2) |
| Total other comprehensive (expense)/income for the year | (2.4) | 0.6 | |
| Total comprehensive (expense)/income for the year | (225.9) | 457.8 | |
| Attributable to: | |||
| Owners of the Parent | (121.0) | 431.7 | |
| Non-controlling interest | 17 | (104.9) | 26.1 |
As at 31 December 2016
| Group 2016 |
Group 2015 |
Company 2016 |
Company 2015 |
||
|---|---|---|---|---|---|
| Notes | £m | £m | £m | £m | |
| Non-current assets | |||||
| Investment and development property | 14 | 3,819.9 | 3,855.3 | – | – |
| Plant and equipment | 7.1 | 6.9 | – | – | |
| Investment in Group companies | 15 | – | – | 516.4 | 516.4 |
| Investment in joint ventures | 16 | 15.0 | 14.8 | – | – |
| Available-for-sale investments | – | 0.2 | – | – | |
| Derivative financial instruments | 18 | 0.2 | 0.8 | – | – |
| Pension asset | 33 | – | 0.7 | – | – |
| Trade and other receivables | 19 | 194.8 | 158.9 | – | – |
| 4,037.0 | 4,037.6 | 516.4 | 516.4 | ||
| Current assets | |||||
| Trading property | 14 | 2.9 | 15.5 | – | – |
| Trade and other receivables | 19 | 47.8 | 32.3 | 1,516.6 | 707.4 |
| Cash and cash equivalents | 20 | 30.9 | 66.9 | – | – |
| 81.6 | 114.7 | 1,516.6 | 707.4 | ||
| Total assets | 4,118.6 | 4,152.3 | 2,033.0 | 1,223.8 | |
| Non-current liabilities | |||||
| Borrowings, including finance leases | 22 | (827.8) | (607.6) | – | – |
| Derivative financial instruments | 18 | (13.9) | (3.2) | – | – |
| Pension liability | 33 | (0.9) | – | – | – |
| Deferred tax | 26 | (2.7) | (19.5) | – | – |
| (845.3) | (630.3) | – | – | ||
| Current liabilities | |||||
| Borrowings, including finance leases | 22 | (18.5) | (18.5) | – | – |
| Other provisions | (2.0) | (2.0) | – | – | |
| Tax liabilities | (1.3) | (2.8) | – | – | |
| Trade and other payables | 21 | (78.3) | (95.9) | (0.6) | (0.6) |
| (100.1) | (119.2) | (0.6) | (0.6) | ||
| Total liabilities | (945.4) | (749.5) | (0.6) | (0.6) | |
| Net assets | 3,173.2 | 3,402.8 | 2,032.4 | 1,223.2 | |
| Equity | |||||
| Share capital | 27 | 211.5 | 210.5 | 211.5 | 210.5 |
| Other components of equity | 2,593.5 | 2,723.5 | 1,820.9 | 1,012.7 | |
| Equity attributable to owners of the Parent | 2,805.0 | 2,934.0 | 2,032.4 | 1,223.2 | |
| Non-controlling interest | 17 | 368.2 | 468.8 | – | – |
| Total equity | 3,173.2 | 3,402.8 | 2,032.4 | 1,223.2 |
The profit for the year attributable to shareholders of the Company is £815.6 million (2015: £10.1 million).
These consolidated financial statements have been approved for issue by the Board of Directors on 21 February 2017 and signed on its behalf by:
Ian Hawksworth Situl Jobanputra Chief Executive Chief Financial Officer
For the year ended 31 December 2016
| Equity attributable to owners of the Parent | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Group | Notes | Share capital £m |
Share premium £m |
Merger reserve1 £m |
Share based payment reserve £m |
Other reserves2 £m |
Retained earnings £m |
Total £m |
Non controlling interest £m |
Total equity £m |
| Balance at 1 January 2015 | 209.1 | 206.9 | 425.8 | 11.4 | 0.4 | 1,652.7 2,506.3 | – | 2,506.3 | ||
| Profit for the year | – | – | – | – | – | 431.1 | 431.1 | 26.1 | 457.2 | |
| Other comprehensive income/(expense) | ||||||||||
| Actuarial gain on defined | ||||||||||
| benefit pension scheme | 33 | – | – | – | – | – | 0.8 | 0.8 | – | 0.8 |
| Tax relating to items that will | ||||||||||
| not be reclassified | 26 | – | – | – | – | – | (0.2) | (0.2) | – | (0.2) |
| Total comprehensive income for the year ended 31 December 2015 |
– | – | – | – | – | 431.7 | 431.7 | 26.1 | 457.8 | |
| Transactions with owners | ||||||||||
| Ordinary shares issued | 27 | 1.4 | 4.2 | – | – | – | – | 5.6 | – | 5.6 |
| Dividend expense | 12 | – | – | – | – | – | (12.6) | (12.6) | – | (12.6) |
| Adjustment for bonus issue | 12 | – | – | – | – | – | 0.6 | 0.6 | – | 0.6 |
| Realisation of share-based payment | ||||||||||
| reserve on issue of shares | – | – | – | (5.7) | – | 5.0 | (0.7) | – | (0.7) | |
| Fair value of share-based payment | 32 | – | – | – | 4.6 | – | – | 4.6 | – | 4.6 |
| Tax relating to share-based payment | 26 | – | – | – | – | – | (1.5) | (1.5) | – | (1.5) |
| Contribution from non-controlling interest | – | – | – | – | – | – | – | 442.7 | 442.7 | |
| Total transactions with owners | 1.4 | 4.2 | – | (1.1) | – | (8.5) | (4.0) | 442.7 | 438.7 | |
| Balance at 31 December 2015 | 210.5 | 211.1 | 425.8 | 10.3 | 0.4 2,075.9 2,934.0 | 468.8 3,402.8 | ||||
| Loss for the year | – | – | – | – | – | (118.6) (118.6) (104.9) | (223.5) | |||
| Other comprehensive (expense)/income |
||||||||||
| Realise revaluation reserves on | ||||||||||
| Available-for-sale investments | – | – | – | – | (0.2) | – | (0.2) | – | (0.2) | |
| Loss on cash flow hedge | – | – | – | – | (1.2) | – | (1.2) | – | (1.2) | |
| Tax relating to items that may be reclassified subsequently |
26 | – | – | – | – | 0.3 | – | 0.3 | – | 0.3 |
| Actuarial loss on defined | ||||||||||
| benefit pension scheme | 33 | – | – | – | – | – | (1.6) | (1.6) | – | (1.6) |
| Tax relating to items that will not be reclassified |
26 | – | – | – | – | – | 0.3 | 0.3 | – | 0.3 |
| Total comprehensive expense for | ||||||||||
| the year ended 31 December 2016 Transactions with owners |
– | – | – | – | (1.1) | (119.9) (121.0) (104.9) | (225.9) | |||
| Ordinary shares issued | 27 | 1.0 | 4.0 | – | – | – | – | 5.0 | – | 5.0 |
| Dividend expense | 12 | – | – | – | – | – | (12.7) | (12.7) | – | (12.7) |
| Adjustment for bonus issue | 12 | – | – | – | – | – | 0.9 | 0.9 | – | 0.9 |
| Realisation of share-based payment reserve on issue of shares |
– | – | – | (5.3) | – | 4.6 | (0.7) | – | (0.7) | |
| Fair value of share-based payment | 32 | – | – | – | 1.1 | – | – | 1.1 | – | 1.1 |
| Tax relating to share-based payment | 26 | – | – | – | – | – | (1.6) | (1.6) | – | (1.6) |
| Contribution from non-controlling interest | – | – | – | – | – | – | – | 4.3 | 4.3 | |
| Total transactions with owners | 1.0 | 4.0 | – | (4.2) | – | (8.8) | (8.0) | 4.3 | (3.7) | |
| Balance at 31 December 2016 | 211.5 | 215.1 | 425.8 | 6.1 | (0.7) 1,947.2 2,805.0 | 368.2 3,173.2 |
1 Represents non-qualifying consideration received by the Group following the share placing in May 2014 and previous share placements. The amounts taken to the merger reserve do not currently meet the criteria for qualifying consideration as they form part of linked transactions.
2 Other reserves comprises of revaluation reserve of £nil (2015: £0.1 million) and cash flow hedge reserve of –£0.7 million (2015: £0.3 million).
For the year ended 31 December 2016
| Company | Notes | Share capital £m |
Share premium £m |
Merger reserve1 £m |
Share-based payment reserve £m |
Retained earnings £m |
Total equity £m |
|---|---|---|---|---|---|---|---|
| Balance at 1 January 2015 | 209.1 | 206.9 | 425.8 | 11.4 | 362.4 | 1,215.6 | |
| Profit for the year | – | – | – | – | 10.1 | 10.1 | |
| Total comprehensive income for the year ended 31 December 2015 |
– | – | – | – | 10.1 | 10.1 | |
| Transactions with owners | |||||||
| Ordinary shares issued | 27 | 1.4 | 4.2 | – | – | – | 5.6 |
| Dividend expense | 12 | – | – | – | – | (12.6) | (12.6) |
| Adjustment for bonus issue | 12 | – | – | – | – | 0.6 | 0.6 |
| Realisation of share-based payment reserve on issue of shares |
– | – | – | (5.7) | 5.0 | (0.7) | |
| Fair value of share-based payment | 32 | – | – | – | 4.6 | – | 4.6 |
| Total transactions with owners | 1.4 | 4.2 | – | (1.1) | (7.0) | (2.5) | |
| Balance at 31 December 2015 | 210.5 | 211.1 | 425.8 | 10.3 | 365.5 | 1,223.2 | |
| Profit for the year | – | – | – | – | 815.6 | 815.6 | |
| Total comprehensive income for the year ended 31 December 2016 |
– | – | – | – | 815.6 | 815.6 | |
| Transactions with owners | |||||||
| Ordinary shares issued | 27 | 1.0 | 4.0 | – | – | – | 5.0 |
| Dividend expense | 12 | – | – | – | – | (12.7) | (12.7) |
| Adjustment for bonus issue | 12 | – | – | – | – | 0.9 | 0.9 |
| Realisation of share-based payment reserve on issue of shares |
– | – | – | (5.3) | 4.6 | (0.7) | |
| Fair value of share-based payment | 32 | – | – | – | 1.1 | – | 1.1 |
| Total transactions with owners | 1.0 | 4.0 | – | (4.2) | (7.2) | (6.4) | |
| Balance at 31 December 2016 | 211.5 | 215.1 | 425.8 | 6.1 | 1,173.9 | 2,032.4 |
1 Represents non-qualifying consideration received by the Group following the share placing in May 2014 and previous share placements. The amounts taken to the merger reserve do not currently meet the criteria for qualifying consideration as they form part of linked transactions.
For the year ended 31 December 2016
| Group 2016 |
Group 2015 |
Company 2016 |
Company 2015 |
||
|---|---|---|---|---|---|
| Notes | £m | £m | £m | £m | |
| Cash flows from operating activities | |||||
| Cash generated from operations | 30 | (7.7) | 13.1 | 7.4 | 7.6 |
| Interest paid | (19.6) | (19.6) | – | – | |
| Interest received | 0.2 | 0.7 | – | – | |
| Tax (paid)/received | (2.4) | 3.5 | – | – | |
| Net cash (outflow)/inflow from operating activities | (29.5) | (2.3) | 7.4 | 7.6 | |
| Cash flows from investing activities | |||||
| Purchase and development of property | (216.1) | (250.2) | – | – | |
| Sale of property | 18.5 | 11.2 | – | – | |
| Acquisition of interest in joint venture | – | (13.5) | – | – | |
| Investment in joint venture | (0.5) | – | – | – | |
| Proceeds from available-for-sale investments | 0.4 | – | – | – | |
| Sale of loan notes | – | 6.0 | – | – | |
| Sale of subsidiaries1 | 0.5 | 0.5 | – | – | |
| Loan advances to joint ventures | (11.8) | (3.2) | – | – | |
| Deferred consideration on purchase of subsidiary | – | (7.1) | – | – | |
| Net cash outflow from investing activities | (209.0) | (256.3) | – | – | |
| Cash flows from financing activities | |||||
| Issue of shares | 0.1 | 0.1 | 0.1 | 0.1 | |
| Borrowings drawn | 22 | 832.0 | 225.0 | – | – |
| Borrowings repaid | 22 | (612.0) | (51.0) | – | – |
| Purchase of derivative financial instruments | (1.9) | – | – | – | |
| Other finance costs | (8.2) | (0.4) | – | – | |
| Cash dividends paid | 12 | (7.5) | (7.7) | (7.5) | (7.7) |
| Contribution from non-controlling interest | – | 64.7 | – | – | |
| Net cash inflow/(outflow) from financing activities | 202.5 | 230.7 | (7.4) | (7.6) | |
| Net decrease in unrestricted cash and cash equivalents | (36.0) | (27.9) | – | – | |
| Unrestricted cash and cash equivalents at 1 January | 60.9 | 88.8 | – | – | |
| Unrestricted cash and cash equivalents | |||||
| at 31 December | 20 | 24.9 | 60.9 | – | – |
1 Cash inflows from sale of subsidiaries relate to deferred consideration on the disposal of The Brewery by EC&O Limited on 9 February 2012.
All cash flows derive from continuing operations.
Capital & Counties Properties PLC (the "Company") was incorporated and registered in England and Wales on 3 February 2010 under the Companies Act as a public company limited by shares, registration number 7145051. The registered office of the Company is 15 Grosvenor Street, London, W1K 4QZ, United Kingdom. The principal activity of the Company is to act as the ultimate parent company of Capital & Counties Properties PLC Group (the "Group"), whose principal activity is the development and management of property.
The Group's assets principally comprise investment and development property at Covent Garden, Earls Court and the exhibition halls at Olympia.
The Group's consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union, IFRS Interpretations Committee ("IFRSIC") interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared under the historical cost convention as modified for the revaluation of property, available-for-sale investments and derivative financial instruments.
The Directors have taken advantage of the exemption offered by section 408 of the Companies Act 2006 not to present a separate income statement or statement of comprehensive income for the Company.
During 2016, the following accounting standards and interpretations have been adopted by the Group:
IFRS 10 'Consolidated Financial Statements' (amendment) IFRS 11 'Joint Arrangements' (amendment) IAS 1 'Presentation of Financial Statements' (amendment) IAS 16 'Property, Plant and Equipment' (amendment) IAS 27 'Separate Financial Statements' (amendment) IAS 28 'Investments in Associates and Joint Ventures' (amendment) IAS 38 'Intangible Assets' (amendment)
Amendments to IFRS (Annual improvements cycle 2012-2014)
These pronouncements had no significant impact on the consolidated financial statements and resulted in no changes to presentation and disclosure.
At the date of approval of the consolidated financial statements the following standards and interpretations which have not been applied in these financial statements were in issue but not effective, and in some cases have not been adopted for use in the European Union are:
IFRS 2 'Share-based Payment' (amendment) IFRS 4 'Insurance Contracts' (amendment) IFRS 9 'Financial Instruments' IFRS 10 'Consolidated Financial Statements' and IAS 28 'Investments in Associates and Joint Ventures' (amendment) IFRS 15 'Revenue from Contracts with Customers' IFRS 16 'Leases' IAS 7 'Statement of Cash Flows' (amendment)
IAS 12 'Income Taxes' (amendment)
The Group has assessed the impact of these new standards and interpretations and do not anticipate any material impact on the financial statements.
In relation to IFRS 15 'Revenue from Contracts with Customers', the Group's material revenue stream relates to property rental income. On the adoption of the standard this revenue stream will not be materially impacted due to property rental income continuing to be within the scope of IAS 17 'Leases' and therefore is out of scope. As the Group is predominately a lessor, IFRS 16 'Leases', will not have a material impact on adoption. Where the Group is currently a lessee, this relates to immaterial contracts.
A summary of the Group's principal accounting policies, which have been applied consistently across the Group is set out below.
The Directors are satisfied that the Group has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of the financial statements and for this reason the consolidated financial statements have been prepared on a going concern basis.
These consolidated financial statements include the consolidation of the following limited partnerships: Capital & Counties CGP, Capco CGP 2012 LP, CG Investments 2016 LP, EC Properties LP, Solum Group Holdings LP and The Empress State Limited Partnership. The members of these qualifying partnerships have taken advantage of exemptions available in Statutory Instrument 2008/569 and therefore will not produce consolidated accounts at the partnership level.
The consolidated financial statements are prepared in British pounds sterling, which is also determined to be the functional currency of the Parent.
Subsidiaries are fully consolidated from the date on which the Group has control; it is exposed, or has rights, to variable returns from its involvement with an entity and has the ability to affect those returns through its power over an entity. Subsidiaries cease to be consolidated from the date this control is lost.
Non-controlling interests are recognised on the basis of their proportionate share in the recognised amounts of a subsidiary's identifiable net assets. On the balance sheet non-controlling interests are presented separately from the equity of the owners of the Parent. Profit or loss and total comprehensive income for the period attributable to non-controlling interests are presented separately in the income statement and the statement of comprehensive income.
The preparation of consolidated financial statements in accordance with IFRS requires the Directors to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, equity, income and expenses from sources not readily apparent. Although these estimates and assumptions are based on management's best knowledge of the amount, historical experiences and other factors, actual results ultimately may differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period.
Significant area of estimation and uncertainty is:
Property valuation: The most significant area of estimation and uncertainty in the consolidated financial statements is in respect of the valuation of the property portfolio and investments, where external valuations are obtained. The valuation of the Group's property portfolio is inherently subjective due to the assumptions as outlined within note 14 'Property Portfolio'. As a result, the valuations the Group places on its property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions which may not prove to be accurate and could therefore have a material effect on the Group's financial performance and position.
Property classification: Judgement is required in the classification of property between investment, development, trading and owner occupied. Management considers each property separately and reviews factors including the long term intention for the property, in determining if trading, and the level of ancillary income, in determining if owner occupied, to ensure the appropriate classification.
Revenue recognition: In making its judgement over revenue recognition for property transactions, management considered the detailed criteria for the recognition of revenue set out in IAS 18 'Revenue' and, in particular, whether the Group had transferred to the buyer the significant risks and rewards of ownership of the assets being disposed. Management also consider the appropriate accounting treatment of tenant lease incentives.
Other less significant judgements and sources of estimation and uncertainty relate to provisions, share-based payment, contingent liabilities and pensions.
Management has determined the operating segments with reference to reports on divisional financial performance and position that are regularly reviewed by the Chief Executive, who is deemed to be the chief operating decision maker.
Rent receivable consists of gross income calculated on an accruals basis, together with services where the Group acts as principal in the ordinary course of business, excluding sales of property. Rental income is spread evenly over the period from lease commencement to lease expiry.
Tenant lease incentive payments, including surrender premiums paid which can be directly linked to enhanced rental income, are amortised on a straight-line basis over the lease term. Upon receipt of a surrender premium for the early termination of a lease, the profit and non-recoverable outgoings relating to the lease concerned are immediately reflected in net rental income.
Contingent rents, being those lease payments that are not fixed at the inception of a lease, for example increases arising on rent reviews, are recorded as income in the periods in which they are earned.
Rent reviews are recognised as income, based on management estimates, when it is reasonable to assume they will be received. Estimates are derived from knowledge of market rents for comparable properties determined on an individual property basis and updated for progress of negotiations.
Where revenue is obtained by the sale of property, it is recognised when the significant risks and rewards have been transferred to the buyer. This will normally take place on exchange of contracts unless there are conditions that suggest insufficient probability of future economic benefits flowing to the Group. For conditional exchanges, sales are recognised when these conditions are satisfied. Revenue arising from the sale of property under construction is generally recognised when both contracts have been exchanged and the building work is physically complete.
Other income includes management fees charged to joint ventures for services associated with the management of properties and other general expenses as defined by management agreements.
Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate.
Dividend income is recognised when the Company's right to receive payment has been established.
