Caleres Annual Report 2021

Plain-text annual report

C a p i t a l & R e g i o n a l p l c A n n u a l R e p o r t a n d A c c o u n t s f o r t h e y e a r e n d e d 3 0 D e c e m b e r 2 0 2 1 Supporting community living Annual Report and Accounts for the year ended 30 De cember 2021 Capital & Regional is a UK-focused retail property REIT, specialising in community shopping centres that provide needs-based, non-discretionary and value-orientated retail goods and services. Capital & Regional owns and/or manages shopping centres in Blackburn, Hemel Hempstead, Ilford, Luton, Maidstone, Redditch, Walthamstow and Wood Green. Capital & Regional manages these assets through its in-house expert property and asset management platform. Our centres are aligned to the needs and aspirations of their respective local community and form a critical part of the local infrastructure. Capital & Regional has a strong track record of delivering retail and leisure asset management initiatives across its portfolio of tailored, in-town, community shopping centres. Capital & Regional is listed on the main market of the London Stock Exchange and has a secondary listing on the Johannesburg Stock Exchange. Our Purpose Our Vision We invest, manage and enhance retail property through the creation of dynamic environments tailored to the local communities. As a specialist owner and manager of shopping centres, we invest in the retail assets in our portfolio to unlock their full value. To define and lead community shopping centres, through our passionate creation of vibrant retail spaces and exceptional customer and guest experience. To develop and deliver dynamic community hubs in the heart of town centres that provide a mix of uses including everyday services and facilities to satisfy our growing and evolving communities’ needs. To be more than just places to shop, but to operate essential hubs for the local community. Our values INSPIRING CREATIVE THINKING DELIVERING DYNAMIC SOLUTIONS ENCOURAGING COLLABORATIVE ENGAGEMENT LEADING IN SUSTAINABILITY WITHIN OUR COMMUNITIES ACTING WITH INTEGRITY capreg.comHighlights Revenue 2021 2020 Adjusted Profit1 2021 2020 £8.1m £11m Net Rental Income £70.0m 2021 £72.7m 2020 £29.0m £34.1m Adjusted Earnings per share1 2021 2020 6.8p 10.2p IFRS Loss for the period Basic Earnings per share2 2021 2020 £(26.4)m 2021 (22.0)p £(203.9)m 2020 (188.8)p Total dividend per share2 Net Asset Value (NAV) per share2 2021 2020 – – 2021 2020 102p 150p EPRA NTA per share2 Group net debt 2021 2020 102p 157p 2021 2020 £185.3m £345.1m Net debt to property value 2021 2020 49% 65% Read more about our key performance indicators on pages 22 to 23 Use of Alternative Performance Measures (APMs) Throughout the results statement we use a range of financial and non-financial measures to assess our performance. A number of the financial measures, including Net Rental Income, Adjusted Profit, Adjusted Earnings per share, Net Debt and the industry best practice EPRA (European Public Real Estate Association) performance measures are not defined under IFRS, so they are termed APMs. APMs are not considered superior to the relevant IFRS measures, rather Management use them alongside IFRS measures to monitor the Group’s financial performance because they help illustrate the trading performance and position of the Group. All APMs are defined in the Glossary and further detail on their use is provided within the Financial Review. 1 Adjusted Profit and Adjusted Earnings per share are as defined in the Glossary. Adjusted Profit incorporates profits from operating activities and excludes revaluation of properties and financial instruments, gains or losses on disposal, and other non-operational items. A reconciliation to the equivalent EPRA and statutory measures is provided in Note 9 to the financial statements. 2 2020 results have been restated for a prior year adjustment of £0.5m in respect to the treatment of Software as a Service (SaaS) configuration costs as explained in Note 1. 2020 Adjusted Profit has also been restated to reflect the introduction of the new Snozone EBITDA performance measures. Contents BUSINESS OVERVIEW 01 Highlights 02 Our Community Shopping Centre Approach 04 Our Portfolio 06 Chairman’s Statement STRATEGIC REPORT 08 The Market Backdrop 12 Strategy 18 Strategy in Action 20 Our Business Model 22 Key Performance Indicators 24 Chief Executive’s Review 26 Operating Review 30 Financial Review 36 Managing Risk 44 Our Stakeholders 48 ESG Report GOVERNANCE 64 Directors 66 Senior Leadership Team 67 Corporate Governance Report Composition, Succession 76 and Evaluation 80 Audit, Risk and Internal Control 86 Remuneration 106 Directors’ Report 110 Directors’ Responsibilities Statement 111 Independent Auditor’s Report FINANCIALS 122 Consolidated Income Statement 122 Consolidated Statement of Comprehensive Income 123 Consolidated Balance Sheet 124 Consolidated Statement of Changes in Equity 125 Consolidated Cash Flow Statement 126 Notes to the Financial Statements 158 Company Balance Sheet 159 Statement of Changes in Equity 160 Notes to the Company’s Separate Financial Statements 163 Glossary of Terms 165 Five Year Review (Unaudited) 166 Portfolio Information (Unaudited) 167 EPRA Performance Measures (Unaudited) 169 Advisers and Corporate Information 170 Shareholder Information Stock Code: CAL 01 Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2021BUSINESS OVERVIEW Our Community Shopping Centre Approach At a time of significant structural change within our sector, we see the growing relevance and continuing resilience of our community centre strategy. We have been proactive and continue to reposition and remerchandise our centres to remain relevant to our communities over the medium to longer term. Our integrated multi-disciplinary management platform continues to deliver sector-leading results and is critical to asset-level performance. In a competitive environment, being successful at local level is all about our communities and placing them at the heart of everything that we do. In our minds, the key to driving footfall and a wider recovery is our customer or community proposition. Our customer product and service offerings We sit firmly in a position to serve our guests’ essential and regular non-discretionary shopping needs and services. 7% Variety stores 14% Food & grocery 18% Value apparel 13% Health & beauty Contracted Rent by Customer product/service 10% Services 9% Athleisure & footwear 10% Non retail 5% Leisure 6% Home & gifts 3% Jewellery 02 capreg.comOur difference We’re proudly different from regional destination shopping centres. We’re local and part of everyday life. More than just places to shop, we operate hubs for the local community. 01 02 Dominant community locations Our centres are at the heart of the community, with strong transport links and are ideally positioned to serve their communities. Diversified income streams Our mixed-use community hubs provide a diversified tenant base and income streams. 03 04 Strength of community links Enables us to respond to community needs quickly and effectively. Experienced management We have a diverse and experienced management team. The continued evolution of our assets Community and local focus Our assets are located in local communities and form essential parts of community infrastructure at the heart of these local neighbourhoods. They play an integral role in the lives of our guests. We aim to strengthen communities through meeting their everyday needs and supporting the causes that matter to them. Remerchandising retail offer Our ability to evolve that offer and to accelerate remerchandising toward the shift from discretionary to non- discretionary retail and services. Role of the store The rise of online shopping has caused questions to be asked of where the future of physical retail lies. We sit firmly in a position to serve our guests’ essential and regular non- discretionary shopping needs and services. Diversification of uses Frequent, repeat footfall and high conversion rates coupled with affordable occupier costs makes our centres great for a variety of non- traditional occupier partners. 03 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021BUSINESS OVERVIEW9 9 9 9 Spain 9 Key Investment assets Managed assets (Held for Sale) Snozone Kingfisher Redditch 1 9 8 9 7 6 5 4 2 9 3 1 9 8 9 7 6 5 4 2 3 9 Centre Characteristics 03 01 02 Dominant strategic locations in the heart of growing towns Easily accessible with strong transport links London/ South‑East bias 04 Accretive asset management opportunities (including leisure, residential, medical and office uses) 05 Snozone leisure venues, dominant in their sector Our Portfolio 1 The Mall, Blackburn 9 Leasehold covered shopping centre on three floors 580,000 sq ft 115 lettable units Principal occupiers: Primark, Boots, Next, Wilko, Pure Gym, Blackburn with Darwen Council 8 9 7 6 5 4 2 9 3 2 The Exchange, Ilford Predominantly freehold 3 covered shopping centre on three floors 310,000 sq ft 78 lettable units Principal occupiers: Next, H&M, TK Maxx 3 The Mall, Maidstone Freehold covered shopping centre on three floors 430,000 sq ft 86 lettable units Principal occupiers: Matalan, Pure Gym, Boots, Sports Direct, Wilko, Iceland Investment Assets represent the asset pools where the Group retains net equity. Managed Assets represents assets where the current debt values in the non-recourse SPV structures exceed the respective property value and therefore the Group has negative equity and the substance of the Group’s role is as a manager. 1 9 8 9 9 9 7 6 5 4 1 8 9 7 6 5 4 2 9 04 capreg.com9 9 9 9 9 9 9 1 9 1 9 8 9 7 6 5 9 9 1 1 9 8 9 7 4 17&Central, Walthamstow Leasehold covered shopping 2 centre on two floors 290,000 sq ft 3 60 lettable units 9 Principal occupiers: Lidl, Asda, Boots, The Gym, TK Maxx, Sports Direct 1 9 6 5 2 4 The Marlowes, Hemel Hempstead Freehold covered shopping centre and high street 3 parades 340,000 sq ft 85 lettable units Principal occupiers: Sports Direct, Pure Gym, Wilko, Tesco Express 1 8 Kingfisher Shopping Centre, Redditch C&R acts as Property & 7 9 Asset Manager 6 4 Freehold covered shopping centre on two principal trading levels 5 2 9 900,000 sq ft 3 174 lettable units Principal occupiers: The Range, Primark, Next, TK Maxx, Vue Cinema, H&M 9 1 9 8 9 8 9 7 6 5 4 2 9 3 7 6 5 9 4 8 9 The Mall, Wood Green Freehold partially open 2 shopping centre on two floors 3 630,000 sq ft 88 lettable units 9 Principal occupiers: Primark, Lidl, H&M, Boots, TK Maxx, Travelodge, Cineworld 8 7 6 5 The Mall, Luton Leasehold covered shopping 4 centre on two floors, with over 65,000 sq ft of offices 2 900,000 sq ft 3 142 lettable units 9 Principal occupiers: Tesco, Lidl, Luton Borough Council, Primark, H&M TK Maxx, Wilko Portfolio Statistics Total sq ft 3.5m sq ft Total number of retail units 654 Total number of car parking spaces 8,250 Average rent c.£12psf 9 Snozone Leisure Business 100% subsidiary 7 Largest indoor ski slope 6 operator in the UK 4 2 5 Operating at Milton Keynes, Yorkshire and a dry indoor slope in Basingstoke, and in Snozone Madrid 3 In existence since 2000 and has taught over 4 million people to ski or snowboard Average dwell time 66minutes Estimated retail conversion rate 73% 05 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021BUSINESS OVERVIEWChairman’s Statement 2021 was inevitably another very difficult year for most retailers and retail landlords. Against that backdrop, the Company’s performance was resilient. DAVID HUNTER CHAIRMAN A year ago, I wrote of the unprecedented challenges which the retail sector, and the Company, faced during 2020. While there was a renewed sense of optimism with indications of a return to normality from the effects of Covid-19 at the end of 2021, and particularly early in 2022, these challenges and restrictions were prevalent throughout almost the whole of 2021, including a full closure of non- essential retail in England from 6 January to 12 April 2021. As a consequence, 2021 was inevitably another very difficult year for most retailers and retail landlords. Against that backdrop, the Company’s performance was resilient. All of the Company’s centres remained open to some extent throughout the year, with our on-site teams working closely with retailers and shoppers to optimise trade while fully observing all Government restrictions. Rent collection was robust at 93%, including deferrals, and this number continues to rise as arrears are pursued. From 12 April 2021, after the lifting of lockdown restrictions for non-essential retail, footfall also recovered, reaching between approximately 70- 80% of pre-pandemic levels when restrictions were not in place, and encouragingly the trend towards higher spend per visit continued. In last year’s statement, while acknowledging the ongoing support of our lenders, I also recognised the need to address debt levels when circumstances permitted. Our recapitalisation in November 2021, raising £30 million of equity, allowed us to acquire a proportion of our debt on The Mall facility at a significant discount, contributing to the marked reduction in Group net debt ratio to 49%. While we aim to reduce leverage further, it has introduced much- needed stability allowing the business to focus on optimising the performance of its assets. I must credit our leadership team with this remarkable achievement in the most difficult of circumstances. Coupled with this, our lenders have continued to provide excellent support, working closely with our team to facilitate continued investment in our assets with a view to increasing rental income to our mutual benefit. While some of our central funds were utilised in the recapitalisation, we retain central unrestricted cash of over £30 million. As owners of community shopping centres, the re-imagination and leasing up of vacant space (such as former department stores) often requires capital expenditure and this forms an integral part of the Company’s business plan. Likewise, opportunities to generate capital receipts were implemented, most notably the sale of the Maidstone House office block for £7.1 million and addressing the final milestones to achieve the imminent sale of the Walthamstow residential development site for £20 million. In addition, we signed a strategic partnership with Far East Consortium during the year with the specific intention of identifying opportunities for collaboration and value creation across the portfolio and possibly to work together on new acquisitions. Rates of new lettings and lease renewals remained high across the portfolio, reflecting the fact that average rent levels at our centres remain more affordable than other more fashion-led retail locations and that retailers are attracted to the above-average footfall they capture. Of course, the excellent customer relations maintained by our team play a significant part in this process too. In total, 143 new leases and renewals were signed during the year, reinforcing our view that physical shop units remain a dominant part of the retail market, provided that rents are realistic and the environment is managed effectively to attract shoppers. Partly reflecting the success in leasing units, and partly acknowledging a sense in the investment markets that well-let centres may be over- discounted, we saw a stabilisation in values during the second half of 2021. Over the year, the total portfolio fell by 7.9% on a like-for-like basis to £473.1 million, but there is reason for cautious optimism about values going forward from a recalibrated rental base, as capital begins to focus on the sector. Snozone, as a leisure business, also faced challenges during the year but performed creditably and extended its operations to Madrid, where it took on the operation of the slope at the Xanadu Centre at minimal cost to the business, adding to a platform which is well-placed to rebound with the easing of Covid-19 restrictions. 06 capreg.comThe Board is well aware of the importance to shareholders of dividends. The financial circumstances in 2021 did not permit payment of a dividend, but as we emerge from the pandemic in our newly recapitalised position, we intend to resume dividend payments with the announcement of our Interim Results in the summer 2022. Tony Hales retired from the Board at the AGM after more than nine years of service, including a period as Senior Independent Director, and Louis Norval stepped down in December 2021 after 12 years as a major shareholder and supporter of the business. My thanks to both for their exceptional service. My Board colleagues were outstandingly supportive throughout the year, particularly in the run up to the recapitalisation where a number of meetings or calls were required at short notice. Finally, on behalf of the Board I wish to record our appreciation of the exceptional performance of all management and staff, on site and in our support office, during a very difficult year. The improved position of the Company at the end of 2021 is directly attributable to them. DAVID HUNTER CHAIRMAN 13 April 2022 Read more about Board activity during the year on page 69 07 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021BUSINESS OVERVIEWThe Market Backdrop Macroeconomic trends Covid‑19 & Our Communities The impact of Covid-19 on our communities and shopping destinations continued to be felt across the year. Lockdown rules took effect over the first quarter of the year, which materially impacted non-essential businesses’ ability to trade and shopper movement. While such restrictions eased thereafter, the majority of the year encompassed some form of restrictions on social distancing and gatherings, together with working from home guidance. Our centres, in the heart of local communities, have continued to play a pivotal role in serving the needs of their communities. Our focus on essential, everyday needs and services, with increasing food and supermarket anchoring has provided a resilient occupier base, with one-third of our retail customers able to trade throughout lockdowns. Centres have been able to provide convenient and safe shopping environments, together with providing access to essential services. Despite the well-publicised structural changes that retail has been navigating in recent years, coupled with the obvious benefits that online channels provided during lockdown and working from home periods, it was encouraging to see the speed at which our retail customers reopened stores post the easing of lockdown. Over 99% of our retailers forced to close through lockdown rules reopened, highlighting the obvious importance these business place on a physical presence in our centres and communities. Footfall has been recovering steadily but remains behind pre-pandemic levels. Social distancing measures in place across our centres impacted the volume of guests we were able to host, combined with continued cautiousness from the population while the risks of virus infection remained prevalent. However, lower visitor numbers have been balanced with different shopper spending profiles, with less frequent visits offset by a higher propensity to spend when visiting. Many retailers, as a consequence, are reporting sales levels that are back at, or ahead of, pre-pandemic levels. Where trading ability was compromised during lockdown periods, we proactively sought to provide rental support where business needs were greatest. This risk-sharing partnership was successful and as operating arrangements eased over the year, we were able to revert smoothly to more normalised contractual arrangements. Over the course of 2021, we have collected over 90% of rent and service charge sums to which we are contractually entitled, with ongoing collection levels starting to recover towards pre-pandemic levels. Our Investment Market Except for food store performance, all retail investment sectors have experienced challenging conditions since the last market peak in 2017. Structural uncertainties compounded by the impact of Covid-19 had a detrimental impact on investor sentiment, with limited investment activity and heavy consequent write-downs in asset values. Throughout 2021, sentiment and investor confidence improved as the outlook around Covid vaccinations and avoidance of further lockdowns became more positive. Government and landlord support measures enabled many retail and leisure occupiers to navigate the lockdown periods, with limited retail administrations and CVAs. Consequently, investment volumes have rebounded, with increasing evidence of yield and value stabilisation. Total deal volumes across the retail sector, as a whole, were estimated at £7.43bn over the year, reflecting a 69% improvement to 2020 equivalent numbers and only 3.5% below the 10-year average. The retail warehousing sub-sector showed particularly strong signs of recovery, with yields tightening markedly and investment volumes at £3.39bn accounting for approaching half of all retail investment activity. Demand for 08 capreg.comFollowing the weakest year in shopping centre investment transaction volumes for 25 years in 2020, 2021 saw an encouraging bounceback. 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 ) £ ( s e u a V l Investment activity in shopping centre market 19 9 5 19 9 6 19 9 7 19 9 8 19 9 9 2 0 0 0 2 0 01 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 010 2 011 2 012 2 013 2 014 2 015 2 016 2 017 2 018 2 019 2 0 2 0 2 0 21 Volume Average volume Number Average number of deals 180 160 140 120 100 80 60 40 20 0 N o . o f D e a l s Source: Savills research food stores remained strong with investors continuing to be attracted to the secure income and defensive qualities this sub-sector provides and its resilience to structural change, with online penetration at much weaker levels in comparison to, for example, fashion brands. the write-down in asset valuations since the last cycle peak in 2017; a lack of bank lending; and a focus on smaller assets, where a new pool of opportunistic equity investors have been actively acquiring with underlying repurposing and redevelopment strategies. Following the weakest year in shopping centre investment transaction volumes for 25 years in 2020, 2021 saw an encouraging bounceback. Turnover at £1.5bn, represented a recovery to levels typically seen in the three years immediately preceding the pandemic, albeit still well below historic long-term averages. Deal volumes showed a dramatic improvement, with 74 transactions completed over the year. Average shopping centre transaction values over 2021 equated to £20m, well below the long-term trend of £50m, but largely following the trends seen over the last 3–4 years. This has been driven by a number of factors, but principally As the year progressed, there were increasing signs of confidence in the shopping centre market, illustrated by a far greater depth of assets both being brought to the market and successfully transacting and a noticeable uptick in lot size, within both a £50–75m and £100–150m range – transaction levels that had been largely absent over the last 3–4 years. This has continued into 2022 and investors are able to underpin values as evidence. Trends in benchmark shopping centre yields have consequently responded to a more active market, with the second half of 2021 seeing stability in most yield groups – a clear improvement on the yield expansion witnessed over the first half of the year. 09 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORT 20% 10% 0% -10% -20% -30% -40% -50% -60% r a e y - n o - r a e y e g n a h c % Retail Economics Retail Sales Index - Food vs. Non-Food (value, non-seasonally adjusted, two-year growth) Food vs. Non-Food 6 1 - c e D 7 1 - r p A 7 1 - g u A 7 1 - c e D 8 1 - r p A 8 1 - g u A 8 1 - c e D 9 1 - r p A 9 1 - g u A 9 1 - c e D 0 2 - r p A 0 2 - c e D 0 2 - c e D 1 2 - c e D 1 2 - c e D 1 2 - c e D Total Non-Food (3m moving avg.) Food (3m moving avg.) Source: Retail Economics- Retail Sales Index A similar trend can be seen across essential spend categories generally, delivering consistent year-on-year growth relative to pre-pandemic levels and resilience in the face of macro-economic shockwaves. 19 9 5 19 9 6 -50 Q 1 2 0 2 3 Q 1 2 0 2 2 Q 3 2 0 2 2 Q 2 2 0 2 2 Q 4 2 0 21 A u g 2 0 21 J u n 2 0 21 Q 4 2 0 2 2 S e p 2 019 A pr 2 0 21 Ja n 2 0 21 J ul 2 0 2 0 F e b 2 0 2 0 A u g 2 019 F e b 2 0 21 A u g 2 0 2 0 O ct 2 019 J ul 2 019 S e p 2 0 2 0 M ar 2 0 2 0 D e c 2 0 21 J u n 2 0 2 0 N o v 2 019 Ja n 2 0 2 0 D e c 2 019 O ct 2 0 2 0 A pr 2 0 2 0 J ul 2 0 21 S e p 2 0 21 M ar 2 0 21 N o v 2 0 2 0 Essential spend YoY Non-essential spend YoY GfK Consumer Conﬁdence index ONS RPI Y0Y ONS RPI 5 year average (2016-2021) Source: Savills research, GfK, ONS, Barclaycard, Oxford Economics. Note:2021 consumer spend is compared to 2019 levels The Market Backdrop CONTINUED Macroeconomic trends Shopping centre valuations showed increasing signs of stability as 2021 progressed, with some centres seeing modest value improvements. These trends are, nevertheless, very asset specific and there remain material performance differentials between those assets that can demonstrate strong underlying fundamentals around location and purpose, occupancy and tenant mix, income stability and asset management potential, with those that do not. Our Consumer Trends We continue to proactively merchandise our community shopping offers towards essential, everyday good and services, anchored by the provision of food. We believe this mix provides resilience and relevance, providing stability against on-line structural pressures affecting discretionary spend and the wider macro- economic pressures that are coming to bear around inflation, energy prices and the impact this will have on disposable income. Resilience in retail sales in these essential areas is evident in sector sales growth over the two years of the pandemic, as the following table illustrates. Food, Health and Beauty, and Homewares are all key merchandise growth groups within our community offer, delivering positive sales growth compared to pre-pandemic levels and stark out- performance in comparison to other discretionary spend categories. -3.9% -8.5% 3.4% 0.7% 2.3% 9.2% 13.9% 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30 -35 -40 -45 / ) % ( d n e p s l i a t e r r a e y - n o - r a e Y x e d n I e c n e d ﬁ n o c r e m u s n o C -2.5% 0 Clothing Footwear Electrical DIY and Gardening Health and Beauty Food Furniture and Flooring Homewares Source: Retail Economics, Retail Sales Series – value, non-seasonally adjusted We continue to focus our leasing activity on enhancing our supermarket and fresh food options at every centre. We opened a new Lidl in Luton and have an ongoing pipeline of capex projects focused on increasing floor space and mix in this core sector. Growth in food sales has been consistently strong year on year, providing a staple essential service provision in each of our communities, driving footfall, spend and complementary leasing activity. 10 6% 5% 4% 3% 2% 1% 0% -1% R P I 9 y e a r - o n - y e a r D e c-19 D e c-2 0 D e c-21 c h a n g e ) -2% -3% -4% -5% -6% D e c-19 D e c-2 0 D e c-21 capreg.com team, with design and operational support, these entrepreneurial businesses provide a point of differentiation to their communities and the opportunity to evolve and grow in longer-term occupiers of retail space. We remain alert to the wider economic challenges that our retail customers face in the short term, including supply chain challenges, inflationary pressures and the tapering off of government pandemic support. We maintain close linkages with our customers to understand their business needs and pressures and the support we can give to assist growth. We remain confident, but not complacent, in our strategy and approach. We have underlying assurance in the resilience of our affordable occupancy cost model, with rents averaging £12-15 per square foot and a merchandise mix that is increasingly focused on essential everyday goods and service provisions. Our Occupational Markets We have seen continued resilience in occupational levels across our centres, but have not been immune to the structural changes facing physical retail, with the pace of change driven by the pandemic requiring a corresponding increase in pace in our remerchandising strategy. The failure of Debenhams during the first half of the year had a material impact on our occupancy levels, with stores in three of our centres. We were already anticipating a need to remerchandise away from these less relevant formats and have made early positive progress in reconfiguring and repurposing elements of these spaces to a range of different offers, more focused to community needs and typically paying rental levels that are, on a rent per square foot basis, a material step up from previous department store terms. Nearly all retail stores across the portfolio were quick to reopen following lockdown and, as occupier confidence rebuilds, we have seen annual leasing volumes at levels that are above 2019 equivalent levels. This trend aligns with research from Local Data Company, showing an improvement in the net balance of openings/closures, driven primarily by growth in convenience retail over the first half of 2021. We have seen a wider range of new community- aligned occupiers taking significant space across our portfolio, with notable occupiers including job centres and NHS medical facilities. We have seen continued demand from food and leisure offers, health and beauty and a range of independent businesses providing a wide spectrum of offers and a point of difference. The investment we have made in our commercial team is enhancing our leasing activity in this area, with strong local demand from mall kiosk operators, providing a rapidly growing pipeline of interesting uses and brands to complement our in-line retail units. Supported by our retail delivery We remain confident, but not complacent, in our strategy and approach. Read more about how we manage risk on pages 36 to 42 11 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTStrategy Debt restructuring transaction We took steps to strengthen the platform of the business, to allow us to take advantage of market recovery opportunities, enabling management to focus on delivering and scaling the core community centre strategy. Restructured • Agreement to acquire outstanding RBS balance of £100m of the Mall debt facility for £81m, with TIAA part-funding the acquisition by providing an additional facility of £35m • Agreement in principle on The Exchange – Ilford’s debt facilities subject to additional capex injection by Capital & Regional Refocused New classification into Investment & Managed Assets • Investment Assets (where Group has net equity): The Mall – Blackburn, Maidstone, Walthamstow, Wood Green, and The Exchange – Ilford • Managed Assets (where Group has no net equity): The Marlowes, Hemel Hempstead, and The Mall, Luton Recapitalised Capital raised to part fund the purchase of Mall debt facility. • Fully underwritten £30m Open Offer at 56p, representing a (10.4%) discount to 30-Day VWAP and a (2.4%) discount to last close • Growthpoint, (52% shareholder) irrevocably undertook to take up its Open Offer entitlement in full and fully underwrote the issue • Post-transaction, LTV on Investment Assets and Central Cash and Operations reduced to 49.7% 12 capreg.com Long-term strategy The structural changes in the retail sector continue to accelerate in the fallout from the Covid-19 pandemic. The importance and relevance of community shopping, and its clearly differentiated purpose, has only become clearer, reinforcing our belief and confidence in our overarching community shopping strategy and its future potential. Our long-term strategy is focused on our Community Centres vision. Our vision We aim to define and lead community shopping centres, through our passionate creation of vibrant retail spaces and exceptional customer and guest experience. To develop and deliver dynamic community hubs in the heart of town centres that provide a mix of uses including everyday services and facilities to satisfy our growing and evolving communities’ needs. To be more than just places to shop, but to operate hubs for the local community. Define Focus Define and own the community shopping centre category in the UK, guided by consumer insight and consistent with global best practice. We have refocused our business and resources with a revised management platform and operational structure that puts our centres at the heart of what we do. Position Enhance Actively remerchandise centres to increase exposure to growth and online-resilient categories, responding to consumer demand and differentiating from competition. Tailored to community requirements with focus on local, value, relevance, quality and total experience. The right offer drives footfall and dwell time, boosting retailer sales and ultimately letting tension, improving rental income, property values and consequently revenue and shareholder returns. Stock Code: CAL 13 Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTStrategy CONTINUED Long-term strategy Define Overview We define and assess our community shopping centre offer across three key aspects: Physical attributes including the location, size and dominance of the centre and its accessibility in terms of local transport links and parking provision. Products and services including the retail mix, the provision of grocery, leisure and service offerings and the quality of facilities. Differentiation being the ways in which a centre stands out as more than just a retail destination including the strength of community links, how well-tailored the offer is to the locality, how it contributes and measures on sustainability and in being a local employer of choice. Progress In line with our decision to reclassify our assets, we have highlighted the centres with the potential for clear value accretion from direct investment. Throughout the year, we undertook a rebranding of our Walthamstow centre to align its image to reflect the community it serves. The new name, 17&Central, is the result of continued efforts by the business to differentiate itself from other centres in the market and to remain relevant and appealing to the local community. We have been working to define and realise value from spaces that go underutilised across the portfolio, such as our car parks through forging a partnership with innovative partners like REEF technologies, ensuring that we maximise community exposure to modern goods and services. Future Focus Realising the underlying strengths of occupier resilience to online, affordable rental levels and the ability to profitably transition and merchandise to growth uses are yet to be fully reflected in terms of investment differentiation. Delivering performance metrics that support rental stability; demonstrate continued profitable remerchandising that strengthens our centres’ income profile; and ultimately conversion to strong footfall performance will all be key elements to create further investment differentiation and disconnection. Continuing to ensure the assets we manage and operate are the right ones to deliver our community centre strategy and are accretive for the business remains a key focus. The decision to re-classify both Luton and Hemel Hempstead reflect this. The executive team are looking at the best outcomes for these two assets and seeking out further opportunities to grow the Group’s asset pool. 14 capreg.comPosition Overview We believe retailers and communities are clear in their expectations for what they want to see from their Community Centres with a strong mix of everyday essentials including: • Grocery, pharmacy and general merchandise; • Catering options covering express food, great coffee and casual dining; • Personal services including health, beauty, dry cleaners, shoe repairs; and • Everyday value fashion, children’s wear and leisure. We are competing for our guests’ time against other physical destinations and online options, so making the experience as convenient and pleasurable as possible is critical. Progress With continued decline of the department store model and increased pressures on physical fashion, there is clear evidence of investors focusing on food store anchoring and appreciating the benefits of the low affordable rental dynamics of community shopping in delivering sustainable rent. We have made progress this year by continuing to evolve the balance of our shopping centres through active remerchandising. We have completed a number of lettings in the “Grab and Go” food space and opened a new Lidl supermarket at Luton. Pharmacy is now one of our largest income segments with the two market leaders amongst our top occupiers list. Further highlights include: • A new Job Centre in Ilford, replacing a portion of the former Debenhams space; • Two further deals with the Department of Work and Pensions at Blackburn and Wood Green; and • Developing a new food hall in Walthamstow. We continue to maintain affordable £12 per sq ft average rents to allow for tailoring to local communities. We are seeing continuing demand for space, exemplified by having completed more leasing transactions in 2021 than in 2019 and 2020 combined. Future Focus Our leasing focus remains aligned to our community merchandising pillars as we emerge from the Covid-19 pandemic. We continue our ongoing focus to deliver remerchandising and repositioning opportunities by reducing our portfolio exposure to at-risk categories, such as fashion and department stores, to different uses. We believe in growing the next generation of retailers and are proud of the support and guidance we are able to provide through our investments. By working with these retailers, we are encouraged to think and operate differently. We will continue to be mindful of the projects we plan for investment, balancing prudent capital management with commitments to those projects that will deliver optimum performance. 15 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTStrategy CONTINUED Long-term strategy Focus Overview Our centres are at the heart of what we do. Our business and resources are focused on enabling the strong management platform and operational structure to facilitate timely, responsive and optimal decision-making in the delivery of our overarching community centre strategy. Progress The implementation of key systems in the finance and property investment departments that had started in 2020, continued through 2021, placing significant demands on key finance staff in the business. Moving into year- end processes following implementation has been challenging, but overall, the new systems have resulted in highly positive and enhanced productivity. Robust controls and processes had been developed to preserve the quality of decision-making and speed of execution. We’re investing in our leasing capability and bringing different skill sets into our business to assist. We are recruiting individuals from non-traditional real estate backgrounds, and they are actively out on the ground in our local trade areas, sourcing retailers that fit with our research and data-driven knowledge of our local communities. Future Focus Our people and systems are the backbone of the business. We are constantly assessing areas for investment in our in-house management platform, our people, our systems and data insight as this remains essential to the successful delivery of, and growth of, our community strategy. Enhance Overview The right offer drives footfall and dwell time, boosting retailer sales and ultimately letting tension, improving rental income, property values and consequently revenue and shareholder returns. Progress We have continued to work with our existing portfolio to realise potential sales and recycle the resultant capital into redevelopment initiatives across the schemes. Highlights include: • The exchange and completion of Maidstone House office sale to local authority at the Mall, Maidstone. • A multi-phased comprehensive masterplan for redeveloping the Exchange, Ilford centre in response to this dynamic London borough evolving to become the heart of Redbridge. This is expected to deliver key improvements to the net operating income and overall merchandising mix and customer proposition. Future Focus Our people and resources are critical to the delivery of our community shopping centre strategy. We will aim to maximise the value of our assets through capital expenditure investment programmes planned to deliver a capital return over and above the income enhancement. This will put the Group in a position to proactively respond and grow as the market stabilises. 16 capreg.com17 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTStrategy in Action Rebranding The Mall, Walthamstow to 17&Central We have completed an exciting transformational rebranding of The Mall, Walthamstow to 17&Central, which has breathed new life into this rapidly growing London town ahead of the exciting planned mixed-use extension to the scheme. The introduction of the new rebranding has enhanced guest experience and positioned the centre to connect with our community strategy, providing goods and services that meet the evolving needs of a diverse and growing local community. A key part of these plans is the introduction of a new food court. In the wake of the fire at the centre in 2019, we took the initiative to repurpose and replace the former food court with a more tailored offering that would be more relevant to the evolving and diverse community. In order to make it relevant, we are engaging with high-quality occupiers to provide a new food hall, bar and community space incorporating competitive socialising, potential mixed leisure areas, such as fitness studios workspaces. This will maximise the use of the space and potential revenue, support footfall and encourage complementary merchandising opportunities. 18 capreg.comEnhancing grocery anchors In line with our Community Centre strategy, we continue to evolve our remerchandising with a pivot to more grocery anchors and reducing our exposure to at-risk discretionary retail sectors. At Luton, we expanded our grocery representation with the opening of a new unit for Lidl in October 2021, complementing Tesco as the second supermarket within the scheme. We are conscious of finding the right balance between national brands and local independent retailers, who have a deep understanding of their community. With this in mind, we have also brought in to the Luton centre a local Polish delicatessen, Delikatesy Smaczek. These retailers support our community strategy, generate footfall and frequency of visit, driving retailer sales and thus enabling us to achieve better leasing outcomes across the centre. Stock Code: CAL 19 Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTOur Business Model Community shopping centres are our specialism. Our core strength is enhancing through repositioning, managing and acquiring these types of assets. The impact of Covid-19 has increased uncertainty in a sector already undergoing significant structural change. Valuations declined in the first six months of the year but have shown signs of stabilising in the second half and capital values per sq ft are at levels that increasingly support accretive repositioning opportunities across a widening range of uses. Key resources Key activities 01 Experienced and agile management Through our expert management platform, we seek to generate and grow sustainable income and drive capital value growth by combining active asset management with operational excellence. 02 Strong capital structure We have continued to prioritise the preservation of cash. Each asset is held in order to generate sustainable income growth. When asset masterplans have been successfully executed and future returns are expected to become less accretive, we actively seek opportunities to recycle capital to allow us to reinvest into assets with greater growth potential. 03 Close relationships with communities The utilisation of partnerships with research/ benchmarking firms like CACI, alongside input from centre teams with regular engagement with retailers and local communities ensure our relevance to the communities in which we operate. 04 Diversified income streams The ability to evolve the Community proposition offer and to accelerate remerchandising into the shift from discretionary to non-discretionary retail and services. Assess product offering against local community needs and expectations Identify the right assets Community shopping centres are our core strength. Assets that typically meet our potential investment criteria are those that are underperforming in their catchment but have significant asset management opportunities. Establish strategic and comprehensive 3–5 year asset masterplans for each centre Engage specialist teams to ensure accelerated delivery with focus on optimal performance Post implementation reviews to refine processes and to inform future decision-making Underpinned by our ESG focus and our values Our ESG focus Environment People Community Read more about Our ESG focus on pages 48 to 63 20 capreg.com This has particularly been the case in London and the South East where our portfolio is most heavily weighted. Our focus has therefore remained on repositioning and remerchandising our existing portfolio and protecting income. In light of this focus, the Group has assessed its portfolio and reclassified two assets, Hemel Hempstead and Luton, as a result of them meeting the criteria to be classed as “Held for Sale”. Although neither asset has been sold at the time of writing, it is likely to occur during the year. As we emerge from the effects of the Covid-19 pandemic and cyclical pressures abate, coupled with an understanding of the continued critical role that physical stores have in the sale and distribution of goods and services, we believe that our assets and management expertise will afford Capital & Regional with an exciting opportunity as a potential consolidator of community and mixed-use retail assets in the UK. Value for stakeholders Shareholders By investing in diversified income streams and maintaining close links to our communities, this will drive long-term sustainable growth which will result in sustained shareholder return. As a UK REIT, this is an essential component. Retailer Customers and Occupiers By leveraging our experienced management platform and frequent, repeat footfall and high conversion rates coupled with affordable occupier costs. Our Employees We are a performance-led culture and by creating a dynamic and positive work environment, we will ensure the opportunity for staff to achieve the best from their careers. It will also allow for continuous development and training opportunities. Our Communities & Guests Ultimately, our business model aims to provide attractive retail and leisure environments, which are continually reviewed to enhance guest experience. We are passionate about creating vibrant community hubs for our guests, which also support local employment opportunities. Our Suppliers We work with a wide range of suppliers over the long term in order to make our business stronger, delivering a competitive edge. Our values INSPIRING CREATIVE THINKING Stock Code: CAL ENCOURAGING COLLABORATIVE ENGAGEMENT DELIVERING DYNAMIC SOLUTIONS ACTING WITH INTEGRITY LEADING IN SUSTAINABILITY WITHIN OUR COMMUNITIES 21 Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORT Key Performance Indicators Financial Adjusted profit1 Adjusted profit per share1,2 Dividend per share2 £8.1m £11.0m 2021 2020 2019 2018 2017 £27.4m £30.5m £29.1m 2021 2020 2019 2018 2017 6.8p 10.2p 2021 0p 2020 0p 2019 2018 2017 36.7p 42.3p 41.0p 21.0p 24.2p 36.4p Why we use this as an indicator Adjusted Profit seeks to track the recurring profits of the business which is the key driver for dividend payments. Why we use this as an indicator Adjusted Profit seeks to track the recurring profits of the business which is the key driver for dividend payments. Why we use this as an indicator This is the cash return to be delivered to investors in respect of the year under review. How this links to our strategy We target delivering a strong and sustainable income return. How this links to our strategy We target delivering a strong and sustainable income return. Progress during the year A decrease of 26% in Adjusted Profit or 33% on a per share basis reflected primarily a further fall in Net Rental Income largely driven by the impact of the Covid-19 pandemic. This has been experienced through the loss of non- contracted income, primarily car park, increased bad debt expense and the cumulative impact of lower Occupancy and CVAs and administrations. The movement from 2020 to 2021 also reflects the £4 million benefit of a surrender premium received in 2020. Progress during the year A decrease of 26% in Adjusted Profit or 33% on a per share basis reflected primarily a further fall in Net Rental Income largely driven by the impact of the Covid-19 pandemic. This has been experienced through the loss of non- contracted income, primarily car park, increased bad debt expense and the cumulative impact of lower Occupancy and CVAs and administrations. The movement from 2020 to 2021 also reflects the £4 million benefit of a surrender premium received in 2020. Adjusted Profit per share is also impacted by the dilutive impact of the new share issue completed in November 2021. Adjusted Profit per share is also impacted by the dilutive impact of the new share issue completed in November 2021. How this links to our strategy Dividends are a key element of shareholder returns. We aim to preserve strong income return to shareholders and meet our requirements under the REIT regime, balanced with managing cash within the business to fund investment in capital expenditure and mitigate the impact on leverage. Progress during the year Given the ongoing uncertainty and high debt levels within the business, a decision has been made not to declare a final dividend. Subject to market conditions, it is the Company’s intention to resume paying dividends in the second half of the financial year ending 2022. Link to strategy Enhance Link to risks 2 9 Link to strategy Enhance Link to risks 2 9 Link to strategy Enhance Link to risks 4 9 2 Net rental income EPRA net tangible assets per share2 Net debt to property value 2021 2020 2019 2018 2017 £29.0m £34.1m £49.3m £51.9m £51.6m 2021 2020 2019 2018 2017 102p 157p 364p 596p 666p 2021 2020 2019 2018 2017 65% 49% 46% 48% 46% Why we use this as an indicator This is the key driver of Adjusted Profit. How this links to our strategy Net Rental Income is the most critical component of our Adjusted Profit and the source for maintaining a strong and sustainable income return. Progress during the year Net Rental Income fell by 15% reflecting the impact of the closure of non-essential retail in the first quarter of 2021, as a result of the Covid-19 pandemic, and the factors outlined above. The Group also had a £4m surrender premium due, dating back to 2020. As noted, the 2020 metric included the benefit of a £4m surrender premium. Why we use this as an indicator This is a measure of the movement in the underlying value of assets and liabilities underpinning the value of a share. Why we use this as an indicator We aim to manage our balance sheet effectively with the appropriate level of gearing. How this links to our strategy We aim to maximise the value of our assets. Our capital expenditure investment programme is planned to deliver a capital return over and above the income enhancement. Progress during the year EPRA NTA fell by 56p due to half-year 2021 valuation decline and the impact of the recent £30m equity raise, net of the benefit from the discounted Mall debt repurchase. How this links to our strategy Having the appropriate level of gearing is important to effectively manage our business through the property cycle. Progress during the year Net debt to property value decreased significantly in the year from 72% to 49%, due to the restructuring of the Mall debt facility, the reclassification of the Managed Assets, the equity raise and disposal of the Maidstone House office block. Link to strategy Position, Focus Link to risks 6 9 2 Link to strategy Position, Enhance Link to risks 2 1 Link to strategy Enhance Link to risks 2 3 1 22 capreg.comNon-Financial Footfall 2021 2020 2019 2018 2017 C&R +8.5% / Index +5.7% C&R -41.6% / Index -45.3% C&R -3.2% / Index -4.9% C&R +1.2% / Index -3.5% C&R +0.1% / Index -2.8% Why we use this as an indicator Footfall is an important measure of a centre’s popularity with customers. Occupiers use this measure as a key part of their decision-making process. How this links to our strategy Footfall performance provides an indication of the relevance and attractiveness of our centres, influencing occupier demand and future letting performance. Progress during the year Footfall started the year significantly impacted by Covid-19 and the closure of non-essential retail in the first quarter of the year. Overall, it improved for 2021 against 2020, primarily due to the increase in operating months with the opening of non-essential retail from April 2021. The Group continued to outperform the national ShopperTrak index, by 6% in 2021. Link to strategy Define, Position Link to risks 9 2 Occupancy 2021 2020 2019 2018 2017 92.7% 92.1% 97.2% 97.0% 97.3% Why we use this as an indicator We aim to optimise the occupancy of our centres as attracting and retaining the right mix of occupiers will enhance the trading environment. How this links to our strategy Occupancy has a direct impact on the profitability of our schemes and also influences footfall and occupier demand. Progress during the year Occupancy has started to recover, having increased by 0.6% since the end of 2020 and having been 89.7% at 30 June 2021. The impact of the closure of Debenhams in the first quarter caused the drop during the year. New lettings at Blackburn, Ilford and Luton in the former Debenhams space has driven approximately 2% of the improvement to the year ended 2021. Link to strategy Define, Position Link to risks 5 9 2 Risk key 1 Property investment Market Risks 2 Impact of the Economic Environment 3 Treasury Risk 4 Tax and Regulatory Risks 5 People 6 Development Risk 7 Business Disruption from a Major Incident 8 Responsible Business 9 Customers & Changing Consumer Trends 10 IT & Cyber Security Notes 1 Adjusted Profit and Adjusted Earnings per share are as defined in the Glossary. Adjusted Profit incorporates profits from operating activities and excludes revaluation of properties and financial instruments, gains or losses on disposal, and other non-operational items. A reconciliation to the equivalent EPRA and statutory measures is provided in Note 9 to the financial statements. 2 Historic per share amounts have been restated to reflect the impact of the 10 for 1 share consolidation that completed on 15 January 2020. 23 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTChief Executive’s Review Strong leasing performance is driving a recovery in occupancy and rent collection is trending back to pre-pandemic levels. LAWRENCE HUTCHINGS CHIEF EXECUTIVE It is pleasing to be writing this statement having completed our Refocus, Restructure and Recapitalisation in late 2021. This has brought a number of benefits and some hard-fought stability to our business, following two years of challenges from the combined impacts of the pandemic and associated acceleration of structural changes impacting physical retailing. I would like to thank our major shareholder, Growthpoint, for its unwavering support of our business over the past two years, as well as the dedicated, talented team in our support office and, in particular, our front-line centre-based teams who have performed exceptionally. As we emerge from what appears to be the worst of the pandemic and with the Government now seemingly committed to driving a return to normality, we all share the considerable challenge of rebuilding our communities, lives, economy and businesses. We are looking forward to playing our part in this important task whilst also continuing to help address the arguably bigger existential threat posed by climate change. We take very seriously the central role we play in our communities as a large, and often the largest, employer and main provider of essential services or community infrastructure. As we look forward towards navigating a path of recovery, it is comforting to see greater clarity emerging in our operating environment, especially around digital disruption and the impact of online retailing. This has helped foster the beginnings of a change in sentiment toward the sector, which is reflected in the fact that valuations are stabilising, with two quarters of broadly flat capital values in the second half of 2021 marking the first time without a fall in valuations for four years. Moreover, improved sentiment can also be evidenced via the increased investment into the sector and a marked increase in the number of deals in the investment market. Our income has also stabilised, strong leasing performance is driving a recovery in occupancy and rent collection is trending back to pre-pandemic levels. These factors bode well for the Company and, in turn, the potential for the recovery of shareholder value. As we look forward towards navigating a path of recovery, it is comforting to see greater clarity emerging in our operating environment, especially around digital disruption and the impact of online retailing. Throughout the pandemic, the reputation of our business as an expert manager of retail environments continued to be reflected in our sector-leading statistics across all key indicators, including operational responsiveness, rent collection, leasing spreads and volumes and footfall. Furthermore, the strength of our relationships with our customers, local councils and other stakeholders was tested during the pandemic and I am pleased to say that many of these are now in an even stronger and better place. All of this is testament to the quality of our teams, their hard work and dedication and the community shopping centre strategy, which we launched in December 2017. Our focus is now firmly fixed on navigating a path towards pre-pandemic levels of footfall, income, adjusted profit and valuation. We are optimistic and excited, but also realistic about the task ahead. We understand that continuing to improve our customer and guest proposition, which provides essential services and goods to some of the UK’s most vibrant and diverse communities, will be fundamental to success and requires passion, empathy, energy, commitment and capital. We place a great emphasis on our responsibility to be a good corporate citizen and positive contributor to these communities. One of our corporate initiatives this year was to develop tailored “Community Wheels of Support” at each of our shopping centres to provide assistance to the most in need community groups/stakeholders, to make a difference to the lives of individuals in the communities we serve. I am proud to say we have supported over 167 local charities during 2021, assisting those less fortunate in a wide variety of areas. One of my personal favourites is Level Trust, a uniform supply and exchange charity in Luton that provides free school uniforms for families who otherwise could not afford to provide their children with the same clothing as their fellow pupils. Consistent with our Community Centre Strategy, we are proud to support a growing number of local and independent retailers, both through our focused leasing programme and by providing many of them with retailing and retail design skills. It is therefore most rewarding that several of these retailers have gone on to expand into multiple locations in our portfolio. 24 capreg.comWe have also continued our programme of growing the representation of grocery and pharmacy across our portfolio, with these sectors anchoring both our strategy and our centres. As a mark of progress, it is pleasing to see Boots and Superdrug are now among our top five retailers by income. In addition, we have expanded our personal services offering, including leading local hair and beauty salons, and our level of professional services, with the first of our NHS facilities due to open in Wood Green in 2022. This is an area where we plan to expand further, and we have a number of other NHS medical and diagnostic centres in varying stages of planning across our portfolio. These facilities provide essential services to our communities and form a key part of our drive towards creating sustainable “15-minute neighbourhoods”. Our Snozone leisure business was impacted by the restrictions again this past year and the team responded well, continuing to work tirelessly to mitigate the financial impact and provide the safest environment for our guests. The Xanadu, Madrid ski slope we added to the business in February 2021 has performed in line with expectations, despite Madrid being subject to further restrictions throughout the year. We are actively exploring a further expansion of Snozone in the ski and leisure sectors, leveraging the expertise and quality of the team. During 2021, we appointed external property and sustainability experts, JLL, to help formalise and prioritise the additional actions we need to take to meet our ESG targets and address the pressing issue of the climate crisis. With JLL’s support, we are developing our net zero carbon strategy to produce a pathway in line with the UKGBC’s best practice recommendations and the BBP Climate Change Commitment, quantifying and prioritising the necessary emission reductions out to our net zero carbon target year and beyond. The net zero carbon pathway will be published later this year and will provide us a clear and actionable implementation plan, mapped against our operations and businesses. We are currently undertaking a business-level and portfolio risk assessment to identify the climate-related risks most material to our business. This will support a greater understanding of the impacts and opportunities of these risks and inform our first response to the Task Force on Climate-related Financial Disclosures (TCFD) this year. We accept there is much we need to do to improve the impact of our assets on the climate change agenda and we are more committed than ever in our 40-plus-year history to achieving that objective. Our communities expect and deserve nothing less. Our own team at Capital & Regional, covering more than 150 people, remains vitally important to us and at the heart of that is our commitment to having a diverse and inclusive workplace. Future focus Looking forward, we are confident in our community centre positioning, which is focused on “needs” or “essential” retail and services. The recent early signs of a stabilisation in our valuations, supported by a considerable increase in investment market activity as investors return to the sector, coupled with our robust income and occupancy performance, is cause for further optimism. Furthermore, the strong levels of leasing we have achieved throughout the year, with more leases agreed than in the previous two years combined, on average above ERV, are a strong indication that retailers, as well as our customers, continue to recognise that affordable well-located, designed and managed local physical retail is an essential part of neighbourhood infrastructure. With this in mind, we believe that our community centre strategy is as relevant today as it was when we first announced this change of direction in 2017. The renewed positive backdrop and an increasing return to normal daily life post- Covid gives us the confidence to begin investing further capital into the right areas of our centres, accelerating their remerchandising and repositioning in line with our community centre model. We will continue to explore options to realise value through partial sales of non-core assets, like the Maidstone office building or Walthamstow residential site, and to partner with experts in their sectors including residential or car parking, which add value to our assets and stakeholders. It remains our intention to continue as a REIT, and as such resuming dividends, whilst being prudent and conscious of our balance sheet and the capital needs of our assets and business. We are looking forward to 2022 and playing our part in rebuilding our communities, economy, business and stakeholder value post pandemic. Thank you to all our shareholders for your support this past year. LAWRENCE HUTCHINGS CHIEF EXECUTIVE 13 April 2022 Read more about our engagement with stakeholders on pages 44 to 45 25 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTOperating Review Impact of Covid‑19 All seven of the Company’s community shopping centres remained open and trading within the government-enforced restrictions throughout the pandemic, providing essential services to the communities we serve and in line with our Community Centre strategy. Restrictions on trading, including the national lockdown, which lasted from 6 January 2021 until 12 April 2021, inevitably had an impact upon our operating and financial metrics; however, our strategic focus on local community centres providing non- discretionary and essential goods and services has mitigated the worst of that impact and provides the business with a sound platform for the future. Our overriding priority during this time has been the health, safety and protection of our colleagues, guests and customers. At all times, we have taken all available precautionary measures, while rigorously following the latest official government guidelines and advice across our portfolio. Access to our centres has been closely monitored through additional staff and existing footfall technology. When restrictions have been in place, we have carefully controlled visitor capacity to maintain social distancing and to protect visitors, occupiers and staff. New lettings, renewals and rent reviews New lettings Number of new lettings Rent from new lettings (£m) Renewals settled Renewals settled Total resulting annual rent (£m) Combined new lettings and renewals Comparison to previous rent1 Comparison to ERV at December 20201 12 months to December 2021 12 months to December 2020 89 £4.0m 54 £1.2m +7.3% +15.6% 40 £1.2m 23 £1.3m +22.1% +5.6% All seven of the Company’s community shopping centres remained open and trading within the government- enforced restrictions throughout the pandemic. 1 For lettings and renewals (excluding development deals and CVA variations) with a term of 5 years or longer which do not include turnover rent or service charge restrictions. 26 capreg.com143 new lettings and renewals were completed during the period at a combined average premium to previous rent of 7.3%1, which is even more pleasing given the significantly disrupted trading environment. This level of success was also significantly above the 66 deals completed in 2019 and the 63 in 2020, meaning we completed more deals than in the previous two years combined. We are also close to signing an agreement for lease with the NHS for a community healthcare centre at The Exchange, Ilford. This will be a flagship project, providing a new 20,000 sq ft purpose-built facility that is expected to open to the public in 2024. Rental income and occupancy This increase in deal volumes is a result of the direct investment we have undertaken into our in-house leasing platform to specifically and strategically target local independent operators. Through our on-the-ground ties to our local communities, we have seen first-hand the trend of positive growth amongst this group and have correspondingly been able to reposition space that has not previously been income producing, providing them with a physical location while also expanding our offering of essential local services. A key focus of leasing activity in 2021 has been on remerchandising our centres to alternative community uses in line with our strategy. Highlights include new lettings to the Department for Work and Pensions for Job Centres at Blackburn and Ilford, where they have taken space in part of the former Debenhams units, as well as at Walthamstow. At Wood Green, we signed a 15-year lease agreement with Whittington Health NHS Trust to open a state-of-the-art Community Diagnostics Centre and also agreed deals for new health and beauty clinics to different independent local operators at Luton, Walthamstow and Wood Green. We also completed a number of lettings in the “Grab and Go” food space, including new units to Jamaica Blue at Ilford, Sizzle & Stone at Wood Green and Miss Millies and Subway at Walthamstow. In Wood Green, we signed deals with REEF Technology for dark kitchens and last mile logistics, further reflecting our ability to maximise the utilisation of space at our centres in new ways, and in Luton, we opened a new Lidl supermarket in October 2021. As referenced above, we have made good progress reletting the three Debenhams stores in our portfolio after they ceased trading in March 2021. At Blackburn, the Job Centre letting comprises approximately 15,000 sq ft of the space and we are exploring options to potentially upsize an existing tenant into the remainder. At Luton, furniture specialist VFM opened in October 2021 taking the entire former Debenhams unit, covering costs with a turnover top-up. At Ilford, we are in process of dividing up the unit across its three floors. The majority of the top floor space has been converted into a 22,000 sq ft Job Centre that opened in early February 2022 and we expect to sign an agreement for lease imminently with a major national retailer to relocate from elsewhere in the centre to take the middle floor. Occupancy (%) Contracted rent (£m) – like for like Passing rent (£m) – like for like 30 December 2021 92.8 50.9 48.2 30 December 20201 92.1 50.6 49.6 1 30 December 2020 comparatives restated to remove rent in respect of the Edmonds Parade (Hemel Hempstead) and Maidstone House (Maidstone) properties which were disposed of during the year. Occupancy is 0.7% higher than at the end of 2020 and has increased by 3.1% since 30 June 2021, with the impact of the new lettings at Blackburn, Ilford and Luton in the former Debenhams space driving approximately 2% of the improvement. Allowing for the disposals of the Edmonds Parade (Hemel Hempstead) and Maidstone House (Maidstone) properties during the year, passing rent fell by 2.8% but contracted rent marginally increased. There is over £1 million of contracted rent that is due to convert to passing rent during the first quarter of 2022. Operational performance In total, there were 47.7 million shopper visits across the portfolio during 2021. This was 8.5% higher than in 2020 and outperformed the national index by 5.7%, reflecting the relative strength of the convenience based and relevant offering we have been strategically building for our communities over the last number of years. Due to government-imposed lockdown measures, shopper visits in 2021 were 36% lower than 2019, driven particularly by the period up to 12 April 2021 when the pandemic restrictions were at their most stringent. Up until 12 April 2021, the date on which non-essential retailers were able to re-open, approximately one third of leased units were open and trading and footfall was at approximately 30% of the equivalent weeks in 2019. Since then, footfall has typically fluctuated to between 70% and 80% of 2019, with the improving momentum seen in the autumn months tempered by the outbreak of the Delta and Omicron variants towards the end of the year. Footfall in the two months to the end of February 2022 has been equivalent to approximately 76% of the corresponding weeks in 2019. 27 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTOperating Review CONTINUED Rent collection Rent collection remained a significant area of focus for our team during 2021. Our retailer customers’ ability to trade was impacted throughout the year by the government-enforced restrictions, especially in the first half of 2021. The Government’s extension of the rent moratorium also compromised the measures that would normally be available to us as a last resort to protect our contractual positions. We therefore proactively dedicated significant resource to this effort, assembling a team from across the business to engage with and best utilise our tenant relationships at all levels. Throughout the pandemic we have worked closely with our retailers to understand the specific impact of Covid-19 on their individual businesses, seeking to come to agreements that both amicably resolve the position and appropriately share the cost of periods when retailers have been unable to operate. These agreements have typically provided some form of modest concession to the tenant in return for settling the remainder of their rent arrears and the full amount of their service charge obligations. In respect of the 2021 financial year, we have received or agreed formal payment plans for 93% of the rent billed. Total concessions granted in the year equate to £2.5 million before VAT, representing approximately 5% of the total rent billed. In the year-end accounts, we have made provisions for more than half of the remaining balance due. Rent collection for the first quarter of 2022, including monthly invoices for January and February 2022, is running at 95%. The table below provides further detail: Rent collected Payment plans Total Outstanding Bad Debt Rent concessions Total billed Rent collection 12m to 30 December 2021 Rent collection Q1 2022 £m 45.0 2.3 47.3 0.9 0.3 2.5 51.0 88.1% 4.5% 92.6% 1.8% 0.7% 4.9% 100% £m 10.1 – 10.1 0.5 – 0.1 10.7 94.7% – 94.7% 4.9% – 0.4% 100% Amounts include VAT, amounts billed for Q1 2022 are up to end of February 2022 as at 8 March 2022. Capital expenditure investment In light of the COVID-19 pandemic and balance sheet pressures, we have prudently focused capital expenditure on those projects driving immediate income returns, or those with strategic priority. In total, £8.9 million was invested during 2021, with primary projects being the progression of the Walthamstow residential opportunity (£4.3 million); the creation of a new Lidl unit at Luton (£1.7 million in the year); car park upgrade works to support the introduction of REEF at Luton and Wood Green (£0.5 million); and £0.5 million across Blackburn and Ilford to form the new Job Centres out of the former Debenhams units. The rebuild of the area at Walthamstow affected by the fire in July 2019 completed in Q1 2021 and included the creation of a new mezzanine food court level. Walthamstow residential opportunity We are now in the final stages of clearing the remaining pre-conditions on the Walthamstow residential opportunity to facilitate the land receipt of c.£20 million payable by our residential partner, Long Harbour. At the end of 2021, planning consent was confirmed following the expiry of the statutory Judicial Review period. The consent enables phased development of 495 high rise Build to Rent residential apartments, to be developed by Long Harbour; 43 low-rise private sale residential apartments; 47,000 sq ft of commercial floor space and a new station entrance to the Victoria Line underground station. Since the year-end, we have concluded terms that deliver vacant possession on all units required to unlock the development site and have commenced enabling works to relocate affected utilities and infrastructure. We have also agreed the principal form of the development agreement and headlease documentation with the local authority. We anticipate achieving full unconditionality with Long Harbour in the coming weeks, which will trigger the release of the capital payment to us and an anticipated start on site for the high rise residential construction by mid- year 2022. Strategic residential development partnership In September 2021, we announced that we had signed an exclusivity agreement with a subsidiary of Far East Consortium International Limited (FEC) to work together to identify and develop new residential opportunities across the Group’s portfolio of shopping centres. FEC is an international real estate conglomerate that is listed in Hong Kong and active across Australia, Singapore, Hong Kong and the UK, with a strong track record in residential development. 28 capreg.comWhile the primary aim of the partnership is to facilitate projects that will enhance asset value and/or generate potential land receipts for real estate in the current Capital & Regional portfolio, we have also been assessing opportunities for new projects where the collective expertise and resources of the partnership can be deployed. We are pleased with how the partnership is progressing and a number of options are currently being explored. Snozone Due to government lockdown restrictions in the UK, which only began to ease from 12 April 2021, Snozone was unable to operate during its peak trading period of the first quarter of the year. The requirement to maintain social distancing measures, which only lifted from mid-July 2021, limited slope capacity to approximately half. Trading was further impacted by Snozone restaurants not being able to open and clothing hire not being offered during the period while restrictions were in place. However, when restrictions lifted in the second half of the year, we saw paying usage bounce back to around 80% of the equivalent trade for 2019, with lower levels of school, corporate and holiday camps largely accounting for the difference, especially towards the end of the year as concerns over the Omicron variant heightened. Results for the period were supported by the receipt of a £2.5 million insurance payment under a pandemic insurance policy that the business has maintained since 2017. A negotiation and extension of the Snozone leases on its Yorkshire and Milton Keynes sites has reduced the annual cash payments by approximately £0.35 million. In February 2021, Snozone took over the operations of the ski slope in the Xanadu Shopping Centre in Madrid, acquiring the operating entities for a nominal value of €2.00. The slope in Madrid has traded throughout the period, although social distancing restrictions in Spain reduced footfall by approximately half and, in similarity to the UK, corporate and school activity was much reduced. Snozone recorded an EBITDA for the year of £0.8 million (2020: loss of £1.7 million), supported by the insurance payment. Snozone’s IFRS loss of £0.3 million (2020: loss of £2.4 million) was adversely impacted relative to prior years due to the renegotiated Yorkshire and Milton Keynes leases which, under IFRS 16, resulted in a significantly increased depreciation and amortisation charge of £2.5 million (2020: £2.2 million; 2019: £0.3 million) despite the annual cash rent reducing. The loss for the year was mitigated, however, by a £1.4 million VAT rebate following the successful pursuit of a historic claim that delivered a favourable ruling over the treatment of revenue related to lift passes. This will have an ongoing benefit of approximately £0.25 million per annum. 29 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTFinancial Review The Group has taken the decision not to declare a final dividend. It is the Company’s intention to resume paying dividends from the second half of the financial year ending 2022. STUART WETHERLY GROUP FINANCIAL DIRECTOR Profitability Statutory Revenue Net Rental Income1 (NRI) Adjusted Profit1, 2 Adjusted Earnings per share (Basic) 1, 2 IFRS Loss Basic Earnings per share EPRA cost ratio (excluding vacancy costs) Net Administrative Expenses to Gross Rent Investment returns Net Asset Value Net Asset Value (NAV) per share EPRA NTA per share Dividend per share Financing4 Group net debt Group net debt to property value Average debt maturity3 Cost of debt Adjusted Profit – 30 December 2021: £8.1 million (30 December 2020: £11.0 million). 2021 20202 Change £70.0m £29.0m £8.1m 6.8p £72.7m £34.1m £11.0m 10.2p -3.7% -15.0% -26.4% -34.3% £(26.4)m £(203.9)m +£177.5m (22.0)p (188.8)p +166.8p 47.8% 27.7% 42.6% 20.2% +5.2% +7.5% £168.4m £167.1m +£1.3m 102p 102p – 150p 157p – -48p -55p – £185.3m 49% 5.4 years 3.74% £345.1m -£159.8m 65% -16 pps 4.4 years +1.0 years 3.41% +33 bps 1 Adjusted Profit, Adjusted Earnings per share and Net Rental Income are as defined in the Glossary and Note 1 to the financial statements. A reconciliation to the statutory result is provided further below. EPRA figures and a reconciliation to EPRA EPS are shown in Note 9 to the Financial Statements. 2 The 2020 results have been restated for a prior year adjustment of £0.7 million resulting from the treatment of Software as a Service (SaaS) configuration costs as explained in Note1 to the financial statements. Adjusted Profit has also been restated to reflect a change in the presentation of Snozone results following the adoption of IFRS16. 3 Assuming exercise of extension options. 4 Metrics exclude loans in respect of Hemel Hempstead and Luton following reclassification as Held for Sale (see Note 10 to the condensed financial statements). 