Non-underlying items are those items that in the Directors' view are required to be separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's financial performance. Items deemed as non-underlying are impairment charges, net valuation gain/losses (including profits/losses on disposal), net refinancing charges, costs of termination of derivative financial instruments and non-recurring costs and income.
Transactions in currencies other than the Company's functional currency are recorded at the exchange rate prevailing at the transaction date. Foreign exchange gains and losses resulting from settlement of these transactions and from retranslation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement except for differences arising on the retranslation of available-for-sale investments which are recognised in other comprehensive income.
Current tax is the amount payable on the taxable income for the year and any adjustment in respect of prior years. It is calculated using rates that have been enacted or substantially enacted by the balance sheet date.
In accordance with IAS 12 'Income Taxes', deferred tax is provided for using the balance sheet liability method on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases of those assets and liabilities. However, temporary differences are not recognised to the extent that they arise from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting nor taxable profit or loss; or are associated with investments in subsidiaries, joint ventures and associates where the timing of the reversal of the temporary difference can be controlled by the parent, venture or investor, respectively, and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that management believes it is probable that future taxable profit will be available against which the deferred tax assets can be recovered. Deferred tax assets and liabilities are only offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same tax authority on either the same taxable group or different taxable entities where there is an intention to settle balances on a net basis.
Tax is included in the income statement except when it relates to items recognised in other comprehensive income or directly in equity, in which case the related tax is also recognised in other comprehensive income or directly in equity respectively.
For tax purposes, an investment property accounted for at fair value will normally be recovered through sale rather than use.
A discontinued operation is a component of the Group's business that represents a separate major line of the business that has been disposed of or meets the criteria for classification as held for sale. Discontinued operations are presented separately from continuing operations in both the income statement and statement of cash flows.
The cost of granting share options and other share-based remuneration to employees and Directors is recognised through the income statement with reference to the fair value of the instrument at the date of grant.
The income statement is charged over the vesting period of the options with a corresponding increase in equity. An option pricing model is used applying assumptions around expected yields, forfeiture rates, exercise price and volatility.
Share-based payment continued
Upon eventual exercise, a reserves transfer occurs with no further charge reflected in the income statement.
Own shares held in connection with employee share plans and other share-based payment arrangements are treated as treasury shares and deducted from equity.
Investment and development property are owned or leased by the Group and held for long-term rental income and capital appreciation.
The Group has chosen to use the fair value model. Property and any related obligations are initially recognised when the significant risks and rewards attached to the property have transferred to the Group. Payments made in respect of the future acquisition of investment and development property, as is the case for the CLSA, are initially recognised as prepayments until the recognition criteria outlined above have been met. Investment and development property are recorded at cost and subsequently revalued at the balance sheet date to fair value as determined by professionally qualified external valuers on the basis of market value after allowing for future transaction costs.
The fair value of property is arrived at by adjusting the market value as above for directly attributable tenant lease incentives and fixed head leases.
Property held under leases is stated gross of the recognised finance lease liability.
The valuation is based upon assumptions as outlined within the property portfolio note. These assumptions conform with the Royal Institution of Chartered Surveyors ("RICS") Valuation Professional Standards. The cost of development properties includes capitalised interest and other directly attributable outgoings, with the exception of properties and land where no development is imminent in which case no interest is included. Interest is capitalised (before tax relief) on the basis of the weighted average cost of debt outstanding until the date of practical completion.
When the Group redevelops a property for continued future use, that property is classified as investment and development property during the redevelopment period and continues to be measured at fair value.
Gains or losses arising from changes in the fair value of investment and development property are recognised in the income statement in the period in which they arise. Depreciation is not provided in respect of investment property including plant and equipment integral to such investment property. Investment and development properties cease to be recognised as investment and development property when they have been disposed of or when they cease to be held for the purpose of generating rental income or for capital appreciation.
Disposals are recognised on completion. Gains or losses arising are recognised in the income statement. The gain on disposal is determined as the difference between the net sales proceeds and the carrying amount of the asset at the commencement of the accounting period plus capital expenditure in the period.
A property ceases to be recognised as investment and development property and is transferred at its fair value to trading property when in the Directors' judgement, development commences with the intention of sale. Criteria considered in this assessment include the Board's stated intention, contractual commitments and physical, legal and financial viability.
When the use of a property changes from trading property to investment and development property, the property is transferred at fair value with any resulting gain recognised in the income statement.
Trading property comprises those properties that in the Directors' view are not held for long-term rental income or capital appreciation and are expected to be disposed of within one year of the balance sheet date or to be developed with the intention to sell.
Such property is constructed, acquired, or if transferred from investment and development property, transferred at fair value which is deemed to represent cost. Subsequently trading property is carried at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling costs. This approximates market value as determined by professionally qualified external valuers at the balance sheet date.
The amount of any write down of trading property to market value is recognised as an expense in the period the write down occurs. Should a valuation uplift occur in a subsequent period, the amount of any reversal shall be recognised as a reduction in the previous write down in the period in which the uplift occurs. This may not exceed the property's cost.
The sale of trading property is recognised as income when the significant risks and rewards have been transferred to the buyer. Total costs incurred in respect of trading property are recognised simultaneously as an expense.
Leases are classified according to the substance of the transaction.
A lease that transfers substantially all the risks and rewards of ownership to the lessee is classified as a finance lease. All other leases are normally classified as operating leases.
In accordance with IAS 40 'Investment Property', property held under finance and operating leases may be accounted for as investment property. Finance leases are recognised as both an asset and an obligation to pay future minimum lease payments. The investment property asset is included in the balance sheet at the lower of fair value and the present value of minimum lease payments, gross of the recognised finance lease liability. Lease payments are allocated between the liability and finance charges so as to achieve a constant financing rate.
Other finance leased assets are capitalised at the lower of the fair value of the leased asset and the present value of the minimum lease payments and depreciated over the shorter of the lease term and the useful life of the asset.
Rental expenses under operating leases are charged to the income statement on a straight-line basis over the lease term.
Plant and equipment consist of fixtures, fittings and other office equipment. Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes the original purchase price of the asset plus any attributable cost in bringing the asset to its working condition for its intended use. Depreciation is charged to the income statement on a straight-line basis over an asset's estimated useful life to a maximum of five years.
Investment in Group companies, which eliminate on consolidation, is stated in the Company's separate financial statements at cost less impairment losses, if any. Impairment losses are determined with reference to the investment's fair value less estimated selling costs. Fair value is derived from the subsidiary's, and their subsidiaries', net assets at the balance sheet date. On disposal, the difference between the net disposal proceeds and its carrying amount is included in the income statement.
Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement. Investments in joint ventures are accounted for using the equity method. On initial recognition the investment is recognised at cost, and the carrying amount is subsequently increased or decreased to recognise the Group's share of the profit or loss of the joint venture after the date of acquisition. Goodwill, if any, on acquisition is included in the carrying amount of the investment.
The Group's investment in joint ventures is presented separately on the balance sheet and the Group's share of the joint venture's post-tax profit or loss for the period is also presented separately in the income statement.
Where there is an indication that the Group's investment in joint ventures may be impaired the Group evaluates the recoverable amount of its investment, being the higher of the joint venture's fair value less costs to sell and value in use. If the recoverable amount is lower than the carrying value an impairment loss is recognised in the income statement.
If the Group's share of losses in a joint venture equals or exceeds its investment in the joint venture, the Group does not recognise further losses, unless it has legal or constructive obligations to make payments on behalf of the joint venture.
Available-for-sale investments, being investments intended to be held for an indefinite period, are initially recognised and subsequently measured at fair value.
Gains or losses arising from changes in the fair value of available-for-sale investments are included in other comprehensive income, except to the extent that losses are determined to be attributable to impairment, in which case they are recognised in the income statement and may not be reversed in subsequent periods.
Disposals are recorded upon distribution, at which time accumulated fair value adjustments are recycled from reserves to the income statement.
The Group uses non-trading derivative financial instruments to manage exposure to interest rate risk. They are initially recognised on the trade date at fair value and subsequently remeasured at fair value based on market price. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
Instruments that have not been designated as qualifying for hedge accounting are classified as held for trading. Changes in fair value of these instruments are recognised directly in the income statement.
The Group designates certain derivatives as hedges of a highly probable forecast transaction (cash flow hedge). For hedging instruments, the Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking hedging transactions. The Group also documents its assessment, both at hedge inception and on an on-going basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost. The Directors exercise judgement as to the collectability of the Group's trade and other receivables and determine when it is appropriate to impair these assets.
An annual review is conducted for financial assets to determine whether there is any evidence of a loss event as described by IAS 39 'Financial Instruments: Recognition and Measurement'. Factors such as days past due, credit status of the counterparty, historical evidence of collection and probability of deriving future economic benefit are considered to assess whether there is objective evidence of impairment. The amount of any potential loss is calculated by estimating future cash flows or by using fair value where this is available through observable market prices. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the original impairment was recognised, the impairment reversal is recognised in the income statement on a basis consistent with the original charge.
Cash and cash equivalents are recognised at fair value. Cash and cash equivalents comprise cash on hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less.
Trade payables are obligations for goods or services acquired in the ordinary course of business. Trade and other payables are recognised at fair value and subsequently measured at amortised cost until settled.
Property deposits and on account receipts are held within trade and other payables.
Dividend distributions to shareholders are recognised as a liability once approved by shareholders.
Provisions are recognised when the Group has a current obligation arising from a past event and it is probable that the Group will be required to settle the obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date.
Borrowings are ordinarily recognised initially at their net proceeds as an approximation of fair value.
If the transaction price is not an approximation of fair value at initial recognition, the Group determines the fair value as evidenced by a quoted price in an active market for an identical instrument or based on a valuation technique that uses data from observable markets. Where equity holders of the Group are party to the transaction the difference between the net proceeds and fair value is recognised within equity.
Borrowings are subsequently carried at amortised cost. Any transaction costs, premiums or discounts are capitalised and recognised over the contractual life of the loan using the effective interest rate method; or on a straight line basis where it is impractical to do so.
In the event of early repayment, transaction costs, premiums or discounts paid or unamortised costs are recognised immediately in the income statement.
The costs of the defined contribution scheme and the Group's personal pension plans are charged against profits in the year in which they fall due.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions of the defined benefit scheme are recognised immediately as a charge in other comprehensive income for the period in which they arise with a corresponding increase in the pension surplus or deficit.
These re-measurements are not reclassified to the income statement in subsequent periods. Past service costs, current service costs, curtailment or settlement gains or losses and net interest income or expense are recognised immediately in the income statement. Net interest is calculated by applying the discount rate to the opening plan assets and scheme obligation.
The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method and applying assumptions which are agreed between the Group and its actuaries.
Contingent liabilities are disclosed where there are present or possible obligations arising from past events, but the economic impact is uncertain in timing, occurrence or amount. A description of the nature and, where possible, an estimate of the financial effect of contingent liabilities are disclosed.
Capital commitments are disclosed when the Group has a contractual future obligation which has not been provided for at the balance sheet date. Amounts are only provided for where such obligations are onerous.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.
Where the Group's own shares are re-purchased, the consideration paid is classified as treasury shares and deducted from equity. Where such shares are subsequently sold or re-issued, any consideration received is included in equity.
Management has determined the operating segments based on reports reviewed by the Chief Executive, who is deemed to be the chief operating decision maker. The principal performance measures have been identified as net rental income and net asset value.
For management and reporting purposes the Group is organised into four divisions:
Management information, previously reported on a proportionally consolidated basis until 2015, is now reported to the chief operating decision maker on a Group share basis. Consequentially the comparative period has been re-presented in line with reporting requirements. Outlined below is the Group share by segment:
| Segment | Group Share |
|---|---|
| Covent Garden | 100% |
| Earls Court Properties | |
| ECPL | 63% |
| Lillie Square | 50% |
| Empress State | 100% |
| Other | 100% |
| Venues | 100% |
| Other | |
| Solum | 50% |
| GCP | 50% |
| Other | 100% |
Segmental reporting has been presented in line with management information and therefore consolidation adjustments are presented to reconcile segmental performance and position to the IFRS total.
The Group's operating segments derive their revenue primarily from rental income from lessees, with the exception of Venues which derives revenue from licence fees from the letting of space.
Unallocated expenses consist primarily of costs incurred centrally which are neither directly nor meaningfully attributable to individual segments.
Reportable segments
| 2016 | |||||||
|---|---|---|---|---|---|---|---|
| Covent Garden £m |
Earls Court Properties £m |
Venues £m |
Other £m |
Group total £m |
Consolidation adjustments £m |
IFRS total £m |
|
| Revenue1 | 71.4 | 20.4 | 33.3 | 2.3 | 127.4 | – | 127.4 |
| Rent receivable | 49.4 | 17.7 | 33.3 | (0.4) | 100.0 | 0.8 | 100.8 |
| Service charge income | 3.2 | – | – | – | 3.2 | – | 3.2 |
| Rental income | 52.6 | 17.7 | 33.3 | (0.4) | 103.2 | 0.8 | 104.0 |
| Rental expenses2 | (11.1) | (0.9) | (9.7) | – | (21.7) | (0.3) | (22.0) |
| Net rental income/(expense) | 41.5 | 16.8 | 23.6 | (0.4) | 81.5 | 0.5 | 82.0 |
| Profit/(loss) on sale of trading property | 5.6 | (1.2) | – | – | 4.4 | 1.2 | 5.6 |
| Other income | – | – | – | 2.7 | 2.7 | 1.9 | 4.6 |
| Gain/(loss) on revaluation and sale of | |||||||
| investment and development property | 126.1 | (247.2) | (3.8) | 0.1 | (124.8) | (110.2) | (235.0) |
| Write down of trading property | – | (0.4) | – | – | (0.4) | 0.4 | – |
| Profit on sale of available-for-sale investments | – | – | – | 0.4 | 0.4 | – | 0.4 |
| Impairment of other receivables | – | – | – | – | – | (14.8) | (14.8) |
| Other costs | – | (5.0) | – | – | (5.0) | – | (5.0) |
| Segment result | 173.2 | (237.0) | 19.8 | 2.8 | (41.2) | (121.0) | (162.2) |
| Unallocated costs | |||||||
| Administration expenses | (50.5) | (0.1) | (50.6) | ||||
| Operating loss | (91.7) | (121.1) | (212.8) | ||||
| Net finance costs3 | (37.8) | 10.6 | (27.2) | ||||
| Share of post-tax loss from joint ventures | – | (0.3) | (0.3) | ||||
| Loss before tax | (129.5) | (110.8) | (240.3) | ||||
| Taxation | 10.9 | 5.9 | 16.8 | ||||
| Loss for the year | (118.6) | (104.9) | (223.5) | ||||
| Loss attributable to: | |||||||
| Owners of the Parent | (118.6) | – | (118.6) | ||||
| Non-controlling interest | – | (104.9) | (104.9) | ||||
| Summary balance sheet | |||||||
| Total segment assets4 | 2,294.0 | 1,213.2 | 313.0 | 35.3 | 3,855.5 | 252.6 | 4,108.1 |
| Total segment liabilities4 | (724.8) | (240.3) | (83.1) | (12.8) | (1,061.0) | 115.6 | (945.4) |
| Segmental net assets | 1,569.2 | 972.9 | 229.9 | 22.5 | 2,794.5 | 368.2 | 3,162.7 |
| Unallocated assets3 | 10.5 | – | 10.5 | ||||
| Net assets | 2,805.0 | 368.2 | 3,173.2 | ||||
| Other segment items: | |||||||
| Depreciation | (0.2) | (1.3) | (0.4) | (0.3) | (2.2) | 0.4 | (1.8) |
| Capital expenditure | (153.9) | (80.2) | (1.5) | – | (235.6) | 31.1 | (204.5) |
1 Total revenue of £127.4 million comprises rental income of £104.0 million, proceeds from sale of trading property of £18.8 million and other income of £4.6 million.
2 Comprises service charge and other non-recoverable costs.
3 The Group operates a central treasury function which manages and monitors the Group's finance income and costs on a net basis and the majority of the Group's cash balances.
4 Total segmental assets and total segmental liabilities exclude loans between and investments in Group undertakings.
Reportable segments
| Re-presented 2015 | |||||||
|---|---|---|---|---|---|---|---|
| Covent Garden £m |
Earls Court Properties £m |
Venues £m |
Other £m |
Group total £m |
Consolidation adjustments £m |
IFRS total £m |
|
| Revenue1 | 61.3 | 18.2 | 31.3 | 2.1 | 112.9 | 2.0 | 114.9 |
| Rent receivable | 46.4 | 18.1 | 31.3 | (0.4) | 95.4 | 0.6 | 96.0 |
| Service charge income | 3.7 | – | – | – | 3.7 | – | 3.7 |
| Rental income | 50.1 | 18.1 | 31.3 | (0.4) | 99.1 | 0.6 | 99.7 |
| Rental expenses2 | (11.3) | (0.8) | (12.0) | (0.1) | (24.2) | (0.2) | (24.4) |
| Net rental income/(expense) | 38.8 | 17.3 | 19.3 | (0.5) | 74.9 | 0.4 | 75.3 |
| Profit/(loss) on sale of trading property | 3.5 | (1.5) | – | – | 2.0 | 1.5 | 3.5 |
| Other income | – | 0.1 | – | 2.5 | 2.6 | 1.4 | 4.0 |
| Gain/(loss) on revaluation and sale of investment and development property |
262.9 | 100.9 | 58.4 | (0.4) | 421.8 | 32.1 | 453.9 |
| Write back of trading property | – | 0.2 | – | – | 0.2 | (0.2) | – |
| Loss on sale of available-for-sale investments | – | – | – | (0.2) | (0.2) | – | (0.2) |
| Impairment of other receivables | – | – | – | – | – | (12.2) | (12.2) |
| Other costs | – | – | – | (0.2) | (0.2) | – | (0.2) |
| Segment result | 305.2 | 117.0 | 77.7 | 1.2 | 501.1 | 23.0 | 524.1 |
| Unallocated costs | |||||||
| Administration expenses | (52.5) | 0.4 | (52.1) | ||||
| Operating profit | 448.6 | 23.4 | 472.0 | ||||
| Net finance costs3 | (20.6) | 9.2 | (11.4) | ||||
| Share of post-tax loss from joint ventures | – | (0.7) | (0.7) | ||||
| Profit before tax | 428.0 | 31.9 | 459.9 | ||||
| Taxation | 3.1 | (5.8) | (2.7) | ||||
| Profit for the year | 431.1 | 26.1 | 457.2 | ||||
| Profit attributable to: | |||||||
| Owners of the Parent | 431.1 | – | 431.1 | ||||
| Non-controlling interest | – | 26.1 | 26.1 | ||||
| Summary balance sheet | |||||||
| Total segment assets4 | 2,010.4 | 1,360.6 | 314.7 | 39.2 | 3,724.9 | 395.8 | 4,120.7 |
| Total segment liabilities4 | (569.6) | (193.7) | (36.6) | (22.6) | (822.5) | 73.0 | (749.5) |
| Segmental net assets | 1,440.8 | 1,166.9 | 278.1 | 16.6 | 2,902.4 | 468.8 | 3,371.2 |
| Unallocated assets3 | 31.6 | – | 31.6 | ||||
| Net assets | 2,934.0 | 468.8 | 3,402.8 | ||||
| Other segment items: | |||||||
| Depreciation | (0.2) | – | (0.2) | (0.1) | (0.5) | – | (0.5) |
| Capital expenditure | (110.8) | (360.1) | (4.0) | (0.3) | (475.2) | (142.7) | (617.9) |
1 Total revenue of £114.9 million comprises rental income of £99.7 million, proceeds from sale of trading property of £11.2 million and other income of £4.0 million.
2 Comprises service charge and other non-recoverable costs.
3 The Group operates a central treasury function which manages and monitors the Group's finance income and costs on a net basis and the majority of the Group's cash balances.