30 capreg.comUse of Alternative Performance Measures (APMs) Throughout the results statement we use a range of financial and non-financial measures to assess our performance. The significant measures are as follows: Alternative performance measure used Adjusted Profit Rationale Adjusted Profit is used as it is considered by management to provide the best indication of trading profits and hence the ability of the business to fund dividend payments. Adjusted Profit excludes revaluation of properties, profit or loss on disposal of properties or investments, gains or losses on financial instruments, charges in respect of long-term incentive awards and other non- operational one-off items. Adjusted Profit includes EBITDA from Snozone (see definition further below). This is a change during the year arising from the adoption of IFRS 16 and the signing of new lease agreements on Snozone’s two UK sites. We consider that the combination of these two factors mean that Snozone’s statutory profit no longer alone provides a full reflection of Snozone’s trading performance and hence have introduced this additional Alternative performance measure. The key differences between Adjusted Profit and EPRA earnings, an industry standard comparable measure, relates to the exclusion of non-cash charges in respect of share-based payments and adjustments in respect of other items where EPRA is prescriptive. Adjusted Earnings per share is Adjusted Profit divided by the weighted average number of shares in issue during the year excluding own shares held. A reconciliation of Adjusted Profit to the equivalent EPRA and statutory measures is provided in Note 9 to the condensed financial statements. Like-for-like amounts Like-for-like amounts are presented as they measure operating performance adjusted to remove the impact of properties that were only owned for part of the relevant periods. For the purposes of comparison of capital values, this will also include assets owned at the previous period end but not necessarily throughout the prior period. In the current year, like-for-like comparisons have been used to adjust for the impact of the disposals of the Edmonds Parade and Maidstone House properties within the Hemel Hempstead and Maidstone shopping centre assets that were completed in June 2021 and December 2021 respectively. Net Debt Net debt is borrowings, excluding unamortised issue costs, less cash at bank. Cash excludes cash held on behalf of third parties (e.g. in respect of service charges or rent deposits). Net debt to property value Net debt to property value is debt less cash and cash equivalents divided by the property value. Net Rent or Net Rental Income (NRI) Net Rental Income is rental income from properties, less provisions for expected credit losses, property and management costs. It is a standard industry measure. A reconciliation to statutory turnover is provided in Note 3 to the financial statements. Snozone EBITDA (change in 2021) Snozone EBITDA is based on net profit. It excludes Depreciation, Amortisation, (notional) Interest, Tax and non-operational one-off items. It includes rent expense, based on contractual payments adjusted for rent-free periods. This provides a measure of Snozone trading performance which removes the profiling impact of IFRS 16 that would otherwise see a significantly higher charge in early years of a lease and significantly lower net charge in later years. A reconciliation to the IFRS net profit is included within Note 2 to the financial statements. Reporting Segments In its Interim Results for the six months ended 30 June 2021, the Group made a change to its reportable segments reflecting the position of its shopping centre investments and mirroring how information is being reported to the Board. As a result, it split out what was previously referred to as Shopping Centres into “Shopping Centres – Investment Assets” and “Shopping Centres – Managed Assets”. Shopping Centres – Investment Assets incorporates the centres at Ilford and within The Mall loan facility; namely Blackburn, Maidstone, Walthamstow and Wood Green. These represent the asset pools where the Group retains net equity and is focused on long-term solutions for the loan positions potentially involving the investment of further capital. Shopping Centres – Managed Assets incorporates Hemel Hempstead and Luton where the current loan balances in the non-recourse SPV structures exceed the respective property values and therefore the Group has negative equity and the substance of the Group’s involvement is as a manager. This split has been reflected in the presentation of the results at the year-end with the prior-year comparatives amended on the same basis. 31 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTFinancial Review CONTINUED Reclassification as assets and liabilities held for sale As at 30 December 2021, the Group concluded that the two assets which were reclassified as “Managed Assets” within the Group’s half-year results at 30 June 2021, Hemel Hempstead and Luton, met the criteria to be reclassified as “Held for Sale”. This conclusion was reached as the Group, following close dialogue with the respective lenders of the vehicles, had decided to seek to dispose of whole or part of the investments or assets as at that date. While no transaction has been agreed as at the time of results, it is viewed as highly probable that it will be concluded within 12 months of the balance sheet date. In the Group’s accounts, this has resulted in all assets and liabilities associated with the respective investments being reclassified to separate lines of “Assets classified as held for sale” and “Liabilities classified as held for sale”. The reclassification has been measured at the lower of expected net sale proceeds and current carrying value. Given each of the investments is in a net liability position and that the Group would not expect to realise any proceeds from a disposal (nor be obligated to clear the net liabilities), the reclassification has been made at their fair values being the same as the year end carrying value. The following are the amounts in the year-end balance sheet: Amounts in £m Assets classified as held for sale Liabilities classified as held for sale Net liability in respect of held for sale Hemel Hempstead 21.9 (34.5) (12.6) Luton 124.5 (131.3) (6.8) Total 146.4 (165.8) (19.4) For the financial year ended 30 December 2022, any income, costs and changes to asset and liabilities in respect of Hemel Hempstead and Luton until they are disposed of will be reflected as movements within the categories of Assets and Liabilities held for sale. Any Asset Management fees received from the two investment vehicles, which have previously been eliminated on consolidation, will be shown as external fees. We will exclude the results of Hemel Hempstead and Luton, except for Management fees, within our Adjusted Profit metric for the year ended 30 December 2022. Profitability Components of Adjusted Profit and reconciliation to IFRS Profit Amounts in £m Shopping Centres – Investment Assets: Net Rental Income Shopping Centres – Investment Assets: Interest payable Shopping Centres – Investment Assets: Contribution Shopping Centres – Managed Assets: Contribution3 Snozone EBITDA (indoor ski operation) profit/(loss) Central Interest net of investment income External management fees Central operating costs Variable overhead Current Year Tax credit Adjusted Profit Adjusted Earnings per share (pence)2 Reconciliation of Adjusted Profit to statutory result Adjusted Profit Property revaluation (Loss)/Profit on disposal Snozone depreciation and amortisation Snozone notional interest (net of rent expense within EBITDA) Gain/(loss) on financial instruments Corporation Tax charge in lieu of dividends VAT rebate within Snozone Long-Term incentives Gain on discounted loan purchase (net of costs) Other items (including transaction costs) Loss for the period Year to December 2021 Year to December 20202 21.5 (10.8) 10.7 2.1 0.8 (0.2) 2.4 (6.8) (0.9) – 8.1 6.7p 8.1 (49.2) (2.5) (2.5) 0.5 5.9 (3.1) 1.4 (0.9) 18.4 (2.5) 20.2 (11.4) 8.8 8.3 (1.7) 0.1 2.3 (7.0) – 0.2 11.0 10.2p 11.0 (208.3) 0.4 (2.2) 1.5 (5.0) – – (0.4) – (0.9) (26.4) (203.9) 1 EPRA figures and a reconciliation to EPRA EPS are shown in Note 9 to the financial statements. 2 The 2020 results have been restated for a prior year adjustment of £0.5 million resulting from the treatment of Software as a Service (SaaS) configuration costs as explained in Note1 to the financial statements. Adjusted Profit has also been restated to reflect a change in the presentation of Snozone results following the adoption of IFRS16. 3 The 2020 results reflect the £4.0 million benefit of surrender premiums received. 32 capreg.comAdjusted Profit – 30 December 2021: £8.1 million (30 December 2020: £11.0 million) Shopping Centres – Investment Assets: Net Rental Income was £21.5 million compared to £20.2 million in 2020 driven by lower bad debt charge net of rent concessions of approximately £1.3 million. Interest payable reduced reflecting the reduction in debt following the restructuring of the Mall loan facility that completed in November 2021. Shopping Centres – Managed Assets: Contribution fell from £7.8 million to £2.1 million primarily as a result of the 2020 numbers including a £4.0 million benefit from a surrender premium in respect of a major unit in Luton. Snozone EBITDA was £0.8 million compared to a £1.7 million loss in 2021. Snozone was unable to trade in the UK until the 12 April 2021 and social distancing requirements impacted services thereafter, although results were supported by the benefit of a £2.5 million pandemic insurance payment. Central operating costs fell from £7.0 million to £6.8 million reflecting efficiency improvements to the central cost structure. Variable overheads include bonuses which were not paid in 2020. Adjusted Earnings per Share for the period were 6.8 pence (30 December 2020: 10.2 pence) reflecting the fall in Adjusted Profit and the higher number of shares for part of the year following the equity raise completed in November 2021. IFRS loss for the period – 30 December 2021: £26.0 million (30 December 2020: Loss of £204.1 million) The key elements driving the overall loss for the period of £26.0 million outside of Adjusted Profit were: • Property revaluation loss of £49.2 million (2020 – £208.3 million). The rate of decline in property valuations slowed in the first half of the year relative to 2020. Valuations were then broadly stable in the second half of 2021 as detailed in the Property Portfolio Valuation section below. The loss on disposal of £2.5 million (2020 – profit of £0.4 million) relates to the difference between the sale prices of the Edmonds Parade and Maidstone House offices assets and the valuation at the start of the period. The gain on financial instruments of £5.9 million (2020 – loss of £5.0 million) is a result of the revaluation of interest rate swaps reflecting movements in future interest rate expectations. • • • A £3.1 million Corporation Tax charge arising from the Company having not met the minimum PID distribution requirements following the suspension of the dividend since June 2020. • A receipt of £1.4 million in Snozone following a favourable ruling over the VAT treatment of revenue related to lift passes. • The £18.4 million gain (after costs) on the discounted loan purchase arose from acquiring £100 million of debt in respect of the Group’s Mall loan facility for a discounted amount of £81 million. Dividends No interim dividend was paid in 2021 (2020: nil). Mindful of having recently raised new equity and to help reduce debt levels and maximise cash flexibility, the Group has taken the decision not to declare a final dividend. It is the Company’s intention to resume paying dividends from the second half of the financial year ending 2022, in line with its previous dividend policy which was to distribute on a semi-annual basis (in the approximate proportions of 45/55 and in that order in respect of each financial year) not less than approximately 90 per cent of the Company’s EPRA earnings. A UK REIT is expected to pay dividends (PIDs) of at least 90 per cent of its taxable profits from its UK property rental business by the first anniversary of each accounting date. As a consequence of not having paid a dividend since the final dividend for the year ending 30 December 2019, which was paid in June 2020, the Group did not meet the minimum PID distribution requirement for 2019 or 2020. The Group had agreed with HMRC a 12-month extension to the 2019 deadline until the end of 2021 but, having not paid a dividend during 2021, the Group paid £2.5 million in December 2021 to settle the tax outstanding on the estimated shortfall of approximately £13 million in respect of the 2019 and 2020 financial years. This brings the Group effectively up to date in its REIT compliance. At 30 December 2021, the Company does not have sufficient distributable reserves to declare a dividend. The Company plans to undertake a capital reduction exercise for which it will seek shareholder approval at the 2022 AGM in order to create sufficient distributable reserves. 33 Read more about our financial performance on pages 122 to 161 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTFinancial Review CONTINUED Balance Sheet Property portfolio valuation Property at independent valuation Blackburn Maidstone Walthamstow Wood Green Ilford Investment Assets Luton Hemel Hempstead Managed Assets 30 December 2021 30 December 2020 £m 38.2 36.2 100.4 148.9 56.4 380.1 82.5 10.5 93.0 NIY % 12.10% 10.44% 5.84% 7.33% 5.86% 7.78% 11.00% 12.49% 10.66% NEY % 13.24% 11.22% 6.55% 6.88% 7.99% 8.64% 11.05% 18.20% 12.63% £m 40.6 46.0 106.6 158.0 60.0 411.2 92.5 23.3 115.8 NIY % 13.17% 10.67% 5.17% 6.71% 5.30% 7.28% 9.8% 10.00% 9.80% NEY % 12.23% 10.75% 6.15% 6.43% 7.49% 7.99% 9.50% 12.69% 10.65% The valuation of the Investment Assets portfolio was £380.1 million, at 30 December 2021. Adjusting for the sale of the Maidstone House office block for £7.1 million that completed in December 2021, this represented a decrease of 5.7% from 30 December 2020. Having suffered a decline of 6.4% in the first half of 2021, valuations stabilised from 30 June 2021 with the second half of the year seeing a 0.8% improvement on a like-for-like basis. The valuation of the Group’s Managed Assets fell from £115.8 million at 30 December 2020 to £93.0 million at 30 December 2021, a fall of 15.8% adjusting for the sale of the Edmonds Parade block within Hemel Hempstead that completed for £4.65 million in June 2021. Mall debt restructuring and equity raise On 12 November 2021, the Group completed a restructuring of its Mall loan facility. The Mall Facility had comprised of a £265 million debt facility with RBS and TIAA secured over the Four Mall Assets, being the Mall Blackburn, the Mall Maidstone, the Mall Wood Green and the Mall Walthamstow. TIAA previously held a balance of £165 million and RBS a balance of £100 million. Under the restructuring, the Group acquired the £100 million of debt outstanding with RBS for a principal amount of £81 million, representing a discount of £19 million. This was funded through a combination of: • TIAA agreeing to acquire from the Group £35 million of the RBS Debt acquired for £35 million, increasing its lending in the facility to £200 million; • An equity raise of £30 million (before costs) that completed on 5 November 2021; and • Existing cash resources of £16 million. In effect, this meant the Group acquired £65 million of debt for £46 million hence an effective discount of c.29%. The transaction resulted in a one-off gain of £18.4 million, being the benefit of the discount less directly associated costs. Net Asset Value Over the year, Net Asset Value increased from £167.1 million to £168.4 million due to the impact of the new £27.1 million of equity raised (net of costs) and the overall loss for the year of £26.4 million. On a per share basis, Basic NAV per share and EPRA NTA per share were each 102p, representing declines of 48p and 55p respectively due to the dilutive impact of the enlarged share base (December 2020: 150p and 157p respectively). Financing The Group has taken critical action during the year to bring down debt levels by refocusing the portfolio, completing the restructuring of its largest debt facility and raising £30 million of new equity. In combination, this has resulted in Net Loan to Value reducing to 49% at the year-end from 65% at 30 December 2020 and 72% at 30 June 2021. Excluding Hemel Hempstead and Luton, where all assets and liabilities have been reclassified as “Held for Sale” at the year-end (as detailed above), the Group has two non-recourse asset secured loan facilities being The Mall and Ilford as detailed in the table below. 30 December 2021 The Mall Ilford Central Cash On balance sheet debt Debt¹ £m 200.04 39.0 – 239.0 Cash² £m (17.2)4 (4.0) (32.5) (53.7) Net debt £m 182.8 35.0 (32.5) 185.3 Loan to value3 % Net debt to value3 % 62% 69% – 63% 56% 62% – 49% Average interest rate % 3.93 2.76 n/a 3.74 Duration to loan expiry Years Duration with extensions Years 5.1 2.2 n/a 4.6 6.1 2.2 n/a 5.4 Fixed % 82.5 100 n/a 85 1 Excluding unamortised issue costs. 2 Excluding cash beneficially owned by tenants. 3 Debt and net debt divided by investment property at valuation. 4 On 11 January 2022, £7.1 million of cash, being the proceeds from the Maidstone House office sale, was applied to reduce the debt outstanding. 34 capreg.comThe Mall Following the restructure that completed in November 2021, the Mall facility consists of two tranches both held with TIAA: • • Facility A – £165 million fixed rate loan at 3.45% Facility B – £35 million floating rate loan at SONIA +6%. The two facilities mature in January 2027 but have one-year conditional extension options. Facility B, which was drawn to assist with funding the acquisition of the previous RBS facility, has no early repayment penalties. The loan was reduced by £7.1 million to £27.9 million on 11 January 2022 using the proceeds from the Maidstone House disposal that were received in late December 2021. As part of the November 2021 restructuring of the facility, TIAA provided a waiver of all financial covenants for two years until November 2023. Cash trap provisions within the loan agreement have also been modified for 18 months until May 2023. Ilford The Group has a £39 million facility secured on the Ilford Exchange shopping centre with Dekabank Deutsche Girozentrale. The loan is fixed at an all-in rate of 2.76% and is due to mature in March 2024. The Group has an existing covenant waiver that expires in April 2022. Discussions are well-advanced with the lender to agree a longer-term modification of the covenants, covering at least the next 18 months, linked to funding the major asset management initiatives at the asset, being the planned medical centre and the re-letting of the Debenhams anchor unit. South African secondary listing The Company maintains a primary listing on the London Stock Exchange (LSE) and a secondary listing on the Johannesburg Stock Exchange (JSE) in South Africa. At 30 December 2021, 7,690,574 of the Company’s shares were held on the JSE share register, representing 4.7% of the total shares in issue. STUART WETHERLY GROUP FINANCE DIRECTOR 35 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTManaging Risk CONTINUED Risk Management Approach The Audit Committee is delegated the authority for overseeing the effectiveness of the risk management process by the Board and is accountable for reporting on the identification of principle and emerging risks to the business. Ultimate responsibility for the oversight of risk management within the Group remains with the Board. The Board defines the risk appetite of the Group, establishes a risk management strategy and is responsible for maintaining a robust internal controls system. The Board formally reviews and signs off the Group’s risk register on a six-monthly basis. Emerging risks are considered as part of this process or on an ad hoc basis in instances, such as the outbreak of the Covid-19 pandemic, where the risk is of sufficient significance to require a separate discussion. Risk management process There are a number of risks and uncertainties which could have a material impact on the Group’s future performance and could cause results to differ significantly from expectations. At every half-year and year-end, the members of senior leadership undertake a comprehensive risk and controls review involving interviews with relevant management teams. This considers a review of both the existing identified risks and any new or emerging risks that may have been identified during the period. The output of this process is an updated risk map and internal control matrix for each component of the business, which is then amalgamated into the Group risk map and matrix that is reviewed by the senior leadership team. Formal submission is then made to the Audit Committee for review, before going to the Board for final sign off. The process for the half-year and full-year 2021 review forms the basis for the disclosures made below. This process clearly outlines the principal risks, considers their potential impact on the business, the likelihood of them occurring and the actions being taken to manage, and the individual(s) responsible for managing, those risks to the desired level. This risk matrix is also used in performing our annual assessment of the material financial, operational and compliance controls that mitigate the key risks identified. Each control is assessed or tested for evidence of its effectiveness. The review concluded that all such material controls were operating effectively during 2021. 36 n w o d p o t Oversight, identification, assessment and mitigation of risk at a Group level Board Responsible for oversight of risk management and internal controls processes. Defines the Group’s risk appetite and assesses the Group’s principal risks with the Executive Directors. Audit Committee Supports the Board in the management of risk and is responsible for reviewing the effectiveness of the risk management strategy and internal control processes throughout the year. Senior Leadership Team Responsible for the day-to-day operational application of the risk management strategy and ensuring that all staff are aware of their responsibilities. Identification, assessment and mitigation of risk at an operational Level Operational management Responsible for implementing and maintaining risk management procedures, and maintaining risk registers, including identification of risks, mitigating controls and actions required. Employees Responsible for complying with risk management procedures and internal control measures, and provide feedback to operational management on day-to-day risk management. p u m o t t o b capreg.com Principal risks at 30 December 2021 Overall, the principal risks broadly remain unchanged at 30 December 2021, but the pervasive and ongoing impact of the pandemic has increased the significance and likelihood of further Economic Environment risk due to macroeconomic factors, particularly with regards to rising inflation, income tax and energy market volatility. The potential significance of People & Skills risk is viewed to have increased reflecting the growing strain on the retail sector and changing priorities of the UK workforce. Responsible Business risk had been renamed as Environmental, Social & Governance risk to align with the shift in focus of the ESG Committee. We consider the potential significance has increased reflecting the growing focus on environmental matters and reporting. The potential significance and likelihood of Treasury and Business Disruption risk, while remaining high risks, were both considered to have reduced relative to their June 2021 position, reflecting the recent restructuring of the Mall debt facility, reducing Group LTV, and the operating platform that has been established to mitigate major incidents, in response to Covid-19. Investment Market risk, although remaining a higher significance, has been viewed to have reduced in likelihood to reflect the signs of stabilisation of the portfolio’s asset values. Potential emerging risks have also been considered, including the effects of climate change on our operations and supply chain and the impact of mandatory TCFD Disclosures on regulatory reporting. This has led to pulling out Climate-related risk as its own individual principal risk. Covid-19 remains a potential risk and sits within our Business Disruption from a Major Incident risk. The risks noted do not comprise all those potentially faced by the Group and are not intended to be presented in any order of priority. Additional risks and uncertainties currently unknown to the Group, or which the Group currently deems immaterial, may also have an adverse effect on the financial condition or business of the Group in the future. These issues are kept under constant review to allow the Group to react in an appropriate and timely manner to help mitigate the impact of such risks. 37 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTManaging Risk CONTINUED 1. Property investment 2. Impact of the market risks economic environment 3. Treasury risk Risk The increased weakened economic environment and poor sentiment in commercial and/or retail real estate markets has led to low transactional evidence across the industry with reduced investor confidence and the gradual decline in valuations. Valuations can be inherently subjective leading to a degree of uncertainty and the risk that property valuations may not reflect the price received on sale. Impact Small changes in property market yields or future cash flow assumptions can have a significant effect on valuations. The impact of leverage could magnify the effect on the Group’s net assets and we risk of breaching loan covenants with our lenders. This could result in the default of facilities and should we not be able to cure these, we run the risk of security being enforced. Highly volatile trading environments have the potential to increase the speculation on Property valuations and are open to a wider range of possible outcomes. Mitigation Regularly monitoring market direction, comparable property valuations in the market and recent transactions. Adequate and timely forward planning of investment decisions. We engage multiple experienced, external valuers who understand the specific properties and whose output is reviewed and challenged by internal specialists. Regular reviews and consideration of strategies to reduce debt levels, if appropriate. Trend relative to last year Risk The Group is sensitive to tenant insolvency and distress, which can have increased pressure on rent levels. There is also risk of prolonged low tenant demand for space. Impact of Covid-19 has had a negative effect on general retail sales increasing risk of administrations and insolvencies. Macroeconomic risks in relation to rising inflation, income tax and the volatility of the energy market (and associated costs of energy) are likely to negatively impact consumer spending, which will impact retailing, particularly discretionary spending. Rising inflation will also put pressure on the Group’s cost base and operating margins. Impact Economic pressure on consumer spending will likely impact the levels of footfall across the centres and have a knock-on effect on discretionary retail tenants. Tenant failures and reduced tenant demand could adversely affect rental income, lease incentive, void costs, cash and ultimately property valuations. Mitigation A key part of our Group strategy is to ensure a large, diversified tenant base that is made up of primarily non- discretionary retail. Review of tenant covenants before new leases are signed. The offering of long-term leases as standard and maintaining active and personable credit control processes that foster positive relationships with tenants. Regular dialogue between the support office and general managers across the portfolio, who have ad hoc discussions with tenants, to understand the issues facing tenants and customers. Managing void units though temporary lettings and other mitigation strategies. Trend relative to last year Risk The Group is at risk of not being able to fund the business or to refinance existing debt on economic terms, particularly during periods of low lending market appetite. Breach of the assets loan covenants resulting in defaults on debt and the potential for accelerated maturity and/or lenders taking control of secured assets. Exposure to rising or falling interest rates, which could affect liabilities on property sales and refinancing. Impact The Group may not be able to meet financial obligations when they come due, causing limitation on financial and operational flexibility. The cost of financing could be prohibitive. Unremedied breaches of loan covenants can trigger demand for immediate repayment of loan facilities. If interest rates rise and are unhedged, the cost of debt facilities can rise and ICR covenants could be broken. Hedging transactions used by the Group to minimise interest rate risk may limit gains, result in losses or have other adverse consequences. Mitigation Ensuring that the Group maintains appropriate levels of cash reserves. Regular monitoring and projections of liquidity, gearing and covenant compliance with regular reporting to the Board. Maintain close relationships with lenders. Options of asset sales and assessing the cost of breaking debt is considered before undertaking property transactions. All the Groups facilities are non- recourse and outside of SPV structures. Trend relative to last year 38 capreg.comKey Increase No change Decrease 4. Tax and regulatory risks 5. People & Skills 6. Development risk Risk As a small business, there is a relatively small number of key individuals whose skills are depended on to operate the business effectively. Retaining these individuals cannot be guaranteed. The attraction of new talent to the business with the right expertise cannot be guaranteed. Impact The loss of key individuals or an inability to attract new employees with the appropriate expertise could compromise the business’s ability to operate efficiently. Mitigation Paying current and new employees market salaries and offering competitive incentive packages, including the use of incentive plans. Promoting positive working environments and culture in line with staff expectations. Effectively maintaining a Succession plan for key positions and departments. Trend relative to last year Risk Exposure to non-compliance with the REIT regime and changes in the form or interpretation of tax legislation. Potential exposure to wider changes in tax legislation and potential tax liabilities in respect of historic transactions undertaken. Exposure to changes in existing or forthcoming property or corporate regulation. Impact Tax-related liabilities and other losses could arise causing significant financial loss. Failure to comply with tax or regulatory requirements could result in loss of REIT status, financial penalties, loss of business or reputational damage. Mitigation Constantly monitoring the Group’s REIT compliance and consideration of the effects of major decisions on REIT status. Expert advice is taken on tax positions and checks conducted on any unusual matters that may arise. Maintaining regular dialogue with the tax authorities and business groups. Actively keep key staff up to date with regulation and ensure necessary policies and procedures are in place. Expert advice taken on complex regulatory matters. Trend relative to last year Risk The costs involved with development projects overrunning and delays leading to extended completion times past expected deadlines. The threat to the Group’s property assets of competing in-town and out-of-town retail and leisure schemes. Impact Increased costs and reputational damage which may lead to planned value not being realised. Competition with other schemes may reduce footfall and reduce tenant demand for space and effect the levels of rents that can feasibly be achieved. Mitigation Use of experienced external project coordinators to oversee developments with staged execution to key milestones and updates to be monitored by steering committees with the Group. Implemented well-defined approval processes for new development projects and guidance provided for setting key milestones. Partnered with external agencies to raise awareness of new planning proposals, which are fought, as necessary, in accordance with relevant planning laws. Maintain close working relationships with local councils and promote willingness to support the community. Maintain the flexibility to invest in marketing strategies to continue relevance in the market. Trend relative to last year 39 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORT Managing Risk CONTINUED 7. Business disruption from 8. Environmental, Social a major incident & Governance 9. Customers & changing consumer trends Risk Major incidents occur at any of the of the business’s sites having a significant impact upon trading. This includes specific incidents to a centre or trading location or a situation such as Covid-19 that impacts trading on a national scale. Impact Such events could cause a reduction in earnings and additional costs. Exposure to reputational damage if the business acts, or is perceived to have acted, in a negligent manner. The impact of the pandemic has had a significant impact on customer behaviour and habits. There is a risk that consumer habits have permanently changed and will impact business KPIs, such as footfall and leasing. Mitigation Trained operational personnel at all sites and documented major incident procedures. Regular update meetings on operational procedures reflecting current threats and major incident testing runs. Risk The Group’s activities may have an adverse impact on the environment and the communities in which we operate. Health and safety incidents could cause death or serious injury. A risk that centres or specific retailers are identified as a “hotspot” for Covid-19 transmission. Impact Failure to act on environmental and social issues could lead to reputational damage, deterioration in relationships with customers and communities and limit investment opportunities. Failure to comply with relevant regulations could result in financial exposure. Health and safety incidents could result in reputational damage, financial liability for the Group and potentially criminal liability for the Directors. Mitigation Issues and actions considered by the Board, through regular reports from the ESG Committee and its designated sub-committees. Ensuring centres and support office are compliant with Covid-19-secure requirements. Appointed ESG specialist to assist the business in mapping out its ESG roadmap and key milestones. Risk The trend towards online shopping, multi-channel retailing, and increased spending on leisure may adversely impact consumer footfall in shopping centres. A risk that Covid-19 will further accelerate changing customer shopping habits and accelerate the trend towards online shopping. Increased use of CVAs by retailers as a means of restructuring or cost reduction. Impact Changes in consumer shopping habits towards online shopping and home delivery could reduce footfall and therefore potentially reduce tenant demand and the levels of rents which can be achieved. Financial loss from tenants, use and reliance on CVAs to both write off arrears and reset lease agreement terms. Mitigation Strong location and dominance of shopping centres (portfolio is weighted to London and Southeast England). Strength of the community shopping experience with tailored relevance to the local community. Concentration on convenience and value offer which is less impacted by online presence. Increasing provision of “Click & Collect” within our centres. Maintaining positive retailer relationships and providing for honest and open dialogue. Specialist health and safety compliance manager in place with internal bespoke health and safety system to enable incident reporting and monitoring. EPC rating certificates are completed across the portfolio. Ensuring centres and support office are compliant with Covid-19-secure requirements. Monitoring key business metrics such as footfall, retail trends and shopping behaviour. Ensuring retailers comply with Covid-19-secure requirements with periodic inspections to ensure tenant compliance. Trend relative to last year Trend relative to last year Regular liaison with the police and environmental health officers. Insurance for business disruption and rebuild is always maintained across the portfolio. Disaster recovery sites have been mapped and are maintained in the event of immediate needs. Trend relative to last year 40 capreg.comKey Increase No change Decrease 10. IT and Cybersecurity 11. Climate‑related 12. Health & Safety Risk In light of the introduction of TCFD Disclosure requirements, the impact of climate change has become a Board-level issue. Risk The risk that the Group’s staff, customers or guests suffer illness, injury or fatality at one of the Group’s operations. Risk Failure of, or, as a result of malicious attack on, the Group’s information technology hardware and software systems. Failure to continually keep up with best practice and invest in new technology. Impact Loss of operating capacity, business time or reputational damage. Data breaches resulting in reputational damage, fines or regulatory penalties. Mitigation IT Security Governance Policy in place aligned with ISO27001. Ongoing investment in technology infrastructure with key IT applications hosted off site. As a result of COP26, the world stage is focused on combatting climate change and businesses that fall behind on their efforts to mitigate their effect on the climate run the risk of becoming non-investable. Impact The Group’s failure to act on environmental issues could lead to reputational damage, deterioration in customer and community relationships, or limit investment opportunities. Climate-related risks extend to the global supply chain, business disruption from extreme weather events. Systems in place to prevent and react to malicious attack. Failure to comply with regulations could result in financial exposure. Regular penetration testing carried out by a specialist security company. Cyber Essentials Plus certified. Information security training programmes in place to regularly upskill all employees. A strong password policy is in place to keep employees safe. Maintenance of a disaster recovery site in the event of critical systems failures. Insurance for all IT hardware and software is maintained at all times. Trend relative to last year Mitigation Environmental policy in place and consistent with ISO14001. Management of and compliance with the Carbon Reduction Commitment and compliance with the Carbon Trust. Engaged with external agency, JLL, to assist with setting out framework to assess climate-related risks. Separate risk matrix to be created specifically on climate-related risks that will feed into Group risk review and ESG Committee reporting to the Board. Nominated individual from SLT to take oversight responsibility of climate- related issues. Board has oversight of TCFD climate- related goals and targets through quarterly ESG reporting. Trend relative to last year New Impact If found to be as a result of failing processes or negligence, the Group and/or individuals in management positions could face criminal charges, financial loss and reputational damage. Mitigation Regular risk assessments. Sharing of information with local Health & Safety Executive. Capacity limits agreed with Health & Safety Executive and reviewed with external lawyers. Training for staff by Health & Safety Executive. Insurance review meetings with insurance brokers. Ensuring sites are compliant with COVID-Secure requirements. Trend relative to last year New 41 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORT Managing Risk CONTINUED Going concern Under the UK Corporate Governance Code and IAS 1– Presentation of Financial Statements, the Board needs to report whether the business is a going concern. In making its assessment of Going Concern, the Group has considered the general risk environment and specifically the impact on the business of the significant disruption arising from Covid-19 as well as the acceleration of the structural trends that were already under way in the retail industry. At 30 December 2021, the Group had total cash at bank on balance sheet of £53.7 million, which is equivalent to more than the Group’s annual Contracted Rent. This excludes cash held within the Hemel Hempstead and Luton structures, which has been reclassified as assets held for sale. Of the £53.7 million, there was £31.6 million held centrally and free of any restrictions. This provides a significant cash contingency to cover any disruption to operations for an extended period of time. As part of the restructure of The Mall debt facility that completed in November 2021, the lender provided covenant waivers that run until November 2023 and modifications to cash trap provisions that run until May 2023. The completion of The Mall debt restructuring and equity raise has addressed the concerns that led the Directors to conclude that there was a material uncertainty over Going Concern at the time it published its half-year results in September 2021. On the Ilford facility, as noted, the Group is in advanced discussions to agree a package of waivers and covenant relaxation to cover at least the next 18 months, linked to supporting the funding of major asset management initiatives at the asset through central cash. The Mall loan facility matures in January 2027, while Ilford matures in March 2024. All of the Group’s asset-backed loan facilities are ring-fenced within their own SPV structures with no recourse to Capital & Regional plc and no cross- default provisions. The Group is working with the lenders on its Hemel Hempstead and Luton loan facilities on a disposal of the investments. While this is almost certain to realise less than the value of the debt outstanding, due to the ring-fenced SPV structure, the net liability of Capital & Regional plc is effectively capped at nil. In making its assessment of Going Concern, the Group has run updated forecasts on both a base case and downside basis. In the latter, the Group has sensitised rent collection by 5%, reduced car park and ancillary income by 10% and removed any contribution from Snozone to reflect how a downturn in expected trading, such as might be caused by a further wave of Government restrictions, could impact cashflows. The Group’s analysis projects that the central cash maintained provides sufficient funds to cover the potential operational disruption. The Group has also considered what would happen in what it views as the unlikely event that agreements to extend covenant waivers and/or relaxation on its Ilford facility are not reached. In such a position, the Group could, in the event the covenants are not compliant, be faced with a decision whether to cure the facility or risk the loan defaulting. The Group anticipates making capital investment into Ilford over the next two years that is in excess of income generated and hence from a Going Concern perspective in a scenario where the loan defaulted Group central cash would increase versus the Group’s base case projections. In coming to its Going Concern conclusion, the Group has also considered, but not relied upon, other options available to generate or conserve additional cash, to reduce debt levels and to fund value accretive capital expenditure and letting initiatives. These include but are not limited to: the potential disposal of assets either in whole or part; the opportunity to continue to suspend dividend payments (or offer a Scrip alternative); and the potential raising of additional funds. Having due regard to all of the above matters and after making appropriate enquiries, including considerations of the impact of Covid-19 and sensitivities, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. Therefore, the Board continues to adopt the Going Concern basis in preparing the financial statements. Viability statement In accordance with the 2018 revision of the UK Corporate Governance Code, the Directors have assessed the prospect of the Company over a longer period than the 12 months required by the “Going Concern” provision. The Board conducted this review for a two-year period to December 2023. Two years has been selected at this year-end given the continuing uncertainty that the business is currently facing driven primarily by the impact of Covid-19 and the ongoing longer term structural changes within the retail sector. The two-year period is covered by the Group’s annual budget and business planning process. It includes sensitivity analysis to consider adverse scenarios that could be caused by the principal risks and uncertainties outlined in the Managing Risk section below. This incorporated the impact on cash and covenant compliance of further significant falls in property valuations or property income. None of the facilities in respect of the Group’s Investment Assets are scheduled to mature during the period. The considerations made by the Directors in concluding on viability mirror those considered within the Going Concern conclusion as documented above. Based on this and the resources and actions available, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to December 2023. 42 capreg.com Stock Code: CAL 43 Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTOur Stakeholders With a focus on shopping centres with a community focus, inevitably our stakeholders are at the heart of our strategy and business model. Setting our strategic outlook and, in turn, ensuring our long-term success as a business relies on engaging with all our stakeholders to understand their changing needs. Decisions made by the Board will not satisfy the broad and varied desires of the Group’s stakeholders, as at times, the interests and impacts of our stakeholder groups conflict. The Board aligns decision-making to the Company’s purpose, values and strategy. The Board remains committed to considering the impact of key decisions on the Group’s stakeholder groups and to ensure open dialogue. Section 172 Statement The Board has regard to the matters set out in Section 172(1) of the Companies Act 2006 when performing its duties under Section 172 to promote the success of the Company. When making decisions, the Board pays due regard to: the likely consequences of decisions in the long term as the strategy of the Group is focussed on medium to long term returns and, as such, the long term is firmly within the sights of the Board when all material decisions are made; the interests of stakeholders, the impact actions have on the communities in which we operate and the environment (see more on this within the ESG Report on pages 48 to 63); maintaining high standards of business conduct through ensuring good governance is instilled from a top-down approach (see more of this in our governance report on pages 67 to 110); and acting fairly at all times. Our key stakeholders, how we engage with them and consider their needs and concerns is outlined below: Our People Our Community What matters • Opportunities for career and personal development What matters • Outstanding customer service • Fair and equitable pay and benefits • Robust Covid-secure measures in place • An inclusive and diverse environment with a respectful • Affordable rents and service charge corporate culture • Centres that drive footfall and adapt to meet the needs • Open and transparent communication of a changing market • • Enhanced support and communication while working from home To share their views and have their voice heard in decision-making How we engage • Intranet; all-staff emails; weekly CEO updates and regular Town Hall meetings • Posters and communications • Whistleblowing procedures • Employee surveys that provide option for further clarification of needs and desires • Prompt and fair payments to suppliers and contractors • Ethical and fair dealings that protect human rights and the health and safety of our customers, guests and suppliers • Having a positive impact on local areas, and creating vibrant and well-maintained centres that enhance their surroundings • Supporting employment in the community • Open communication and engagement on development opportunities How we engage • Investment in data to understand consumer and market trends • Wellbeing Committees • Regular visitor surveys • Regular one-to-one performance reviews between line manager and employee to ensure career personal satisfaction • Provision of necessary equipment to work best while remote work is in place • Regular audits of facilities management and operational standards • Strong engagement with local and central governments and Business Improvement Districts • Partnering with industry organisations such as retailTRUST • Designated NED, Laura Whyte, attends staff events and REVO throughout the year to gain insight and report on this back to the Board • Supporting local charities and organisations through our C&R Cares programme How we respond • The Board receives periodic reports on a range of people matters • Although postponed for the most part of the year, the Board usually has the opportunity to meet with staff at all levels in the organisation when making site visits across our business. The Board are keen to resume this as soon as possible • • The Board reviews employee engagement through employee surveys and follows up the actions taken The Board considered the impact on current employees when making strategic decisions How we respond • The Board’s ESG Committee discuss key issues as part of its agenda and provides regular updates at Board meetings • The Board reviews and approves the Modern Slavery Statement • Changing consumer and market trends form part of boardroom discussions and decision-making • The Board reviews and approves all developments within our communities and receives regular updates on ongoing planning matters and community outreach programmes Read more about how we engage with our people on pages 56 to 58 Read more about how we engage with our community on pages 60 to 63 44 capreg.comOur Shareholders and business partners What matters • Robust financial accounts • Delivering income and capital growth • Dividend payments • ESG performance How we engage • AGMs, results presentations and investor events • One-to-one meetings with the Chairman, Senior Independent Director and management How we respond • Review and act on regular reports from analysts and advisers • Feedback from shareholder meetings is shared with the Board and forms part of boardroom discussions Read more about how we engage with our shareholders on pages on page 71 The Environment What matters • Awareness of the environmental impact of our activities • Reduction of CO2 emissions and energy and water consumption • Reducing waste, in particular plastic waste, and diverting waste from landfill How we engage • Develop and implement various sustainability schemes across our centres • Engage with our retailers to increase awareness and education • Member of the Better Building Partnership • Signatory to the Climate Change Commitment How we respond • The Board’s ESG Committee discuss key environmental issues as part of its agenda and provides regular updates at Board meetings • Environmental issues form part of our boardroom discussions Read more about how we engage with the environment on pages 49 to 55 45 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTOur Stakeholders CONTINUED Principal decisions Reducing Group Debt During the year, the Board considered the critical need to reduce the Group’s loan to value ratio, which stood at 72% at 30 June 2021, making Capital & Regional an outlier in comparison to its real estate peers and reliant on covenant waivers across each of its four secured debt facilities. The challenges of the position were reflected in the conclusion that a material uncertainty existed in respect of Going Concern at the time it published its half year results in September 2021. Discussions with the two lenders on the Group’s largest loan facility, The Mall, presented the opportunity for the Group to acquire the outstanding £100m debt balance from Royal Bank of Scotland, at a 19% discount with the facility’s second lender, TIAA, part-funding the acquisition with an additional facility of £35m. The combination of this, together with raising £30 million of new equity enabled the Group to significantly reduce debt while mitigating the dilutive impact of raising new capital. The proposed transactions were announced on 14 October 2021, including confirmation that Growthpoint, the Group’s largest shareholder, would underwrite the equity raise. The Board has also considered the position of its Hemel Hempstead and Luton centres given the position whereby in both cases the value of the property has fallen significantly below the level of the debt outstanding. The Board took the decision at 30 June 2021 to classify these two assets as “Managed Assets” reflecting that it no longer had any equity left in the investments and therefore the substance of the Group’s involvement was as a manager. Reflecting further discussions during the second half of the year with the respective lenders, the Board made a decision towards the end of the year to seek to dispose, in whole, or in part, of the investments. This culminated in the two centres being reclassified as “Held for Sale” as at 30 December 2021. The effect of the above activities, combined with the disposal of the Maidstone House office block in December 2021, has seen the Group reduce net LTV from 72% at 30 June 2021 to 49% at year-end. Consideration of stakeholders With regards to the capital raising, the Board were particularly keen to ensure that all shareholders could participate, being the reason for moving forward with the Open Offer structure. Due care was given to the potential dilutive value of the capital raise on existing shareholders and careful consideration was given to the price at which the new equity was raised and it being around the same level as the prevailing share price to mitigate the impact on those shareholders who chose not to participate. The Board were committed to bringing the Group back to a stable platform to allow for growth. If the Mall debt restructure and capital raise had not gone ahead, it would likely have cast uncertainty over the future of the business, and in turn, employee and stakeholder stability. Clearly, the potential disposal of two of the Group’s assets could have a significant impact on key stakeholders. The decision to pursue sale transactions was made following detailed discussions with the respective lenders and reflecting the capital constraints of the business and based on the challenging economic rationale for investing further equity. The Board remain committed to seeking out the most beneficial resolution for the assets from both an economic perspective and in respect of the communities that the assets serve and the Group’s employees who are involved in managing and running these centres. Read more about our efforts to refocus, restructure, and recapitalise on page 12 46 capreg.com Principal decisions Final Dividend for Year Ended 2021 The Board discussed during the year the position as regards dividend payments. As a result of the significant reductions to the Group’s revenues and, therefore, cash flows, during the Covid-19 pandemic, coupled with restrictions in the Group’s banking facilities, the Company paused cash dividend payments in 2020. As a result of restructuring the Mall debt facility, restrictions to passing cash flow up to the Company from its core Mall Facility will be removed. Therefore, assuming rental income returns to a normalised basis, the Company should be capable of distributing limited cash dividends to shareholders during the second half of the financial year ending 30 December 2022. The Company will target a sustainable dividend pay-out ratio and distribute on a semi-annual basis (in approximate proportions of 45/55 and in that order in respect of each financial year) not less than approximately 90% of the Company’s EPRA earnings, in line with the Company’s requirements to distribute at least 90% of its taxable profits under the REIT regime. The Board considered that the Company’s REIT status was dependent on resuming the dividend and that considerable shortfall in meeting the Company’s minimum PID requirement had been accumulated since 2019. As the pandemic continued to place pressure on business operations and in light of the recent capital raise on the Mall debt restructuring, the Board thought it prudent to postpone the revival of the dividend and to retain considerable cash reserves in an effort to aim off for further disruption and to fund any capital expenditure that would add value to the portfolio. The Group paid £2.5 million in December 2021 to settle the tax outstanding on the estimated PID shortfall of £13.0 million in respect of the 2019 and 2020 financial years. This brought the Group up to date with its PID obligations and HMRC confirmed it would not view the failure to meet the minimum PID distribution requirements as a serious breach of the REIT legislation confirming its ongoing REIT compliance. Consideration of stakeholders The primary consideration for shareholders was in relation to the Company’s objective to return to operating in line with UK REIT requirements and resuming the distribution of cash dividends in respect of the second half of the financial year ending 2022. The Group maintain an ongoing dialogue with HMRC on its REIT status and around the requirements to remain compliant. Ensuring the Group operates as an efficient and compliant REIT member is paramount. The Board paid due regard to all stakeholders in the decisions taken in response to the pandemic and received regular reports from the Chief Executive regarding the impact of Covid-19 on the business, its operations and its employees. Areas of discussion included changes to operational standards and processes to ensure compliance with Covid-secure measures; the approach taken to outstanding rent collection and the granting of concessions and restructuring plans across the Group; and employee support and wellbeing. Read more about this on page 33 Stock Code: CAL 47 Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTESG Report Introduction Throughout 2021, we made strides at Capital & Regional (C&R) to further embed sustainability principles throughout our business and ensure that operating responsibly continues to be at the heart of who we are and what we do. Our Environment, Social and Governance (ESG) approach, overseen by the ESG Committee, is aligned with our business strategy and plays a critical role in driving our resilience and financial performance whilst addressing the increasing expectations of our stakeholders. The ESG Committee made a significant impact in its first full year of operation through its increased accountability across the business, quarterly reporting and continuous efforts to identify where ESG principles can be further rooted into the everyday operations of the Company. This year, to strengthen and support our sustainability activity even further, sub- committees were created for Environment, People and Community. These three workstreams focus on the specific targets for each pillar, enabling us to move further and faster. It marks a significant step change in how C&R views, and is managing, sustainability as a business. Environmental, Social and Governance Committee Laura Whyte NON‑EXECUTIVE DIRECTOR – CHAIR Katie Wadey NON‑EXECUTIVE DIRECTOR Lawrence Hutchings CHIEF EXECUTIVE OFFICER Sara Jennings DIRECTOR OF GUEST AND CUSTOMER EXPERIENCE Nick Phillips MANAGING DIRECTOR OF SNOZONE Kate Thursfield NATIONAL GUEST EXPERIENCE MANAGER Nikki Jones HR DIRECTOR, SNOZONE Alanna Henry HR CONSULTANT Stefan Fletcher ASSISTANT COMPANY SECRETARY Today, there is a ribbon of ESG that flows throughout the entire business. It’s not just one separate area. In everything we do, we challenge ourselves to make sure we consider the ESG impact. SARA JENNINGS DIRECTOR OF GUEST & CUSTOMER EXPERIENCE ENVIRONMENT COMMITTEE PEOPLE COMMITTEE COMMUNITY COMMITTEE 48 capreg.comEnvironment 2021 has seen us continue our focus on increasing efficiencies, reducing consumption and expanding the adoption of renewable energy sources. Read more about Environmental achievements and targets on pages 52 to 55 -2% reduction in electricity consumption 2,377 trees planted by Snozone, resulting in the reforestation of 3 hectares of land and an offset of 600 tCO2 Recycling points at every Snozone, shopping centre and Support Office -41% reduction in natural gas consumption Highlights for 2021 22 participants in the Snozone Cycle to Work scheme 4 C&R employees became mentors to young people through STEP NOW 12 employees completed the Mental Health First Aider course People In 2021, we continued to engage, develop and reward our employees and provide them with a work environment that supports their mental health and wellbeing. We improved our training opportunities and focused on staying connected through increased communication. Read more about People achievements and targets on pages 56 to 58 Community In 2021, our centres have continued to play a key role as a community hub, supporting communities with Randox testing terminals and through the launch of our Community Wheel of Support initiative that actively assists local projects to improve the communities we serve. Read more about Community achievements and targets on pages 60 to 63 Supporting local businesses As part of Haringey’s Good Economy Recovery plan, Mall Wood Green offered a vacant unit to Made in Haringey, an 8-week pop-up shop for local makers and creatives 163 hours hosting community events (40% above target) Best Sporting Venue Snozone was voted “Best Sporting Venue” for children and students learning outside the classroom at the School Travel Awards Stock Code: CAL 49 Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTESG Report CONTINUED Our strategy Putting ESG at the core 2021 marked the first year of our new overarching integrated ESG strategy. Underpinned by clear policies, procedures and measurable targets, our ESG strategy is focused on three pillars: Environmental Sustainability, People & Community and Governance. To reflect our commitment to embedding sustainability throughout the business, and to make that intention clear to all our people, guests, tenants, suppliers and other stakeholders, this year we added it to the C&R core values, as shown below. Our sustainability value underpins the four existing ones and sets out the following intentions: • • • • To take an active lead in developing and delivering sustainability within our communities; To continue to identify sustainable practices to manage our buildings responsibly covering energy, water, mobility, telecommunications, sanitation and waste management services; To develop cultural ways of working that are obsessive about waste, recycling and reducing our carbon footprint; To play our part in an effective response to the urgent threat of climate change, aligning with the 2015 Paris Agreement commitments reinforced by COP26; and • To reach net zero by 2040. In addition to signalling the importance of sustainability by making it a core value, we have integrated ESG into our communications strategy, both internally and externally. This ensures teams across all our shopping centres and Snozone venues are aware of, and engaged with, our progress, while the new ESG section on our website gives any interested external party or organisation a transparent view of our journey and progress so far and the targets we’ve set ourselves. We are committed to Mapping our future We are proud of our achievements to date and recognise that to drive a just transition we must continue to actively engage with our stakeholders and forge partnerships with industry experts and support regional and global initiatives. For instance, we are members of the Better Buildings Partnership (BPP) and signatories of the World Green Building Council’s (WGBC) Net Zero Carbon Buildings Commitment. During 2021, C&R appointed external property and sustainability experts JLL to help establish and prioritise the actions needed to meet our ESG targets and address the pressing issues of the climate crisis. We are developing our net zero carbon strategy to produce a pathway in line with the UK Green Building Council’s (UKGBC) best practice recommendations and the BPP’s Climate Commitment, quantifying and prioritising the necessary emission reductions out to our net zero carbon target year and beyond. The net zero carbon pathway will be published later in 2022 and will provide a clear and actionable implementation plan, mapped against our operations and businesses. In 2022, we are also undertaking a business- level and portfolio risk assessment to identify the climate-related risks most material to Capital & Regional. This will support a greater understanding of the impacts and opportunities of these risks and inform our first response to the Task Force on Climate-related Financial Disclosures (TCFD) this year. Acting with integrity Delivering dynamic solutions Inspiring creative thinking Encouraging collaborative engagement Leading in sustainability within our communities 50 capreg.com United Nations Sustainable Development Goals (SDGs) To help us deliver a positive impact as a business, we have aligned our sustainability strategy to the United Nations SDGs, a globally recognised framework that forms a shared global agenda for environmental improvement, social empowerment and greater equality. This framework will support us in tackling the biggest global challenges. Our strategy is aligned with the seven SDGs that are most material to our business operations. These are: We want to ensure healthy lives and promoting wellbeing for everyone, of all ages. We’ll do this by rolling out our Wellbeing and Mental Health Policy across the business; implementing and monitoring all our Health & Safety procedures and policies; launching our Human Rights Policy; and by ensuring all employees, direct or indirect, have safe working conditions and access to health services. We want to promote sustainable economic growth and decent work for all. We’ll do this through our Modern Slavery Champion Programme, Stronger Together; by supporting local charities who work with disadvantaged members of society; by offering apprenticeship opportunities across the business; and by developing career mentoring initiatives for the youth in our communities. We want to promote lifelong learning opportunities for all. We’ll do this through our Community Wheel of Support initiative; by continuing to partner with Step Now and giving employees continuous opportunities to improve their job skills. Through education@ snozone, Snozone will support the curriculum in and out of school with their “good citizenship” programmes and holiday camps. We want to provide inclusive, safe and resilient spaces for all. We’ll do this by continuing to manage our buildings responsibly; ensuring access to affordable housing is included within our residential developments; and by ensuring we maintain access to public spaces to improve wellbeing and community cohesion. We want to end poverty in all its forms, everywhere. We’ll do this by recruiting, training and employing local community members; continuing to implement our national minimum wage (NMW) policy; ensuring our third-party suppliers pay their staff fairly and at NMW levels; and by ensuring staff have access to essential health care services as part of their benefits. We want to promote gender equality and empower all women and girls. We’ll do this by being members of Real Estate Balance; at Snozone, by supporting Sports England’s This Girl Can campaign; and by establishing a zero-tolerance policy towards all forms of violence at work, including verbal and/ or physical abuse; levelling up where there are gender imbalances. We recognise we have to take urgent action to combat the impact of the climate crisis. To this end, we will play our part in driving a just transition; we will continually review the capital investment plan for each venue and centre, including switching to renewable energy, water recycling and waste reduction; spearhead community green initiatives and ensure each centre/ venue understands the requirements to reach net zero by 2040. Stock Code: CAL 51 Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTESG Report CONTINUED Environmental Sustainability Reforesting the world In August 2021, in a further effort to offset our carbon footprint and to help restore and regenerate nature in areas where biodiversity transformation is needed, Snozone partnered with Tree Nation in their mission to reforest areas of the world where it is needed. Not only does this offset Snozone’s carbon emissions, it also helps restore and regenerate nature in areas where biodiversity transformation is needed. Snozone gifts two trees for every membership purchased and for every rebooking made after a Level 3 lesson. Snozone’s website is also now carbon neutral as one tree is planted for every 44,000 website hits. Snozone planted 2,377 trees in 2021 (since commencing this initiative in October), which resulted in the reforestation of over 3 hectares of land and a total offset of 600 tons of carbon dioxide. In 2022, we are looking at expanding this partnership across our shopping centres. At Capital & Regional, it’s imperative to ensure the local communities we serve are better places for all – now and in the future. We acknowledge we must minimise our impact on the environment, particularly by reducing the carbon footprint of our owned and leased properties and focus on the reduction of waste, water and energy usage throughout the business and its operations. This means embedding sustainability principles throughout acquisition, procurement, design and refurbishment of our assets. Our new ESG strategy brought a renewed focus on areas where we have been making significant progress and highlighted key areas where we must make improvements: • Driving carbon reductions across our portfolio; • Improving waste and water management systems; • Assessing and managing risk associated with the climate crisis and the impact of extreme weather events on our portfolio; and • Developing a net zero pathway, defining our short, medium and long-term targets, aligned with latest climate science and industry best practice. Going further, our net zero pathway and climate risk management strategy will help us determine our areas of focus, investment and expenditure, whilst providing a clear roadmap for action to reach net zero by 2040. We expect to be able to report the results in detail in 2022. Energy, water and waste reduction Despite the ongoing impact of the pandemic, we made significant strides against our environmental targets, including energy reduction, reducing our Scope 1 and 2 emissions, and setting waste reduction targets for each shopping centre. Driven by our continuous efforts to implement efficiency measures we observed significant improvement across our environmental performance, particularly across electricity (2%) and gas (48%). This reduction is notable at our Snozone venues, as they recorded a 0.4% reduction in gas consumption against 2020. While in absolute terms this may not seem significant, in 2021, Snozone was open for nine months, a considerable increase from three full months in 2020. This means that Snozone was able to make significant gains through increased operating time. Going forward, we will aim to replicate this trend across the business and decouple growth and emissions across our portfolio. Reducing energy and emissions at Snozone can be particularly challenging when needing to make snow and maintain it at -5°C, regardless of the outside temperature. By using a building management system (BMS) tool to control temperatures at the venues remotely, we have identified certain times of night that the plant can be shut down. Those five or six hours of shutdown are critical and have had a significant positive impact on electricity consumption. In Madrid, where higher temperatures create even more of a challenge, throughout 2022, we will be installing solar panels on the roof and are in consultation with the landlord of the scheme to install a wind turbine as well. Across our shopping centres, we further reduced electricity consumption by 5% via the conversion of back of house lighting to LED dimmable light fittings, operated by movement sensors and the implementation of a more efficient mechanical and electrical systems and gas consumption by 50% due to the decommissioning of old plant and machinery with newer, more efficient equipment. With the lifting of restrictions, centres have also worked to ensure that controls of plant and machinery such as heating, and lighting are optimised to keep energy use from returning to pre-pandemic levels. 52 capreg.comScope 1 Centres 427 tCO2e Snozone 182 tCO2e CO Scope 1 & Scope 2 4,076 tCO2e -17% Scope 2 Centres 2,551 tCO2e Snozone 896 tCO2e Support 20 tCO2e Across all our assets, our electricity is now from 100% renewable sources, using wind and solar power, and despite cooling requirements, Snozone produces zero emissions from refrigerants. We also made great strides in tackling emissions where we don’t have direct impact or control (Scope 3 emissions), particularly by actively engaging and supporting our suppliers. At our Snozone venues, we assessed the frequency of our deliveries and identified smarter ways of ordering to cut food and beverage deliveries by 50%, to just twice a week. We are also looking more broadly at the issue of transport to and from our centres; for example, General Managers in our shopping centres are looking to increase the number of electric charging points in the car parks, while at Snozone Madrid these are set to double. Also at Snozone, the Cycle to Work scheme has been playing an important role in reducing the environmental impact from employee commuting and at the same time encouraging our people to be more active. The number of participants increased by 13% in 2021, which has had a significant health and wellbeing impact on our people. We aim to increase this to 25% in 2022 and are launching a similar scheme for all our C&R centres this year. In terms of water consumption, C&R observed an increase of 16% across the Group against 2020. This reflects increased footfall in our centres and increased operations in Snozone; however, water consumption has decreased 29% from 2019 pre-pandemic operations. Tackling water efficiency across our portfolio will remain a priority in 2022. A key commitment within C&R’s core sustainability value, introduced in 2021, is to develop innovative and engaging ways of working that promote circular economy principles through reducing waste and improving recycling across our portfolio. Setting waste reduction targets across our shopping centres led to significant achievements, including zero waste sent to landfill from our centres in 2021. Management teams at each centre have made significant progress in engaging with visitors, for example by introducing and promoting recycling points, and, across all our centres, taking part in The Great Big Green Week. We have also removed waste bins from employee desks and left central banks of waste and recycling bins at our Support Office to encourage our people to actively think greener. At each of our Snozone venues, we appointed a member of the team to be an ESG Officer. Having a champion has proved to be very effective, with Officers talking to guests, coming up with new ideas and ensuring those strategies are implemented and monitored. One successful initiative saw all plastic cutlery and sauce sachets removed from the restaurants at our venues and plastic packaging from our clothing supplier removed for the sale of merchandise in our Snozone shops. We will continue to drive efficiencies across all our assets to align with our 4% annual reduction targets. 53 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORT ESG Report CONTINUED Environmental Sustainability Pathway to net zero C&R’s overarching goal is to achieve net zero. To this end, with the support of industry experts, we are developing a net zero pathway encompassing our transition plan which will define short, medium and long-term targets, including reduction for our Scope 1, 2 and 3 emissions, recommended measures and investment requirements for improvement. As a first step, we are conducting a detailed portfolio audit, in order to identify the retrofit measures, including MEP and fabric upgrades, necessary to achieve net zero carbon at an asset level. These audits will also provide cost estimates for the proposed measures, which will be critical to inform our decision-making and planning. The audit process involves active engagement with shopping centre tenants, from large corporates to smaller independent tenants, through surveys and training. Taking their views into account will be key in creating an actionable pathway whilst engaging our partners along the way. The pathway we develop will be aligned with latest climate science and industry best practice and guidelines, including the UKGBC’s definition of net zero and the BBP’s Climate Change Commitment. C&R plays a prominent role as a member of the BBP, sitting on their Net Zero Working Group, ESG Measurement & Benchmarking Groups and the Owner/ Occupier Forum. C&R will formally sign the BPP Climate Change Commitment once our net zero pathway is published in 2022. Our net zero carbon pathway will quantify and prioritise the necessary emission reductions to our target year of 2040 and beyond. It will be clearly mapped against all aspects of the property lifecycle in the short, medium and long term, with a detailed timeline to ensure that we meet every milestone along the way. Climate risk management In addition to developing a net zero pathway, we are conducting a detailed assessment of climate risk governance at C&R and the climate-related risks posed to the business and portfolio. By formalising oversight of climate- related issues into our risk management framework, we can mitigate the risks and garner related opportunities, such as reducing operational costs and capital expenditure and increasing revenues and asset values. It will also help us prepare to begin reporting in line with the best practice recommendations of the Task Force of Climate-related Financial Disclosures (TCFD), one of our key ambitions for 2022. The Great Big Green Week Sustainability took centre stage at all of our shopping centres when we took part in The Great Big Green Week, the campaign to protect people and the planet. The Great Big Green Week, running from 18–26 September, was a nationwide celebration of action on climate change through The Climate Coalition. Over 5,000 events took place across the country, with more than 200,000 taking part in their community online. Each of our centres planned activities to support and raise awareness throughout the week including: • Offering free promotional space to green businesses, including KeepCup, and hosting a recycling exhibition; • • Encouraging guests to swap plastic bags and water bottles to branded re-usable options; Introducing a water dispenser post; • Building planters and • • introducing a beehive on a centre rooftop; Litter picking pledges from staff; and Launching sustainability graphics in a number of centres. We also played our part by setting up central zones with recycling stations, engaging displays and strong educational and informational messaging. 54 capreg.comOther targets include: • Developing a new ESG risk matrix that incorporates identified climate- related risks; • Regularly conducting climate risk assessments, i.e. annually across the portfolio, before acquisitions and major capex expenditures; • Defining climate-related minimum standards/risk thresholds to guide business strategy, investment decisions and tenancy requirements; • Defining and tracking climate-related metrics and targets; and • Engaging with tenants to improve environmental performance data collection and transparency. With a clear and robust net zero carbon pathway, an actionable plan and a robust risk management strategy, C&R will be well-positioned to strengthen its disclosure approach, increased transparency and improved reporting, particularly through our commitments to WGBC and BPP. Environmental data Energy Consumption (kWh) Natural Gas (Scope 1) Centres2 Snozone Support Office Natural Gas (Scope 1) Total Purchased Electricity (Scope 2) Centres2 Snozone Support Office Purchased Electricity (Scope 2) Total Renewable Electricity Consumption3 20181 20191 2020 2021 4,521,258 1,600,517 n/a 4,556,731 1,691,856 n/a 4,629788 988,968 n/a 2,329,556 993,191 n/a 6,121,774 6,48,587 5,618,756 3,322,747 18,086,210 16,012,429 12,705,437 12,015,267 4,880,914 4,789,855 3,820,241 4,217,762 97,200 96,096 96,096 96,096 23,064,323 20,898,380 16,621,774 16,329,126 18,579 9,861 4,290 6,160 % difference 2020–2021 (50)% 0% n/a (41)% (5)% 10% 0% (2)% 44% Total Scope 1 & Scope 2 kWh 29,186,098 27,146,967 22,240,531 19,651,873 (12)% Scope 1 & 2 Emissions (tCO2e)4 Natural Gas (Scope 1) Centres2 Snozone Support Office Scope 1 Total tCO2e Purchased Electricity (Scope 2) Centres2 Snozone Support Office Scope 2 Total tCO2e 832 294 n/a 838 311 n/a 851 182 n/a 1,126 1,149 1,033 5,120 1,382 28 6,529 4,093 1,224 25 5,340 2,962 891 22 3,875 427 182 n/a 609 2,551 896 20 3,467 (50)% 0% n/a (41)% (14)% (1)% (9)% (11)% Total Scope 1 & Scope 2 tCO2e 7,655 6,490 4,908 4,076 (17)% Intensity Scope 1 and 2 kgCO2e/sq ft 1.57 1.33 1.01 0.84 1 2018, 2019 and 2020 figures have been restated where material changes were subsequently identified. 