4 Total segmental assets and total segmental liabilities exclude loans between and investments in Group undertakings.
| 2016 £m |
2015 £m |
|
|---|---|---|
| Proceeds from the sale of trading property | 18.8 | 11.2 |
| Cost of sale of trading property | (12.9) | (7.5) |
| Agent, selling and marketing fees | (0.3) | (0.2) |
| Profit on sale of trading property | 5.6 | 3.5 |
| 2016 £m |
2015 £m |
|---|---|
| (235.2) | 453.9 |
| 0.2 | – |
| (235.0) | 453.9 |
| 4 (LOSS)/GAIN ON REVALUATION AND SALE OF INVESTMENT AND DEVELOPMENT PROPERTY |
| 2016 £m |
2015 £m |
|
|---|---|---|
| Impairment of other receivables | 14.8 | 12.2 |
Following an impairment review of amounts receivable from joint ventures by the Group, an impairment of £14.8 million has been recognised (2015: £12.2 million). The impairment was calculated with reference to the Group's share of the cumulative losses in the Lillie Square joint venture.
The carrying value of the investment is £nil (2015: £nil) in accordance with IAS 28 'Investment in Associates and Joint Ventures' ("IAS 28"). Refer to note 16 'Investment in Joint Ventures'.
On 30 August 2012, the Group completed a joint venture arrangement with the Kwok Family Interests. The venture, to develop land interests at Lillie Square, resulted in the loss of control of the former subsidiary Lillie Square GP Limited and the disposal of a 50 per cent limited partnership interest in Lillie Square LP. During 2016 additional costs associated with the transaction have been incurred resulting in a loss of £5.0 million (2015: £nil). Other costs for 2015 relate to loss on sale of loan notes of £0.2 million.
| (a) Employee costs | ||
|---|---|---|
| 2016 £m |
2015 £m |
|
| Wages and salaries | 27.1 | 28.2 |
| Social security costs1 | 0.8 | 6.0 |
| Other pension costs | 1.4 | 1.4 |
| Share-based payment | 1.1 | 4.6 |
| Total employee costs | 30.4 | 40.2 |
1 Included in social security costs is – £2.5 million of national insurance on share options (2015: £2.6 million). The credit for 2016 is due to changes in vesting and forfeiture assumptions.
(b) Employee numbers
| Total number of people (including Executive Directors) employed | 2016 | 2015 |
|---|---|---|
| Venues | 153 | 160 |
| Capco head office (including Earls Court Properties) & Covent Garden | 143 | 143 |
| Total headcount at 31 December | 296 | 303 |
| Average monthly number of people (including Executive Directors) employed | 2016 | 2015 |
| Venues | 155 | 170 |
| Capco head office (including Earls Court Properties) & Covent Garden | 143 | 131 |
| Total average headcount | 298 | 301 |
The details of individual Directors' remuneration and pension benefits as set out in the tables contained in the Directors' remuneration report on pages 70 to 88 form part of these consolidated financial statements.
| 2016 £m |
2015 £m |
|
|---|---|---|
| Remuneration to the principal auditor in respect of audit fees: | ||
| Parent Company and Group consolidated financial statements | 0.2 | 0.2 |
| Statutory audit of subsidiaries | 0.3 | 0.3 |
| Fees related to the audit of the Company and its subsidiaries | 0.5 | 0.5 |
| Audit related assurance services | – | – |
| Total fees for audit and audit related services | 0.5 | 0.5 |
The Group's auditors, PricewaterhouseCoopers LLP are engaged on assignments additional to their statutory duties where their expertise and experience of the Group are important. Should fees on an assignment be expected to exceed the lower of £50,000 or 15 per cent of the annual auditor's fee, they are pre-approved by the Chairman of the Audit Committee. Services costing up to £50,000 are pre-approved by the Audit Committee under its policy, subject to consideration and approval by an Executive Director. 2016 non-audit fees represented 3.0 per cent of the total fee.
| Finance income: – On loan notes On deposits and other 0.3 Finance income 0.3 Other finance income: On deep discount bonds 10.5 Other finance income1 10.5 1 Excluded from the calculation of underlying earnings as deep discount bonds eliminate on a Group share basis. 10 FINANCE COSTS 2016 £m Finance costs: 20.5 On bank overdrafts, loans and other On obligations under finance leases 0.5 Gross finance costs 21.0 (1.4) Interest capitalised on property under development Finance costs 19.6 Other finance costs: 5.3 Costs of termination of bank loans and other Other finance costs1 5.3 |
2016 £m |
2015 £m |
|---|---|---|
| 0.2 | ||
| 0.5 | ||
| 0.7 | ||
| 9.3 | ||
| 9.3 | ||
| 2015 £m |
||
| 21.0 | ||
| 0.5 | ||
| 21.5 | ||
| (0.7) | ||
| 20.8 | ||
| – | ||
| – |
1 Non-recurring finance costs and therefore excluded from the calculation of underlying earnings.
Interest is capitalised, before tax relief, on the basis of the weighted average cost of debt of 2.7 per cent (2015: 3.3 per cent) applied to the cost of property under development during the year.
| 2016 £m |
2015 £m |
|
|---|---|---|
| Current income tax: | ||
| Current income tax charge excluding non-underlying items | 1.4 | 1.6 |
| Current income tax on profits | 1.4 | 1.6 |
| Deferred income tax: | ||
| On accelerated capital allowances | 0.8 | 0.1 |
| On fair value of investment and development property | (15.6) | 3.8 |
| On fair value of derivative financial instruments | (2.4) | (0.1) |
| On Group losses | (5.6) | 0.5 |
| On other temporary differences | 4.8 | (0.8) |
| Deferred income tax on profits | (18.0) | 3.5 |
| Adjustments in respect of previous years – current income tax | (0.4) | (3.8) |
| Adjustments in respect of previous years – deferred income tax | 0.2 | 1.4 |
| Total income tax (credit)/charge reported in the consolidated income statement | (16.8) | 2.7 |
The tax assessed for the year is £16.8 million which reflects a rate lower than the standard rate of corporation tax in the United Kingdom ("UK"). The differences are explained below:
| 2016 £m |
2015 £m |
|
|---|---|---|
| (Loss)/profit before tax | (240.3) | 459.9 |
| (Loss)/profit on ordinary activities multiplied by the standard rate in the UK of 20.0% (2015: 20.25%) | (48.1) | 93.1 |
| Unrecognised deferred income tax on revaluation losses/(gains) | 32.4 | (74.3) |
| Adjustments in respect of previous years | (0.3) | (2.4) |
| Expenses disallowed | 1.5 | 1.7 |
| Other temporary differences | (1.4) | (12.9) |
| Reduction in deferred income tax following change in corporation tax rate | (0.9) | (2.5) |
| Total income tax (credit)/charge reported in the consolidated income statement | (16.8) | 2.7 |
Tax arising on items recognised in other comprehensive income is also reflected within other comprehensive income. This includes deferred tax on an element of the pension movement in addition to movement on the cash flow hedge. Tax arising on items recognised directly in equity is reflected in equity. This includes deferred tax on an element of the share-based payment.
Finance Act 2015 sets the main rate of UK corporation tax at 20 per cent with effect on 1 April 2015. The enactment of Finance (No. 2) Act 2015 and Finance Act 2016 reduces the main rate of corporation tax to 19 per cent from April 2017 and 17 per cent from April 2020.
| Group and Company | 2016 £m |
2015 £m |
|---|---|---|
| Ordinary shares | ||
| Prior year final dividend of 1.0p per share (2015: 1.0p) | 8.4 | 8.4 |
| Interim dividend of 0.5p per share (2015: 0.5p) | 4.3 | 4.2 |
| Dividend expense | 12.7 | 12.6 |
| Shares issued in lieu of cash1 | (4.3) | (4.3) |
| Adjustment for bonus issue2 | (0.9) | (0.6) |
| Cash dividends paid | 7.5 | 7.7 |
| Proposed final dividend of 1.0p per share (2015: 1.0p) | 8.5 | 8.4 |
1 Shares issued in lieu of cash relates to those shareholders who elect to receive their dividends in scrip form following the declaration of dividend which occurs at the Company's Annual General Meeting.
2 Adjustments for bonus issue arise from those shareholders who elect to receive their dividends in scrip form on an evergreen basis. These shares are treated as a bonus issue and allotted at nominal value.
| (a) Earnings per share | ||||||
|---|---|---|---|---|---|---|
| 2016 | 2015 | |||||
| (Loss)/ earnings £m |
Shares1 million |
(Loss)/ earnings per share (pence) |
Earnings £m |
Shares1 million |
Earnings per share (pence) |
|
| Basic (loss)/earnings | (118.6) | 844.4 | (14.0) | 431.1 | 841.1 | 51.3 |
| Dilutive effect of contingently issuable share option awards2 | – | 0.7 | – | 2.1 | ||
| Dilutive effect of contingently issuable deferred share awards2 | – | – | – | 0.8 | ||
| Dilutive effect of contingently issuable matching nil cost options awards2 |
– | 0.1 | – | 1.3 | ||
| Dilutive effect of deferred bonus share option awards2 | – | 0.7 | – | 1.3 | ||
| Diluted (loss)/earnings | (118.6) | 845.9 | (14.0) | 431.1 | 846.6 | 50.9 |
| Basic (loss)/earnings | (118.6) | 431.1 | ||||
| Group adjustments: | ||||||
| Profit on sale of trading property | (5.6) | (3.5) | ||||
| Loss/(gain) on revaluation and sale of investment and | ||||||
| development property | 235.0 | (453.9) | ||||
| Loss on sale of loan notes | – | 0.2 | ||||
| Other finance costs | 5.3 | – | ||||
| Change in fair value of derivative financial instruments | 13.1 | 0.6 | ||||
| Deferred tax adjustments | (17.2) | 3.8 | ||||
| Non-controlling interest in respect of the adjustments | (104.6) | 26.4 | ||||
| Joint venture adjustments: | ||||||
| Loss on sale of trading property3 | 1.2 | 1.6 | ||||
| Loss/(gain) on revaluation of investment and development property |
0.1 | (0.1) | ||||
| Write down/(back) of trading property | 0.4 | (0.2) | ||||
| EPRA earnings4 | 9.1 | 844.4 | 1.1 | 6.0 | 841.1 | 0.7 |
| (Profit)/loss on sale of available-for-sale investments | (0.4) | 0.2 | ||||
| Other costs | 5.0 | – | ||||
| Deferred tax adjustments | (1.9) | 1.7 | ||||
| Joint venture adjustment: | ||||||
| Other income | – | (0.1) | ||||
| Underlying earnings4 | 11.8 | 844.4 | 1.4 | 7.8 | 841.1 | 0.9 |
1 Weighted average number of shares in issue has been adjusted by 0.3 million (2015: 0.1 million) for the issue of bonus shares in connection with the scrip dividend scheme.
2 Further information on these potential ordinary shares can be found in note 32 'Share-Based Payments'.
3 Loss on sale of trading property relates to Lillie Square sales and includes £1.4 million (2015: £1.6 million) of marketing and selling fees on a Group share basis. Marketing fees include costs for units that have not yet completed.
4 EPRA earnings and underlying earnings have been reported on a Group share basis.
Headline earnings per share is calculated in accordance with Circular 2/2015 issued by the South African Institute of Chartered Accountants ("SAICA"), a requirement of the Group's Johannesburg Stock Exchange ("JSE") listing. This measure is not a requirement of IFRS.
(a) Earnings per share continued
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| (Loss)/ earnings £m |
Shares1 million |
(Loss)/ earnings per share (pence) |
Earnings £m |
Shares1 million |
Earnings per share (pence) |
|
| Basic (loss)/earnings | (118.6) | 844.4 | (14.0) | 431.1 | 841.1 | 51.3 |
| Group adjustments: | ||||||
| Loss/(gain) on revaluation and sale of investment and development property |
235.0 | (453.9) | ||||
| (Profit)/loss on sale of available-for-sale investments | (0.4) | 0.2 | ||||
| Loss on sale of loan notes | – | 0.2 | ||||
| Deferred tax adjustments | (15.6) | 3.8 | ||||
| Non-controlling interest in respect of the Group adjustments | (104.6) | 26.4 | ||||
| Joint venture adjustment: | ||||||
| Loss/(gain) on revaluation of investment and development property |
0.1 | (0.1) | ||||
| Headline (loss)/earnings | (4.1) | 844.4 | (0.5) | 7.7 | 841.1 | 0.9 |
| Dilutive effect of contingently issuable share option awards2 | – | 0.7 | – | 2.1 | ||
| Dilutive effect of contingently issuable deferred share awards2 |
– | – | – | 0.8 | ||
| Dilutive effect of contingently issuable matching nil cost | ||||||
| options awards2 | – | 0.1 | – | 1.3 | ||
| Dilutive effect of deferred bonus share option awards2 | – | 0.7 | – | 1.3 | ||
| Diluted headline (loss)/earnings | (4.1) | 845.9 | (0.5) | 7.7 | 846.6 | 0.9 |
1 Weighted average number of shares in issue has been adjusted by 0.3 million (2015: 0.1 million) for the issue of bonus shares in connection with the scrip dividend scheme.
2 Further information on these potential ordinary shares can be found in note 32 'Share-Based Payments'.
(b) Net assets per share
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Net assets £m |
Shares million |
NAV per share (pence) |
Net assets £m |
Shares million |
NAV per share (pence) |
|
| Net assets attributable to owners of the Parent | 2,805.0 | 846.1 | 331.5 | 2,934.0 | 842.0 | 348.5 |
| Effect of dilution on exercise of contingently issuable share option awards1 |
– | 0.7 | – | 2.3 | ||
| Effect of dilution on vesting of contingently issuable deferred share awards1 |
– | – | – | 0.8 | ||
| Effect of dilution on exercise of contingently issuable matching nil cost option awards1 |
– | 0.1 | – | 1.3 | ||
| Effect of dilution on exercise of deferred bonus share option awards1 |
– | 0.7 | – | 1.3 | ||
| Diluted NAV | 2,805.0 | 847.6 | 330.9 | 2,934.0 | 847.7 | 346.1 |
| Group adjustments: | ||||||
| Fair value of derivative financial instruments | 13.7 | 2.4 | ||||
| Unrecognised surplus on trading property – Group | 1.5 | 8.3 | ||||
| Unrecognised surplus on trading property – Joint venture | 46.6 | 91.6 | ||||
| Deferred tax adjustments | 11.5 | 28.9 | ||||
| Non-controlling interests in respect of the adjustments | – | (5.8) | ||||
| EPRA NAV | 2,878.3 | 847.6 | 339.6 | 3,059.4 | 847.7 | 360.9 |
| Fair value of derivative financial instruments | (13.7) | (2.4) | ||||
| Excess fair value of debt over carrying value | (12.4) | (12.1) | ||||
| Deferred tax adjustments | (11.5) | (28.9) | ||||
| EPRA NNNAV | 2,840.7 | 847.6 | 335.1 | 3,016.0 | 847.7 | 355.8 |
1 Further information on these potential ordinary shares can be found in note 32 'Share-Based Payments'.
(a) Investment and development property
| Property portfolio | Tenure | ||||||
|---|---|---|---|---|---|---|---|
| Covent Garden £m |
Earls Court Properties £m |
Venues £m |
Other £m |
Total £m |
Freehold £m |
Leasehold £m |
|
| At 1 January 2015 | 1,576.7 | 970.6 | 232.6 | 4.5 | 2,784.4 | 1,469.4 | 1,315.0 |
| Reclassification | – | – | – | – | – | (32.0) | 32.0 |
| Additions from acquisitions | 50.0 | 449.2 | – | – | 499.2 | 85.6 | 413.6 |
| Additions from subsequent expenditure | 59.9 | 53.6 | 4.0 | 0.3 | 117.8 | 48.5 | 69.3 |
| Gain/(loss) on valuation1 | 262.9 | 133.0 | 58.4 | (0.4) | 453.9 | 225.4 | 228.5 |
| At 31 December 2015 | 1,949.5 | 1,606.4 | 295.0 | 4.4 | 3,855.3 | 1,796.9 | 2,058.4 |
| Additions from acquisitions | 85.2 | 4.6 | – | – | 89.8 | 75.6 | 14.2 |
| Additions from subsequent expenditure | 68.4 | 44.5 | 1.5 | – | 114.4 | 53.0 | 61.4 |
| Disposals | – | – | – | (4.4) | (4.4) | (4.4) | – |
| Gain/(loss) on valuation1 | 126.1 | (357.5) | (3.8) | – | (235.2) | (45.7) | (189.5) |
| At 31 December 2016 | 2,229.2 | 1,298.0 | 292.7 | – | 3,819.9 | 1,875.4 | 1,944.5 |
(b) Trading property
| Property portfolio | Tenure | ||||||
|---|---|---|---|---|---|---|---|
| Covent Garden £m |
Earls Court Properties £m |
Venues £m |
Other £m |
Total £m |
Freehold £m |
Leasehold £m |
|
| At 1 January 2015 | 22.1 | – | – | – | 22.1 | 22.1 | – |
| Additions from subsequent expenditure | 0.9 | – | – | – | 0.9 | 0.9 | – |
| Disposals | (7.5) | – | – | – | (7.5) | (7.5) | – |
| At 31 December 20152 | 15.5 | – | – | – | 15.5 | 15.5 | – |
| Additions from subsequent expenditure | 0.3 | – | – | – | 0.3 | 0.3 | – |
| Disposals | (12.9) | – | – | – | (12.9) | (12.9) | – |
| At 31 December 20162 | 2.9 | – | – | – | 2.9 | 2.9 | – |
1 Loss on valuation of £235.2 million (2015: gain £453.9 million) is recognised in the consolidated income statement within (loss)/gain on revaluation and sale of investment and development property. This loss is unrealised and relates to assets held at the end of the year.
2 The value of trading property carried at net realisable value was £nil (2015: £nil).
(c) Market value reconciliation of total property
| Covent Garden £m |
Earls Court Properties £m |
Venues £m |
Other £m |
Total £m |
|
|---|---|---|---|---|---|
| Carrying value of investment and development | |||||
| property at 31 December 2016 | 2,229.2 | 1,298.0 | 292.7 | – | 3,819.9 |
| Carrying value of trading property at 31 December 2016 | 2.9 | – | – | – | 2.9 |
| Carrying value of investment, development and trading property at 31 December 20161 |
2,232.1 | 1,298.0 | 292.7 | – | 3,822.8 |
| Adjustment in respect of fixed head leases | (4.1) | – | – | – | (4.1) |
| Adjustment in respect of tenant lease incentives | 45.3 | – | – | – | 45.3 |
| Unrecognised surplus on trading property2 | 1.5 | – | – | – | 1.5 |
| Market value of investment, development | |||||
| and trading property at 31 December 2016 | 2,274.8 | 1,298.0 | 292.7 | – | 3,865.5 |
| Joint ventures: | |||||
| Carrying value of joint venture investment, development | |||||
| and trading property at 31 December 2016 | – | 176.0 | – | – | 176.0 |
| Unrecognised surplus on joint venture trading property2 | – | 46.6 | – | – | 46.6 |
| 2,274.8 | 1,520.6 | 292.7 | – | 4,088.1 | |
| Non-controlling interest adjustment: | |||||
| Market value of non-controlling interest in investment, | |||||
| development and trading property at 31 December 2016 | – | (378.5) | – | – | (378.5) |
| Market value of investment, development and trading property on a Group share basis at |
|||||
| 31 December 2016 | 2,274.8 | 1,142.1 | 292.7 | – | 3,709.6 |
| Covent | Earls Court | ||||
| Garden £m |
Properties £m |
Venues £m |
Other £m |
Total £m |
|
| Carrying value of investment and development | |||||
| property at 31 December 2015 | 1,949.5 | 1,606.4 | 295.0 | 4.4 | 3,855.3 |
| Carrying value of trading property at 31 December 2015 | 15.5 | – | – | – | 15.5 |
| Carrying value of investment, development and trading property at 31 December 20151 |
1,965.0 | 1,606.4 | 295.0 | 4.4 | 3,870.8 |
| Adjustment in respect of fixed head leases | (4.1) | – | – | – | (4.1) |
| Adjustment in respect of tenant lease incentives | 36.0 | – | – | – | 36.0 |
| Unrecognised surplus on trading property2 | 8.3 | – | – | – | 8.3 |
| Market value of investment, development | |||||
| and trading property at 31 December 2015 | 2,005.2 | 1,606.4 | 295.0 | 4.4 | 3,911.0 |
| Joint ventures: | |||||
| Carrying value of joint venture investment, development | |||||
| and trading property at 31 December 2015 | – | 130.8 | – | – | 130.8 |
| Unrecognised surplus on joint venture trading property2 | – | 91.6 | – | – | 91.6 |
| 2,005.2 | 1,828.8 | 295.0 | 4.4 | 4,133.4 | |
| Non-controlling interest adjustment: | |||||
| Market value of non-controlling interest in investment, development and trading property at 31 December 2015 |
– | (471.6) | – | – | (471.6) |
| Market value of investment, development and trading property on a Group share basis at 31 December 2015 |
2,005.2 | 1,357.2 | 295.0 | 4.4 | 3,661.8 |
1 Included within investment and development property is £1.4 million (2015: £0.7 million) of interest capitalised during the year on developments in progress.