2 The Centre figures include the Kingfisher Centre, in which Capital & Regional plc. owns 12% in a joint venture and acts as Property and Asset Manager. 3 Renewable energy is generated through Solar PV installed at Walthamstow Centre. The system was offline for part of 2020 but was repaired in June 2021. 4 Scope definitions Scope 1: Direct GHG emissions from controlled operations (natural gas consumption). Scope 2: Indirect GHG emissions from the use of purchased electricity, heat or steam (electricity consumption). Please note these represent the best information available at the time of issue (22/02/2022) 55 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORT ESG Report CONTINUED People As a responsible business, we want to engage, develop and reward our employees and provide them with a work environment that supports their mental health and wellbeing. We want to offer that positive experience to all, embracing and reflecting the diversity of our workforce. Wellbeing in the workplace We understand the importance of promoting the physical and mental health of our people and the effect this has on their experience in the workplace. In 2021, working with Marsh Insurance, we launched our Stress and Mental Wellbeing Policy. It encapsulates our commitment to promoting a culture of open communication, reducing stigma around mental health and wellbeing and providing access to support services where they’re needed. Additionally, Snozone partnered with Health Assured who provide a suite of employee assistance measures with full availability to assist and support each team member. In light of the challenges posed by the pandemic, it’s more important than ever to empower our C&R team members to support their fellow employees, and this quickly became a priority for the business. Throughout 2021, we rolled out a comprehensive suite of training focused on mental health across the business, including mental health awareness and stress and mental wellbeing. We’re particularly proud that 12 colleagues have completed the Mental Health England First Aider course and are now equipped to support their teams. To keep our teams connected during the 36 managers received Stress & Mental Wellbeing training 12 employees completed the Mental Health England First Aider course pandemic, in 2020, we created our All About You Committee, with the aim of boosting team building, communication, trust and cohesion. Physical health is a key part of maintaining wellbeing. To that end, we encourage employees to make positive changes such as incorporating exercise into the daily routine. Snozone’s successful Cycle to Work scheme is an outstanding example on how we’re supporting our teams to be more active and the scheme is now available to all C&R employees. We believe in creating workplaces in which open and honest communication among all employees is valued and respected. Our dedicated Human Rights Policy is in place to create an inclusive environment where all our people are treated equally and without discrimination. We also expect our suppliers to respect and adhere to this policy. Diversity and Inclusion We believe that our differences give us strength. We’re committed to making C&R a welcoming environment for everyone. In 2020, we formed our Diversity and Inclusion (D&I) Committee, tasked to oversee and drive our D&I agenda. One of the Committee’s first actions was to run an internal survey to understand how people feel about the culture at C&R and what changes, if any, they’d like to see introduced. Overall, the feedback was positive, with comments including “Communication has improved greatly in the last year”. The input we received prompted several new initiatives – staff felt that it was important to consider D&I when recruiting; as a result, we have added our D&I statement to the recruitment section of our website and ensure all roles are advertised within the local communities we serve. There were also those who felt they’d like to know more about different cultures. We have now introduced a calendar of awareness days, including International Day of Persons with Disabilities and Pride. 2021 also saw the roll-out of World Host’s new Inclusive Service Training programme, designed to help businesses welcome a diverse range of people and provide them with a consistent level of service befitting progressive moral, ethical and cultural attitudes. We piloted the programme, delivering training to over 100 frontline staff and centre management over the year. We plan to extend the training to more people across the business in 2022. In the meantime, we’re already driving awareness of diversity issues across the business via our fortnightly Town Hall meetings, with presentations from D&I Committee members and external speakers. Putting our beliefs into action, the D&I Committee reached out to Step Now, a youth organisation that helps young people aged 11-18 by educating, mentoring and empowering them to be the best they can in life. Committee members undertook a 5-step programme before becoming mentors to children from the charity, giving general career advice, help with writing CVs and support in preparing for interviews. The mentees also benefited from a trip to Snozone to understand how Snozone operates as a business, and an interactive, practical discussion with the Snozone management team. We plan to roll out a second wave of mentors from across the business in early 2022. Snozone is the only European indoor operator with its own Disability Snow School. In 2021, the number of Adaptive lessons given increased by 21% from 2020. Snozone create an environment where “sport for all” can be truly provided. All Snozone centres have dropped reception desks and bar counters, offer step free access and wheelchair-friendly changing areas. Snozone have created similar back of house facilities for their team members with disabilities. Our continuous efforts resulted in Snozone being once again awarded Disability Confident as an employer. 56 capreg.comAll About You The All About You Committee has gone from strength to strength in 2021, running a calendar of events that connect teams across the business, whether working remotely or on-site. The Committee has a dedicated section on our CARTER intranet site with a number of sections covering information and support on areas such as fitness, self care, mindfulness, food and family. During 2021, the All About You Committee hosted a number of events including virtual competitions and escape rooms, bingo, a virtual café and support during Mental Health Awareness Week. In November 2021, we held a shared lunch at the Support office, with the centres joining via video link. We also had a Christmas-themed virtual event in December, which colleagues very much appreciated and enjoyed. A support bank of advice, with tips on everything from meditation to healthy eating, is available to all employees via our intranet portal. Read more about how we engage with our people on page 72 57 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTESG Report CONTINUED People Over 50% of front‑facing teams have received training in at least one World Host course Employee Engagement To encourage employees to get the best out of themselves and their careers, we believe we need to drive a performance management culture. In 2021, we developed a new performance review framework, underpinned by ongoing monitoring and assessment, to develop a culture of greater accountability. Each individual has their own SMART objectives, aligned to C&R’s 2022 business objectives. A Workforce Advisory Committee, being launched in 2022, will progress and review this approach on an ongoing basis. Our approach is very much future-focused – we want to help everyone find opportunities for growth. Although driven by management, our culture will be powered by employees. Responsibility for performance and development growth sits with every individual. We recognise that engagement is also driven by reward and recognition. We have employee reward schemes in place across the business, including GEM awards, Going the Extra Mile, which have an ESG focus. In 2021, we devised two new GEMs: the Platinum GEM, which is an extension of the existing scheme, awarded to employees who have already progressed through the first five levels of award together with some new behaviours and a Good Citizen GEM, given to those who lead by example, either by getting involved in a sustainability initiative, volunteering or fundraising for a local charity. We also held a virtual National Sparkle Awards event, recognising those exceptional acts of kindness to a guest, customer or colleague. At Snozone, our Hall of Fame initiative and Annual General Meeting celebrate our team’s achievements by inducting team members who have demonstrated exceptional guest experience and championed our values. Additionally, Snozone has monthly and annual recognition programmes for team members that deliver measurable contributions to our team, guest and shareholder KPIs. Health & Safety The challenges presented by Covid-19 during 2020 allowed us to become a more agile business and as the pandemic inevitably progressed throughout 2021, we continued to monitor and closely follow government guidance. For instance, our Emergency Duty Manager cover plan allows us to be prepared for any serious staff shortages. In order to support the health & safety of our local communities we also put Randox testing kit stalls in our centres to allow visitors to pick up pre-booked tests. Our Health & Safety policies for employees and guests are regularly reviewed and updated and we take proactive measures to deal with any incidents. Following an increase of anti-social behaviour in some centres, for example, we are engaging with agencies within the local communities who support adolescents. The Snozone Executive Team undertook an extensive “real-time” crisis management exercise with ensuing media training that successfully tested the resilience of its updated Major Incident Management Plan. This Girl Can Since 2016, Snozone has been a proud champion of This Girl Can, Sport England’s campaign to get women and girls re-engaged in sport. Studies show that, after the age of 14, a disproportionate number of girls drop out of participation in sports for a variety of reasons and pressures, often not returning or coming back until their early 40s. Snozone deliberately markets with a female-first approach throughout all its online channels and platforms and showcases women and girls of all abilities, not only those enjoying snow sports but also working across a number of departments within the Snozone business in the pursuit of trying to further dismantle barriers to entry in this sector. The number of female coaches at Snozone has substantially increased over the years, re-enforcing this commitment. 58 capreg.com59 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTESG Report CONTINUED Community Charities supported 167 Hours of volunteering 1,149 Raised in 2021 £113k C&R’s shopping centres and Snozone venues are at the heart of the local community, providing spaces for people to shop, eat, work and relax. We want to create a safe, inclusive experience for all our visitors, as well as actively contributing to the local communities in which we operate as a responsible, socially aware business. Community Wheel of Support Our social impact work continues to support community living. In 2021, we created the Community Wheel of Support initiative, a corporate objective which actively assists locally led projects to improve the communities we serve. As part of this initiative, we encouraged our centres to choose between four and six spokes, each one representing a community stakeholder. These could include: • • • Local culture and celebrations Local authorities Educational establishments • Nominating a charity of the year • Community sustainability groups • Community voluntary groups All our shopping centres took part in the Community Wheel of Support initiative, driving outstanding impact and engagement across their local communities. Each centre was invited to present their projects and impact at the C&R Town Hall. The Mall Wood Green’s Community Wheel of Support was selected by the senior leadership team to be featured in the Annual Report. The submission was formulated through careful research on the local area’s needs, discussions with key stakeholders and staff, as well as observation of important ESG trends. Five key areas were identified to make the campaign a success, as outlined in the case study below. From supporting charities to interacting with community groups, fundraising to community investment in the form of sponsorship or donations, C&R has a broad spread of activities to support community living that form part of our KPIs each year. In 2021, we exceeded seven out of nine targets. The two areas in which we didn’t reach our KPI target were severely impacted by Covid-19 restrictions. M M U N I T Y W HEEL OF SUPP O R T O C Local authority Educational establishments Support local culture and celebrations Supporting community living Charity of the year Community groups/voluntary Community sustainability groups 60 capreg.comCASE STUDY The Mall Wood Green’s Community Wheel of Support Haringey Council & Wood Green Business Improvement District (BID) 2021 saw The Mall Wood Green work on a number of key projects with Haringey Council, partnering with the Regeneration team and Wood Green BID to improve the look and feel of the local area. These projects included offering the use of vacant units to local entrepreneurs to host pop-up shops, support during the Covid-19 pandemic, the development of a space to grow food within the community and the creation of a mural by a local artist contributing to the local area and promoting arts and culture. Mental Health & the Environment The Mall Wood Green worked with local charity, CIC Grow N22, to create a rooftop garden, designed to link in with existing green spaces on the High Road to create a green corridor for wildlife. The centre team also undertook an extensive litter pick in a bid to improve Wood Green’s green spaces and pledged to spend 40 hours litter picking to commemorate the centre’s 40th birthday in May 2021. Celebrating Diversity The Mall Wood Green wanted to ensure that Haringey’s LGBTQI+ community felt supported and represented during Pride month. The Mall created the #loveislove staircase as a joyful central feature in the main atrium of the centre in support of a store manager who had previously suffered a series of incidents of homophobic abuse. The centre also expanded their code of conduct, introducing a zero-tolerance approach to incidents of abuse resulting in an immediate ban and implemented a buddy system for affected retail workers to share experiences and support each other. Education and Employment The Mall Wood Green signed up to a 26-week pilot to become Young Careers Champions working with recruitment business REED, Wood Green BID and local retailers to provide: • Careers talks, focusing on different routes into employment and myth-busting preconceptions about the property and retail industries • Interview practice • On-site engagement including tours of the centre and explaining how the business works • An apprenticeship for a local student. In addition, to combat period poverty in the local area, The Mall Wood Green introduced a scheme whereby anyone can visit the Guest Lounge to collect a “package from Florence” and be given a free period pack, no questions asked. This scheme has been well-received by guests and has helped to break the stigma around the issue. Charity of the Year The Godwin Lawson Foundation has been The Mall Wood Green’s chosen charity since 2019. The organisation was set up to commemorate Godwin Lawson, who died, a victim of knife crime at just 17 years old. The centre has supported the organisation through a number of initiatives such as fundraising, promoting the anti-knife crime campaigns and holding engagement sessions with the Tottenham Hotspur Foundation’s NCS programme, where 30 young people created presentations over the summer to pitch fundraising and awareness campaigns to the centre team. Stock Code: CAL 61 Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTESG Report CONTINUED Community Charitable funding Each centre in the C&R portfolio runs its own fundraising programme. These are planned and delivered at a local level, in accordance with local needs and concerns. We also provide venues for charities to benefit from the high level of footfall in our centres. In The Mall Luton, for example, we gave a free unit to the charity, Level Trust, an inspiring charity that helps families with the costs of education, to help provide all children in Luton with an equal chance to learn. Volunteering Despite the impact of the ongoing Covid-19 restrictions, our people continued to give their time to their local communities through volunteering in 2021 and this has become a key focus for 2022. We’re currently working on plans for a volunteering initiative to be run across all shopping centres with the opportunity for the Support Office to go out and volunteer in the communities along with members of the centre teams. In December 2021, our Snozone team helped create some festive magic by delivering and spreading 20 tonnes of fresh snow at Martin House, a children’s hospice in Yorkshire. The charity was overwhelmed with the donation, which made their Winter Wonderland very special for the children. As well as selecting specific local charities each year, C&R has a number of long-standing partnerships. Since 2014, Snozone has been supporting Sense, the charity for deaf/blind children and adults. In March 2021, staff across all Snozone venues, including Madrid, were challenged to undertake a sponsored run, walk or cycle over a distance 1,116 miles, to represent the number of CO2 tonnes saved during the year. More than 300 employees took part and the company matched their sponsorship, raising over £5k for the charity. The company also continued its long-term partnership with the Poppy Appeal. Over the last 5 years, we’ve raised £225,063 for the charity. Inclusive spaces To be true community champions, our centres need to be safe, inclusive spaces for all our visitors. Both the Mall Blackburn and The Mall Maidstone have been working with Dis-Labelled, the charity who champion inclusivity for all. They’re petitioning for disabled signage to be changed from the outdated wheelchair symbol to better represent the different and diverse types of disability. Both Malls have now introduced the new signage and it will be rolled out to all centres in 2022. In 17&Central (formerly The Mall Walthamstow), we made over £90k of funding available for a new fit-out of the Shopmobility service facility, enabling guests to be met efficiently. A storage scooter area was also added to the basement car park. Our focus is on being better local citizens consistent with our community centre strategy education@snozone Snozone believes in supporting the school curriculum and operates a number of initiatives under the banner education@snozone. Snozone is an assessment centre for the snow sports components of GCSE & A Level PE and BTEC Sport. We also operate school holiday camps which whilst including skiing, sledging and snowboarding, also feature “warmside” activities such as sign language lessons, conversational French & Spanish lessons and a first aid course for children called “Mini Medics”. Towards the end of 2021, Snozone’s UK venues were awarded accreditation to deliver the Duke of Edinburgh bronze award. We also offer visits to engineering students and deliver talks on how Snozone’s plant and machinery operates. Additionally, we deliver talks to Year 13 students on how Snozone operates as a business as a component of GCSE Business Studies. This is all rounded off by a fun sledging session on the slopes. In May 2021, in recognition of the education@snozone programme, Snozone was named Best Sporting Venue for Learning Outside the Classroom, independently voted for by teachers. The prestigious field of nominees in the category also included the venues and stadia of Manchester United, Tottenham Hotspur, Twickenham and the former Olympic stadium, now known as The London Stadium. 62 capreg.comLuton Life This local podcast focuses on areas of interest to the Luton community. During 2021, The Mall Luton has worked with Luton Life to help raise awareness of the charities it supports. Episode 1, for example, featured the Luton Food Bank, which has been the centre’s Charity of the Year for three years running. Interviews with representatives from the charity and from people who had suffered from being unable to afford food highlighted the real issues affecting local people. The centre’s support for Luton Food Bank was reinforced with a “tap & donate” initiative and a food drop-off point. In episode 4 of Luton Life, host Sophie Sulehria spoke to Jane Malcolm, Chief Executive of Level Trust, raising awareness of the struggles some families in Luton have meeting the costs of education. Wellbeing in the community Operating at the heart of the community, our centres are ideally placed to offer essential services that can help optimise health and wellbeing. At The Mall Wood Green, C&R have signed an agreement with Whittington Health NHS Trust to open a state-of-the-art Community Diagnostics Centre (CDC), the first of 40 new CDCs that will be opened by the NHS in a range of settings across England. The centre will open in summer 2022 across two ground floor units and will initially offer x-ray, ultrasound, ophthalmology and phlebotomy services. Local environments We believe in the importance of vibrant, successful and active town centres in helping communities thrive. Working with government and expert industry bodies, we continue to evolve our asset master plans to ensure our centres remain relevant in the rapidly changing retail landscape. For all development plans, we follow the national planning policy and local frameworks and openly engage with community interest groups and individuals to reach the best outcomes for all. As part of the Walthamstow masterplan, for example, we worked collaboratively with the local community and stakeholders to adopt branding that belonged to and would reflect the unique identities of all the people we serve. As well as a colourful new look, The Mall changed its name to 17&Central, something the local community can take pride in. Thank you NHS To reflect the incredible work done by the NHS during the pandemic, Snozone has offered all NHS staff and carers a free weekly 1-hour pass to any of its venues, any day of the week. This has been in place all through 2021 and we plan to maintain it throughout 2022. To date, NHS staff have enjoyed 8,000 free hours of skiing and snowboarding. 63 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021STRATEGIC REPORTDirectors Committee membership: A Audit Committee R N Remuneration Committee Nomination Committee E ESG Committee Chair of Committee Senior Independent Director *Independent (as per the UK Corporate Governance Code). 64 Executive Directors Non-Executive Directors* Lawrence Hutchings Chief Executive Appointed: 2017 David Hunter Chairman Appointed: 2020 E N Relevant skills and experience Lawrence joined the Group in 2017 following four years at Blackstone in Australia, two as Managing Director, and has over 20 years’ experience in the property industry. Prior to Blackstone, Lawrence was at Hammerson plc for four years, the last three as Managing Director – UK Retail, before which he spent almost seven years at Henderson Global Investors. External Appointments None Stuart Wetherly Group Finance Director and Company Secretary Appointed: 2019 Relevant skills and experience Stuart joined Capital & Regional as Group Financial Controller in October 2012, and was additionally appointed Company Secretary in April 2013. He was later appointed Group Finance Director in March 2019. Prior to joining Capital & Regional, Stuart spent 12 years at Deloitte in London where he qualified as a Chartered Accountant. Stuart also worked in a group finance role at Johnson Matthey plc. External Appointments None Relevant skills and experience David has many years’ experience in UK and international real estate markets, including 15 years as an independent adviser and professional non-executive director. His current roles include Chairman at Custodian REIT plc and his background includes previous board level positions in the UK and overseas. He is a Senior Adviser to ICG Real Estate, a leading real estate debt fund manager. Prior to 2005, David was Managing Director of Aberdeen Property Investors and in 2004 he was President of the British Property Federation. External Appointments Custodian REIT plc (Chairman) ICG-Longbow (Senior Adviser) Ian Krieger Non-Executive* Appointed: 2014 A N R Relevant skills and experience Ian is the Audit Committee Chairman and Senior Independent Director at both Safestore Holdings plc and Primary Health Properties plc. Aside from his Non-Executive Director experience, Ian also brings extensive financial expertise from having previously been a senior partner and vice-chairman at Deloitte until his retirement in 2012. External Appointments Safestore Holdings plc (Audit Committee Chair, Senior Independent Director) Primary Health Properties plc (Audit Committee Chair, Senior Independent Director) capreg.comNorbert Sasse Non-Executive Appointed: 2019 George Muchanya Non-Executive Appointed: 2019 Board Diversity Board composition (number of Directors) 1 2 Relevant skills and experience Norbert is the Group Chief Executive Officer of Growthpoint Properties Limited. He holds a BCom and Honours Degree in Accounting from Rand Afrikaans University and is a Chartered Accountant. Norbert has 25 years’ experience in corporate finance, funds management and all aspects of listed property, as well as equity and debt capital market experience. He is a Director of all major Growthpoint subsidiaries and investments in South Africa, Australia and the United Kingdom. External Appointments Growthpoint Properties Limited Growthpoint Properties Australia Limited Relevant skills and experience George is part of Growthpoint’s Group Executive Committee and also sits on the boards of some of Growthpoint’s investee companies. Working alongside the Group CEO and the South African CEO of Growthpoint, George has played a key role in the implementation of Growthpoint’s strategic initiatives both offshore and in South Africa. An engineer by training, George had career stints in investment banking and management consulting before joining Growthpoint in 2005. External Appointments Globalworth Poland Real Estate N.V. Growthpoint Investec African Property Management Limited Globalworth Real Estate Investments Limited Globalworth Real Estate Investments Limited 2 3 Chairman Executive Directors Independent Non-Executive Directors Non-Executive Directors (not independent) Board gender split (%) 25% Katie Wadey Non-Executive* Appointed: 2020 A R E Laura Whyte Non-Executive* Appointed: 2015 E R A N Male Female 75% Relevant skills and experience Katie is the Innovation Director of Holland & Barrett. Katie has over 20 years of multi-industry experience across a range of customer engagement and commercial functions and has held senior roles at a number of high- profile consumer facing organisations including BT, LV=, Tesco, British Gas and Barclays Bank. External Appointments Hammersmith & Fulham Youth Zone Transform Housing and Support (Trustee) Mindmasters Group Limited Relevant skills and experience Laura has significant retail and human resources experience from a long and successful career with John Lewis Partnership where she served on the Management Board for over ten years, firstly as Registrar and latterly as HR Director. Laura is also Chair of XLVets UK Ltd, and Non-Executive Director of the British Horseracing Authority. She is a Trustee of The Old Royal Naval College, Greenwich. External Appointments XLVets UK Ltd (Chair) British Horseracing Authority The Old Royal Naval College, Greenwich (Trustee). Board tenure (number of Directors) 2 1 5 1-3 years 3-6 years 6-9 years 65 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCESenior Leadership Team Lawrence Hutchings Chief Executive Sara Jennings Director of Guest and Customer Experience Sara began her retail career working for House of Fraser in Store Management before joining C&R in 2001. She has held a number of positions within C&R before taking on the role of Director of Guest and Customer Experience. Sara is responsible for the day-to-day management of the Group’s shopping centres. James Ryman Investment Director James joined Capital & Regional in 2007 and prior to that qualified as a Chartered Surveyor at Donaldsons Chartered Surveyors where he spent 13 years specialising in all aspects of shopping centre asset management, latterly running the Retail Asset Management team. As Investment Director, James is responsible for driving investment performance from our shopping centre portfolio. Stuart Wetherly Group Finance Director and Company Secretary Nick Phillips Managing Director, Snozone Nick joined C&R in 2012 as Snozone’s Managing Director. Nick started his career with Aldi, joining them in their embryonic stages in the UK as a regional New Store Openings Manager in the north west. He then went on to hold a number of positions with Lidl and Whitbread PLC as David Lloyd Leisure’s Regional Director for the south of England before becoming their Sales & Operations Director for the UK & Europe. 66 capreg.comCorporate Governance Report By leading the Group through a £30 million capital raising via Open Offer and restructuring the Company’s balance sheet, the business has been put on a much more stable footing. DAVID HUNTER CHAIRMAN The Board remains committed to high standards of corporate governance, which it considers to be critical to effective management and to maintaining investor confidence. I am satisfied that our approach, as embedded throughout our business, delivers this and will continue to evolve and improve to keep pace with changes in best practice and regulation. The Board remains committed to high standards of corporate governance. Chairman’s introduction I am pleased to present Capital & Regional’s corporate governance report for 2021. The primary focus of C&R in 2021 was navigating the significant impact of the Covid-19 pandemic on the day-to-day operations of our centres and Snozone. By leading the Group through a £30 million capital raising via Open Offer and restructuring the Company’s balance sheet through the Mall Debt transaction, the business has been put on a much more stable footing. The Board’s activities during the year have reflected this, with more frequent meetings and significant time devoted to execution of the transaction and to operational updates and considering the impacts of Covid-19 and its influence on the longer-term structural changes going on within the retail industry. In 2021, there were two changes in personnel to the Board. At the AGM in May 2021, Tony Hales retired from the Board and his role of Senior Independent Director after nine years of service. I would like to thank Tony for his invaluable contribution to the Board and the Company during a period of significant change. Ian Krieger has taken over the role of Senior Independent Director from the same date. In December 2021, Louis Norval stepped down from the Board after 12 years as a Non-Executive Director. Louis had been a Director since his involvement in the recapitalisation of the Group post the global financial crisis in 2009 and played a pivotal role in that transaction, which set the course of the Company to become a focused specialist REIT. Louis has been a highly supportive shareholder and insightful board member for over a decade and we look forward to an ongoing relationship as a shareholder in the Company. 67 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCECorporate Governance Report CONTINUED Compliance Statement Compliance with the UK Corporate Governance Code Governance Code The Company has, throughout the year ended 30 December 2021, applied the principles and complied with the provisions of the 2018 UK Corporate Governance Code except for (i) Principle G, Provision 11 – that at least half the Board, excluding the Chair, are not considered to be independent Non-Executive Directors and (ii) Principle P, Provision 38 – that executive director pension contributions are not aligned with the workforce. In light of recent stress on the Group’s balance sheet, the Board has postponed further Non-Executive Director appointments for the time being. The Board will continue to keep its composition under review and remain committed to maintaining the appropriate combination of Directors that promotes balanced and robust decision-making. In order to fully comply with Principle G of the 2018 Corporate Governance Code, the Board would need to recruit one further independent Non-Executive Directors. This would result in a large Board number in comparison to the current scale and complexity of the Business. In the Company’s view, the breadth of experience and knowledge brought to the Board by the Chairman and Non-Executive Directors, particularly the independent Non-Executive Directors, coupled with their detachment from the day-to-day issues within the Company, provide for constructive debate and robust decision-making. The Board considers the current composition to be effective in holding the Executives and the management team to account. An explanation of the Company’s reasoning in respect of Principle P, Provision 38 is set out in the Directors’ Remuneration Report on page 88 to 90. Principle of the Code Board leadership and company purpose Division of responsibilities How we have applied the Code The Board has overall responsibility for delivering the long-term sustainable success of the Group. It also has the responsibility to ensure the Group’s key stakeholders are clearly identified and that the success is for their benefit and for the wider community. The Board has devised a clear purpose of the Business with well-defined values and strategy that aim to provide a solid platform for achieving this purpose and instilling the right culture across the Business. The Board and its four Committees have well-established responsibilities that are set out in the Schedule of Matters Reserved for the Board and Terms of Reference for each Committee, respectively. The division of responsibilities between the Chairman, tasked with ensuring the effectiveness of the Board, and the Chief Executive, who is responsible for the leadership of the Group’s business, has been clearly defined. All divisions of responsibilities have been agreed and approved by the Board. Further information For more on Board Structure, see pages 70 to 72 For more on Purpose and Strategy, see pages 13 to 19 and 71 For more on Division of Responsibilities, see pages 73 to 75 Composition, succession and evaluation The Board, as a whole, keeps under review the composition of the Board and its Committees. Appointments to the Board are recommended by the Nomination Committee. The Nomination Committee is also responsible for ensuring adequate succession planning is in place for Board and senior management positions. The Nomination Committee is also responsible for reviewing the Group’s policy on Diversity and Inclusion. For more on Composition, Succession and Evaluation, see pages 64 to 65 and 76 to 79 The Board undertakes an annual review of its own effectiveness. Audit, risk and internal control The Board delegates and receives updates from the Audit Committee in respect of monitoring the integrity of financial statements and ensuring robust systems and adequate controls are in place to manage risk. The Board has also tasked the Audit Committee with monitoring and maintaining the Group’s relationship with the external audit firm. Remuneration The Board, through the Remuneration Committee, ensures that remuneration policies and practices are designed to support the Group’s strategy and promote long-term sustainable success. The Remuneration Committee ensure that formal and transparent policies are in place for determining Director and senior management remuneration. For more on the Group’s Risk management, see pages 36 to 42 For more on Audit and Internal Controls, see pages 80 to 85 For more on Remuneration, see pages 86 to 109 68 capreg.comCompliance with the Disclosure and Transparency Rules The disclosures required under DTR 7.2 of the Disclosure and Transparency Rules are contained in this report, except for those required under DTR 7.2.6, which are contained in the Directors’ Report. Task Force for Climate-Related Financial Disclosures In accordance with LR 9.8.6(8), details of the Group’s pathway to compliance with the requirements of the Task Force for Climate- Related Financial Disclosures (TCFD) are provided in the ESG Report on page 50. The Board is aware of the importance in reducing the Group’s impact on climate to further mitigate its direct link to financial risk. Board Leadership and Company Purpose Board Activity Main activities undertaken during the financial year Strategy Risk & Risk Management Financial Performance • Reviewed strategic options for the • Considered the emerging and • Reviewed the Group’s performance against budget and peers and assessed the impact of Covid-19 on the Group’s income, cash flows and property valuations • Approved the annual business plan and budget • Approved interim and full-year results • Reviewed the dividend policy Read more about our strategy on pages 12 to 19 Read more about our Board evaluation process on pages 76 to 77 further growth and development of the business • Received updates on property cycle and sector trends • Assessed and ultimately approved the equity raise and recapitalisation and restructuring of the Mall debt facility • Continued to monitor management’s progress on positioning the asset portfolio to increase exposure to resilient customer categories in line with changing consumer demands ongoing risks associated with the Covid-19 pandemic and its impact on business operations • Reviewed the actions undertaken by Management to provide a Covid-19 safe environment at our shopping centres, Snozone and other business locations • Reviewed the Group’s principal risks and the risk matrix and internal control systems • • Through the Board’s Audit Committee, met with the Company’s valuers twice in the year Identified a new emerging risk category; climate-related risk, in response to growing regulation around this area Governance Stakeholders • Discussed the results of the Board • Received updates on interaction evaluation • Received regular updates from the Chairs of the Audit, Remuneration, Nomination and ESG Committees • Received briefings on key governance and regulatory developments with and feedback from shareholders • Received reports on the re- opening of customer units across the centres, during the first half of the year whilst under government lockdown measures from January to April 2021 • Reviewed employee engagement survey results and updates on company culture • Received updates on key HR matters • Received updates on operational procedures to support retailer customers and guests ensuring centres remained Covid-secure 69 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCECorporate Governance Report CONTINUED Board Leadership and Company Purpose Aligning purpose, values, strategy and culture & the role of the Board The Board of Directors at Capital & Regional plc takes on the collective responsibility to promote the long-term sustainable success of the Company for the benefit of its shareholders, stakeholders and for the wider community. They achieve this by setting a clear Company purpose and strategy that aligns to the desired culture and values of the Group. The Board ensures that it reviews and approves key policies and decisions, particularly in relation to culture. It also approves the business plans, which outline key remerchandising and leasing initiatives for each centre, against the strategy on an annual basis, ensuring it remains relevant to the securing the long-term vision for the Group. As a premium listed company, the Board is ever mindful of governance and compliance with laws and regulations when taking decisions. It retains ultimate responsibility for approving business development opportunities, including major investments and disposals ensuring these are aligned to long-term strategy. The Board, with the support of the Company Secretary, meets regularly, at the very least on a quarterly basis, throughout the year to ensure that the Directors allocate sufficient time to discharge their duties effectively. Board meetings are scheduled to coincide with key events in the Company’s financial calendar, including interim and final results and the AGM. Other meetings during the year will review the Company’s strategy and budgets for the next financial year and the Company’s key risks and financial and operating performance. The Board delegates the day-to-day management of the business to the Executives. However, a Schedule of Matters Reserved for the Board is maintained to ensure material matters, such as significant transactions, are brought to the Board for approval. The Executive Directors take operational decisions and also approve certain transactions within defined parameters of the Delegation of Authority, which forms part of the Schedule of Matters Reserved for the Board. The Board delegates certain responsibilities to its four Committees, which operate within specified terms of reference that are reviewed annually. The Committee Chairs’ report on all proposed actions in relation to their delegated activities to make sure that the Board retain overall accountability. More information on this can be found on page 73 and in the Committee reports on pages 78 to 88. As a premium listed company, the Board is ever mindful of governance and compliance with laws and regulations when taking decisions. 70 capreg.comDuring 2021, the Board took decisive action to ensure the future of the Group, in light of the accelerated structural changes in the retail trading environment caused by the impact of Covid-19. Purpose The Group’s primary purpose is to invest in, manage and enhance retail property through the creation of dynamic environments tailored to their local community. We define and lead community shopping through the creation of vibrant retail spaces and exceptional customer and guest experience. Strategy The Group strategy is coming into its fifth year since its launch in 2017. The Board continues to believe that community shopping centres, actively remerchandised to increase exposure to growth and resilient non-discretionary retailer offerings with a best-in-class management platform remains a robust strategy for delivering shareholder return in the medium term. During 2021, the Board took decisive action to ensure the future of the Group, in light of the accelerated structural changes in the retail trading environment caused by the impact of Covid-19. The stress on the Group’s balance sheet needed to be addressed in order to bring the capital structure back to an appropriate level and to preserve the strength of the platform to take advantage of market recovery opportunities, enabling the Board and management to focus on delivering and scaling the core community centre strategy. This was done through refocusing the portfolio into Investment and Managed assets, by reclassifying the Group’s Managed Assets as “Held for Sale”, restructuring a key loan facility, and recapitalising the business through a fully underwritten capital raising. More information on this can be found in the CEO’s Statement on pages 24 to 25 and in the GFD’s Financial Review on pages 30 to 35. Monitoring and assessing our culture The Board is responsible for defining, monitoring and overseeing the culture of the organisation and ensuring that it is aligned with the Company’s purpose and strategy. To foster and support an open culture, where all staff understand the strategic direction of the business, key points arising from strategic discussions held by the Board and Senior Leadership Team are communicated to staff members via regular Townhall meetings. The Board’s agenda is managed to ensure that the value which the Company generates is preserved over the long term, with key stakeholder considerations and governance issues playing a fundamental part in its decision-making. The Board receives regular updates on the operational performance of the Group’s centres against key KPIs, including footfall and leasing activity and feedback on guest surveys, providing insight into the demand and engagement within each community. The Board also receives regular people updates on the Company’s culture and whether it is embracing the values of inspiring creative thinking, encouraging collaborative engagement, acting with integrity and delivering dynamic solutions. The Board of Directors are also encouraged to visit centres outside of formal Board visits to engage with employees and to gain a deeper understanding of the trading environment and the differences in guest experiences across the assets. Shareholder relations The Company encourages regular dialogue with its shareholders at the AGM, corporate functions and property visits. The Company also attends roadshows, participates in sector conferences and, following the announcement of final and interim results, and throughout the year, as requested, holds update meetings with institutional investors. Social distancing and Covid-19 restrictions limited the opportunities to meet with shareholders in-person in 2021 and key meetings were largely held remotely. The Chairman, Senior Independent Director and Committee Chairs hold meetings with institutional shareholders, when required, to discuss key issues. All the Directors are accessible to all shareholders, and queries received verbally or in writing are addressed as soon as possible. Announcements are made to the London Stock Exchange, the Johannesburg Stock Exchange and the business media concerning business developments to provide wider dissemination of information. Registered shareholders are sent copies of the Annual Report and relevant circulars. The Group’s website (capreg.com) is kept up to date with all announcements, reports and shareholder circulars. In-person activities were limited in 2021 but key engagement included: • Shareholders invited to attend the full year and interim results presentations via video conference; • Post-results investor roadshows covering investors in London, Edinburgh, Amsterdam and South Africa held via video conference; • Participated in a number of industry conferences; • Hosted investor tours at our centres when allowed under Government restrictions; and • Provided regular updates to the market throughout the year. Stock Code: CAL 71 Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCECorporate Governance Report CONTINUED Board Leadership and Company Purpose Employee concerns were taken into account prior to the finalisation of operational and communication plans. In a normal year, the Board would generally undertake one or two visits to operational locations during the year and would hold at least one Board meeting at a C&R location other than the Support Office; however, circumstances have dictated that all Board meetings during 2021 were held remotely. The Board remains committed to reintroducing visits to operational locations when circumstances allow as it appreciates that getting out and about in the business is important for the Board as this enables the Non-Executive Directors to see first- hand how our assets are run and, importantly, meet local teams. This provides an experience of the business which cannot be replicated in the boardroom and also enables the Directors to engage with teams at all levels in the business. Such activities give a real insight into how the culture and values of the business work in a day-to-day setting. Conflicts of interest Directors are required to report actual or potential conflicts of interests to the Board for consideration and the Company maintains a register of authorised conflicts of interest. The Chairman notes the Register and reminds Directors of their duties under the Companies Act 2006 relating to the disclosure of any conflicts of interest at the beginning of each Board meeting. Directors’ interests in the shares of the Company and the terms of their appointment are disclosed on page 104. Independent advice Directors can raise concerns at Board meetings and have access to the advice of the Company Secretary. There is an established procedure for Directors, in relevant circumstances, to obtain independent professional advice at the Company’s expense. No such requests were made in 2021. Directors’ and Officers’ Liability Insurance is maintained for all Directors. Employee and Workforce engagement The Board has received regular updates from Laura Whyte, Non-Executive Director responsible for workforce engagement and Chair of the ESG Committee, on staff engagement throughout the year. The Executive Directors hold “Townhall” meetings following each scheduled Board meeting to update all employees on the decisions taken and provide an opportunity for employees to ask any questions they may have. In 2021, Townhall meetings were maintained at an increased frequency of every fortnight to provide regular updates to employees while the majority of the Support Office workforce worked remotely. The Townhall meetings are well attended by employees in the Support Office and by centre teams. The ESG Committee also reviews the outputs of the employee engagement surveys “C&R Pulse” and the “Team Survey” at Snozone on a regular basis. Laura Whyte is the Non-Executive Director responsible for workforce engagement. The purpose and key accountabilities of the role include: • • • Learning about employee experiences and perspectives on current challenges facing the business Sharing those views at Board meetings to inform broader decision-making Ensuring the Board takes appropriate steps to evaluate the impact of proposals and developments on employees and consider relevant steps to mitigate any adverse impact • Providing feedback to employees, through the Senior Leadership Team, on Board decisions that will impact them directly. In addition to these responsibilities, Laura periodically attends Townhall meetings and has an open invitation to join the All About You and Diversity and Inclusion Committees. Laura reviews and monitors feedback and insights driven by our employee surveys and is consulted on the topics covered. As Chair of the Remuneration Committee, Laura is also briefed on any remuneration matters affecting employees and is able to provide feedback to the Remuneration Committee on any concerns raised by employees. During 2021, feedback was sought from employees regarding returning to working from the office following the relaxation of Government guidance. Employees were asked to share their views and concerns about returning to the office and information regarding their personal circumstances including whether they were shielding, what care responsibilities they had and their ability to travel to centres safely. Employee concerns were taken into account prior to the finalisation of operational and communication plans. Concerns raised regarding the impact on mental health and wellbeing during periods of isolation were also addressed through the introduction of a series of webinars delivered by a qualified mental health professional. 72 capreg.comDivision of Responsibilities Governance framework Board Key Responsibilities • Collectively responsible for promoting the long-term sustainable success of the Group for the benefit of its stakeholders through the creation of long-term sustainable shareholder value and contribution to wider society. • Setting the Group’s strategic direction and overseeing management’s execution of the strategy. • Responsible for establishing Group purpose and values, and for ensuring that our culture and behaviours are both appropriate and consistent. Further information on Audit Committee pages 80 to 85 Further information on Remuneration Committee pages 86 to 104 Further information on Nomination Committee pages 78 to 79 Further information on ESG Committee pages 48 to 50 Audit Committee Key responsibilities • Reviews the clarity, completeness and appropriateness of disclosure in the Group’s Financial Statements and reports findings to the Board. • Advises the board on whether the Annual Report is fair, balanced and understandable. • Monitors, reviews and recommends to the Board the need for an Internal Audit function. • Recommends the appointment of the External Auditors and reviews their effectiveness, independence and fees. • Reviews and approves the Group’s arrangements and policy for its workforce to raise concerns, in confidence, about possible wrongdoing. • Delegated by the Board to monitor the internal controls and risk management process. Ultimate approval remains with the Board. Remuneration Committee Key responsibilities • Makes recommendations to the Board on the Group’s Executive Director Remuneration Policy. • Oversees the Group’s Remuneration Schemes. • Reviews and recommends to the Board the Group’s Remuneration Policy. Disclosure Committee Key responsibilities • Identifies Inside Information. • Decides on how and when to disclose Inside Information in accordance with the Disclosure Policy and having regard, in particular, to information previously disclosed by the Company. ESG Committee Key responsibilities • Sets the ESG strategy and ensures that it remains fit for purpose. • Benchmarking and measuring the Group against national and global industry standards, in relation to its ESG strategy and goals. • Ensures that there are appropriate policies in place to support the Group’s ESG framework. • Assists on other matters related to ESG as may be referred to it by the Board. Nomination Committee Key responsibilities • Reviews the structure, size and composition of the Board and Board Committees to ensure that they are appropriately balanced in terms of diversity, knowledge, skills and experience. • Reviews and recommends appointments to the Board and to other senior leadership positions. 73 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCECorporate Governance Report CONTINUED Division of Responsibilities Board balance and independence Details of the Executive Directors including their qualifications, experience and other commitments are set out on pages 64 to 65. The Board currently comprises the Chairman, two Executive Directors and five Non‑Executive Directors. The Board reviews the independence of its Non-Executive Directors on an annual basis. George Muchanya and Norbert Sasse are not considered independent as they act as representatives of Growthpoint Properties Limited. Louis Norval, who resigned from the Board in December 2021, was similarly not considered independent as he acted on behalf of a substantial shareholder of the Company. The Board has concluded that all other Non‑Executive Directors continue to demonstrate their independence. In the Company’s view, the breadth of experience and knowledge of the Chairman and the Non-Executive Directors and their detachment from the day-to-day issues within the Company provide a sufficiently strong and experienced balance with the Executive members of the Board. The Company has well-established separation of responsibilities between the Chairman and Chief Executive and written terms of reference are available on the Group’s website. The Senior Independent Director undertakes regular reviews to ensure the distinction of roles and responsibilities remains appropriate. Chairman Chief Executive • Responsible for the objective leadership of the Board of Directors in the effective directing of the Company. • Should maintain a culture of openness and ensure that time is made for debate and constructive challenge. • Responsible for the day-to-day operations and management of the Group’s business. • Develop and recommend the Group strategy to the Board and implement the agreed strategy across the Group. • Deliver financial performance in line with the • Continually assess and monitor the agreed budgets. • • collaborative nature of the Board and take the lead in its annual effectiveness review. Set the annual workplan for the Board and set the agenda, style and tone of each meeting of the Board. Ensure Directors receive timely, accurate and clear information in order for them to make informed collective decisions. • Oversee the induction process for new Directors and the ongoing training and development of the Board. • Provide regular updates to the Board on all operational matters. • Responsible for recruitment, leadership and development of the Senior Leadership Team. • Deliver the Group’s ESG strategy. • Ensure effective communication with the Group’s shareholders and stakeholders. Senior Independent Director Non-Executive Directors • Act as a sounding board to the Chairman. • Remain independent of management • • Serves as an intermediary for Non-Executive Directors when necessary and available to shareholders if they wish to raise concerns outside of the usual communication channels of the Chairman, Chief Executive or other Executive Directors. and to be free from any business or other relationships that could compromise their independence. • Provide independent judgement, knowledge and commercial experience to discussions and decision-making. Lead the evaluation of the Chairman’s performance, as part of the annual Board evaluation process. • Provide constructive challenge to Executive Directors and scrutinise the performance of management against key objectives. • Provide oversight of management’s success in delivering the agreed strategy within the risk appetite and control framework agreed by the Board. • Responsible, through the Board Committees, for managing the delegated tasks given to them by the Board. 74 capreg.comBoard and committee meeting attendance The number of meetings of the Board and its Committees during 2021, and individual attendance by Directors, is set out below. Number of meetings D Hunter L Hutchings S Wetherly I Krieger G Muchanya N Sasse K Wadey L Whyte T Hales (retired 20 May 2021) L Norval (resigned 16 December 2021) Board Scheduled Ad-Hoc 5 5/5 5/5 5/5 5/5 5/5 5/5 5/5 4/5 2/2 5/5 4 4/4 4/4 4/4 4/4 4/4 4/4 4/4 4/4 2/2 4/4 Total 9 9/9 9/9 9/9 9/9 9/9 9/9 9/9 8/9 4/4 9/9 Committees Audit Remuneration Nominations 4 – – – 4/4 – – 4/4 4/4 2/2 – 5 – – – 5/5 – – 2/2 5/5 5/5 – 1 1/1 – – 1/1 – – – 1/1 1/1 – ESG 4 – 4/4 – – – – 4/4 4/4 – – Prior to Board meetings, each member receives, as appropriate to the agenda, up-to-date financial and commercial information, management accounts, budgets and forecasts, details of potential or proposed acquisitions and disposals, cash flow forecasts and details of funding availability. At each scheduled Board meeting, the Executive Directors provide updates on their key areas of responsibility. The Committee Chairs also provide updates on the work of the Committees and highlight any matters requiring consideration by the full Board. Other matters for discussion are added to the agenda for scheduled Board meetings, or discussed at additionally convened Board meetings, as required. Time Commitment The Nomination Committee considers the time commitments of proposed candidates prior to appointment to ensure that they are able to dedicate sufficient time to the role. Directors’ external commitments are reviewed on a regular basis to ensure they continue to devote sufficient time to the role. All Directors are required to obtain prior approval before taking on any additional external appointments. Directors are expected to attend all Board and relevant Committee meetings and attendance in 2021 is set out in the table above. The Board schedules five meetings each year, and arranges further meetings as and when the business requires it, ensuring sufficient time is allocated to discharge their duties. During the year, the Board held five scheduled meetings and four ad-hoc meetings, the latter primarily related to the equity raise and restructuring transaction. Directors also made themselves available for additional meetings and update calls during the year to discuss time-sensitive matters and the ongoing response to the Covid-19 pandemic. 75 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCEComposition, Succession and Evaluation The Chairman, supported by the Company Secretary, ensures all new Directors are provided with induction training. Composition Details of the Directors, including their skills and experience are outlined on pages 64 to 65. Board succession Succession planning is led by the Nomination Committee. Further information is provided on pages 78 to 79. Induction and professional development The Chairman, supported by the Company Secretary, ensures all new Directors are provided with induction training. Comprehensive packs are provided containing the most recent Board & Committee materials, recent auditor reports, key business policies and relevant business KPIs. New Directors are introduced to the Board and senior management through one-to-one meetings, coupled with visits to our shopping centres to tour the trading environments and to meet the operational teams. Briefings on governance requirements and their legal and regulatory obligations as a Director are delivered and they are made aware of access to the relevant independent advisers. Ongoing training requirements are reviewed on a regular basis and undertaken individually, as necessary. Board evaluation Stage 1 Led by the Chairman, all Directors of the Board complete a detailed questionnaire covering: • Performance of the Board, as a whole, and as individuals; • Processes that determine the Board’s effectiveness (including the Board composition and skills gaps, experience, independence and knowledge of the persons on the Board and decision-making); • Company culture, strategy and risk management; and • Performance of the Board’s Committees. The Senior Independent Director arranges for one-to-one meetings with each Director of the Board to review and discuss the performance of the Chairman. The Chairman meets with the Non-Executive Directors without the presence of the Executive Directors to evaluate the performance of the Chief Executive. Stage 2 The completed questionnaires are collated by the Assistant Company Secretary and reviewed with the Chairman to pull out summaries and key findings. Stage 3 A paper, summarising the key findings with recommendations and associated actions, is drafted, and submitted for Board discussion and approval. Actions are agreed. 76 capreg.com Progress has been made since the 2020 Board evaluation on growing the essential non- discretionary customer categories across the portfolio in line with the community centre strategy. The review for 2021 took place at the January 2022 Board Meeting. The Board continues to engage and provide for robust and collective decision- making. The Board was comfortable that the Company had the appropriate controls, processes and approach to risk management. Management reporting on key operational challenges and key performance indicators were thought to be transparent and allowed for effective analysis of the Group’s performance against the budget and business plans. The Board acknowledged the continued resilience in the community shopping centre focus and further reshaping of tenant mixes across the Group’s assets. However, it was highlighted that devoting more time to strategy development was necessary. Area of focus for 2022 Strategy: The Board is keen to review the Group’s current strategy and the progress that has been made to date in fulfilling it. The Board believe the Group is in a pivotal stage and efforts should be made to assess and agree the future direction of business to enable growth and enhanced stakeholder return. Peer Group: Further work will be carried out by the Board to identify and understand potential comparators in different markets/jurisdictions to increase insights from operators outside of the Group’s traditional peer group. People and succession planning: The Directors agreed that the established Board and Committee structure ensured that the governance requirements of the business were properly considered and reflected in the decision-making process. An emphasis was placed on ensuring the ESG requirements, particularly around climate-related disclosures, were more regularly considered and reviewed. The Board identified a need for increased focus on the one of the businesses key stakeholders; its employees, and the related operational challenges they are likely to face in the coming year. Succession planning at Board and at Senior Leadership level will be key to ensuring the success of the Group, with a need to increase visibility of progress at the Board level. The Chief Executive evaluates the performance of the Group Finance Director. Subsequently, the results are discussed by the Remuneration Committee and relevant consequential changes are made if required. The Board is satisfied that the internal evaluation process is robust and that the manner in which the evaluation is carried out encourages a healthy debate on areas of potential improvement. The Chairman has confirmed that the Non-Executive Directors standing for re-election at this year’s Annual General Meeting continue to perform effectively, both individually and collectively as a Board, and that each demonstrate commitment to their roles. Stock Code: CAL 77 Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCEComposition, Succession and Evaluation CONTINUED Nomination Committee Report David Hunter Chair of the Nomination Committee Other members: Ian Krieger Laura Whyte Meetings held: 1 The Committee conducted a review of the Board and Committee membership. The Committee was satisfied in each case that the Board and relevant Committee had the requisite skills, experience, knowledge and diversity. The Nomination Committee is chaired by David Hunter, Chair of the Board of Directors. The other members of the Committee are Ian Krieger and Laura Whyte, both independent Non-Executive Directors. Responsibilities The Nomination Committee meets as required to select and recommend to the Board suitable candidates for both Executive and Non-Executive appointments. The Nomination Committee also considers succession planning for the Board and senior leadership positions. The formal role of the Nomination Committee is set out in its terms of reference. The recruitment process for Directors typically includes the development of a candidate profile and the engagement of a professional search agency (which has no other connection with the company). Candidate profiles are provided to the Committee, which, after careful consideration, makes a recommendation to the Board. Any new Directors are appointed by the Board and, in accordance with the company’s articles of association, must stand down for re-election at the next Annual General Meeting in order to continue in office. All existing Directors retire by rotation every year. Activities of the Committee during the year Following the announcement that Tony Hales would step down as Non-Executive Director at the 2021 Annual General Meeting, the Committee conducted a review of the Board and Committee membership. The Committee was satisfied in each case that the Board and relevant Committee had the requisite skills, experience, knowledge and diversity. As part of the annual Board evaluation process, all Board members were asked to consider the composition of the Board and highlight any areas they viewed were not being suitably covered. The output of this exercise has fed into succession planning for future recruitment to the Board. The Committee are mindful of the Code requirements regarding independence; however, given the current economic environment and sectoral challenges that the business has faced, the Board has postponed the appointment of any further Non-Executive Directors in an effort to restrict costs. Given the scale of the Company, the Board remain confident in the robust contributions currently provided by the sitting Non-Executive Directors. The Committee will, however, keep this under review. Diversity Policy The Nomination Committee, and the Board, recognises the importance of diversity in its broadest sense, including gender, ethnicity, culture, socio-economic background, disability, sexuality and diversity of thought, perspective and experience. Although the Company does not fall within the FTSE 350, the Committee, and indeed the Board, is supportive of the Davies Report, Hampton- Alexander Report and subsequent Parker Review recommendations. At the financial year-end, the Board had 25% female representation (2020: 20%), which, although an improvement on the previous year, has not yet met the Hampton-Alexander target of at least one-third female representation on the Board. The Board has met the Parker Review target of one ethnic minority Director on the Board, as at 30 December 2021. 78 capreg.comThe Committee seeks to ensure that all suitable candidates available are taken into account when drawing up shortlists of candidates for possible appointments. The Committee continues to engage with Executive search firms that are signatories to the UK Voluntary Code for “Women on Boards and the Voluntary Code of Conduct for Executive Search Firms”. The priority of the Committee and the Board is to ensure that the Group continues to have the strongest and most effective Board possible, and therefore all appointments to the Board are made on merit against objective criteria. As a business, we are committed to maintaining a diverse workforce at all levels across the Company, and more information on how we do this, including a description of the policies relating to diversity and how they have been implemented, can be found in the ESG Report on pages 51 and 56 to 58. The Committee is responsible for monitoring the existing working environment to ensure it is inclusive and to explore ways of further improving this both through internal and external engagement. The Committee are in the process of developing Group-wide objectives to measure progress over the coming months and years. 79 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCEAudit, Risk and Internal Control Audit Committee Report Ian Krieger Chair of the Audit Committee Chair of the audit Other members: committee Katie Wadey Laura Whyte Meetings held: 4 The Committee has recommended to the Board that the Annual Report and Financial Statements 2021, taken as a whole, is fair, balanced and understandable. The Audit Committee is chaired by Senior Independent Director and Independent Non- Executive Director, Ian Krieger, a Chartered Accountant with the recent and relevant financial experience required by the 2018 UK Corporate Governance Code. The other members of the Committee are Katie Wadey and Laura Whyte, both Independent Non-Executive Directors. All directors of the Board are able attend Committee meetings by standing invitation. Stuart Wetherly, Group Finance Director attended each of the meetings held in the year apart from those parts of the meeting reserved for the Committee to meet privately with the Company’s external Auditor, Deloitte LLP. The Company’s Chairman, Chief Executive and remaining two Non-Executive Directors also attended meetings during the year. Other senior members of Finance and representatives from Deloitte LLP attended meetings by invitation. Responsibilities The Committee’s role is to assist the Board in discharging its duties and responsibilities for ensuring the integrity of financial reporting, advising the Board on whether the Annual Report is fair, balanced and understandable, internal controls and the appointment, remuneration and relationship management of the Company’s independent external Auditor. The Committee is responsible for reviewing the scope and results of audit work and its cost effectiveness, the independence and objectivity of the Auditor and the Group’s arrangements on whistleblowing. 80 capreg.comReport on the Committee’s activities during the year The Committee has a schedule of events which detail the issues to be discussed at each of the meetings of the Committee in the year. The schedule also allows for new items to be included into the agenda of any of the meetings. During the year, the Committee met four times and discharged its responsibilities by: a. reviewing the Group’s draft 2021 Annual Report and financial statements and the 2021 interim results statement prior to discussion and approval by the Board; b. reviewing the continuing appropriateness of the Group’s accounting policies including management’s approach to the reassessment of IFRS 16, the impact of the changes in lease agreements within Snozone, the impact on the accounting treatment of the Group’s lease arrangements and the presentation of the Group’s Adjusted Profit metric; c. reviewing Deloitte LLP’s plan for the 2021 Group audit, approving their terms of engagement and proposed fees and reviewing and updating the Group’s policy for the award of non-audit work to its external Auditor; d. reviewing the Company’s ongoing REIT regime compliance; e. reviewing reports on internal control tests and assessing whether a stand-alone internal audit function was required; f. considering the effectiveness of the external audit process, the effectiveness and independence of Deloitte LLP as external Auditor and recommending to the Board their reappointment; g. reviewing management’s biannual Group Risk Review report and the effectiveness of the material financial, operational and compliance controls that help mitigate the principle risks; h. reviewing the effectiveness of the Group’s Whistleblowing Policy; i. considering management’s approach to Going Concern in respect of the year-end results announcement, the Annual Report and the half-year results and the viability statement in the Annual Report; j. meeting with the responsible individuals from the Group’s independent valuers, CBRE Limited and Knight Frank LLP to review and challenge their valuations of the Group’s investment properties; k. meeting with Deloitte LLP without management present; l. reviewing reports on the delivery of business critical systems transformation projects; and m. carrying out an annual performance evaluation exercise and noting the satisfactory operation of the Committee. 81 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCEAudit, Risk and Internal Control CONTINUED Audit Committee Report Significant issues considered in relation to the financial statements During the year, the Committee considered key accounting matters and judgements in respect of the financial statements relating to: Investment property valuation At 30 December 2021, the value of the Group’s investment property assets was £473.1 million (see Note 10b of the financial statements for further details). The Group saw a further decline in property values in the first half of the year but a stabilisation in the second six months. The valuation of investment property is inherently judgemental and involves a reliance on the work of independent professional qualified valuers. During 2021, the Audit Committee met with the valuers, considered their independence and qualifications and reviewed and challenged the valuations for both the year-end and interim results dates to understand the basis for them and the rationale for movements in the context of both the individual properties, the impact of Covid-19 and the general property investment market. The valuation judgements were deemed to be in compliance with the RICS Red Book. REIT regime compliance The Committee continued to monitor and consider the Group’s compliance with the REIT regulations and the potential of being expelled from the REIT regime would have a significant effect on the financial statements. As a consequence of not having paid a dividend since June 2020, the Group did not meet the minimum PID distribution requirement for 2019 or 2020. The Group had agreed with HMRC a 12-month extension to the 2019 deadline until the end of 2021 but having not paid a dividend during 2021, the Group paid £2.5 million in December 2021 to settle the tax outstanding on the estimated shortfall of £13.0 million in respect of the 2019 and 2020 financial years effectively bringing the Group’s compliance up to date. On consideration of all of this, the Committee was satisfied that the Group remained compliant with REIT regulations for the period under review. 82 capreg.comManagement override of controls The Committee reviewed the risk of material misstatement due to fraud through management overriding of established controls, particularly around key judgements and estimates made by management in relation to the valuation of the investment property portfolio, financial reporting process, accounting of significant unusual transactions and the review of top-side adjustments. The financial statements were assessed for bias in accounting judgements and management was asked about any known fraud situations. Journal entries and any unusual activity in this regard was investigated. Board minutes were assessed for any instances of override of controls being discussed. The Committee found no issues of note. Read more about Going Concern on page 42 Read more about the reclassification of the Group's assets on pages 4 and 46 Reclassification of assets and liabilities as held for sale Going concern and covenant compliance The Committee reviewed the position of the Group’s investments in the Hemel Hempstead and Luton properties. At 30 June 2021, the Committee reviewed the rationale for changing the Group’s Operating Segments to split what was previously its Shopping Centre segment between “Shopping Centres – Investment Assets” and “Shopping Centres – Managed Assets”. The Committee concluded that it was appropriate to present such a split noting it was reflective of the economic position of the respective investments and of internal reporting. At 30 December 2021, the Committee reviewed the conclusion that the two assets met the criteria to be reclassified as “Held for Sale”. This conclusion was reached as the Group, following close dialogue with the respective lenders of the vehicles, had decided to seek to dispose of whole or part of the investments or assets as at that date. The Committee agreed that the treatment was appropriate. The Committee reviewed, challenged and concluded upon the Group’s going concern review and consideration of its viability statement. This process included giving due consideration to the appropriateness of key judgements, assumptions and estimates underlying the budgets and projections that underpin the review and a review of compliance with key financial covenants and ongoing discussions with the Group’s lenders. The Committee also assessed the non-recourse nature the Group’s loan facilities and the opportunity to cure breaches of financial covenants or provide for the eventual surrender of assets, should the Directors choose not to cure in the event that the lenders do not grant further covenant modifications. The use of reasonable scenarios and sensitivity analysis by management in response to the impact of Covid-19 was reviewed as part of the process given the highly volatile market environment. IFRS 3 Business combinations Impairment of receivables and inter-company investments The Committee reviewed management’s conclusions that the acquisition of two Spanish entities; Snozone SLU and Ocio y Neive SLU, on 9th February 2021 met the definition of Business Combination under IFRS 3. The SPA agreement was assessed to ensure the transaction had been conducted in line with the terms and conditions agreed. The fair value assumptions were cross checked against the net book value of the acquired assets. No significant differences in respect of the book value of the assets had been identified. In line with the requirements of IFRS 3, goodwill had been accounted for through the Profit & Loss account. The Committee found no issues of note. Management perform an annual review of inter-company investments and receivables to determine the values to be maintained in the plc only and individual subsidiary balance sheets. Management also performed a review at the period end of outstanding trade receivables assessing on a tenant- by-tenant basis the need for provision of outstanding amounts. The Committee considered the movement over the year and the key assumptions, particularly in the case of investments where balances were held with reference to value in use as opposed to net assets of the underlying entity. 