2 The unrecognised surplus on trading property is shown for informational purposes only and is not a requirement of IFRS. Trading property continues to be measured at the lower of cost and net realisable value in the consolidated financial statements.
At 31 December 2016, the Group was contractually committed to £149.2 million (2015: £162.5 million) of future expenditure for the purchase, construction, development and enhancement of investment, development and trading property. Refer to note 28 'Capital Commitments' for further information on capital commitments.
The fair value of the Group's investment, development and trading property at 31 December 2016 was determined by independent, appropriately qualified external valuers, Jones Lang LaSalle for Earls Court Properties (excluding the Empress State Building) and Venues; and CB Richard Ellis for the remainder of the Group's property portfolio. The valuations conform to the Royal Institution of Chartered Surveyors ("RICS") Valuation Professional Standards. Fees paid to valuers are based on fixed price contracts.
Each year the Executive Directors, on behalf of the Board, appoint the external valuers. The valuers are selected based upon their knowledge, independence and reputation for valuing assets such as those held by the Group.
Valuations are performed bi-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 computational outputs. Valuers submit and present summary reports to the Group's Audit Committee, with the Executive Directors reporting to the Board on the outcome of each valuation round.
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 site specific costs (for example Section 106), professional fees, planning fees, developer's profit including contingencies, planning and construction timelines, lease re-gear costs, planning risk and sales prices based on known market transactions for similar properties or properties similar to those contemplated for development.
Valuations are based on what is determined to be the highest and best use. When considering the highest and best use a 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 the likelihood of achieving and implementing this change in arriving at its valuation.
A number of the Group's properties have been valued on the basis of their development potential which differs from their existing use. In respect of development valuations, the valuer ordinarily considers the gross development value of the completed scheme based upon assumptions of capital values, rental values and yields of the properties which would be created through the implementation of the development. Deductions are then made for anticipated costs, including an allowance for developer's profit before arriving at a valuation.
Most notably, within Earls Court Properties, the Empress State Building has been valued on the basis of its development potential as a residential led scheme. The property is currently used as an office space, generating an income stream for the Group, while the process to achieve the change in use is being implemented. Within the Covent Garden segment, where appropriate, a number of properties have also been valued on the basis of their development potential, principally for the conversion to residential use or for improving the configuration of retail units.
There are often restrictions on both 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 is required or when a credit facility is in place. These restrictions are factored into the property's valuation by the external valuer. Refer to disclosures surrounding property risks on page 17.
Non-financial assets carried at fair value, as is the case for investment and development property held by the Group, are required to be analysed by level depending on the valuation method adopted under IFRS 13 'Fair Value Measurement' ("IFRS 13"). Trading property is exempted from IFRS 13 disclosure requirements. The different valuation levels are defined as:
Level 1: valuation based on quoted market prices traded in active markets;
Level 2: valuation based on inputs other than quoted prices included within Level 1 that maximise the use of observable data either directly or from market prices or indirectly derived from market prices; and
Level 3: where one or more inputs to valuation are not based on observable market data. Valuations at this level are more subjective and therefore more closely managed, including sensitivity analysis of inputs to valuation models. Such testing has not indicated that any material difference would arise due to a change in input variables.
When the degree of subjectivity or nature of the measurement inputs changes, consideration is given as to whether a transfer between fair value levels is deemed to have occurred. Unobservable data becoming observable market data would determine a transfer from Level 3 to Level 2. All investment and development property held by the Group are classified as Level 3.
The following table sets out the valuation techniques used in the determination of market value of investment and development property on a property by property basis, as well as the key unobservable inputs used in the valuation models.
| Property portfolio | Market value 2016 £m |
Market value 2015 £m |
Valuation technique |
Key unobservable inputs |
Range (weighted average) 2016 |
Range (weighted average) 2015 |
|---|---|---|---|---|---|---|
| Covent Garden | 2,091.9 | 1,717.8 | Income | Estimated Rental Value | £13 – £333 | £10 – £291 |
| capitalisation | per sq ft per annum ("p.a.") | (£84) | (£82) | |||
| Equivalent Yield | 1.8% – 6.0% | 2.3% – 6.0% | ||||
| (3.6%) | (3.8%) | |||||
| 178.5 | 263.6 | Residual | Construction costs | £319 – £585 | £175 – £584 | |
| development method | including site specific costs per sq ft |
(£538) | (£443) | |||
| Earls Court Properties | 20.5 | 18.7 | Income | Estimated Rental Value | £21 – £44 | £21 – £47 |
| capitalisation | per sq ft p.a. | (£32) | (£32) | |||
| Equivalent Yield | 2.8 – 6.9% | 2.8% – 7.0% | ||||
| (5.5%) | (5.1%) | |||||
| 4.5 | 4.4 | Discounted cash flow approach |
Pre-tax discount rate | 10.0% | 10.0% | |
| 1,273.0 | 1,583.3 | Residual | Construction costs | £204 – £573 | £170 – £579 | |
| development method | including site specific costs per sq ft |
(£526) | (£528) | |||
| Venues | 249.1 | 249.1 | Discounted cash flow approach |
Pre-tax discount rate | 10.0% | 11.0% |
| 43.6 | 45.9 | Residual | Construction costs | £251 – £317 | £203 – £240 | |
| development method | including site specific costs per sq ft |
(£291) | (£226) | |||
| Other | – | 4.4 | Income | Estimated Rental Value | – | £10 |
| capitalisation | per sq ft p.a. | |||||
| Equivalent Yield | – | 5.5% | ||||
| At 31 December | 3,861.1 | 3,887.2 |
For properties valued under the income capitalisation method, if all other factors remained equal, an increase in estimated rental value of five per cent would result in an increased asset valuation of £111.8 million (2015: £103.2 million). A decrease in the estimated rental value of five per cent would result in a decreased asset value of £108.7 million (2015: £100.8 million). Conversely, an increased equivalent yield of 25 basis points would result in a decreased asset valuation of £159.8 million (2015: £149.3 million). A decreased equivalent yield of 25 basis points would result in an increased asset valuation of £182.9 million (2015: £172.8 million). These inputs are interdependent, partially determined by market conditions. The impact on the valuation could be mitigated by the interrelationship between the two inputs. An increase in estimated rental value occurring in conjunction with an increase in equivalent yield could result in no net impact to the valuation.
An increase in the estimated construction costs included in a residual development valuation of 10 per cent would result in a decrease in the asset valuation of £238.1 million (2015: £235.9 million). A decrease in the estimated construction costs included in a residual development valuation of 10 per cent would result in an increase in the asset valuation of £239.4 million (2015: £239.4 million).
An increase in the discount rate included in a discount cash flow valuation of 10 per cent would result in a decrease in the asset valuation of £22.4 million (2015: £28.7 million). A decrease in the discount rate included in a discount cash flow valuation of 10 per cent would result in an increase in the asset valuation of £38.4 million (2015: £35.7 million).
| Company | 2016 £m |
2015 £m |
|---|---|---|
| At 1 January | 516.4 | 676.4 |
| Disposals | – | (160.0) |
| At 31 December | 516.4 | 516.4 |
Investments in Group companies are carried at cost less impairment losses, if any. An impairment test is performed on an annual basis. An impairment charge of £nil was recorded in the current year (2015: £nil).
During 2014, the Company acquired preference shares in a subsidiary following the share placing. Following the redemption in 2015, the Company disposed of the preference shares held in that subsidiary.
Investment in joint ventures is measured using the equity method. All joint ventures are held with other joint venture investors on a 50:50 basis.
At 31 December 2016, joint ventures comprise the Lillie Square joint venture ("LSJV"), Solum Developments ("Solum") and The Great Capital Partnership ("GCP") which is accounted for as a discontinued operation.
LSJV was established as a joint venture arrangement with the Kwok Family Interests ("KFI"), in August 2012. The joint venture was established to own, manage and develop land interests at Lillie Square. LSJV comprises Lillie Square LP, Lillie Square GP Limited, acting as general partner to the partnership, and its subsidiaries. All major decisions regarding LSJV are taken by the Board of Lillie Square GP Limited, through which the Group shares strategic control.
The summarised income statement and balance sheet of LSJV are presented below.
| LSJV | 2016 £m |
2015 £m |
|---|---|---|
| Summarised income statement | ||
| Revenue | 5.5 | 0.6 |
| Net rental income | (0.2) | 0.5 |
| (Loss)/gain on revaluation of investment and development property | (0.1) | 0.2 |
| Proceeds from the sale of trading property | 5.4 | – |
| Cost of sale of trading property | (5.1) | – |
| Agent, selling and marketing fees | (2.7) | (3.1) |
| Write (down)/back of trading property | (0.8) | 0.5 |
| Administration expenses | (4.8) | (3.8) |
| Finance costs1 | (21.2) | (18.7) |
| Other costs | (0.1) | – |
| Loss for the year | (29.6) | (24.4) |
1 Finance costs includes £20.9 million (2015: £18.7 million) relating to the amortisation of deep discount bonds that were issued by LSJV to the Group and KFI. The bonds are redeemable at their nominal value of £263.4 million on 24 August 2019. The discount applied is unwound over the period to maturity using the effective interest rate. Finance income receivable to the Group of £10.5 million (2015: £9.3 million) is recognised in the consolidated income statement within other finance income.
| 2016 | 2015 |
|---|---|
| LSJV £m |
£m |
| Summarised balance sheet | |
| Investment and development property 3.1 |
3.2 |
| 2.1 Other non-current assets |
3.0 |
| 349.0 Trading property |
258.5 |
| Cash and cash equivalents1 74.2 |
67.2 |
| 5.8 Other current assets |
0.2 |
| Borrowings (155.1) |
(87.7) |
| Other non-current liabilities2 (195.4) |
(174.5) |
| Amounts payable to joint venture partners3 (102.1) |
(75.2) |
| Other current liabilities1 (74.2) |
(57.7) |
| Net liabilities (92.6) |
(63.0) |
| Capital commitments 36.4 |
97.2 |
| Market value of investment, development and trading property4 | 445.3 | 444.9 |
|---|---|---|
| Unrecognised surplus on trading property4 | 93.2 | 183.2 |
| Carrying value of investment, development and trading property | 352.1 | 261.7 |
1 Includes restricted cash and cash equivalents of £59.7 million (2015: £52.3 million) relating to amounts received as property deposits that will not be available for use by LSJV until completion of building work. There is a corresponding liability of £59.7 million (2015: £52.3 million) within other current liabilities.
2 Other non-current liabilities relate to deep discount bonds. Amounts receivable by the Group of £97.7 million (2015: £87.2 million) are recognised on the consolidated balance sheet within non-current trade and other receivables.
3 Amounts payable to joint venture partners relate to working capital funding advanced by the Group and KFI. Recoverable amounts receivable of £7.0 million
(2015: £10.0 million) by the Group are recognised on the consolidated balance sheet within current trade and other receivables.
4 The unrecognised surplus on trading property and the market value of LSJV's property portfolio are shown for informational purposes only and are not a requirement of IFRS. Trading property continues to be measured at the lower of cost and net realisable value.
On 29 June 2015, the Group acquired a 50 per cent interest in Solum, a joint venture arrangement with Network Rail Infrastructure Limited ("NRIL"). Total acquisition costs were £14.5 million, £2.0 million of which is contingent on achieving consent to develop specific railway sites with NRIL. The joint venture will explore opportunities for future redevelopments on and around significant railway station sites in London.
Solum comprises Solum Developments Limited Partnership and Solum Developments (GP) Limited, acting as general partner to the partnership. All major decisions regarding Solum are taken by the Board of Solum Developments (GP) Limited, through which the Group shares strategic control.
The summarised income statement and balance sheet of Solum are presented below.
| Solum | 2016 £m |
2015 £m |
|---|---|---|
| Summarised income statement | ||
| Administration expenses | (0.6) | (1.4) |
| Loss for the year | (0.6) | (1.4) |
| Solum | 2016 £m |
2015 £m |
| Summarised balance sheet | ||
| Trade and other receivables | 0.8 | – |
| Cash and cash equivalents | 0.5 | 1.6 |
| Other current liabilities | (0.5) | (1.1) |
| Net assets | 0.8 | 0.5 |
The table below reconciles the summarised joint venture financial information previously presented to the carrying value of investment in joint ventures as presented on the consolidated balance sheet.
| GCP £m |
LSJV £m |
Solum £m |
Total £m |
|
|---|---|---|---|---|
| Net assets/(liabilities) of joint ventures at 31 December 2015 | 0.1 | (63.0) | 0.5 | (62.4) |
| Elimination of joint venture partners' interest | – | 31.5 | (0.3) | 31.2 |
| Cumulative losses restricted1 | – | 31.5 | – | 31.5 |
| Goodwill on acquisition of joint venture2 | – | – | 14.5 | 14.5 |
| Carrying value at 31 December 2015 | 0.1 | – | 14.7 | 14.8 |
| Net assets/(liabilities) of joint ventures at 31 December 2016 | 0.1 | (92.6) | 0.8 | (91.7) |
| Elimination of joint venture partners' interest | – | 46.3 | (0.4) | 45.9 |
| Cumulative losses restricted1 | – | 46.3 | – | 46.3 |
| Goodwill on acquisition of joint venture2 | – | – | 14.5 | 14.5 |
| Carrying value at 31 December 2016 | 0.1 | – | 14.9 | 15.0 |
1 Cumulative losses restricted represent the Group's share of losses in LSJV which exceed its investment in the joint venture. As a result the carrying value of the investment in
LSJV is £nil (2015: £nil) in accordance with the requirements of IAS 28.
2 In accordance with the initial recognition exemption provisions under IAS 12 'Income Taxes', no deferred tax is recognised on goodwill.
The table below reconciles the opening to closing carrying value of investment in joint ventures as presented on the consolidated balance sheet.
| Investment in joint ventures | GCP £m |
LSJV £m |
Solum £m |
Total £m |
|---|---|---|---|---|
| At 1 January 2015 | 0.1 | – | – | 0.1 |
| Loss for the year1 | – | (12.2) | (0.7) | (12.9) |
| Loss restricted1 | – | 12.2 | – | 12.2 |
| Issue of equity loan notes | – | – | 0.9 | 0.9 |
| Goodwill on acquisition of joint venture | – | – | 14.5 | 14.5 |
| At 31 December 2015 | 0.1 | – | 14.7 | 14.8 |
| Loss for the year1 | – | (14.8) | (0.3) | (15.1) |
| Loss restricted1 | – | 14.8 | – | 14.8 |
| Issue of equity loan notes | – | – | 0.5 | 0.5 |
| At 31 December 2016 | 0.1 | – | 14.9 | 15.0 |
1 Share of post-tax loss from joint ventures in the consolidated income statement of £0.3 million (2015: loss £0.7 million) comprises loss for the year of £15.1 million (2015: £12.9 million) and loss restricted totalling £14.8 million (2015: £12.2 million).
TTL Earls Court Properties Limited, a subsidiary of TfL, holds a 37% non-controlling interest in ECPL, a subsidiary of the Group. The principal place of business of ECPL is within the UK.
The accumulated non-controlling interest is presented below.
| 2016 £m |
2015 £m |
|
|---|---|---|
| At 1 January | 468.8 | – |
| Profit and total comprehensive income for the year attributable to non-controlling interest | (104.9) | 26.1 |
| Capital contribution from non-controlling interest | – | 44.4 |
| Unsecured loan notes issued to non-controlling interest | 4.3 | 398.3 |
| At 31 December | 368.2 | 468.8 |
During the year, unsecured, non-interest bearing loan notes were issued by ECPL to TTL Earls Court Properties Limited. As the transaction price of the loan notes was not an approximation of their fair value, the Group determined the fair value by using data from observable inputs. As a result, the initial fair value of the loan notes was valued at less than £0.1 million (2015: less than £0.1 million) and therefore £402.6 million (2015: £398.3 million) has been classified as equity.
Set out below is summarised financial information, before intercompany eliminations, for ECPL.
| ECPL | 2016 £m |
2015 £m |
|---|---|---|
| Summarised income statement | ||
| Net rental income | 1.2 | 1.2 |
| Administrative expenses | (2.5) | (2.4) |
| Other income | – | 0.4 |
| (Loss)/gain on revaluation of investment and development property | (298.2) | 86.9 |
| Taxation | 15.9 | (15.6) |
| (Loss)/profit on ordinary activities after taxation | (283.6) | 70.5 |
| ECPL | 2016 £m |
2015 £m |
| Summarised balance statement | ||
| Investment and development property | 1,022.8 | 1,274.7 |
| Cash at bank and at hand | 9.4 | 27.8 |
| Other current assets | 1.3 | 2.4 |
| Other non-current assets | 0.8 | 0.9 |
| Other current liabilities | (7.6) | (23.2) |
| Borrowings | (31.5) | – |
| Other non-current liabilities | – | (15.6) |
| Net assets | 995.2 | 1,267.0 |
| 2016 | 2015 £m |
|
| (0.6) | ||
| (1,187.4) | ||
| 1,076.5 | ||
| Net cash flow | (18.4) | 8.5 |
| ECPL Summarised cash flows Operating cash flows after interest and tax Purchase and development of property, plant and equipment Net cash flow before financing Issue of shares Financing1 |
£m (4.8) (45.6) (50.4) – 32.0 |
(1,188.0) 120.0 |
1 Financing comprises £nil (2015: £1,076.5 million) of unsecured, non-interest bearing loan notes and £32.0 million (2015: £nil) of external borrowings.
| Derivative assets held for trading | Group 2016 £m |
Group 2015 £m |
|---|---|---|
| Non-current | ||
| Interest rate caps | 0.2 | 0.2 |
| Interest rate collars | – | 0.6 |
| Derivative financial instruments | 0.2 | 0.8 |
| Non-current | ||
|---|---|---|
| Interest rate caps | (0.1) | – |
| Interest rate collars | (10.1) | (0.1) |
| Interest rate swaps | (3.7) | (3.1) |
| Derivative financial instruments | (13.9) | (3.2) |
| Group | Group | Company | Company | |
|---|---|---|---|---|
| 2016 £m |
2015 £m |
2016 £m |
2015 £m |
|
| Non-current | ||||
| Other receivables1 | 55.3 | 38.5 | – | – |
| Prepayments and accrued income2 | 41.8 | 33.2 | – | – |
| Amounts receivable from joint ventures3 | 97.7 | 87.2 | – | – |
| Trade and other receivables | 194.8 | 158.9 | – | – |
| Current | ||||
| Amounts owed by subsidiaries | – | – | 1,516.6 | 707.3 |
| Rent receivable | 7.9 | 6.6 | – | – |
| Other receivables | 14.6 | 3.4 | – | – |
| Prepayments and accrued income2 | 18.3 | 12.3 | – | 0.1 |
| Amounts receivable from joint ventures4 | 7.0 | 10.0 | – | – |
| Trade and other receivables | 47.8 | 32.3 | 1,516.6 | 707.4 |
1 Includes £45.0 million (2015: £30.0 million) payment to LBHF which forms part of the CLSA.
2 Includes tenant lease incentives of £45.3 million (2015: £36.0 million).
3 Non-current amounts receivable from joint ventures relate to deep discount bonds that were issued by LSJV to the Group. The bonds are redeemable at their nominal value of £131.7 million on 24 August 2019.