83 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCE Read more about the independent auditor's report on pages 111 to 121 Audit, Risk and Internal Control CONTINUED Audit Committee Report Auditor rotation and tender process Deloitte LLP were reappointed following a tender process in 2018. Deloitte LLP have been Auditor of Capital & Regional plc since 1998. The Committee is committed to putting the external audit out to tender at least every 10 years in compliance with legislation and FRC guidance on best practice, in particular ensuring independence in respect of potential audit firms. Deloitte LLP, under EU guidance for mandatory Auditor rotation, can serve as Auditor until the year ending 30 December 2023. The Committee plans to run a tender process during 2022 to manage transition from Deloitte, given the requirement for mandatory rotation. In accordance with best practice and professional standards, the external Auditor is required to adhere to a rotation policy whereby the audit engagement partner is rotated at least every five years. The 2021 audit was the fourth year of Matthew Hall’s tenure as lead audit engagement partner. Effectiveness of the external Auditor The Committee carried out a review of the effectiveness of the external audit process and considered the reappointment of Deloitte LLP. The review covered, amongst other factors, the quality of the staff, the expertise, the resources and the independence of Deloitte LLP. The Committee reviews the audit plan for the year and subsequently considers how the Auditor performed to the plan. They consider the quality of written and oral presentations and the overall performance of the lead audit partner. It was determined that the overall work completed had been to a high standard, with Deloitte LLP having developed a good understanding of the Group. Strong working relationships had been maintained between the Committee and management and the lead audit engagement partner and their team. Auditor Independence The Committee considers the external Auditor to be independent. The Audit Committee is responsible for reviewing the cost-effectiveness and the volume of non-audit services provided to the Group by its external Auditor. The Group does not impose an automatic ban on the Group’s external Auditor undertaking non-audit work, other than for those services that are prohibited by regulatory guidance. Instead, the Group’s aim is always to have any non-audit work involving the Group’s external Auditor carried out in a manner that affords value for money and ensures independence is maintained by monitoring this on a case-by-case basis. The Group’s policy on the use of its external Auditor for non-audit services, which was reviewed in October 2021, precludes the external Auditor from being engaged to perform valuation work, accounting services or any recruitment services or secondments. The policy also stipulates that for any piece of work likely to exceed £20,000 at least one other alternative firm provide a proposal for consideration. During the year, the only non-audit services performed by Deloitte LLP during the year were its review of the Half-Year Results for which a fee of £52,000 was charged. Risk Management and internal controls The Board delegates the responsibility for monitoring a sound system of internal control and risk management to the Audit Committee. An ongoing biannual process is in place for identifying, evaluating and managing risk of the Group. This is fed into the Audit Committee agenda for review and referral to the Board, which has ultimate oversight and approval responsibility. Such a system is designed to manage, but not eliminate, the risk of failure to achieve business objectives. There are inherent limitations in any control system and, accordingly, even the most effective system can provide only reasonable, and not absolute, assurance. Key features of the Group’s system of internal control are as follows: • Defined organisational responsibilities and authority limits. The day-to-day involvement of the Executive Directors in the running of the business ensures that these responsibilities and limits are adhered to; • Financial and operational reporting to the Board including the preparation of budgets and forecasts, cash management, variance analysis, property, taxation and treasury reports and a report on financing. Year-end and interim financial statements are reviewed by the Audit Committee and discussed with the Group’s Auditor, Deloitte, before being submitted to the Board for approval; • Review and approval of the Group’s risk matrix twice a year by the Group’s Senior Leadership Team, the Audit Committee and the Board as detailed on pages 36 to 42 in the Managing Risk section of the Strategic Report; • Anti-Bribery and Corruption policies, which are communicated to all staff and for which compliance reviews are conducted on an annual basis; and • The Group’s whistleblowing policy. Steps are continuously being taken to embed internal control and risk management further into the operations of the business and to deal with areas of improvement which come to management’s and the Board’s attention. During the year, the Board, through the Audit Committee, reviewed the effectiveness of the material financial, operational and compliance controls that mitigate the key risks (as disclosed in the Managing Risk section on page 37). A statement of the Directors’ responsibilities regarding the financial statements is on page 110. 84 capreg.comInternal Audit The Group does not have a dedicated stand- alone internal audit function but manages an ongoing process of control reviews performed either by staff, independent of the specific area being reviewed, or by external consultants, where deemed appropriate. In accordance with the Committee’s terms of reference, the Committee conducted the annual review of the need to establish an internal audit function in October 2021. It was determined that the current size and complexity of the Group did not justify establishing a stand-alone internal audit function and the existing arrangements remain appropriate. Whistleblowing The Group has in place a whistleblowing policy which encourages employees to report any malpractice or illegal acts or omissions or matters of similar concern by other employees or former employees, contractors, suppliers or advisers. The policy provides a mechanism to report any ethical wrongdoing or malpractice or suspicion thereof. The Group’s process provides staff with options to contact members of senior management, the Group’s Senior Independent Director and the Group’s external audit partner. Strong working relationships had been maintained between the Committee and management and the lead audit engagement partner and their team. The Audit Committee, on behalf of the Board, reviews the established processes on an annual basis and last reviewed the policy in October 2021. The Committee reports to the Board on the process and any updates arising from its operation. Fair, balanced and understandable The Committee has reviewed the contents of the Annual Report and Financial Statements 2021 and concluded that the disclosures, and the processes and controls underlying its production, were appropriate and recommended to the Board that the Annual Report and Financial Statements 2021, taken as a whole, is fair, balanced and understandable and provides the necessary information for shareholders to assess the Company’s position and performance, business model and strategy. IAN KRIEGER CHAIRMAN OF AUDIT COMMITTEE 13 April 2022 85 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCERemuneration Annual Statement Laura Whyte Chair of the Remuneration Committee Chair of the ESG Other members: committee Ian Krieger Katie Wadey Meetings held: 5 Dear Shareholder, As Chair of the Remuneration Committee and on behalf of the Board, I am pleased to present the Directors’ Remuneration Report for the year ended 30 December 2021. The Covid-19 pandemic continued to have a pervasive impact across the real estate and retail sector, with the first three months of the year in national lockdown. The challenges of the wider economy and structural changes accelerated by Covid-19 have impacted our financial performance, share price and dividend policy during the year. However, the Company has also made significant progress to stabilise the business. The Company undertook a restructuring of its largest loan facility in parallel with a £30 million capital raise, which together have helped materially improve the Group’s critical loan to value ratio. Our approach to remuneration has been measured and balanced, seeking to ensure that a consistent approach is taken across the business and that Executive remuneration and reward is well-aligned with shareholder objectives and experience. The Committee met five times during 2021 to discharge its responsibilities. In addition, informal meetings and other correspondence took place to discuss wider remuneration issues. In addition to the other Committee members, Ian Krieger and Katie Wadey, both independent Non-Executive Directors, the Chief Executive and other Non- Executive Directors are invited to attend meetings, as required. In accordance with the Corporate Governance Code 2018, no Director was included in the decision-making process for their own remuneration nor present at any meeting where the same was being discussed. Board Policy Our existing Remuneration Policy was presented to shareholders at the Company’s Annual General Meeting in 2019, receiving strong support with a vote in favour of 87.8%. The Policy is due to expire at this year’s Annual General Meeting on 19 May 2022. The Board, upon recommendation from the Committee, is presenting a revised Remuneration Policy for shareholder approval at this year’s AGM. The Board is proposing to retain the same Combined Incentive Plan structure as introduced in 2019. Board changes As shareholders will be aware, there were two changes to the Board during the year. Tony Hales retired by stepping down as Non-Executive Director, Senior Independent Director and Chair of the Remuneration Committee at the 2021 AGM. Ian Krieger was appointed to the role of Senior Independent Director and I, Laura Whyte, as Chair of the Remuneration Committee from the conclusion of the 2021 AGM on 20 May 2021. Louis Norval resigned from the Board on 16 December 2021. No exit payments were made to Tony Hales or Louis Norval. Ian Krieger received the same additional fee for being appointed Senior Independent Director that had previously been paid to Tony Hales. Both Ian’s and my own remuneration are in line with the agreed policy for Non-Executive Director fees. 2021 Company performance and Combined Incentive Plan (CIP) While all the Company’s centres remained open for the full year, the operating environment during 2021 was significantly disrupted by the Covid-19 pandemic. This was most pronounced at the end of 2020 and in the first quarter of the year with the full national lockdown, which was longer in duration than the lockdown in 2020 at the start of the pandemic and covered part of the critical Christmas and new year sales period. Covid-19 remained a factor throughout the whole 12 months with various levels of restrictions in place at most times. This led to sustained pressure on the retail sector, which in turn had an adverse effect on retail property, increasing the number of retailer failures and restructuring – including our largest tenant, Debenhams – impacting contracted rent, rent collection and ultimately valuations through both lower income and further expansion in cap rates for retail assets. 86 capreg.com Read more about Director remuneration on pages 89 to 105 While the Group’s relative performance benchmarked well against industry peers, both NRI and Adjusted Profit fell. The Group continued to ensure prudent cost control and operational performance was relatively strong with footfall outperforming the prior year and the national index. Despite the challenges faced by the Group in 2021, progress continued to be made on delivering non-discretionary goods and services in pursuit of the Community Centre strategy including completing more leasing deals during 2021 than in 2019 and 2020 combined. The combination of these factors put significant pressure on the balance sheets of companies within the retail property sector, leading to a variety of remedial actions being taken. The Company’s “Refocus, Restructure and Recapitalisation” project that was completed in the second half of the year was viewed positively by key stakeholders in the context of some of the alternative options pursued by others. The Board believe management performed exceptionally during the year to protect shareholder equity in the face of unprecedented external pressures. After Committee review, the formulaic outturn of the 2021 CIP for the year stood at 71.4%. However, in acknowledgement of a challenging year for the business, the Committee determined that downward discretion to reduce the formulaic outturn to an award of 65% of the maximum opportunity under the CIP would be more appropriate based on the objectives set. The Committee considered the overall result to be an appropriate and balanced outcome noting that, while results in absolute terms had seen a decline in NRI and Adjusted Profit, significant progress had been made in the year operationally and it was appropriate to recognise the exceptional efforts made by the Executive Directors in completing the equity raise and restructuring of the Mall loan facility, which have significantly recapitalised the business and secured its ongoing operation. The Committee also considered the approach on bonuses paid to the wider workforce, confirming that the total bonus pool provided was in line with the award made in 2019. The Committee continues to believe that the CIP provides the best mechanism to motivate, reward and retain Executive Directors. For 2022, the Committee will set 70% financial and 30% non-financial strategic targets which reflect the key priorities of the business over the next 12 months and to properly incentivise Executive management. As per 2021, the Committee will provide full disclosure of the targets and outcomes in the 2022 Remuneration Report and will exercise 87 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCERemuneration CONTINUED Annual Statement downward discretion on CIP outcomes if the Committee view that they do not reflect corporate performance, the shareholder experience or create reputational issues from either an internal or external stakeholder perspective. Long-Term Incentive Plan (LTIP) During the year, The Performance Period for the April 2018 LTIP issue ended on 18 April 2021. Adjusted Profit, Property Return and TSR metrics performance criteria were not met, resulting in nil awards vesting. At the Extraordinary General Meeting of the Company, held on 1 November 2021, the Board proposed an amendment to the existing LTIP rules by reducing the minimum vesting period from three years to 18 months for awards that may be granted under the LTIP to key staff other than Executive Directors. The amendment was primarily aimed at aligning retention, similar to the proposed approach for the Executive Directors. Retention Award At an Extraordinary General Meeting (EGM) of the Company, held on 1 November 2021, the Board proposed an amendment of the current Directors’ Remuneration Policy to allow for cash-based Long-Term Retention Awards to be given to the Executive Directors of the Company. The Board took the considered view, in full consultation with the major shareholders accounting for over 60% of the register, that the Retention Awards should be paid in cash to provide all shareholders with the confidence that the Executive Directors, who are highly regarded by all our stakeholders, were tangibly and transparently incentivised to deliver the strategy which is imperative for the Company’s recovery from its recent difficulties. These are not normal times and called for a radical approach outside traditional reward structures. Having reviewed the performance of the Chief Executive and Group Finance Director during a critical and challenging business environment due to Covid-19 and its enduring effects on the Business’s industry, the Board considered the Chief Executive Officer and the Group Finance Director to have demonstrated exceptional leadership. The resolution tabled at the EGM passed with strong support with 93.56% of votes cast in favour. Executive Director salary increases The Executive Directors have been awarded a pay rise of 2%. Fees paid to Non-Executive Directors will also increase by 2%. Both are in line with the general pay rise provided to the wider workforce of 2%. Pension The Committee remains conscious of the focus on pension contributions made to Executive Directors and the expectation that contributions will be equalised with those by the wider workforce by the end of 2022, in line with corporate governance best practice. Under the policy approved in 2019, company pension contributions for future Executive Directors will be set in line with the wider workforce, currently 4-8% of salary. The Committee has reviewed the pension arrangements for existing Executive Directors. In order to move towards alignment, it has been agreed that the Chief Executive’s pension contribution will be reduced from 15% to 13% of salary in 2022 and then to 8%, in line with the range of contributions paid to the wider workforce, from 1 January 2023. Workforce and senior management pay The Committee is regularly updated on workforce pay and benefits throughout the Group and considers workforce remuneration as part of the review of Executive remuneration. The Committee is also tasked with overseeing major changes in employee benefit structures. It has responsibility for the remuneration of the members of the Group’s Senior Leadership Team and is therefore able to ensure that the remuneration of the Executive Directors is in line with senior management and other colleagues. Committee changes Tony Hales retired and stepped down as Chair of the Committee at the conclusion of the Company’s Annual General Meeting on 20 May 2021. I succeeded Tony as Chair of Remuneration Committee, with effect from that day. Committee aims Our aim as a Committee continues to be to ensure we recruit and retain talented individuals who are motivated to deliver outperformance for shareholders, receiving a fair base pay with potential for significant rewards on delivering strong shareholder returns. LAURA WHYTE CHAIR OF REMUNERATION COMMITTEE 88 capreg.comDirectors’ Remuneration Policy Remuneration philosophy and principles Our principles continue to be to maintain a competitive remuneration package that will attract, retain and motivate a high-quality team, avoid excessive or inappropriate risk-taking and align their interests with those of shareholders. These principles are designed to: • Drive accountability and responsibility; • Provide incentives which align both short-term and long-term performance with the value/returns delivered to shareholders; • Apply demanding performance conditions to deliver sustainable high performance; setting these conditions with due regard to actual and expected market conditions and business context; • • Ensure that a large part of potential remuneration is delivered in shares in order that Executives are expected to build up a shareholding themselves and therefore they are directly exposed to the same gains or losses as all other shareholders; Take account of the remuneration of other comparator companies of similar size, scope and complexity within our industry sector; • Keep under review the relationship of remuneration to risk. The members of the Remuneration Committee are also members of the Audit Committee; and • Ensure that the incentive structure does not raise any environmental, social or governance risks through compliance with our ethics and standards of operating. How the Committee sets remuneration Salary Pension Benefits Fixed compensation Median Total = Median or above for above median performance Combined Incentive Plan Performance-based compensation Median or above for above median performance The Committee benchmarks remuneration against our selected comparator group companies and seeks to ensure that Directors’ fixed compensation is around the median in the comparator group. Remuneration is also dependent on the skills and experience of the individual and the scope and responsibility of the position. The Committee’s view is that by putting an emphasis on performance-related compensation, Executives are encouraged to perform to the highest of their abilities. The performance-based compensation is targeted to be at median or above, for above median performance, within the comparator group to ensure that outstanding relative performance is appropriately rewarded. The overall effect is that our total compensation is at median, or above median, for above median performance. The Committee addressed the following factors when determining the Remuneration Policy and practices, as recommend by the UK Corporate Governance Code: Clarity Simplicity Risk Predictability Proportionality Alignment to culture The Remuneration Policy and its application in the year is clearly disclosed in the Annual Report. The Committee engages with shareholders on remuneration matters and is updated on workforce pay and benefits across the Group. The remuneration structure comprises of fixed and variable remuneration, with variable remuneration granted under a single combined scheme, the CIP, clearly outlined in the Remuneration Policy. The CIP Rules provide discretion to the Committee to reduce award levels. Awards are subject to malus and clawback provisions. The Committee has overriding discretion to reduce the formulaic outcome of the CIP. The range of possible outcomes under the CIP are outlined on page 95. CIP awards are determined based on a proportion of base salary and stretching targets set to incentivise Executive Directors. The Committee has overriding discretion to reduce the formulaic outcome of the CIP. The Committee ensures that personal performance measures under the CIP incentivise behaviours consistent with the Company’s culture, purpose and values. 89 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCERemuneration CONTINUED Directors’ Remuneration Policy This part of the report has been prepared in accordance with the provisions of the Companies Act 2006 and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (“the Act”). This section of the report contains details of the Directors’ Remuneration Policy that will govern the Company’s future remuneration payments. The Policy is intended to apply for three years from the approval of the Policy. The Policy described in this part is subject to approval by shareholders at the Company’s AGM on Thursday, 19 May 2022. The results of the shareholder vote will be displayed on the Company's website immediately after the 2022 AGM, alongside a copy of the Policy. The Policy was determined following a review of the existing structure provided by the Group’s remuneration advisers, PwC. This was discussed with the Committee, Executive Management and the Board including the representatives from the Company’s largest shareholder, Growthpoint. Following the decision to essentially retain the same CIP structure as has been in operation, a short consultation with other key stakeholders and major shareholders was undertaken before concluding on the policy that is to be presented for approval at the Annual General Meeting. Purpose & link to strategy Operation Base salary • To aid recruitment, retention and motivation of high- quality people • To reflect experience and importance of role Reviewed annually effective 1 January to reflect: • general increases throughout the Company or changes in responsibility or role; and • • benchmarking against comparator group to ensure salaries are about the median level and market competitive. Salary increases will normally be aligned to the average increase awarded to the wider workforce. Increases may be above this level if there is an increase in the scale, scope or responsibility of the role or to allow the basic salary of newly appointed Executives to move towards market norms as their experience and contribution increases. • Performance metrics n/a Opportunity The maximum increase applicable in any year is capped at 10% of base salary. Change No change No change No change Pension • To help recruit and retain high- quality people • To provide an appropriate market competitive retirement benefit The Company does not operate a defined benefit pension scheme; all pension benefits are paid either to defined contribution pensions schemes of each Executive Director’s choice or as a cash supplement. Lawrence Hutchings received a pension allowance of 15% of basic salary in 2021. From 2022 onwards, he will receive 13% of basic salary. Stuart Wetherly receives a pension allowance of 8% at the top of the range of pension contributions paid to the UK workforce of 4%–8%. From 1 January 2023, Lawrence and Stuart’s pension contributions will be 8% of salary, in line with the range of contributions paid to the wider workforce. Change No change n/a No change Executive Directors are eligible to receive a pension allowance equivalent to up to 15% of basic salary. For new appointments, the Committee will ensure that pension contributions are in line with that of the workforce of 4–8%. Lawrence Hutchings’ pension will reduce to 8% in January 2023. Benefits • To aid recruitment and retention • • To provide market competitive benefits To support physical, mental and emotional wellbeing The Company offers a package to Executive Directors, in line with local market, including but not limited to: No maximum n/a critical illness cover; life insurance; • private medical insurance; • • • permanent health insurance; and • holiday and sick pay. Benefits are brokered and reviewed annually. Change No change No change No change 90 capreg.comOpportunity The plan provides a combined annual awards of up to 250% of salary for Executive Directors/300% for the Chief Executive. Targets calibrated so maximum payout represents exceptional performance. The maximum combined incentive award potential in any year may be adjusted downwards to reflect the year-on-year reduction in the profit outturn (if any) or if the shareholder return over the same period is negative. Purpose & link to strategy Operation Combined Incentive Plan (CIP) • To incentivise delivery of short-term business targets and individual objectives based on annual KPIs • • • • To recognise performance while controlling costs in reaction to the market context or company events To reinforce delivery of long-term business strategy and targets To align participants with shareholders’ interests To retain Directors over the longer term The plan is reviewed annually to ensure bonus opportunity, performance measures and weightings are appropriate and support the stated Company strategy. All measures and targets will be reviewed and set annually by the Committee at the beginning of the financial year and levels of award determined by the Committee after the year- end are determined based on achievement of performance against the stipulated measures and targets. One-third of the award is paid in cash after one year. Two-thirds of the award is deferred into shares. Deferred shares will vest in three equal tranches in years three, four and five and will be subject to the achievement of a performance underpin. Vested deferred shares will be subject to an additional holding period to the 5th anniversary of the date of grant. Upon vesting, sufficient shares can be sold to pay tax. Up to 100% of deferred shares will lapse if median relative TSR performance against the peer group is not achieved. Malus and clawback provisions apply such that the Committee has the discretion to reduce or cancel any awards that have not been exercised, in any of the following situations: • C&R’s financial statements or results being negatively restated due to the Executive’s behaviour; a participant having deliberately misled management or the market regarding Company performance; a participant causing significant reputational damage to the Company; or a participant’s actions amounting to serious / gross misconduct. the discovery that any information used to determine the Bonus and/or the number of Plan Shares placed under a Share Award relating to a Bonus Award was based on error, or inaccurate or misleading information; and/or failure of risk management; and/or corporate failure. • • • • • • In line with UK corporate governance best practice, the Committee will retain the discretion to adjust the payment and vesting outcomes (both upwards and downwards) under the CIP to reflect the overall corporate performance and shareholder experience. The maximum combined incentive award potential in any year (300% of salary) will be adjusted downwards to reflect the year-on-year reduction in the profit outturn (if any) or if the shareholder return over the same period has been negative. The Committee retains the discretion in exceptional circumstances to change performance measures and targets and the weightings attached to performance measures part- way through a performance if there is a significant and material event which causes the Committee to believe the original measures, weightings and targets are no longer appropriate. Change No change No change Performance metrics Performance targets set annually based on a 100% Group financial and strategic performance targets. 2022 objectives will be weighted 70% on financial performance and 30% strategic and operational measures. Financial metrics may typically include metrics such as profit, net rental income and cost management. Operational and strategic metrics may include metrics such as footfall and strategy implementation. Threshold performance, where relevant for individual objectives, is typically set at 50% The annual nature allows the Company to link them directly to Company strategy in a challenging macro-economic environment and ensure that the remuneration principles agreed by the Committee will be met. Financial performance will be 70%; strategic and operational performance will be 30% 91 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCERemuneration CONTINUED Directors’ Remuneration Policy Performance metrics Continued employment and not subject to disciplinary or performance procedures. Opportunity Lawrence Hutchings will receive a cash award of £1,000,000. Stuart Wetherly will receive a cash award of £500,000. The maximum entitlement for any one participant will not be amended to the participant’s advantage. No new Awards will be made, but the Awards made during 2021 will continue to vest in line with the Policy and scheme rules. Purpose & link to strategy Operation Long-Term Retention Award • Aligns the Executive Directors’ interests with those of shareholders. • Rewards and helps retain/recruit Executives. A cash-based one-off Long-Term Retention Award has been implemented by the Company to incentivise the retention of the Executive Directors. The Award was approved by shareholders via a General Meeting on 1 November 2021. A one-off award was granted to Lawrence Hutchings and Stuart Wetherly on 1 November 2021, which will vest on 30 September 2023. The Award is not subject to additional performance measures outside of continuous employment in order to simplify the attainment of the Award by the Executive Directors. It is intended as a method of retention of key individuals within the business and should not be hindered by complex performance measures. Clawback provisions will apply to the Long-Term Retention Awards if it is discovered within two years of the payment of a Long-Term Retention Award that: • • • • • • there has been a material misstatement or miscalculation in the results of the Company; the award holder has committed an act of gross misconduct; the award holder has committed an act which in the Remuneration Committee’s opinion has given or could give rise to serious reputational damage to the Group; the award holder has committed an act which, in the Remuneration Committee’s opinion, deliberately misled the Board or the market as to the performance of the Group; the award holder has committed an act which in the Remuneration Committee’s opinion has caused the Company or business in which the award holder is employed to suffer a material failure of risk management; and/or the Company enters an involuntary administration or insolvency process or a company voluntary arrangement. Malus provisions will apply to allow the Remuneration Committee to reduce the payment under a Long-Term Retention Award if any of the circumstances set out above occur prior to the payment of the Long-Term Retention Award. Change Awards approved at General Meeting on 1 November 2021 Executive shareholding • To support alignment of Executive Directors with shareholders All Executive Directors are expected to build a shareholding to at least 2 x basic annual salary value based on current market value or the aggregate purchase price of the shares over a five-year period. Deferred or other unvested share awards not subject to performance conditions can count towards the guideline in line with corporate governance best practice. There is a 200% base salary post-cessation of employment shareholding requirement for two years. n/a n/a Change No change No change No change 92 capreg.comOpportunity Performance metrics n/a n/a Purpose & link to strategy Operation Non-Executive Director Remuneration • To reflect experience and importance of role The Chairman and Non-Executive Directors’ fees are set by the Board taking into account the time commitment, responsibilities, skills and experience and roles on Board Committees. The fees are reviewed annually Details of the fees can be found on page 98. The Senior Independent Director and individuals who are members of both the Audit and Remuneration Committees receive an additional fee per annum. Non-Executive Directors do not receive any variable remuneration element or receive any other benefits. Non-Executive Directors are reimbursed for all reasonable travelling and subsistence expenses (including any relevant tax) incurred in carrying out their duties Change No change No change No change Notes to the Policy table The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office, notwithstanding that they are not in line with the policy set out above where the terms of the payment were agreed: (i) before the policy set out above, or (ii) at a time when a previous policy, approved by was in place provided the payment is in line with the terms of that policy, or (iii) at a time when the relevant individual was not a Director of the Company and the payment was not in consideration for the individual becoming a Director of the Company. Discretion The Committee has discretion in several areas of Policy as set out in this report. The Committee may also exercise operational and administrative discretions under relevant plan rules approved by shareholders as set out in those rules. In addition, the Committee has the discretion to amend Policy with regard to minor or administrative matters where it would be, in the opinion of the Committee, disproportionate to seek or await shareholder approval. Employee context All permanent employees of the Group, including Executive Directors, receive a basic remuneration package including basic salary, private medical insurance, travel insurance, income protection, critical illness cover and life assurance. For all permanent employees below Board level, the Company pays pension contributions of between 4%–8% into either a Group Pension Scheme or individual employees’ own pension scheme. The Committee ensures that employees’ remuneration across the Company is taken into consideration when reviewing Executive Remuneration Policy, although no direct consultation is performed. The Committee reviews internal data in relation to staff remuneration and is satisfied that the level is appropriate. Recruitment of Executives New Executive Directors will receive a remuneration package that will reflect the Company’s Remuneration Policy within the parameters outlined. In certain circumstances, such as an internal promotion, an appointment may be at a salary level discount to reflect experience at that point; the Committee may increase it over time on the evidence of performance achievement and market conditions. All new Executive Directors’ service agreements will include mitigation of the payment of notice as standard. The Company will not make an ex-gratia award to new joiners. This excludes amounts paid to buy out individuals from existing performance awards. Service contracts Executive Directors are employed on rolling service contracts with notice periods of 12 months from the Company and from the Executive Director. Copies of the Directors’ service agreements are available to view, upon appointment, at the Company’s registered office. 93 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCERemuneration CONTINUED Directors’ Remuneration Policy Exit payment policy When considering termination payments, the Committee takes into account the best interests of the Company and the individual’s circumstances including the reasons for termination, contractual obligations, and CIP scheme rules. The Remuneration Committee will ensure that there are no unjustified payments for failure on an Executive Director’s termination of employment. The policy in relation to leavers is summarised in the table below: Salary and benefits Executive Directors are on notice periods of 12 months. In cases of an Executive leaving this can be served or settled with a payment in lieu of notice. Combined Incentive Plan (CIP) For leavers during the award year • Typically, for good leavers, rights to awards under the CIP will be pro-rated for time in service to termination as a proportion of the performance period, and will, subject to performance, be paid at the normal time in the normal manner (i.e. in cash/deferred awards as appropriate). • Typically for other leavers, rights to awards under the CIP will be forfeited. For leavers during the deferral period • Outstanding deferred awards under the CIP will be paid at the normal time, subject to performance against the underpin performance condition. The Committee retains the discretion to apply time pro-rating (over the deferral period) for good leavers and to accelerate the vesting and/or release of awards if it considers it appropriate. • Typically for other leavers, rights to deferred awards will be forfeited. Long-Term Retention Awards If, prior to the payment date, a participant ceases to be employed by the Group, his Long-Term Retention Award will lapse with immediate effect. Where, however, a participant ceases employment as a “good leaver”, any Long-Term Retention Award held by that individual will not lapse and may be retained to the extent that the Remuneration Committee in its discretion determines taking into account such factors as the Remuneration Committee in its discretion determines including the period of time that the participant was employed from the award date. Such retained Long-Term Retention Award will vest on the normal payment date (unless the Remuneration Committee in its discretion determines that it will be settled earlier) and in the normal manner subject to the other conditions applying to the Long-Term Retention Award being met. A participant will be a good leaver if their employment ceases: a) due to death; b) due to injury, ill-health or disability (in each case evidenced to the satisfaction of the Remuneration Committee); c) due to redundancy or upon the transfer out of the Group of a company or business by which the participant is employed; or d) in any other circumstance that the Remuneration Committee determines (other than dishonesty, fraud, misconduct or any other circumstance that justifies the summary dismissal of the participant). If, prior to the payment date, a participant has given or received notice to terminate their employment with the Group, his Long-Term Retention Award will not be paid unless the Committee is satisfied that the participant has performed satisfactorily and to have met the reasonable expectations of the role for which they are employed during the period from the date of the award to the payment date. The Committee will seek to mitigate the cost to the Company. In the event that the Committee exercises the discretion detailed above to treat an individual as a good leaver and/or to make a performance-related bonus payment, the Committee will provide an explanation in the next Remuneration Report. External appointments The Company allows Executive Directors to take up external positions outside the Group, providing they do not involve a significant commitment and do not cause conflict with their duties to the Company. These appointments can broaden the experience and knowledge of the Director, from which the Company can benefit. Executives are allowed to retain all remuneration arising from any external position. Senior management The policy for senior management remuneration is set in line with the policy for the Executive Directors, with a degree of discretion for the Committee to take into account specific issues identified by the Chief Executive, such as the performance of a specific individual or division. 