4 Current amounts receivable from joint ventures comprise working capital funding advanced by the Group to LSJV and Solum. The balance has been impaired by £46.3 million (2015: £31.5 million).
| Group 2016 £m |
Group 2015 £m |
Company 2016 £m |
Company 2015 £m |
|
|---|---|---|---|---|
| Cash at hand | 8.1 | 11.6 | – | – |
| Cash on short-term deposit | 16.8 | 49.3 | – | – |
| Unrestricted cash and cash equivalents | 24.9 | 60.9 | – | – |
| Restricted cash and cash equivalents1 | 6.0 | 6.0 | – | – |
| Cash and cash equivalents | 30.9 | 66.9 | – | – |
1 Restricted cash and cash equivalents relate to amounts placed on deposit in accounts which are subject to withdrawal conditions.
| Group 2016 |
Group 2015 |
Company 2016 |
Company 2015 |
|
|---|---|---|---|---|
| £m | £m | £m | £m | |
| Rent received in advance | 23.9 | 21.3 | – | – |
| Accruals and deferred income | 35.3 | 58.5 | 0.6 | 0.6 |
| Trade payables | 1.0 | 2.7 | – | – |
| Other payables | 15.6 | 6.9 | – | – |
| Other taxes and social security | 2.5 | 2.1 | – | – |
| Amounts payable to non-controlling interest | – | 4.4 | – | – |
| Trade and other payables | 78.3 | 95.9 | 0.6 | 0.6 |
| 2016 | ||||||
|---|---|---|---|---|---|---|
| Carrying value £m |
Secured £m |
Unsecured £m |
Fixed rate £m |
Floating rate £m |
Fair value £m |
Nominal value £m |
| 12.0 | 12.0 | – | – | 12.0 | 12.0 | 12.0 |
| 6.0 | 6.0 | – | – | 6.0 | 6.0 | 6.0 |
| 18.0 | 18.0 | – | – | 18.0 | 18.0 | 18.0 |
| 0.5 | 0.5 | – | 0.5 | – | 0.5 | 0.5 |
| 18.5 | 18.5 | – | 0.5 | 18.0 | 18.5 | 18.5 |
| 500.8 | 153.6 | 347.2 | – | 500.8 | 505.9 | 505.9 |
| 323.4 | – | 323.4 | 323.4 | – | 330.7 | 325.0 |
| 824.2 | 153.6 | 670.6 | 323.4 | 500.8 | 836.6 | 830.9 |
| 3.6 | 3.6 | – | 3.6 | – | 3.6 | 3.6 |
| 827.8 | 157.2 | 670.6 | 327.0 | 500.8 | 840.2 | 834.5 |
| 846.3 | 175.7 | 670.6 | 327.5 | 518.8 | 858.7 | 853.0 |
| (30.9) | ||||||
| 815.4 | ||||||
| 2015 | |||||||
|---|---|---|---|---|---|---|---|
| Group | Carrying value £m |
Secured £m |
Unsecured £m |
Fixed rate £m |
Floating rate £m |
Fair value £m |
Nominal value £m |
| Current | |||||||
| Bank loans and overdrafts | 12.0 | 12.0 | – | – | 12.0 | 12.0 | 12.0 |
| Loan notes | 6.0 | 6.0 | – | – | 6.0 | 6.0 | 6.0 |
| Borrowings | 18.0 | 18.0 | – | – | 18.0 | 18.0 | 18.0 |
| Finance lease obligations | 0.5 | 0.5 | – | 0.5 | – | 0.5 | 0.5 |
| Borrowings, including finance leases | 18.5 | 18.5 | – | 0.5 | 18.0 | 18.5 | 18.5 |
| Non-current | |||||||
| Bank loans | 454.6 | 84.8 | 369.8 | – | 454.6 | 460.5 | 460.5 |
| Loan notes | 149.4 | – | 149.4 | 149.4 | – | 155.6 | 150.0 |
| Borrowings | 604.0 | 84.8 | 519.2 | 149.4 | 454.6 | 616.1 | 610.5 |
| Finance lease obligations | 3.6 | 3.6 | – | 3.6 | – | 3.6 | 3.6 |
| Borrowings, including finance leases | 607.6 | 88.4 | 519.2 | 153.0 | 454.6 | 619.7 | 614.1 |
| Total borrowings, including finance leases |
626.1 | 106.9 | 519.2 | 153.5 | 472.6 | 638.2 | 632.6 |
| Cash and cash equivalents | (66.9) | ||||||
| Net debt | 559.2 |
In January 2016, the Group replaced the £665 million Covent Garden debt facility with a £705 million five year Covent Garden debt facility which increased available facilities by £40 million. £640 million of the facility matures in 2021 with the remaining £65 million maturing in 2020 with an option to extend to 2021. Both portions have an additional option to extend to 2022. The Group has incurred a charge of approximately £2.7 million relating to fees on the new facility and has written off £5.2 million relating to unamortised fees on the existing facility.
On 24 March 2016, The Group entered into a £150 million 10 year secured credit agreement signed by ECPL to fund infrastructure-related costs on land interests at Earls Court. The Group has capitalised charges of £1.0 million relating to fees on the new facility.
On 14 November 2016, the Group issued a US Private Placement of £125 million 10 year and a £50 million 12 year senior unsecured notes. The Group incurred and capitalised charges of £0.8 million as a result of the placement.
On 19 December 2016, the Group entered into a £100 million four year facility agreement secured over the Olympia Exhibition Centre. The Group incurred and capitalised charges of £1.1 million relating to fees on the new facility.
The market value of investment and development property secured as collateral against borrowings at 31 December 2016 was £1,545.6 million (2015: £286.0 million).
Cash and undrawn committed facilities attributable to the Group at 31 December 2016 were £563.6 million (2015: £366.9 million).
The fair values of the Group's borrowings have been estimated using the market value for floating rate borrowings, which approximates nominal value, and discounted cash flow approach for fixed rate borrowings, representing Level 2 fair value measurements as defined by IFRS 13. The different valuation levels are defined in note 14 'Property Portfolio'.
| 2016 | ||||||
|---|---|---|---|---|---|---|
| Analysis of movement in net debt | Current borrowings £m |
Non-current borrowings £m |
Cash and cash equivalents £m |
Net debt £m |
||
| Balance at 1 January | 18.5 | 607.6 | (66.9) | 559.2 | ||
| Borrowings drawn | – | 832.0 | (832.0) | – | ||
| Borrowings repaid | (12.0) | (600.0) | 612.0 | – | ||
| Other net cash movements | – | (5.4) | 256.0 | 250.6 | ||
| Other non-cash movements | 12.0 | (6.4) | – | 5.6 | ||
| Balance at 31 December | 18.5 | 827.8 | (30.9) | 815.4 |
| 2015 | ||||||
|---|---|---|---|---|---|---|
| Analysis of movement in net debt | Current borrowings £m |
Non-current borrowings £m |
Cash and cash equivalents £m |
Net debt £m |
||
| Balance at 1 January | 17.5 | 432.2 | (94.8) | 354.9 | ||
| Borrowings drawn | – | 225.0 | (225.0) | – | ||
| Borrowings repaid | (11.0) | (40.0) | 51.0 | – | ||
| Other net cash movements | – | (0.4) | 201.9 | 201.5 | ||
| Other non-cash movements | 12.0 | (9.2) | – | 2.8 | ||
| Balance at 31 December | 18.5 | 607.6 | (66.9) | 559.2 |
The maturity profile of gross debt (excluding finance leases) is as follows:
| Group 2016 £m |
Group 2015 £m |
|
|---|---|---|
| Wholly repayable within one year | 18.0 | 18.0 |
| Wholly repayable in more than one year but not more than two years | 73.5 | 12.0 |
| Wholly repayable in more than two years but not more than five years | 400.1 | 448.5 |
| Wholly repayable in more than five years | 357.3 | 150.0 |
| 848.9 | 628.5 |
Certain borrowing agreements contain financial and other covenants that, if contravened, could alter the repayment profile.
(a) Minimum lease payments under finance leases obligations
| Group 2016 £m |
Group 2015 £m |
|
|---|---|---|
| Not later than one year | 0.5 | 0.5 |
| Later than one year and not later than five years | 2.1 | 2.1 |
| Later than five years | 13.0 | 13.0 |
| 15.6 | 15.6 | |
| Future finance charges on finance leases | (11.5) | (11.5) |
| Present value of finance lease obligations | 4.1 | 4.1 |
| Not later than one year | 0.5 | 0.5 |
|---|---|---|
| Later than one year and not later than five years | 1.7 | 1.7 |
| Later than five years | 1.9 | 1.9 |
| 4.1 | 4.1 |
Finance lease liabilities are in respect of leasehold interests in investment and development property. Certain leases provide for payment of contingent rent, usually a proportion of net rental income, in addition to the minimum lease payments above. No contingent rent has been paid in the year (2015: £nil).
A 999 year leasehold interest is held for the air rights above the West London Line as detailed in note 29 'Contingent Liabilities'. Any further payments payable at the time of development or disposal of each phase of the Earls Court Masterplan will be accounted for as contingent rent when incurred.
Finance lease liabilities are effectively secured obligations, as the rights to the leased asset revert to the lessor in the event of default.
The Group earns rental income by leasing its investment property to tenants under operating leases.
In the United Kingdom standard commercial leases vary considerably between markets and locations but typically are for a term of five to fifteen years at market rent with provisions to review every five years.
The future minimum lease amounts receivable under non-cancellable operating leases are as follows:
| Group 2016 £m |
Group 2015 £m |
|
|---|---|---|
| Not later than one year | 62.4 | 65.1 |
| Later than one year and not later than five years | 167.2 | 187.6 |
| Later than five years | 167.1 | 195.0 |
| 396.7 | 447.7 |
The consolidated income statement includes £0.2 million (2015: £0.2 million) recognised in respect of expected increased rent resulting from outstanding reviews where the actual rent will only be determined on settlement of the rent review.
The future minimum lease amounts payable under non-cancellable operating leases are as follows:
| Group 2016 £m |
Group 2015 £m |
|
|---|---|---|
| Not later than one year | 0.9 | 0.9 |
| Later than one year and not later than five years | 3.7 | 3.7 |
| Later than five years | 3.0 | 3.9 |
| 7.6 | 8.5 |
The Group's financial risk management strategy seeks to set financial limits for treasury activity to ensure they are in line with the risk appetite of the Group. The Group is exposed to a variety of risks arising from the Group's operations: market risk (principally interest rate risk), liquidity risk and credit risk.
The following tables set out each class of financial assets and financial liabilities as at 31 December 2016 and 31 December 2015.
| 2016 | 2015 | ||||||
|---|---|---|---|---|---|---|---|
| Group | Notes | Carrying value £m |
Loss to income statement £m |
Loss to other comprehensive income £m |
Carrying value £m |
(Loss)/gain to income statement £m |
Gain to other comprehensive income £m |
| Derivative financial assets | 18 | 0.2 | (2.4) | – | 0.8 | (1.3) | – |
| Total held for trading assets | 0.2 | (2.4) | – | 0.8 | (1.3) | – | |
| Cash and cash equivalents | 20 | 30.9 | – | – | 66.9 | – | – |
| Other financial assets | 19 | 242.6 | – | – | 191.2 | (0.2) | – |
| Total cash and other financial assets | 273.5 | – | – | 258.1 | (0.2) | – | |
| Available-for-sale investments | – | – | (0.2) | 0.2 | (0.2) | – | |
| Total available-for-sale investments | – | – | (0.2) | 0.2 | (0.2) | – | |
| Derivative financial liabilities | 18 | (13.9) | (10.7) | – | (3.2) | 0.7 | – |
| Total held for trading liabilities | (13.9) | (10.7) | – | (3.2) | 0.7 | – | |
| Borrowings, including finance leases | 22 | (846.3) | – | – | (626.1) | – | – |
| Other financial liabilities1 | (79.6) | – | – | (98.7) | – | – | |
| Total borrowings and other financial liabilities | (925.9) | – | – | (724.8) | – | – |
1 Includes trade and other payables and tax liabilities.
The majority of the Group's financial risk management is carried out by Group Treasury under policies approved by the Board of Directors. The policies for managing each of these risks and the principal effects of these policies on the results for the year are summarised below.
Interest rate risk comprises both cash flow and fair value risks. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Fair value risk is the risk that the fair value of financial instruments will fluctuate as a result of changes in market interest rates.
The Group's interest rate risk arises from borrowings issued at variable rates that expose the Group to cash flow interest rate risk, whereas borrowings issued at fixed interest rates expose the Group to fair value interest rate risk.
It is Group policy, and often a requirement of our lenders, to eliminate substantially all short and medium-term exposure to interest rate fluctuations in order to establish certainty over medium-term cash flows by using fixed interest rate derivatives. Interest rate swaps have the economic effect of converting borrowings from floating to fixed rates. Interest rate caps protect the Group by capping the maximum interest rate payable at the caps ceiling. Interest rate collars protect the Group by capping the maximum interest rate payable at the collar's ceiling but sacrifices the profitability of interest rate falls below a certain floor.
The table below shows the effects of derivative contracts that are linked to the drawn external borrowings profile of the Group and joint ventures. The table is calculated on a Group share basis in line with the reporting of this information internally to management.
| Fixed/Capped 2016 £m |
Floating 2016 £m |
Fixed/Capped 2015 £m |
Floating 2015 £m |
|
|---|---|---|---|---|
| Nominal value of Group borrowings excluding finance leases1 | 325.0 | 517.9 | 150.0 | 472.5 |
| Nominal value of joint venture borrowings excluding finance leases | – | 77.6 | – | 43.8 |
| Nominal value of non-controlling interest borrowings excluding finance leases | – | (12.0) | – | – |
| 325.0 | 583.5 | 150.0 | 516.3 | |
| Derivative impact (nominal value of derivative contracts) | 455.9 | (455.9) | 453.0 | (453.0) |
| Borrowings profile net of derivative impact | 780.9 | 127.6 | 603.0 | 63.3 |
| Interest rate protection | 86% | 91% |
1 Excludes current loan notes of £6.0 million to which the Group has no interest rate exposure under the terms of the borrowing.
Group policy is to ensure that interest rate protection on Group external debt is greater than 25 per cent.
The weighted average rate of interest rate swaps currently effective at 31 December 2016 was 2.2 per cent (2015: 2.2 per cent).
In 2016, the Group entered into a forward starting interest rate swap to hedge the variability in specified hedged interest cash flows arising on £60 million of outstanding debt from 2016 to 2026. The loss recognised in other comprehensive income in the year was £1.2 million. This loss will be reclassified from other comprehensive income to the consolidated income statement over the term of the designated debt. The fair value of the designated hedging instrument at 31 December 2016 is £nil. The hedge was 100 per cent effective; therefore no charge for an ineffective portion has been taken to the consolidated income statement.
The sensitivity analysis below illustrates the impact of a 50 basis point ("bps") shift, upwards and downwards, in the level of interest rates on the movement in fair value of derivative financial instruments.
| Increase in interest rates by 50 bp 2016 £m |
Decrease in interest rates by 50 bp 2016 £m |
Increase in interest rates by 50 bp 2015 £m |
Decrease in interest rates by 50 bp 2015 £m |
|
|---|---|---|---|---|
| Effect on profit before tax: | ||||
| Increase /(decrease) | 10.4 | (10.4) | 5.1 | (5.1) |
The sensitivity analysis above is a reasonable illustration of the possible effect from the changes in slope and shifts in the yield curve that may actually occur and represents management's assessment of possible changes in interest rates. The fixed rate derivative financial instruments are matched by floating rate debt, therefore such a movement would have a very limited effect on Group cash flow overall.
Liquidity risk is managed to ensure that the Group is able to meet future payment obligations when financial liabilities fall due.
The Group's policy is to seek to minimise its exposure to liquidity risk by managing its exposure to interest rate risk and to refinancing risk. The Group seeks to borrow for as long as possible at the lowest cost.
Liquidity analysis is intended to provide sufficient headroom to meet the Group's operational requirements and investment commitments.
The Group's policy also includes maintaining adequate cash, as well as maintaining adequate committed and undrawn facilities.
A key factor in ensuring existing facilities remain available to the Group is the borrowing entity's ability to meet the relevant facility's financial covenants. The Group has a process to monitor regularly both current and projected compliance with the financial covenants.
The Group regularly reviews the maturity profile of its financial liabilities and will seek to avoid concentrations of maturities through the regular replacement of facilities and by staggering maturity dates. Refinancing risk may be reduced by reborrowing prior to the contracted maturity date, effectively switching liquidity risk for market risk. This is subject to credit facilities being available at the time of the desired refinancing. This was the strategy employed in the refinancing of existing borrowings in 2016.
The tables below set out the maturity analysis of the Group's financial liabilities based on the undiscounted contractual obligations to make payments of interest and to repay principal. Where interest payment obligations are based on a floating rate, the rates used are those implied by the par yield curve.
| 2016 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Group | Carrying Value |
1 yr Between 1-2 yrs |
Between 2-5 yrs | Over 5 yrs | Total | ||||||
| £m | Interest £m |
Principal £m |
Interest £m |
Principal £m |
Interest £m |
Principal £m |
Interest £m |
Principal £m |
Interest £m |
Principal £m |
|
| Asset-specific secured borrowings | 165.6 | 3.5 | 12.0 | 3.0 | 73.5 | 4.2 | 50.0 | 4.5 | 32.3 | 15.2 | 167.8 |
| Other secured borrowings | 6.0 | – | 6.0 | – | – | – | – | – | – | – | 6.0 |
| Unsecured borrowings | 670.6 | 16.6 | – | 17.0 | – | 44.9 | 350.0 | 44.5 325.0 123.0 | 675.0 | ||
| Finance lease obligations | 4.1 | – | 0.5 | 0.1 | 0.5 | 0.3 | 1.2 | 11.1 | 1.9 | 11.5 | 4.1 |
| Other payables | 16.6 | – | 16.6 | – | – | – | – | – | – | – | 16.6 |
| Interest rate derivatives payable | 13.9 | 3.7 | – | 4.0 | – | 1.8 | – | – | – | 9.5 | – |
| Interest rate derivatives receivable | (0.2) | (0.4) | – | (0.5) | – | (0.1) | – | – | – | (1.0) | – |
| 876.6 | 23.4 | 35.1 | 23.6 | 74.0 | 51.1 | 401.2 | 60.1 359.2 158.2 | 869.5 |
| 2015 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying Value |
1 yr | Between 1-2 yrs | Between 2-5 yrs | Over 5 yrs | Total | ||||||
| Group | £m | Interest £m |
Principal £m |
Interest £m |
Principal £m |
Interest £m |
Principal £m |
Interest £m |
Principal £m |
Interest £m |
Principal £m |
| Asset-specific secured borrowings | 96.8 | 2.8 | 12.0 | 2.8 | 12.0 | 2.1 | 73.5 | – | – | 7.7 | 97.5 |
| Other secured borrowings | 6.0 | – | 6.0 | – | – | – | – | – | – | – | 6.0 |
| Unsecured borrowings | 519.2 | 14.0 | – | 16.0 | – | 30.2 | 375.0 | 27.5 150.0 | 87.7 | 525.0 | |
| Finance lease obligations | 4.1 | – | 0.5 | 0.1 | 0.5 | 0.3 | 1.2 | 11.1 | 1.9 | 11.5 | 4.1 |
| Other payables | 14.0 | – | 14.0 | – | – | – | – | – | – | – | 14.0 |
| Interest rate derivatives payable | 3.2 | 2.2 | – | 2.2 | – | 2.5 | – | – | – | 6.9 | – |
| Interest rate derivatives receivable | (0.8) | (0.7) | – | (1.2) | – | (1.9) | – | – | – | (3.8) | – |
| 642.5 | 18.3 | 32.5 | 19.9 | 12.5 | 33.2 | 449.7 | 38.6 151.9 110.0 | 646.6 |
Contractual maturities reflect the expected maturities of financial instruments.
The Group's principal financial assets are trade and other receivables, amounts receivable from joint ventures, loan notes and cash and cash equivalents. Credit risk is the risk of financial loss if a tenant or counterparty fails to meet an obligation under a contract. Credit risk arises primarily from trade receivables relating to tenants but also from the Group's undrawn commitments and holdings of assets such as cash deposits and loans with financial counterparties. The carrying value of financial assets recorded in the financial statements represents the Group's maximum exposure to credit risk without taking into account the value of any deposits or guarantees obtained.
Credit risk associated with trade receivables is actively managed; tenants are managed individually by asset managers, who continuously monitor and work with tenants, anticipating and wherever possible identifying and addressing risks prior to default. Trade receivables are less than 1 per cent of total assets at 31 December 2016 (2015: less than 1 per cent) and no one tenant accounts for more than 10 per cent of rental income.
Prospective tenants are assessed through an internally conducted review process, by obtaining credit ratings and reviewing financial information. As a result, deposits or guarantees may be obtained. The amount of deposits held as collateral at 31 December 2016 was £7.8 million (2015: £7.3 million).
Due to the nature of tenants being managed individually by asset managers, it is Group policy to calculate any impairment specifically on each contract.
In relation to the Group's revenue from licencing fees, receivables greater than 90 days are provided for in full. Additionally, specific provisions are made for trade receivables less than 90 days where active credit control highlights recoverability concerns. The amounts of trade receivables presented in the balance sheet are net of allowances for doubtful receivables.
The ageing analysis of these trade receivables, past due but not impaired, is as follows:
| Group 2016 £m |
Group 2015 £m |
|
|---|---|---|
| Up to 90 days | 7.3 | 6.6 |
| Over 90 days | 0.6 | – |
| Trade receivables | 7.9 | 6.6 |
In 2016 there was an impairment write down on trade receivables of £0.6 million (2015: £0.1 million).
As the Group operates predominantly in central London, it is subject to some geographical risk. However, this is mitigated by the extensive range of tenants from varying business sectors and the credit review process as noted above.
Included within receivables is £7.0 million (2015: £10.0 million) of amounts advanced to LSJV. The carrying value of the investment in LSJV is £nil (2015: £nil) as the Group's share of losses exceeds the cost of its investment. Total funding advanced to LSJV, excluding the deep discount bonds, of £53.2 million (2015: £41.5 million) has been impaired by the cumulative losses attributable to the joint venture by £46.3 million (2015: £31.5 million).
LSJV is in a net liability position due to carrying trading property at the lower of cost and market value. However based on a market valuation undertaken by the Group's valuers Jones Lang LaSalle, there is an unrecognised surplus of £46.6 million (Group share) as at 31 December 2016. This surplus will only be evidenced on sale of trading property when significant risks and rewards have transferred to the buyer. Therefore, while Lillie Square demonstrates positive pricing evidence commercially and funding provided is not deemed to be at risk of default, for reporting purposes the Group is required to impair amounts advanced to LSJV until the unrecognised surplus on trading property is realised through sale.
Cash, deposits and derivative financial instruments:
The credit risk relating to cash, deposits and derivative financial instruments is actively managed by Group Treasury. Relationships are maintained with a number of Tier 1 institutional counterparties, ensuring compliance with Group cash investment policy relating to limits on the credit ratings of counterparties. The maximum exposure to cash, deposits and derivative financial instruments as at 31 December 2016 amounted to £31.1 million (2015: £67.7 million).
The Group seeks to enhance shareholder value both by investing in the business so as to improve the return on investment and by managing the capital structure. The Group uses a mix of equity, debt and other financial instruments and aims to access both debt and equity capital markets with maximum efficiency and flexibility.
The key ratios used to monitor the capital structure of the Group are the debt to assets ratio and the interest cover ratio. The Group aims not to exceed an underlying debt to asset ratio of more than 40 per cent and to maintain interest cover above 125 per cent. These ratios are disclosed on a Group share basis in line with the reporting of this information internally to management. These metrics are discussed in the Financial Review on pages 40 to 46.
| Debt to assets ratio | Group 2016 £m |
Re-presented1 Group 2015 £m |
|---|---|---|
| Investment and development property | 3,443.0 | 3,385.2 |
| Trading property | 177.3 | 144.8 |
| 3,620.3 | 3,530.0 | |
| Net external debt | (847.3) | (578.9) |
| 23.4% | 16.4% |
1 Comparative year has been re-presented from proportionate consolidation to Group share basis.
The maximum debt to assets ratio for the year was 23.4 per cent and occurred on 31 December 2016.
| Interest cover | Group 2016 £m |
Re-presented1 Group 2015 £m |
|---|---|---|
| Finance costs | (19.8) | (20.8) |
| Finance income | 0.3 | 0.7 |
| (19.5) | (20.1) | |
| Underlying operating profit | 33.7 | 24.9 |
| 172.8% | 124.1% |
1 Comparative year has been re-presented from proportionate consolidation to Group share basis.
The minimum interest coverage ratio for the year was 124.1 per cent and occurred on 1 January 2016.
Financial instruments carried at fair value are required to be analysed by level depending on the valuation method adopted under IFRS 13. The different valuation levels are defined in note 14 'Property Portfolio'.
The tables below present the Group's financial assets and liabilities recognised at fair value at 31 December 2016 and 31 December 2015. There were no transfers between levels during the year.
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| Group | Level 1 £m |
Level 2 £m |
Level 3 £m |
Total £m |
Level 1 £m |
Level 2 £m |
Level 3 £m |
Total £m |
| Derivative financial assets | ||||||||
| Held for trading | – | 0.2 | – | 0.2 | – | 0.8 | – | 0.8 |
| Investments | ||||||||
| Available-for-sale investments | – | – | – | – | – | – | 0.2 | 0.2 |
| Total assets | – | 0.2 | – | 0.2 | – | 0.8 | 0.2 | 1.0 |
| Derivative financial liabilities | ||||||||
| Held for trading | – | (13.9) | – | (13.9) | – | (3.2) | – | (3.2) |
| Total liabilities | – | (13.9) | – | (13.9) | – | (3.2) | – | (3.2) |
The fair values of derivative financial instruments are determined from observable market prices or estimated using appropriate yield curves at 31 December each year by discounting the future contractual cash flows to the net present values.
All of the Group's Level 3 financial instruments are unlisted equity investments. The valuation of the available-for-sale investment is based on expected cash distributions to be received from China Harvest Fund 1 with reference to the market value of the underlying assets held. During the year the final proceeds were received by the Group. The China Harvest Fund 1 is expected to be liquidated in 2017.
The fair values of the Group's cash and cash equivalents, other financial assets and other financial liabilities are not materially different from those at which they are carried in the financial statements.
The table below presents a reconciliation of Level 3 fair value measurements for the year.
| Available-for-sale investments | Group 2016 £m |
Group 2015 £m |
|---|---|---|
| At 1 January | 0.2 | 0.4 |
| Total gain/(loss): | ||
| – In Income | – | (0.2) |
| – In comprehensive income | (0.2) | – |
| At 31 December | – | 0.2 |
The decrease in corporation tax rate referred to in note 11 'Taxation' has been enacted for the purposes of IAS 12 'Income Taxes' ("IAS 12") and therefore has been reflected in these consolidated financial statements based on the expected timing of the realisation of deferred tax.
Deferred tax on investment and development property is calculated under IAS 12 provisions on a disposals basis by reference to the properties' original tax base cost. Elements factored into the calculation include indexation relief and the Group's holding structure. The Group's recognised deferred tax liability on investment and development property as calculated under IAS 12 is £nil at 31 December 2016 (2015: £15.6 million). The Group's contingent tax liability on investment properties, calculated on the same tax base cost as above but based on a deemed market value disposal at year end, is £nil (2015: £17.6 million).
A disposal of the Group's trading properties including Lillie Square at their market value as per note 14 'Property Portfolio' would result in a corporation tax charge to the Group of £9.6 million (20.0 per cent of £48.1 million).
| Group | Accelerated capital allowances £m |
Fair value of investment & development property £m |
Fair value of derivative financial instruments £m |
Other temporary differences £m |
Group losses £m |
Total £m |
|---|---|---|---|---|---|---|
| Provided deferred tax liabilities/(assets): | ||||||
| At 1 January 2015 | 13.6 | 11.8 | (0.3) | (6.6) | (5.6) | 12.9 |
| Adjustments in respect of previous years | – | – | – | – | 1.4 | 1.4 |
| Recognised in income | 0.8 | 5.6 | (0.1) | (0.9) | 0.5 | 5.9 |
| Recognised in other comprehensive income | – | – | – | 0.2 | – | 0.2 |
| Recognised directly in equity | – | – | – | 1.5 | – | 1.5 |
| Reduction due to rate change | (0.7) | (1.8) | – | 0.1 | – | (2.4) |
| At 31 December 2015 | 13.7 | 15.6 | (0.4) | (5.7) | (3.7) | 19.5 |
| Adjustments in respect of previous years | 0.1 | – | – | – | 0.1 | 0.2 |
| Recognised in income | 0.8 | (14.7) | (2.4) | 4.8 | (5.6) | (17.1) |
| Recognised in other comprehensive income | – | – | (0.3) | (0.3) | – | (0.6) |
| Recognised directly in equity | – | – | – | 1.6 | – | 1.6 |
| Adjustment in respect of rate change | – | (0.9) | – | – | – | (0.9) |
| At 31 December 2016 | 14.6 | – | (3.1) | 0.4 | (9.2) | 2.7 |
| Unprovided deferred tax assets: | ||||||
| At 1 January 2016 | – | – | – | – | (7.8) | |
| Movement during the year | – | (35.9) | – | – | (6.1) | |
| At 31 December 2016 | – | (35.9) | – | – | (13.9) |
In accordance with the requirements of IAS 12, deferred tax assets are only recognised to the extent that the Group believes it is probable that future taxable profit will be available against which the deferred tax assets can be recovered.
| Issue type | Transaction date |
Issue price (pence) |
Number of shares |
Share capital £m |
Share premium £m |
|---|---|---|---|---|---|
| At 1 January 2015 | 836,236,407 | 209.1 | 206.9 | ||
| Scrip dividend – 2014 final | June | 416 | 1,028,609 | 0.3 | 4.0 |
| Scrip dividend – 2015 interim | September | 467 | 122,277 | – | – |
| Share-based payment1 | 4,601,652 | 1.1 | 0.2 | ||
| At 31 December 2015 | 841,988,945 | 210.5 | 211.1 | ||
| Scrip dividend – 2015 final | June | 338 | 1,275,480 | 0.3 | 4.0 |
| Scrip dividend – 2016 interim | September | 293 | 303,831 | 0.1 | – |
| Share-based payment2 | 2,553,451 | 0.6 | – | ||
| At 31 December 2016 | 846,121,707 | 211.5 | 215.1 |
1 In 2015 a total of 4,601,652 new shares were issued to satisfy employee share scheme awards.
2 In 2016 a total of 2,553,451 new shares were issued to satisfy employee share scheme awards.
At 21 February 2017, the Company had an unexpired authority to repurchase shares up to a maximum of 84,198,894 shares with a nominal value of £21.0 million, and the Directors had an unexpired authority to allot up to a maximum of 559,185,325 shares with a nominal value of £139.8 million of which 280,382,318 with a nominal value of £70.0 million can only be allotted pursuant to a fully pre-emptive rights issue.
At 31 December 2016, the Group was contractually committed to £149.2 million (2015: £162.5 million) of future expenditure for the purchase, construction, development and enhancement of investment, development and trading property. Of the £149.2 million committed, £114.7 million is committed 2017 expenditure.
In November 2013, the Group exercised its option under the CLSA which it entered into with LBHF in January 2013 in relation to LBHF's land interest within the Earls Court Masterplan. Under the terms of the CLSA, the Group can draw down land in phases but no land can be transferred unless replacement homes for the residents of the relevant phase have been provided and vacant possession is given. The Group has already paid £60.0 million of the £105.0 million cash consideration payable under the CLSA. The residual £45.0 million will be settled in three annual instalments of £15.0 million with the next payment due on 31 December 2017.
The Group's share of joint venture capital commitments arising on LSJV amounts to £18.2 million (2015: £48.6 million).
The Group has contingent liabilities in respect of legal claims, guarantees and warranties arising from the ordinary course of business. Contingent liabilities that may result in material liabilities are described below.
Under the terms of the CLSA the Group has certain compensation obligations relating to achieving vacant possession, which are subject to an overall cap of £55.0 million. Should any payments be made in respect of these obligations, they will be deducted from the total consideration payable to LBHF (refer to note 28 'Capital Commitments').
In March 2013, an agreement with Network Rail was signed to acquire a 999 year leasehold interest in the air rights above the West London Line where it runs within the Earls Court and West Kensington Opportunity Area. Within the terms of the agreement, the Group can exercise options during the next 50 years for further 999 year leases over the remainder of the West London Line to allow for development within the Earls Court Masterplan. Network Rail is entitled to further payments of 5.55 per cent of the residual land value which will be payable at the time of development or disposal of each phase of the Earls Court Masterplan. Any further payments to Network Rail will be treated as contingent rent as per note 23 'Finance Lease Obligations'.
Within the terms of the agreement of the acquisition of the Northern Access Road land, the vendor's successor in title is entitled to further payments until 2027 if certain conditions are met. Further payments become due following the grant of a planning permission for change of use or on disposal. In the event such planning permission is implemented, the payment is calculated at 50 per cent of the uplift in land value following the grant of the permission. In the event of a disposal, the payment is calculated as 50 per cent of the difference between the sale value against the land value without the relevant permission.
| Group | Group | Company | Company | ||
|---|---|---|---|---|---|
| Notes | 2016 £m |
2015 £m |
2016 £m |
2015 £m |
|
| (Loss)/profit before tax | (240.3) | 459.9 | 815.6 | 10.1 | |
| Adjustments: | |||||
| Profit on sale of trading property | 3 | (5.6) | (3.5) | – | – |
| Loss/(gain) on revaluation and sale of investment and | |||||
| development property | 4 | 235.0 | (453.9) | – | – |
| Profit on sale of available-for-sale investments | (0.4) | – | – | – | |
| Impairment of other receivables | 5 | 14.8 | 12.2 | – | – |
| Other costs | 6 | 5.0 | 0.2 | – | – |
| Depreciation | 1.8 | 0.5 | – | – | |
| Amortisation of tenant lease incentives and other direct costs | 2.0 | – | – | – | |
| Share-based payment1 | 1.1 | 5.1 | – | – | |
| Finance income | 9 | (0.3) | (0.7) | – | – |
| Finance costs | 10 | 19.6 | 20.8 | – | – |
| Other finance income | 9 | (10.5) | (9.3) | (9.6) | (8.1) |
| Other finance costs | 10 | 5.3 | – | – | – |
| Change in fair value of derivative financial instruments | 25 | 13.1 | 0.6 | – | – |
| Change in working capital: | |||||
| Change in trade and other receivables | (40.9) | (40.5) | (798.6) | 5.6 | |
| Change in trade and other payables | (7.4) | 21.7 | – | – | |
| Cash generated from operations | (7.7) | 13.1 | 7.4 | 7.6 |
1 Includes £1.1 million (2015: £4.6 million) relating to the IFRS 2 'Share-based payment' charge. Refer to note 32 'Share-Based Payments' for further details.
Transactions between the Parent Company and its subsidiaries, which are related parties, have been eliminated on consolidation for the Group.
Significant transactions between the Parent Company and its subsidiaries are shown below:
| 2016 | 2015 | ||
|---|---|---|---|
| Subsidiary | Nature of transaction | £m | £m |
| Investing activities | |||
| Capital & Counties Properties (Jersey) 2 Limited | Redemption of preference shares | – | 163.6 |
| Funding activities | |||
| Capco Group Treasury Limited | Interest on intercompany loan | 9.6 | 8.1 |
| Capvestco Limited | Intercompany dividend receivable | 807.0 | – |
| Capital & Counties Properties (Jersey) 2 Limited | Intercompany dividend receivable | – | 3.6 |
Significant balances outstanding at 31 December between the Parent Company and its subsidiaries are shown below:
| Amounts owed by subsidiaries |
||
|---|---|---|
| Subsidiary | 2016 £m |
2015 £m |
| Capco Group Treasury Limited | 1,516.6 | 707.2 |
The amount due from Capco Group Treasury Limited is unsecured, interest bearing at the Bank of England base rate plus one per cent and repayable on demand.
| Key management compensation1 | 2016 £m |
2015 £m |
|---|---|---|
| Salaries and short-term employee benefits | 2.8 | 3.5 |
| Share-based payment | 0.5 | 3.2 |
| 3.3 | 6.7 |
1 Key management comprises the Directors of the Company who have been determined to be the only individuals with authority and responsibility for planning, directing and controlling the activities of the Company.
No Director had any dealings in the shares of any Group company between 31 December 2016 and 21 February 2017, being a date less than one month prior to the date of the notice convening the Annual General Meeting.
Other than as disclosed in these accounts, no Director of the Company had a material interest in any contract (other than service contracts), transaction or arrangement with any Group company during the year ended 31 December 2016.
Transactions during the year between the Group and its joint ventures, which are related parties, are disclosed in notes 16 'Investment in Joint Ventures', 19 'Trade and other receivables' and 28 'Capital commitments'. During the year the Group recognised management fee income of £4.6 million (2015: £4.0 million) that was earned on an arm's length basis.
A related party of the Group, Lillie Square GP Limited, entered into the following related party transactions as defined by IAS 24 'Related Party Disclosures':
The above transactions with Directors were conducted at fair and reasonable market price based upon similar comparable transactions at that time. Where applicable, appropriate approval has been provided.
Lillie Square GP Limited acts in the capacity of general partner to Lillie Square LP, a joint venture between the Group and KFI.
The Group operates a number of share-based payment schemes relating to employee benefits and incentives. Approval of a new remuneration policy and Performance Share Plan will be sought at the 2017 AGM. All disclosures in this note refer to the previous long-term incentive arrangement. All schemes are equity settled with the increase in equity measured by reference to the fair value of the Group's equity instruments at the grant date of the share awards. The corresponding expense is recognised on a straight-line basis over the vesting period based on Group estimates of the number of shares that are expected to vest. The total expense recognised in the consolidated income statement in respect of share-based payments for 2016 was £1.1 million (2015: £4.6 million).
Reconciliations of movements in share incentive schemes are given in the tables on pages 133 to 134.
Market value and nil cost options to subscribe for ordinary shares and conditional awards of free shares may be awarded under the Group Performance Share Plan ("PSP").
Exercise at the vesting date is subject to appropriately challenging performance conditions determined by the Remuneration Committee ("the Committee") at the time of grant.
All awards are subject to performance conditions relating to:
One half of each award will be subject to the TR performance condition and the other half to the TSR performance condition.
TR is the growth in the adjusted, diluted net asset value per ordinary share plus dividends per ordinary share paid during the TR Performance Period. In calculating TR for a company which is not a Real Estate Investment Trust ("REIT"), any provision for contingent capital gains tax will be added back.
TSR is the increase in the price of an ordinary share plus the value of any dividends paid during the TSR Performance Period re-invested in ordinary shares.
Full details of the performance criteria and vesting outcomes are set out on pages 72, 73, 81 and 82.
In order for any awards to vest, the Committee must satisfy itself that TR and TSR performance figures are a genuine reflection of underlying financial performance and may exercise discretion when determining the proportion of an award that will vest.
During any performance period, the Committee may, at its discretion, remove from the Comparator Group a company which has ceased to be quoted or to exist or the relevance of which as a comparator has, in the opinion of the Committee, significantly diminished. The Committee may also, at its discretion, add to the Comparator Group (whether to replace a removed member or otherwise) if it believes that such addition will enhance the relevance of the Comparator Group.
The options have a vesting period of three years and a maximum contractual life of 10 years. In general, options are forfeited if the employee leaves the Group before the options vest.
In 2011 a schedule to the PSP was approved by Her Majesty's Revenue and Customs ("HMRC") as a Company Share Option Plan ("CSOP") scheme; therefore the Company may make a proportion of awards as approved options.
Share options outstanding at 31 December 2016 were exercisable between nil pence and 388.0 pence and have a weighted average remaining contractual life of eight years and are exercisable between 2017 and 2026.
(a) Market value option awards
| 2016 | 2015 | ||||
|---|---|---|---|---|---|
| Number of market value options |
Weighted average exercise price (pence) |
Number of market value options |
Weighted average exercise price (pence) |
||
| Outstanding at 1 January | 1,374,748 | 272.0 | 2,380,640 | 122.1 | |
| Awarded during the year | 258,265 | 315.0 | 776,447 | 402.9 | |
| Forfeited during the year | (120,647) | 388.0 | (102,202) | 402.9 | |
| Exercised during the year1 | (124,062) | 182.0 | (1,680,137) | 112.1 | |
| Outstanding at 31 December | 1,388,304 | 278.0 | 1,374,748 | 272.1 | |
| Exercisable at 31 December | 573,901 | 689,907 |
1 The weighted average share price at the date of exercise was 331.2 pence (2015: 399.8 pence).
(b) Nil cost option awards
| Number of nil cost options | ||
|---|---|---|
| 2016 | 2015 | |
| Outstanding at 1 January | 2,933,042 | 3,514,073 |
| Awarded during the year | 735,488 | 546,495 |
| Forfeited during the year | (969,694) | (62,417) |
| Exercised during the year | (710,455) | (1,065,109) |
| Outstanding at 31 December | 1,988,381 | 2,933,042 |
| Exercisable at 31 December | 654,324 | 842,144 |
(c) Deferred share awards
| Number of deferred share awards | |||
|---|---|---|---|
| 2016 | 2015 | ||
| Outstanding at 1 January | 2,502,051 | 2,160,859 | |
| Awarded during the year | 1,192,245 | 987,378 | |
| Forfeited during the year | (464,958) | (224,523) | |
| Vested during the year | (338,066) | (421,663) | |
| Outstanding at 31 December | 2,891,272 | 2,502,051 |
Deferred share awards made under the PSP vest on the third anniversary of the date of award, subject to continued employment and satisfaction of performance conditions.
The total expense recognised in the consolidated income statement in respect of shares and share options awarded under the PSP was £0.6 million (2015: £2.7 million).
Under the Group Matching Share Plan ("MSP"), deferred shares may be awarded as part of any bonus. These awards may also be made as nil cost options.
The release of deferred share awards is not dependent on the achievement of any further performance conditions other than that participants remain employed by the Group for a specified time, typically three years, from the date of the award. Awards of nil cost options were made in both the current and comparative periods. The fair value of share awards is determined by the market price of the shares at the grant date.
(a) Deferred share awards – nil cost options
| Number of nil cost options | |||
|---|---|---|---|
| 2016 | 2015 | ||
| Outstanding at 1 January | 1,276,890 | 1,557,936 | |
| Awarded during the year | 314,740 | 244,210 | |
| Forfeited during the year | (229,964) | – | |
| Exercised during the year | (668,424) | (525,256) | |
| Outstanding at 31 December | 693,242 | 1,276,890 | |
| Exercisable at 31 December | 102,998 | 452,280 |
Under the MSP, awards, which may be awarded as nil cost options, may also be made in respect of certain shares purchased by Directors or in respect of awards of the deferred shares or nil cost options described above made under the Company's annual bonus scheme. The matching share award comprises the same number of shares as are purchased or deferred. In exceptional circumstances the matching awards may comprise or be increased to 200 per cent of the number of shares purchased or deferred.
Vesting of matching shares and matching nil cost options is subject to appropriately challenging performance conditions. Vesting of matching shares will occur on the later of the third anniversary of grant and the date on which the performance outcome is finally determined. The matching nil cost options have a vesting period of three years and a maximum contractual life of ten years. Full details of the performance criteria and vesting outcomes are set out on pages 72, 73, 81 and 82.
Matching nil cost options and share awards generally lapse if the Director leaves the Company or sells any of the related purchased or deferred shares.
The total expense recognised in the consolidated income statement in respect of shares and share options awarded under the MSP was £0.5 million (2015: £1.9 million).
| Number of matched nil cost options | |||
|---|---|---|---|
| 2016 | 2015 | ||
| Outstanding at 1 January | 2,592,305 | 3,578,984 | |
| Awarded during the year | 976,926 | 396,998 | |
| Forfeited during the year | (1,063,519) | (31,209) | |
| Exercised during the year | (774,562) | (1,352,468) | |
| Outstanding at 31 December | 1,731,150 | 2,592,305 | |
| Exercisable at 31 December | 240,511 | 621,319 |
As stated above, one half of each award granted is subject to the TR performance condition and the other half to the TSR performance condition. The fair value of share awards is calculated using the Black-Scholes option pricing model for the half that is subject to the TR performance condition and using the stochastic pricing model for the half that is subject to the TSR performance condition. Inputs to the models for share awards during the year are as follows:
| Year of share award | 2016 | 2015 | 2014 | 2013 |
|---|---|---|---|---|
| Closing share price at grant date | 283 – 332p | 404p | 320 – 350p | 271p |
| Exercise price | 0 – 315p | 403p | – | 0 – 268p |
| Expected option life | 3 – 6.5 years | 3 years | 3 years | 3 years |
| Risk-free rate | 0.3 – 1.2% | 0.5 to 1.2% | 1.1 – 1.2% | 0.24% |
| Expected volatility | 21.5 – 28.9% | 19.0 to 22.0% | 20.6 – 22.2% | 21.7% |
| Expected dividend yield1 | 0.5% | 0.4% | 0.4 – 0.5% | 0.5% |
| Average share price | 323p | 421p | 344p | 308p |
| Value per option | 30 – 96p | 36 – 167p | 82 – 126p | 23 – 134p |
1 Expected dividend yield is based on public pronouncements about future dividend levels; all other measures are based on historical data.
The Venues business has a hybrid pension scheme comprising a money purchase section that was closed on 28 February 2014 and a final salary section which closed to new members in 2006, and closed to future benefit accrual on 31 December 2011. The final salary section is a funded defined benefit scheme ("the Scheme") which is contracted out of State Second Pension. On closure of the money purchase section of the Venues' pension scheme, a defined contribution group personal pension plan was offered to eligible Venues employees.
The Scheme is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the Scheme is carried out at least once every three years to determine whether the Statutory Funding Objective is met. As part of the process the Company must agree with the Trustee of the Scheme the contributions to be paid to address any shortfall against the Statutory Funding Objective.
The Scheme is managed by a board of Trustees (the "Trustee") appointed in part by the Company and part from elections by members of the Scheme. The Trustee has responsibility for obtaining valuations of the Scheme, administering benefit payments and investing the Scheme's assets. The Trustee delegates some of these functions to professional advisers where appropriate.
The Group's current policy is largely to provide future retirement benefits through defined contribution arrangements.
The Scheme exposes the Group to a number of risks:
Amounts are recognised in the consolidated income statement in respect of the Scheme:
| Amounts recognised in respect of the Scheme | Included in consolidated income statement within: | 2016 £m |
2015 £m |
|---|---|---|---|
| Interest cost on pension obligation | Administration expenses | 0.7 | 0.7 |
| Interest income on the Scheme assets | Administration expenses | (0.7) | (0.7) |
| Net interest expense | – | – | |
| Amounts recognised in the consolidated statement of comprehensive income | 2016 £m |
2015 £m |
|
| Actuarial loss/(gain) on defined benefit scheme | 1.6 | (0.8) |
|---|---|---|
| Cumulative actuarial loss on defined benefit scheme | 6.6 | 5.0 |
Whilst the actuarial gains or losses in respect of the Scheme are recognised in the consolidated statement of comprehensive income, the net interest income or expense on the Scheme's opening plan assets and scheme obligation is included in the Group's administration expenses. For the year ended 31 December 2016 this amounts to a charge of £nil to the consolidated income statement (2015: charge £nil).
| Amounts recognised in the consolidated balance sheet | 2016 £m |
2015 £m |
|---|---|---|
| Fair value of Scheme assets | 23.9 | 21.0 |
| Present value of Scheme liabilities | (24.8) | (20.3) |
| Net pension (liability)/asset | (0.9) | 0.7 |
| Movements in the fair value of the Scheme's assets | 2016 £m |
2015 £m |
| At 1 January | 21.0 | 21.1 |
| Interest income on Scheme assets | 0.7 | 0.7 |
| Actuarial gains/(loss) | 2.4 | (0.4) |
| 24.1 | 21.4 | |
| Benefits paid | (0.2) | (0.4) |
| Scheme assets at 31 December | 23.9 | 21.0 |
The weighted average asset allocations at the year end were as follows:
| Asset category: | 2016 % |
2015 % |
|---|---|---|
| Equities | 74 | 78 |
| Index-linked gilts | 11 | 9 |
| Corporate bonds | 12 | 13 |
| Cash | 3 | – |
| Total | 100 | 100 |
The actual return on the Scheme's assets for the year was as follows:
| 2016 £m |
2015 £m |
|
|---|---|---|
| Actual return on Scheme assets in the year | 3.1 | 0.3 |
Equities are developed based on the selection of an appropriate risk premium above the risk free rate which is measured in accordance with the yield on government bonds. Bond returns are selected by reference to the yields on government and corporate debt as appropriate to the Scheme's holdings of these instruments. The assets do not include any investment in shares of the Group.
| Movements in the fair value of the Scheme's obligation | 2016 £m |
2015 £m |
|---|---|---|
| At 1 January | (20.3) | (21.3) |
| Interest cost on pension obligation | (0.7) | (0.7) |
| Experience loss on defined benefit obligation | 0.8 | – |
| Gain from changes to demographic assumptions | 1.1 | – |
| (Loss)/gain from changes to financial assumptions | (5.9) | 1.3 |
| (25.0) | (20.7) | |
| Benefits paid | 0.2 | 0.4 |
| Scheme liabilities at 31 December | (24.8) | (20.3) |
The significant actuarial assumptions were as follows:
| 2016 % |
2015 % |
|
|---|---|---|
| (per annum) | (per annum) | |
| Discount rate | 2.8 | 3.7 |
| Rate of inflation (based on the Retail Prices Index) | 3.5 | 3.0 |
| Increases to pensions in payment (Limited Prices Index 5%) | 3.5 | 3.0 |
| Increases to deferred pensions before payment | 2.7 | 2.2 |
| Post retirement mortality assumption (2016: S2 PXA CMI; 2015: S1 PXA CMI) | 1.3 | 1.5 |
The discount rate is determined on the yield available on a high quality long dated corporate bond of appropriate term and currency. As a result, a discount rate of 2.8 per cent has been applied as at 31 December 2016 (2015: 3.7 per cent). This is lower than the rate used in the prior year, reflecting the significant drop in the yields on bonds of the appropriate term over this period.
Mortality assumptions are based on standard tables provided by the Institute of Actuaries using insurance company data updated from time to time to reflect current trends. The standard table used by the Scheme in the current period is S2 PXA CMI (1.25%) (2015: S1 PXA CMI (1.50%), and Year of Birth. The table below makes allowance for future improvements in longevity based on the year of birth of each member.
| 2016 | 2015 | ||
|---|---|---|---|
| The mortality assumptions used in this valuation were: | |||
| Life expectancy at age 65 (current age 45): | Male | 89.0 | 90.1 |
| Female | 91.2 | 92.6 | |
| Life expectancy at age 65 (current age 65): | Male | 87.2 | 87.8 |
| Female | 89.3 | 90.2 |
The following table shows a quantitative sensitivity analysis of the significant assumptions used in determining the defined benefit obligation as at 31 December 2016:
| 2016 Assumptions % |
Adjustments to 2016 assumptions % |
Financial impact of adjustments on the year-end obligation £m |
|
|---|---|---|---|
| Discount rate | 2.8 | (0.1) | 0.5 |
| Rate of inflation | 3.5 | 0.1 | 0.4 |
| Post retirement mortality assumption | 1.3 | (0.3) | (0.4) |
The following table shows the history of experience gains and losses:
| 2016 £m |
2015 £m |
2014 £m |
2013 £m |
2012 £m |
|
|---|---|---|---|---|---|
| Present value of Scheme's liabilities | (24.8) | (20.3) | (21.3) | (18.2) | (17.1) |
| Fair value of Scheme's assets | 23.9 | 21.0 | 21.1 | 19.0 | 16.7 |
| Net pension (liability)/asset | (0.9) | 0.7 | (0.2) | 0.8 | (0.4) |
| Experience adjustment on Scheme liabilities | 0.8 | – | – | 0.4 | (0.3) |
| Changes in assumptions used to value Scheme liabilities | (4.8) | 1.3 | (2.6) | (1.1) | (2.2) |
| Experience adjustment on Scheme assets | 2.4 | (0.4) | 0.8 | 1.8 | 0.8 |
The Group has no significant exposure to any other post-retirement benefit obligations.
The estimated contribution expected to be paid to the Scheme during 2017 is £nil (2016: £nil).
(ii) Defined contribution arrangements
The pension charge in respect of other schemes is the actual contributions paid. These amounted to £1.4 million (2015: £1.4million).
The Company's subsidiaries and other related undertakings at 31 December 2016 are listed below. All Group entities are included in the consolidated financial statements.
Unless otherwise stated, the Company holds 100 per cent of the voting rights and beneficial interests in the shares of the following subsidiaries and joint ventures. The share capital of each of the Companies, where applicable, comprises of ordinary shares unless otherwise stated.
| Related undertakings | |
|---|---|
| 20 The Piazza Limited | EC Properties Nominee Limited |
| 20 The Piazza Management Limited | EC&O Limited |
| 22 Southampton Street Limited | Empress State GP Limited |
| 22 Southampton Street Management Limited | The Empress State Limited Partnership |
| 34 Henrietta Street Limited | Empress State Nominee No 1 Limited |
| 34 Henrietta Street Management Company Limited | Empress State Nominee No 2 Limited |
| C&C Management Services Limited1 | Euro Co-Ventures Limited (50%) |
| C&C Properties UK Limited1 | Exhibition Venues Limited |
| Capco CG 2012 Limited | Falcon House Management Limited (32%)2 |
| Capco CGP 2012 LP | Lillie Square Clubhouse Limited (50%) |
| Capco CG 2012 Nominee Limited | Lillie Square Developments Limited (50%) |
| Capco Covent Garden Limited1 | Lillie Square GP Limited (50%) |
| Capco Covent Garden Residential Limited | Lillie Square LP (50%) |
| Capco Group Treasury Limited1 | Lillie Square Management Limited (50%) |
| Capco London Limited | Lillie Square Nominee Limited (50%) |
| Capital & Counties Asset Management Limited1 | Mallenhill Limited (63%) |
| Capital & Counties CG Limited | Olympia Car Park Limited |
| Capital & Counties CGP | Olympia Exhibitions Group Limited |
| Capital & Counties CG Nominee Limited | Olympia Exhibitions Holdings Limited |
| Capital & Counties Limited1,3 | Olympia Group Limited |
| CG Investments 2016 GP Limited | Olympia Holdings Limited |
| CG Investments 2016 LP | Olympia Licensing Limited |
| CG Investments 2016 Nominee Limited | Olympia Limited |
| Covent Garden (43 Management) Limited | Olympia Management Services Limited |
| Covent Garden (49 Wellington Street) Limited | Solum Developments (GP) Limited (50%) |
| Covent Garden Group Holdings Limited | Solum Developments Limited Partnership (50%) |
| Earls Court & Olympia Group Pension Trustees Limited | Solum Group Holdings GP Limited |
| Earls Court Limited | Solum Group Holdings LP |
| Earls Court Partnership Limited (63%) | Solum Group Holdings Nominee Limited |
| EC Properties GP Limited | Solum Management Limited |
| EC Properties LP | St James Capital Seagrave Road Limited |
| EC Properties Management Limited | The Earls Court & Olympia Charitable Trust2 |
2 Company limited by guarantee.
3 Non-voting deferred shares.
Related undertakings
Capco CG 2010 Limited (in liquidation) Martineau Properties Limited (in liquidation) Capco CG 2010 Nominee Limited (in liquidation) Sanderling Enterprises Limited (in liquidation)1 Capco Empress State LP Limited (in liquidation)
A & P Bolding Limited (in liquidation) (50%) Changeopen Residents Management Limited (in liquidation)
1 Deferred shares.
| C&C Properties (Jersey) Limited | CG Investments 2016 Group Limited |
|---|---|
| Capital & Counties CG (No. 1) Limited | Covent Garden Limited |
| Capital & Counties CG (No. 2) Limited | Covent Garden LP Limited |
| Capvestco 2 Limited1 | EC Group Holdings Limited |
| Capvestco 3 Limited1 | EC Holdings Limited |
| Capvestco 3 Holdings Limited | EC Properties LP Limited |
| Capvestco China Limited | Empress Holdings Limited |
| Capvestco Earls Court Limited | Empress State (Jersey) Limited |
| Capvestco Limited1 | Lillie Square LP Limited |
| CG Investments 2016 (No. 1) Limited | Solum Group Holdings LP Limited |
| CG Investments 2016 (No. 2) Limited | Solum Holdings Limited |
1 Direct undertakings of the Parent.
Great Capital Partnership (G.P.) Limited (50%) The Great Capital Partnership (50%) Great Capital Property Limited (50%)
Related undertaking
1 and 3 Eardley Crescent Limited (9%)
| Market Value £m |
Ownership | |
|---|---|---|
| Covent Garden | 2,274.8 | 100% |
| Earls Court Properties | ||
| ECPL | 644.4 | 63% |
| Lillie Square | 222.6 | 50% |
| Empress State | 230.0 | 100% |
| Other | 45.1 | 100% |
| Earls Court Properties (Group share) | 1,142.1 | |
| Venues | 292.7 | 100% |
| Group share of total property | 3,709.6 | |
| Investment and development property | 3,484.1 | |
| Trading property | 225.5 |
| Like-for-like capital | Market Value 31 December 2016 £m |
Market Value 31 December 2015 £m |
Revaluation surplus/ (deficit)1 31 December 2016 £m |
Increase/ (decrease) |
|---|---|---|---|---|
| Covent Garden | 2,193.0 | 1,985.8 | 129.4 | 6.4% |
| Earls Court Properties | 1,142.1 | 1,355.4 | (292.6) | (20.4)% |
| Venues | 292.7 | 295.0 | (3.8) | (1.3)% |
| Total like-for-like capital | 3,627.8 | 3,636.2 | (167.0) | (4.4)% |
| Investment and development property | 3,402.3 | 3,412.6 | (121.5) | (3.5)% |
| Trading property | 225.5 | 223.6 | (45.5)2 | (16.8)% |
| Non like-for-like capital | ||||
| Acquisitions | 81.8 | – | (3.4) | |
| Disposals | – | 25.6 | – | |
| Total property | 3,709.6 | 3,661.8 | (170.4) | (4.4)% |
| Investment and development property | 3,484.1 | 3,417.1 | (124.9) | (3.5)% |
| Trading property | 225.5 | 244.7 | (45.5)2 | (16.8)% |
| All property | ||||
| Covent Garden | 2,274.8 | 2,005.2 | 126.1 | 6.0% |
| Earls Court Properties | 1,142.1 | 1,357.2 | (292.7) | (20.4)% |
| Venues | 292.7 | 295.0 | (3.8) | (1.3)% |
| Other | – | 4.4 | – | – |
| Total property | 3,709.6 | 3,661.8 | (170.4) | (4.4)% |
1 Revaluation surplus/(deficit) includes amortisation of lease incentives and fixed head leases.
2 Represents unrecognised surplus and write down or write back to market value of trading property. Presented for information purposes only.
| 40.7 16.8 23.6 |
38.6 17.2 19.3 |
5.3% (2.1)% |
|---|---|---|
| 22.4% | ||
| (0.5) | (0.4) | – |
| 80.6 | 74.7 | 7.8% |
| 80.6 | 74.7 | 7.8% |
| – | – | – |
| 0.9 | – | |
| (0.3) | 0.2 | |
| – | (0.1) | |
| 0.3 | 0.1 | |
| 81.5 | 74.9 | 8.7% |
| 9.0% | ||
| (0.1) | – | |
| 81.6 | 74.9 |
| 23.6 22.4% Venues 19.3 |
|---|
| (0.4) Other (0.5) |
1 ERV of the Empress State Building is £16.4 million.
| Initial yield (EPRA) |
Nominal equivalent yield |
Passing rent £m |
Occupancy rate |
Weighted average unexpired lease years |
Market value £m |
ERV £m |
Net area million Sq ft |
|
|---|---|---|---|---|---|---|---|---|
| Retail | 1,636.1 | 65.5 | 0.6 | |||||
| Office | 292.9 | 16.0 | 0.2 | |||||
| Residential | 135.4 | 3.6 | 0.2 | |||||
| Other1 | 210.4 | 10.9 | 0.1 | |||||
| Total | 2.10% | 3.54% | 51.2 | 96.5% | 6.5 | 2,274.8 | 96.0 | 1.1 |
1 Consists of property where the highest and best use valuation differs from the current use.
For the year ended 31 December 2016
| Re-presented1 | ||
|---|---|---|
| Group share | 2016 £m |
2015 £m |
| Net rental income | 81.5 | 74.9 |
| Other income | 2.7 | 2.5 |
| Administration expenses | (50.5) | (52.5) |
| Operating profit | 33.7 | 24.9 |
| Finance costs | (19.8) | (20.8) |
| Finance income | 0.3 | 0.7 |
| Net finance costs | (19.5) | (20.1) |
| Profit before tax | 14.2 | 4.8 |
| Taxation | (2.4) | 3.0 |
| Underlying earnings | 11.8 | 7.8 |
| Underlying earnings per share (pence) | 1.4 | 0.9 |
| Weighted average number of shares | 844.4m | 841.1m |
1 Comparative period has been re-presented from proportionate consolidation to Group share basis.
For the year ended 31 December 2016
| Group share | 31 December 2016 | ||||||
|---|---|---|---|---|---|---|---|
| Maturity | Loan(s) outstanding at 31 December 20161 £m |
LTV covenant |
Interest cover covenant |
||||
| Covent Garden2 | 2020 – 2028 | 675.0 | 60% | 120% | |||
| ECPL | 2026 | 20.3 | 40% | n/a | |||
| Lillie Square3 | 2017 – 2018 | 77.6 | 75% | n/a | |||
| Empress State | 2018 | 85.5 | 60% | 300% | |||
| Venues | 2020 | 50.0 | 50% | 250% | |||
| Total | 908.4 |
1 The loan values are the nominal values at 31 December 2016 shown on a Group share basis. The balance sheet value of the loans includes any unamortised fees.
2 Covent Garden comprises five loans with maturities in 2020, 2021, 2024, 2026 and 2028.
3 Lillie Square comprises two loans with maturities in 2017 and 2018.
| Re-presented1 | Re-presented1 | Re-presented1 | Re-presented1 | ||
|---|---|---|---|---|---|
| Consolidated income statement | 2016 £m |
2015 £m |
2014 £m |
2013 £m |
2012 £m |
| Net rental income | 81.5 | 74.9 | 70.1 | 63.8 | 65.3 |
| Profit/(loss) on sale of trading property | 4.4 | 2.0 | (1.9) | 10.4 | 6.1 |
| Other income | 2.7 | 2.6 | 1.5 | 0.2 | – |
| (Loss)/gain on revaluation and sale of investment and | |||||
| development property | (124.8) | 421.8 | 454.4 | 313.4 | 213.9 |
| Non-recurring (costs)/income | (5.0) | (0.2) | 1.7 | 0.7 | 10.4 |
| Administration expenses | (50.5) | (52.5) | (43.2) | (33.8) | (26.1) |
| Operating profit | (91.7) | 448.6 | 482.6 | 354.7 | 269.6 |
| Net finance costs | (37.8) | (20.6) | (32.4) | (4.7) | (24.1) |
| Profit before tax | (129.5) | 428.0 | 450.2 | 350.0 | 245.5 |
| Taxation | 10.9 | 3.1 | (1.6) | (12.6) | (5.5) |
| Profit for the year attributable to Parent | (118.6) | 431.1 | 448.6 | 337.4 | 240.0 |
| Consolidated balance sheet | |||||
| Investment and development property | 3,443.0 | 3,385.2 | 2,785.9 | 2,051.1 | 1,586.2 |
| Other non-current assets | 120.0 | 96.0 | 55.8 | 50.9 | 44.5 |
| Cash and cash equivalents | 64.8 | 91.0 | 111.9 | 45.0 | 184.5 |
| Other current assets | 231.1 | 173.7 | 144.9 | 135.5 | 110.3 |
| Total assets | 3,858.9 | 3,745.9 | 3,098.5 | 2,282.5 | 1,925.5 |
| Non-current borrowings, including finance leases | (881.1) | (651.4) | (439.1) | (357.7) | (269.6) |
| Other non-current liabilities | (17.5) | (16.8) | (17.2) | (27.5) | (29.7) |
| Current borrowings, including finance leases | (31.1) | (18.5) | (17.5) | (16.5) | (78.4) |
| Other current liabilities | (124.2) | (125.2) | (118.4) | (68.7) | (70.0) |
| Total liabilities | (1,053.9) | (811.9) | (592.2) | (470.4) | (447.7) |
| Net assets | 2,805.0 | 2,934.0 | 2,506.3 | 1,812.1 | 1,477.8 |
| Per share information | Pence | Pence | Pence | Pence | Pence |
| Basic earnings per share | (14.0) | 51.3 | 55.6 | 44.7 | 34.1 |
| Underlying earnings per share | 1.4 | 0.9 | 1.6 | 1.0 | 1.8 |
| Basic net assets per share | 331.5 | 348.5 | 299.7 | 239.1 | 196.3 |
| EPRA NAV | 339.6 | 360.9 | 310.7 | 248.5 | 203.1 |
| Dividend per share | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 |
1 Comparative periods have been re-presented from proportionate consolidation to Group share basis.
Prepared on a Group share basis.
Ian Hawksworth, Chief Executive Situl Jobanputra, Chief Financial Officer Gary Yardley, Managing Director & Chief Investment Officer
Graeme Gordon Gerry Murphy Demetra Pinsent Henry Staunton, Senior Independent Director Anthony Steains Andrew Strang
15 Grosvenor Street London W1K 4QZ Telephone: 020 3214 9150 Fax: 020 3214 9151
| Johannesburg | |
|---|---|
| Ordinary shares listed ex-dividend on the London Stock Exchange |
20 April 2017 |
| Record date for final dividend in UK and South Africa | 21 April 2017 |
| Annual General Meeting | 5 May 2017 |
| Dividend payment date for shareholders | 31 May 2017 |
South African shareholders should note that, in accordance with the requirements of Strate, the last day to trade cum-dividend will be 18 April 2017 and that no dematerialisation of shares will be possible from 19 April 2017 to 21 April 2017 inclusive. No transfers between the UK and South Africa registers may take place from 7 April 2017 to 21 April 2017 inclusive.
Subject to SARB approval, the Board intends to offer an optional scrip dividend alternative in respect of the 2016 final dividend.
The above dates are proposed and subject to change.
Websites www.capitalandcounties.com www.coventgarden.london www.myearlscourt.com www.olympia.london
PricewaterhouseCoopers LLP
Solicitors Linklaters LLP Webber Wentzel (South Africa)
Bank of America Merrill Lynch N M Rothschild & Sons Limited UBS Limited
Merrill Lynch South Africa (Pty) Limited
The final cash dividend declared by the Company will constitute a dividend for Dividends Tax purposes. Dividends Tax will therefore be withheld from the amount of the final cash dividend which is paid at a rate of 15 per cent, unless a shareholder qualifies for an exemption and the prescribed requirements for effecting the exemption, as set out in the rules of the Scrip Dividend Scheme, are in place.
It is the Company's understanding that the issue and receipt of shares pursuant to the scrip dividend alternative will not have any Dividends Tax nor income tax implications. The new shares which are acquired under the scrip dividend alternative will be treated as having been acquired for nil consideration.
This information is included only as a general guide to taxation for shareholders resident in South Africa based on Capco's understanding of the law and the practice currently in force. Any shareholder who is in any doubt as to their tax position should seek independent professional advice.
Basis point is a unit equal to one hundredth of a percentage point.
Capco represents Capital & Counties Properties PLC (also referred to as "the Company" or "the Parent") and all its subsidiaries and group undertakings, collectively referred to as "the Group".
Conditional Land Sale Agreement, an agreement with LBHF relating to its land in the Earls Court and West Kensington Opportunity Area.
Company Share Option Plan.
Reported amounts adjusted to include the dilutive effects of potential shares issuable under employee incentive arrangements.
The London district made up of a series of residential neighbourhoods crossing the boundaries of London Borough of Hammersmith & Fulham and Royal Borough of Kensington & Chelsea.
The Earls Court Masterplan, created by Sir Terry Farrell and Partners is the consented scheme for the transformation of Earls Court and West Kensington Opportunity Area. The London Borough of Hammersmith & Fulham and The Royal Borough of Kensington & Chelsea formally granted outline planning permission for the Earls Court Masterplan on 14 November 2013.
The Group's interests in the Earls Court area, comprising properties held in ECPL, Lillie Square (a 50:50 joint venture partnership with the Kwok Family Interests), the Empress State Building and a number of smaller properties in the Earls Court area.
Earls Court Partnership Limited is the investment vehicle with TfL. The Group holds 63 per cent controlling interest and TfL holds 37 per cent. ECPL holds interests in EC1 & EC2 and other adjacent property primarily located on and around Lillie Road.
Earnings before interest, tax, depreciation and amortisation.
The site formerly the location of the Earls Court 1 and Earls Court 2 Exhibition Centres.
European Public Real Estate Association, the publisher of Best Practice Recommendations intended to make financial statements of public real estate companies in Europe clearer, more transparent and comparable.
Profit for the year excluding gains or losses on the revaluation and sale of investment and development property, write down of trading property, changes in fair value of derivative financial instruments and associated close-out costs and the related tax on these items.
EPRA earnings divided by the weighted average number of shares in issue during the year.
The net assets as at the end of the year including the excess of the fair value of trading property over its cost and excluding the fair value of financial instruments, deferred tax on revaluations and diluting for the effect of those shares potentially issuable
under employee share schemes divided by the diluted number of shares at the year end.
EPRA net asset value divided by the diluted number of ordinary shares.
Annualised net rent (after deduction of revenue costs such as head rent, running void, service charge after shortfalls and empty rates) on investment and development property expressed as a percentage of the gross market value before deduction of theoretical acquisition costs.
Net initial yield adjusted for the expiration of rent-free periods.
EPRA NAV adjusted to reflect the fair value of derivative financial instruments, excess fair value of debt over carrying value and deferred tax on derivative financial instruments, revaluations and capital allowances.
EPRA triple net asset value divided by the diluted number of ordinary shares.
The ERV of un-let units expressed as a percentage of the ERV of let and under offer units plus ERV of un-let units, excluding units under development.
The external valuers' estimate of the open market rent which, on the date of valuation, could reasonably be expected to be obtained on a new letting or rent review of the property.
Development at Covent Garden formally known as Kings Court.
The Great Capital Partnership is a 50 per cent Joint Venture between Capital & Counties Limited and Great Portland Estates PLC.
GEA Gross external area.
Greater London Authority.
Global Real Estate Sustainability Benchmark.
The Group's share of passing rent plus sundry non-leased income.
London Stock Exchange index derived from real estate companies in the FTSE 100 and FTSE 250 indices.
Headline earnings per share is calculated in accordance with Circular 2/2015 issued by the South African Institute of Chartered Accountants ("SAICA"), a requirement of the Group's JSE listing. This measure is not a requirement of IFRS.
Home and Communities Agency.
Her Majesty's Revenue and Customs.
Investment Property Databank Limited, producer of an independent benchmark of property returns.
Johannesburg Stock Exchange.
1 Relates to an alternative performance measure as defined by the FRC
Joint venture partner in the Lillie Square development.
LBHF
The London Borough of Hammersmith & Fulham.
Property which has been owned throughout both years without significant capital expenditure in either year, so income can be compared on a like-for-like basis. For the purposes of comparison of capital values, this will also include assets owned at the previous balance sheet date but not necessarily throughout the prior year.
The Lillie Square joint venture is a 50% Joint Venture between the Group and Kwok Family Interests.
LTV is calculated on the basis of the Group's net debt divided by the value of the Group's property portfolio.
Net Asset Value.
Total borrowings less cash and cash equivalents.
NIA
Net Internal Area.
Gross rental income less ground rents, payable service charge expenses and other non-recoverable charges, having taken due account of bad debt provisions and adjustments to comply with International Financial Reporting Standards regarding tenant lease incentives.
Effective annual yield to a purchaser on the gross market value, assuming rent is receivable annually in arrears, and that the property becomes fully occupied and that all rents revert to the current market level (ERV) at the next review date or lease expiry.
Network Rail Infrastructure Limited.
The ERV of let and under offer units expressed as a percentage of the ERV of let and under offer units plus ERV of un-let units, excluding units under development. This is equivalent to 100% less the EPRA vacancy rate.
In September 2011 the GLA published the 'Opportunity Area Planning Frameworks Report'. Opportunity Areas are London's major reservoirs of brownfield land with significant capacity to accommodate new housing, commercial and other developments linked to existing or potential improvements to public transport accessibility. Typically, they can accommodate at least 5,000 jobs or 2,500 new homes or a combination of the two, along with other supporting facilities and infrastructure.
Contracted annual rents receivable at the balance sheet date. This takes no account of accounting adjustments made in respect of rent-free periods or tenant lease incentives, the reclassification of certain lease payments as finance charges or any irrecoverable costs and expenses, and does not include excess turnover rent, additional rent in respect of unsettled rent reviews or sundry income such as from car parks etc. Contracted annual rents in respect of tenants in administration are excluded.
P.A.
Per annum.
Real Estate Investment Trust.
Royal Institution of Chartered Surveyors.
Reporting of Injuries, Diseases and Dangerous Occurrences Regulations.
South African Reserve Bank.
South African Institute of Chartered Accountants.
Section 106 of the Town and Country Planning Act 1990, pursuant to which the relevant planning authority can impose planning obligations on a developer to secure contributions to services, infrastructure and amenities in order to support and facilitate a proposed development.
Stamp Duty Land Tax.
Solum Development Limited Partnership is a 50% Joint Venture between the Group and Network Rail Infrastructure Limited.
Any incentives offered to tenants to enter into a lease. Typically incentives are in the form of an initial rent-free period and/or a cash contribution to fit-out the premises. Under International Financial Reporting Standards the value of incentives granted to tenants is amortised through the income statement on a straight-line basis over the lease term.
Transport for London and any subsidiary of Transport for London including Transport Trading Limited and London Underground Limited.
Capital growth including gains and losses on disposals plus rent received less associated costs, including ground rent.
The growth in EPRA NAV per share plus dividends per share paid during the year.
The increase in the price of an ordinary share plus dividends paid during the year assuming re-investment in ordinary shares.
Profit for the year excluding impairment charges, net valuation gains/losses (including profits/losses on disposals), net refinancing charges, costs of termination of derivative financial instruments and non-recurring costs and income. Underlying earnings is reported on a Group share basis.
Underlying earnings divided by the weighted average number of shares in issue during the year.
The unexpired lease term to lease expiry weighted by ERV for each lease.
Westminster City Council.
A means of analysing and comparing the rental value of retail space by dividing it in to zones parallel with the main frontage. The most valuable zone, Zone A, falls within a 6m depth of the shop frontage. Each successive zone is valued at half the rate of the zone in front of it. The blend is referred to as being 'ITZA' ("In Terms of Zone A").
1 Relates to an alternative performance measure as defined by the FRC
All enquiries concerning shares or shareholdings, including notification of change of address, queries regarding loss of a share certificate and dividend payments should be addressed to:
The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU Telephone: 0871 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 9.00 am – 5.30 pm Monday – Friday, excluding public holidays in England and Wales)
Telephone outside UK: +44 371 664 0300 Email: [email protected] www.capitaassetservices.com
Computershare Investor Services Proprietary Limited Rosebank Towers, 15 Biermann Avenue, Rosebank, South Africa, Postal address: PO Box 61051, Marshalltown 2107, South Africa Telephone: +27 (0) 11 370 5000 or 086 1100 933 www.computershare.com
If you are a shareholder and wish to have your dividends paid directly into a bank or building society, please complete a mandate form which is available from the appropriate registrar.
The latest information on the Capital & Counties Properties PLC share price is available on the Company's website www.capitalandcounties.com.
The shares are traded on the LSE with LSE code CAPC, ISIN GBOOB62G9D36. The shares are traded on the JSE under the abbreviated name CAPCO and JSE code CCO.
Shareholders registered in the UK can register at www.capitashareportal.com to access a range of online services including:
To register to use this service, you will need your investor code (IVC), which can be found on your share certificate(s).
The Company's shares can be traded through most banks, building societies and stockbrokers. Additionally, UK shareholders may trade their shares using the online and telephone dealing service that Capita Asset Services provide. To use this service, shareholders should contact Capita: within the UK 0371 664 0445 (calls are charged at the standard geographic rate and will vary by provider; lines are open 8.00 am – 4.30 pm Monday to Friday); from Ireland: lo-call 1 890 946 375; or from outside UK: +44(0) 371 664 0445 (calls outside the United Kingdom are charged at the applicable international rate) or you can log on to www.capitadeal.com.
Capco has adopted electronic communications. This means that shareholders will receive documents from the Company electronically unless they elect to receive hard copies.
The Group's annual results and interim results will be published on the Company's website www.capitalandcounties.com. If you are a shareholder who receives hard copies of documents and you wish to elect to receive electronic communications, please contact the appropriate Registrar.
Shareholders may revoke an election to receive electronic communications at any time.
ShareGift is a charity share donation scheme for shareholders who may wish to dispose of a small quantity of shares where the market value makes it uneconomical to sell on a commission basis. Further information can be found on its website www.sharegift.org or by calling them on 020 7930 3737.
SCS is a charity share donation scheme for shareholders who may wish to dispose of small holdings of shares that are too costly to sell via a stock broker on a commission basis. Further information can be found at www.strate.co.za, by emailing [email protected] or by calling 0800 202 363 or +27(0) 11 870 8207 if you are phoning from outside South Africa.
Shareholders are advised to be wary of any unsolicited calls, mail or email that offer free advice, the opportunity to buy shares at a discount or to provide free company reports. Such approaches are often investment scams. Information on how to protect yourself from investment scams can be found at www.fca.org.uk/scams or by calling the FCA's consumer helpline on 0800 111 6768.
To reflect Capco's strategy of driving value creation over the longer term, the Board has taken the decision to cease publication of formal Trading Updates in May and November. The Group remains committed to full and transparent disclosure and will continue with full-year and interim announcements.
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This Report includes statements that are forward-looking in nature. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Capital & Counties Properties PLC to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Any information contained in this Report on the price at which shares or other securities in Capital & Counties Properties PLC have been bought or sold in the past, or on the yield on such shares or other securities, should not be relied upon as a guide to future performance.
Capital & Counties Properties PLC 15 Grosvenor Street, London W1K 4QZ Telephone +44 (0)20 3214 9150 [email protected] www.capitalandcounties.com
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