94 capreg.comTotal compensation • The minimum scenario is based on nil incentive award; • • • The on-target scenario is based on CIP award at 50% of maximum (i.e. 150% of salary for Chief Executive and 125% of salary for Executive Directors), split into 1/3 cash and 2/3 shares (excluding share price appreciation and accrual of dividend equivalent payments); and The maximum scenario is based on CIP award at 100% of maximum (i.e. 300% salary for Chief Executive and 250% for Executive Directors) split into 1/3 cash and 2/3 shares (excluding share price appreciation and accrual of dividend equivalent payments). In addition, the maximum scenario is illustrated based on share price increase of 50% for the maximum share element which could be granted for the CIP. • The Long-Term Retention Award has been excluded from these calculations. All figures in £’000 £2,500 £2,000 £1,500 £1,000 £500 £1,500 £1,000 £500 Total £1,162 £438 £219 Total £505 Total £2,256 £1,313 Total £1,818 £875 £438 £438 £438 £438 £438 £438 Total £1,037 £479 £240 27% £288 Total £1,277 £719 £240 22% £288 Total £677 £240 £120 42% £288 Total £318 87% £288 £0 £0 Minimum Target Maximum L Hutchings Maximum +50% share price appreciation Minimum Target Maximum S Wetherly Maximum +50% share price appreciation Salary Beneﬁts Pensions CIP – Cash CIP – Shares L Hutchings Minimum Target Maximum Maximum + 50% share price appreciation S Wetherly Minimum Target Maximum Maximum + 50% share price appreciation Salary 87% 38% 24% 19% Salary 91% 42% 28% 23% CIP – Cash 0% 19% 24% 19% CIP – Cash 0% 18% 23% 19% CIP – Shares 0% 38% 48% 58% CIP – Shares 0% 35% 46% 56% Benefits 2% 1% 1% 0% Benefits 2% 1% 1% 1% Pension 11% 5% 3% 3% Pension 7% 3% 2% 2% Total 100% 100% 100% 100% Total 100% 100% 100% 100% Consultation and shareholders’ views During 2021, the Committee undertook a consultation with its largest shareholders before implementing the Retention Awards that were proposed at the General Meeting in November 2021. The vote passed with 93.6% of votes in favour. Following the decision to essentially retain the same CIP structure as has been in operation, a short consultation with other key stakeholders and major shareholders was undertaken in early 2022 before concluding on the policy that is to be presented for approval at the Annual General Meeting. Where requested, further clarification and discussion can be provided to all shareholders to assist them in making an informed voting decision. If any major concerns are raised by shareholders, these can be discussed with the Committee Chairman in the first instance and the rest of the Committee as appropriate. Committee evaluation The Committee reviews its performance with Board members and other participants, including through the annual Board evaluation. 95 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCERemuneration CONTINUED Directors’ Remuneration Report This section sets out how the Directors’ Remuneration Policy was implemented during 2021. Where stated, disclosures regarding Director’s remuneration have been audited by the Company’s external auditor, Deloitte. This section, together with the Annual Statement, is subject to an advisory vote at the 2022 AGM. The Remuneration Committee The Committee met five times during 2021 as well as holding informal meetings and other correspondence to discuss wider remuneration issues. Committee members include Laura Whyte (Chair), Ian Krieger and Katie Wadey, all independent Non-Executive Directors. All members of the Committee attended each meeting in the year. The Chief Executive and other Non-Executive Directors are invited to attend meetings as required, except in circumstances where their own remuneration is being discussed. The Remuneration Committee agrees the framework for the remuneration of the Chairman and the Executive Directors. The Committee approves salaries and sets the levels, conditions and performance objectives for the annual bonus and share awards for Executive Directors. The Committee also reviews the remuneration of the senior management below Board level. It also makes recommendations to the Board on matters that require shareholder approval. The terms of reference of the Committee are available at www.capreg.com/about-us/people/board-committees. Advisers In 2021, the Committee received advice from independent remuneration consultants PwC LLP in respect of advising on the new Retention Award and the proposed amendments to the Combined Incentive Plan within the new Remuneration Policy. PwC LLP’s fees for this advice were £72,500, which were charged on a time/cost basis. No other services were provided by PwC LLP during the course of 2021. PwC LLP is a member of the Remuneration Consultants’ Group, and, as such, chooses to operate pursuant to a code of conduct that requires remuneration advice to be given objectively and independently. PwC were appointed by the Remuneration Committee, following a robust tender process. The Committee is satisfied that the advice provided by PwC LLP in relation to remuneration matters is objective and independent. The Committee is satisfied that the members of the PwC LLP team do not have connections with the Company or its Directors which might impair their independence. Summary of performance year ended 30 December 2021 (unaudited) Net Rental Income Adjusted Profit1 Adjusted Earnings per share1 IFRS Loss for the period Total dividend per share Net Asset Value (NAV) per share EPRA NAV per share Group net debt Net debt to property value 2021 £29.0m £8.1m 6.8p £(26.4)m – 102p 102p £185.3m 49% 20202 £34.1m £11.0m 9.5p £(203.4)m – 150p 157p £345.1m 65% 1 Adjusted Profit, Adjusted Earnings per share and EBITDA are as defined in the Glossary. Adjusted Profit incorporates profits from operating activities and excludes revaluation of properties and financial instruments, gains or losses on disposal, and other non-operational items. A reconciliation to the equivalent EPRA and statutory measures is provided in Note 9 to the financial statements. 2 2020 results have been restated for a prior year adjustment of £0.7 million in respect to the treatment of SaaS configuration costs as explained in Note1. 2020 Adjusted Profit has also been restated to reflect Snozone EBITDA performance measure. 96 capreg.comSingle total figure of remuneration for Directors (audited): The table below sets out the remuneration received/receivable in relation to the year ended 30 December 2021. £’000 Salary/Fees1 Taxable benefits1,2 Other benefits1,2 Pension Total fixed pay Annual bonus8 Other9 Total variable pay8 Total pay L Hutchings S Wetherly Total D Hunter6 T Hales3, 4 G Muchanya5 I Krieger4 L Norval N Sasse5 K Wadey4,7 L Whyte4 H Scott- Barrett Total Total all 2021 429 282 711 140 21 – 51 43 – 48 48 2020 2021 2020 2021 2020 2021 2020 64 407 23 268 87 675 – 95 – 51 – – – 46 – 41 – – – 10 – 46 7 5 12 – – – – – – – – 64 23 87 – – – – – – – – 3 2 5 – – – – – – – – 4 2 6 – – – – – – – – 2 1 3 – – – – – – – – 2021 499 308 807 140 21 – 51 43 – 48 48 2020 2021 2020 481 279 298 153 779 432 – – – – – – – – 95 51 – 46 41 – 10 46 2021 – 1,000 – 500 – 1,500 – – – – – – – – – – – – – – – – 2020 2021 – 1,279 – 653 – 1,932 – – – – – – – – 2020 2021 – 1,778 – 961 – 2,739 140 21 – 51 43 – 48 48 2020 481 298 779 95 51 – 46 41 – 10 46 – 351 51 340 1,062 1,015 – – 6 – – 5 – – 3 – – 12 – – 87 – – – 351 – – 87 1,158 1,119 432 51 340 – – – – – 1,500 – – – – – 1,932 – 351 51 – – 340 – 3,090 1,119 1 Executive and Non-Executive Directors took a voluntary 20% reduction in salary or fees for the months of April, May and June 2020.Taxable benefits include private medical care and critical illness cover; other benefits include life insurance and permanent health insurance. Taxable benefits include the complete list required in paragraph 11(1)(a) of Schedule 8 of the Regulations. 2 Taxable benefits include private medical care and critical illness cover; other benefits include life insurance and permanent health insurance. Taxable benefits include the complete list required in paragraph 11(1)(a) of Schedule 8 of the Regulations. 3 T Hales retired and stepped down as a Director on 20 May 2021. As a result, he received a pro-rata sum up to his resignation date. 4 T Hales, I Krieger, K Wadey and L Whyte receive(d) an additional fee of £5,000 per annum as members of the Audit and Remuneration Committees. I Krieger receives a further fee of £5,000 as Senior Independent Director. 5 G Muchanya and N Sasse, both appointed on 9 December 2019 as Growthpoint’s representatives, do not receive a fee. 6 D Hunter was appointed as a Non-Executive Director on 9 March 2020 and Chairman on 20 May 2020. 7 K Wadey was appointed a Non-Executive Director on 20 October 2020. 8 Entries for 2021 represent the cash bonus element of the Combined Incentive Plan and does not include the element deferred into shares subject to relative TSR performance. 9 A one-off cash-based award was granted to Lawrence Hutchings (£1,000,000) and Stuart Wetherly (£500,000) on 1 November 2021, which will vest and become payable on 30 September 2023. Basic salary increases for Executive Directors Executive Directors have been awarded a pay rise of 2%, in line with the blanket increase provided to the wider workforce. L Hutchings S Wetherly C Staveley H Scott-Barrett K Ford 2022 £’000 438 288 – – – % 2.0 2.0 – – – 2021 £’000 429 282 – – – 20201 £’000 429 282 – – – % – – – – – % 1.0 2.5 – – – 2019 £’000 425 275 – – – 2018 £’000 383 – 305 – – % 1 – – – – % 2.0 – 2.0 – – 2017 £’000 375 – 299 427 315 % – – 2.0 2.0 2.0 1 L Hutchings and S Wetherly took a voluntary 20% reduction in salary for the months of April, May and June 2020, the actual base salary received in 2020 was £407k and £268k respectively. 97 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCERemuneration CONTINUED Directors’ Remuneration Report Non-Executive Director fees Non-Executive Director fees will increase by 2% in line with the increase provided to the salaries of Executive Directors and the wider workforce. This will result in a fee of £142,800 for the Chairman and £43,730 for Non-Executive Directors in 2022. No increase will be applied to the additional £5,000 per annum for being a member of the Audit and Remuneration Committees nor the additional £5,000 fee per annum paid to the Senior Independent Director. George Muchanya and Norbert Sasse, in accordance with the terms of the Growthpoint Relationship agreement, do not receive a fee as Non-Executive Directors. Combined Incentive Plan (CIP) (unaudited) The number of awards and the performance periods for all outstanding CIP awards are summarised in the table below. The Company’s Clawback provisions apply during the holding period where the level of vesting may be reduced, including to nil. Awards granted in 2020 relate to 2019 performance, as disclosed in the 2019 Remuneration Report. No awards were granted in 2021 as the CIP awards for the 2020 financial year were waived by the Executive Directors. Date of Name Award L Hutchings 27.04.2020 No. of Type of awards2 award 191,201 Nil cost option Face value at date of award £’0003 436 S Wetherly 27.04.2020 103,099 Nil cost option 235 Threshold/ Maximum vesting share price 1/3 of shares subject to median relative TSR performance2 1/3 of shares subject to median relative TSR performance2 1/3 of shares subject to median relative TSR performance2 1/3 of shares subject to median relative TSR performance2 1/3 of shares subject to median relative TSR performance2 1/3 of shares subject to median relative TSR performance2 End of performance period 01.01.2023 Holding period 2 years 01.01.2024 1 year 01.01.2025 – 01.01.2023 2 years 01.01.2024 1 year 01.01.2025 – 1 Includes dividend equivalent shares subsequently awarded in 2020. 2 Calculated based on average Market Value of a Share over the final nine Dealing Days to 30 December 2019: 253.67 pence. 3 Shares will vest subject to the performance underpin of median relative Total Shareholder Return against a retail property comparator group. Dividend equivalents: Whenever a dividend or other cash distribution is paid by the Company in respect of Shares, the number of Shares subject to each Unvested Share Award (as at the time the dividend or other cash distribution is paid) shall be increased by such number of whole Shares (rounded down to the nearest whole number) as outlined in the CIP Rules. 98 capreg.com2021 Combined Incentive Plan and achievement of objectives (audited): L Hutchings S Wetherly Maximum CIP opportunity as % of salary 300% 250% % of objectives achieved 65% 65% Effective % of maximum achieved 195% 163% Cash bonus payable £’000 279 153 Deferred share award £’000 558 305 Deferred share awards are subject to the individual remaining in continuing employment (unless they qualify as a good leaver). Up to 100% of deferred shares will lapse if median relative TSR performance is not achieved. The annual Combined Incentive Plan criteria for 2021 were determined with a weighting of 80% for Financial Objectives and 20% on Operational and Strategic objectives. Group Objectives: Financial Targets (80%) Performance Measure Adjusted Profit Net Rental Income Rent Collection including deferrals Cost Management (Central Costs) Balance Sheet management – based on reducing the Group’s Net Loan to Value ratio Total Threshold Maximum Required performance H1 – £4.2m H2 – £4.2m H1 – £15.6m H2 – £14.7m 88% 7.8 60 % of bonus 2.5% 2.5% 2.5% 5% 7.5% 20% % of bonus 10% 10% 10% 20% 30% 80% Required performance H1 – £5.2m H2 – £6.3m H1 – £19.0m H2 – £17.3m 95% 7.0 47.5 Actual achieved H1 – £2.3m H2 – £5.8m H1 – £13.4m H2 – £15.6m 92% £7.5m Net LTV = 49% Payout as % of max. 4.1% 2.5% 6.8% 10.6% 27.3% 51.4% Group Objectives: Operating Metrics (10%) Performance Measure Operating metrics % of bonus 10% Required performance 5% based on Footfall outperforming the national index by at least 0.5% 5% based on leasing performance against ERV and Previous Passing Rent Actual achieved Outperformed the national index by 5.7% Payout as % of max. 10% 143 new leases and renewals signed at average premium to previous rent of 7.3% and to ERV of 15.6% Total 10% 10% 99 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCERemuneration CONTINUED Directors’ Remuneration Report Group Objectives: Implementation of Strategy (10%) In assessing the performance against strategy, the Committee considered the following: • Completion of equity raise and debt restructuring – acquired £100 million of debt for £81 million, partly funded by new debt of £35 million meaning an effective discount of 29%. Loan restructuring agreed as part of the transaction providing extended loan term and two-year covenant waivers. New equity underwritten by Growthpoint at an approximate 10% discount to the 30-day VWAP and in line with the previous day’s closing share price hence relatively mitigating the dilutive impact to shareholders who did not participate. Transaction was favourably received by equity analysts and key stakeholders and shareholders. • Walthamstow residential receipt – completed the critical milestone of planning consent facilitating the anticipated capital receipt in Q2 2022. • Remerchandising in line with Community Centre strategy – relet part or whole of all three Debenhams units within the portfolio. Advanced agreement for lease on Ilford medical centre and exchanged on new NHS diagnostics centre in Wood Green. Opened new Lidl supermarket in Luton. • Disposal of non-core assets – further reduced leverage by completing disposals of Edmonds Parade in Hemel and Maidstone House offices in Maidstone in line with prevailing book value. In consideration of the significant progress made, most critically in respect of the completion of equity raise and debt restructuring, the Committee concluded to award a maximum payout of 10%. Overall Committee Assessment of Combined Incentive Plan Payment The Committee carefully considered the performance against the Financial Targets and determined that the formulaic outturn would be 51.4% out of a maximum of 80%. The Committee then reviewed performance against the Operating Metrics and noted that these had been exceeded, resulting in a payment of 10% out of 10%. Finally the Committee considered the Implementation of Strategy and noted that performance here had also been very strong, resulting in a payment of 10% out of 10%. Taking into account the challenges faced during the year, whilst the Committee were broadly satisfied that the formulaic out-turn of 71.4% reflected performance during the year, it was determined that a bonus of 65% of the overall maximum was more appropriate. The Committee therefore exercised its discretion to reduce the formulaic outturn such that a payment of 65% of maximum was awarded. CIP Objectives The Committee will continue to set stretching performance targets based on the Group’s key financial performance metrics which form at least 70% of the metrics used. The remaining 30% will be subject to strategic and operational measures, providing a link between financial and strategic outturns. Adjusted Profit Net Rental Income Rent collection Cost management Balance sheet resilience Total Financial: Operating metrics Footfall against benchmark Leasing performance Strategy Implementation including ESG performance Total Operational and Strategic: % of max. 15% 15% 10% 15% 15% 70% 10% 20% 100% Payout levels for threshold performance will remain controlled at a minimum of 25% of the CIP and maximum payout will represent “exceptional performance”. Target performance levels of payout will be at 50%. Detailed targets have not been disclosed due to their commercially sensitive nature. The targets and the extent to which they have been achieved will be published in full in the 2022 Directors’ Remuneration Report. 100 capreg.comLong-Term Incentive Plan (audited): Vesting of April 2018 LTIP issue The performance period for the April 2018 LTIP issue ended during 2021. Nil awards qualified for vesting as the performance conditions were not met. The actual performance against target of the April 2018 issue was: Performance condition Total Shareholder Return relative to the FTSE 350 Real Estate Index Average Annual Growth in Adjusted Profit Per Share Total Property Return relative to the IPD UK Retail Quarterly Property Index Calculation Total Shareholder Return relative to FTSE 350 Real Estate (3 Years to 18 April 2021) Threshold – outperform index Maximum – Index + 12% Actual – C&R 20.0 v Index 104.0 Adjusted Profit per Share (Financial Years 2018–2020) Threshold – 5% per annum average growth Maximum – 10% Actual – -28.1% Relative Property Return to the UK IPD (3 Years from 31 December 2017) Threshold – outperform index Maximum – Index + 1.2% Actual – C&R –15.8%% v Index –6.24% Conclusion Below index Vesting 0% Below target 0% Below index 0% Total 0% Exercise of April 2016 LTIP issue – Stuart Wetherly exercised 5,292 share options on 17 December 2021 at nil cost. 2,487 shares were sold to settle the tax liability crystallising resulting in a net increase in Stuart’s holding of 2,805 shares. No LTIP awards were left outstanding at the year ended 30 December 2021. Long-Term Retention Award (audited): The number of awards and the performance periods for all outstanding Retention Awards are summarised below. November 2021 Award Lawrence Hutchings was granted a cash award of £1,000,000 on 1 November 2021 with the sole condition of remaining in continued employment and not being subject to disciplinary or performance procedures at the payment date. Stuart Wetherly was granted a cash award of £500,000 on 1 November 2021 with the sole condition of remaining in continued employment and not being subject to disciplinary or performance procedures at the payment date. The November 2021 cash-based Long-Term Retention Awards will be paid once the awards vest and become payable on 30 September 2023. The Company’s Clawback provisions will apply, where the level of vesting may be reduced, including to nil. Malus provisions will apply to allow the Remuneration Committee to reduce the payment under a Long-Term Retention Award if any of the circumstances set out above occur prior to the payment of the Long-Term Retention Award. Deferred Bonus Share Scheme awards (audited): Exercise of May 2019 Deferred Bonus Share Scheme issue Lawrence Hutchings exercised 5,636 share options on 17 December 2021 at nil cost. 2,649 shares were sold to settle the tax liability crystallising resulting in a net increase in Lawrence’s holding of 2,987 shares. No Deferred Bonus Share awards were left outstanding at the year ended 30 December 2021. Exit payments and payments to past Directors (audited) No exit payments were awarded to Directors in 2021. Neither were any payments made to past Directors. 101 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCERemuneration CONTINUED Directors’ Remuneration Report Performance graph The graph below illustrates the Company’s Total Shareholder Return (i.e. share price growth plus dividends paid) performance compared to the FTSE All Share and FTSE 350 Real Estate indices as these indices provide a measure of a sufficiently broad equity market against which the Company considers that it is suitable to compare itself. The graph shows how the total return on a £100 investment in the Company made on 30 December 2011 would have changed over the ten-year period measured, compared with the total return on a £100 investment in the comparable indices. 250 Capital & Regional plc FTSE All-Share FTSE Real Estate 200 150 100 50 0 D e c-11 D e c-12 D e c-13 D e c-14 D e c-15 D e c-16 D e c-17 D e c-18 D e c-19 D e c-2 0 D e c-21 The table below sets out the total remuneration of the Chief Executive, over the same period as the Total Shareholder Return graph. The quantum of Annual Incentive awards granted each year and long-term incentive vesting rates are given as a percentage of the maximum opportunity available. 2012 £’000 2013 £’000 2014 £’000 2015 £’000 2016 £’000 2017 £’000 2018 £’000 2019 £’000 2020 £’000 2021 £’000 n/a 765 n/a n/a 651 n/a n/a 833 n/a n/a n/a 796 2,112 393 564 – – 752 718 481 778 n/a n/a 45% 53% 51% – – – 65% 69% 40% 85% 70% 70% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a – – – – – – – – 91.85% 35.26% n/a n/a n/a n/a Total remuneration (L Hutchings) Total remuneration (H Scott-Barrett) Annual bonus (% of max) (L Hutchings) Annual bonus (% of max) (H Scott-Barrett) LTIP vesting (% of max) (L Hutchings) LTIP vesting (% of max) (H Scott-Barrett) 102 capreg.comAnnual change in pay for Directors versus the wider workforce in 2021 The percentage change in the remuneration of Directors between 2019 and 2021 compared to that of employees generally is included below. The year-on-year movement in salary for Directors and employees reflects the annual review implemented in January 2021. No bonuses were paid to employees and no incentive payments made to Executive Directors in respect of 2020. Non- Executive Directors do not receive any benefits. 2019 Employee Group L Hutchings S Wetherly H Scott- Barrett T Hales I Krieger G Muchanya3 L Norval N Sasse3 L Whyte W Hamman Executive Directors Non-Executive Directors n/a Salary n/a Bonus Benefits No change No change No change 2% 9.7%1 11% (28%) n/a – – 2% – – 2% – – No change – – – – – – – – 2% No change – – – – Employee Group 1% (100%) S Wetherly 2020 2.5% Salary Bonus (100%) Benefits No change No change No change L Hutchings 1% (100%) Employee Group – n/a2 L Hutchings S Wetherly 2021 – Salary n/a2 Bonus Benefits No change No change No change – n/a2 Executive Directors Non-Executive Directors D Hunter T Hales 1% – – n/a – – I Krieger G Muchanya3 L Norval N Sasse3 K Wadey n/a – – 1% – – 1% – – – – – – – – Executive Directors Non-Executive Director D Hunter – – – I Krieger G Muchanya3 – – – – – – N Sasse3 – – – K Wadey – – – L Whyte 1% – – L Whyte – – – 1 Calculated on a like-for-like basis with reference to employees of Capital & Regional plc and Capital & Regional Property Management Limited who have been at the Companies for the entirety of the current and prior years. 2 No bonuses were paid in 2020 and hence the percentage change cannot be calculated. 3 G Muchanya and N Sasse do not receive a fee. Chief Executive pay ratio The Company has fewer than 250 employees and is therefore not required to disclose the ratio between the Chief Executive’s pay and the pay of other employees in the Company, as outlined in the Companies (Miscellaneous Reporting) Regulations 2018. However, the ratio of the Chief Executive’s pay to the average employees’ pay is taken into consideration when setting Executive remuneration and for full transparency we therefore disclose the ratio of the salary of the Chief Executive to the average employee salary (excluding Directors) which was 6.3:1 (£429,000: £68,282). 1 Calculated with reference to employees of Capital & Regional plc and Capital & Regional Property Management. Relative importance of spend on pay compared to distributions to shareholders Executive Director’s remuneration1 Employee costs (per Note 7 of the financial statements) Dividends paid (Total of Interim and Final Dividend for the respective year) 2021 £m 1.2 11.1 – 2020 £m 0.8 8.7 – % 59% 28% – 1 L Hutchings and S Wetherly took a voluntary 20% reduction in salary for the months of April, May and June 2020 and awards under the Combined Incentive Plan were waived in 2020. 103 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCERemuneration CONTINUED Directors’ Remuneration Report Directors’ service agreements and letters of appointment Name Unexpired term of appointment Date of service agreement Notice period Potential termination payment Executive Directors L Hutchings S Wetherly Non-Executive Directors D Hunter I Krieger L Whyte G Muchanya N Sasse K Wadey Rolling contract 13 June 2017 12 months Rolling contract 11 March 2019 12 months Rolling contract Rolling contract Rolling contract Rolling contract Rolling contract Rolling contract Date of initial appointment 9 March 2020 1 December 2014 1 December 2015 9 December 2019 9 December 2019 20 October 2020 6 months No notice No notice No notice No notice No notice 12 months’ salary and benefits value 12 months’ salary and benefits value None None None None None None Non-Executive Directors are all appointed on rolling contracts with no notice period save for David Hunter who as Chairman has a six-month notice period. All Directors stand for re-election annually and Board appointments automatically terminate in the event of a Director not being re-elected by shareholders. Copies of the Directors’ service agreements are available to view, upon appointment, at the Company’s registered office. External appointments Executive Directors may accept external appointments as Non-Executive Directors of other companies and retain any related fees paid to them, subject to the approval of the Board in each case. During the year ended 30 December 2021, Stuart Wetherly served as Trustee and Honorary Treasury of the London Wildlife Trust. On 9 October 2021, he resigned from his position having served a term of six years. No fee was received for this appointment. Workforce engagement The Committee is regularly updated on workforce pay and benefits throughout the Group and considers workforce remuneration as part of the review of Executive remuneration. The Committee did not engage directly with employees in regard to Executive pay but reviews feedback from employee surveys and takes this into account when setting pay. At a Town Hall meeting on 5 November 2021, through Executive management, employees were made aware of the shareholder resolution to approve the Long-Term Retention Awards to the Executive Directors. Wider Executive remuneration was also explained in respect of the potential changes to be made to the existing Executive Remuneration Policy for tabling at the Company’s 2022 AGM. The Committee is also tasked with overseeing major changes in employee benefit structures. It has responsibility for the remuneration of the members of the Group Senior Leadership Team and is therefore able to ensure that the remuneration decisions made in respect of the Executive Directors are made with consideration of, and in line with, senior management and other employees. The Committee also reviews the proposed pay awards and bonus payments made to the wider workforce to ensure alignment and consistency with the principles set in determining Executive pay, noting that the bonus pool provided for staff was in line with that paid in 2019. Interests in shares (audited) The Directors and, where relevant, their connected persons (within the meaning of Section 252 of the Companies Act 2006), were beneficially interested in the ordinary share capital of the Company at the dates shown in the table. This excludes unvested CIP share awards; these are disclosed separately on page 101. D Hunter L Hutchings S Wetherly T Hales1 I Krieger G Muchanya L Norval2 N Sasse K Wadey L Whyte 1 Shares held at date of retirement on 20 May 2021. 2 Shares held at date of resignation on 16 December 2021. 104 30 December 2021 Shares 105,442 12,017 35,603 45,265 17,032 – 10,313,718 62,187 – 31,115 30 December 2020 Shares 71,285 6,105 22,174 45,265 11,515 – 10,313,718 42,042 – 27,029 capreg.com Louis Norval is beneficially interested in the shares registered in the name of MStead Limited and PDI Investment Holdings Limited. George Muchanya and Norbert Sasse, by virtue of being the nominated representative Directors of Growthpoint, are connected to the Growthpoint shareholdings but do not directly have a personal beneficial interest in any of these holdings. There were no changes to Directors’ shareholdings from 30 December 2021 to 13 April 2022, being the latest practicable date prior to the issue of this Report. Executive share ownership (audited) All Executive Directors are expected to build a shareholding to at least 2 x basic annual salary value, based on current market value or the aggregate purchase price of the shares, over a five-year period. There is no set timescale for Executive Directors to reach the prescribed target but they are expected to retain net shares received on the vesting of long-term incentive awards until the target is achieved. Shares that count towards the holding guideline are unfettered and beneficially owned by the Executive Directors and their connected persons. Executive Directors L Hutchings S Wetherly Time from appointment as Executive Director 4 year 6 months 2 year 9 months Target % of salary 200 200 Target currently met? No No Post-cessation shareholding requirements There is a 200% base salary post-cessation of employment shareholding requirement for two years. Shares awarded but subject to further deferral periods or performance conditions are included for the purposes of the calculation. Committee evaluation The Committee reviewed its performance with Board members and other participants, including through the annual Board evaluation. Consultation and shareholders’ views In 2019, Tony Hales, the Committee Chair, engaged extensively with shareholders during the development of the 2019 Remuneration Policy. The Chair corresponds with shareholders and also engages with ISS and the Investment Association. Shareholder voting on the Directors’ Remuneration Policy, which was tabled at the 16 May 2019 AGM, was as follows: Resolution To approve the Directors’ Remuneration Policy For % For Against % Against Total Shares Voted % Shares Voted Votes Withheld 458,092,583 87.78% 63,784,926 12.22% 521,877,509 71.85% 25,932,411 Shareholder voting on the Directors’ Remuneration Report, which was tabled at the 20 May 2021 AGM, was as follows: Resolution To approve the Directors’ Remuneration Report For % For Against % Against Total Shares Voted % Shares Voted Votes Withheld 82,908,367 99.66% 282,881 0.34% 83,191,248 74.40% 239,742 Shareholder voting on the Long-Term Retention Awards, which was tabled at the 1 November 2021 EGM, was as follows: Resolution To approve the Long-Term Retention Awards For % For Against % Against Total Shares Voted % Shares Voted Votes Withheld 74,164,267 93.56 5,107,522 6.44 79,272,149 70.97 84,550 LAURA WHYTE CHAIR OF REMUNERATION COMMITTEE 105 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCEDirectors’ Report At 30 December 2021, the Company does not have sufficient distributable reserves to declare a dividend. The Company plans to undertake a capital reduction exercise for which it will seek shareholder approval at the 2022 AGM in order to create distributable reserves. Property Income Distributions (PIDs) As a UK REIT, Capital & Regional plc is exempt from corporation tax on rental income and gains on UK investment properties but is required to pay Property Income Distributions (PIDs). UK shareholders will be taxed on PIDs received at their full marginal tax rates. A REIT may in addition pay normal dividends. For most shareholders, PIDs will be paid after deducting withholding tax at the basic rate. However, certain categories of UK shareholder are entitled to receive PIDs without withholding tax, principally UK resident companies, UK public bodies, UK pension funds and managers of ISAs, PEPs and Child Trust Funds. Further information on UK REITs is available on the Company’s website, including a form to be used by shareholders to certify if they qualify to receive PIDs without withholding tax. PIDs paid to shareholders on the South African share register are subject to UK withholding tax at 20%. South African shareholders may apply to Her Majesty’s Revenue and Customs after payment of the PID for a refund of the difference between the 20% withholding tax and the prevailing UK/South African double tax treaty rate. Other overseas shareholders may be eligible to apply for similar refunds of UK withholding tax under the terms of the relevant tax treaties. Business review Information on the Group’s business, which is required by section 417 of the Companies Act 2006, can be found in the Strategic Report on pages 1 to 63 which is incorporated into this report by reference. This includes our statutory reporting on greenhouse gas emissions. A report on corporate governance and compliance with the provisions of the 2018 UK Corporate Governance Code and Disclosure and Transparency Rules, which forms part of this Directors’ Report, is set out on pages 68 to 69. The results for the year are shown in the Group income statement on page 122. The use of financial derivatives is set out in Note 19 to the financial statements. The purpose of this Annual Report is to provide information to the members of the Company. The Annual Report contains certain forward- looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward- looking statements reflect knowledge and information available at the date of preparation of this Annual Report and the Group undertakes no obligation to update them. Nothing in this Annual Report should be construed as a profit forecast. Dividends No interim dividend was paid in 2021 (2020: Nil). Mindful of having recently raised new equity and to help reduce debt levels and maximise cash flexibility, the Group has taken the decision to not declare a Final dividend. Subject to market conditions, it is the Company’s intention to resume paying dividends from the second half of the financial year ending 2022 in line with its previous dividend policy which was to distribute on a semi- annual basis (in the approximate proportions of 45/55 and in that order in respect of each financial year) not less than approximately 90 per cent of the Company’s EPRA earnings. A UK REIT is expected to pay dividends (PIDs) of at least 90 per cent of its taxable profits from its UK property rental business by the first anniversary of each accounting date. As a consequence of not having paid a dividend since June 2020, the Group did not meet the minimum PID distribution requirement for 2019 or 2020. The Group had agreed with HMRC a 12-month extension to the 2019 deadline until the end of 2021, but having not paid a dividend during 2021, the Group paid £2.5 million in December 2021 to settle the tax outstanding on the estimated shortfall of £13.0 million in respect of the 2019 and 2020 financial years. This brings the Group effectively up to date in its REIT compliance. 106 capreg.comDirectors The names and biographical details of the present Directors of the Company are given on pages 64 to 65. Tony Hales’ resignation was effective from 20 May 2021 and Louis Norval’s from 15 December 2021. All other Directors served for the full year. Ian Krieger assumed the role of Senior Independent Director on 20 May 2021. All current Directors will retire and being eligible, offer themselves for re-election at the 2022 Annual General Meeting. Directors’ interests in the share capital and equity of the Company at the year-end are contained in the Directors’ Remuneration Report on page 104. There were no contracts of significance subsisting during or at the end of the year in which a Director of the Company was materially interested. No Director had a material interest in the share capital of other Group companies during the year. Pursuant to the Growthpoint Relationship Agreement that the Company entered into in 2019, the Company agrees, upon request, to appoint two Non-Executive Directors nominated by Growthpoint to the Board for so long as they own 20% or more of the issued ordinary capital in the Company and one Non-Executive Director to the Board if they own less than 20%, but not less than 15%. George Muchanya and Norbert Sasse are the Growthpoint Nominated Non-Executive Directors. All other Directors are appointed in a personal capacity. The Company maintains insurance for the Directors in respect of liabilities arising from the performance of their duties. Listing Rule 9.8.4R disclosures The following table sets out where disclosures required in compliance with Listing Rule 9.8.4R are located. Interest capitalised and tax relief Details of long-term incentive schemes Waiver of emoluments by a Director Waiver of future emoluments by a Director Non pre-emptive issues of equity for cash Non pre-emptive issues of equity for cash by major subsidiary undertakings Parent company participation in a placing by a listed subsidiary Contracts of significance Provision of services by a controlling shareholder Shareholder waivers of dividends Shareholder waivers of future dividends Agreements with controlling shareholders n/a Pages 86 to 105 Pages 97 to 98 Pages 97 to 98 n/a n/a n/a n/a n/a Shares held by Employee Share Ownership Trust – see section below Shares held by Employee Share Ownership Trust – see section below Page 108 Substantial shareholdings As at 30 December 2021 (the accounting reference date of this report), the Company was notified of the following interests in its issued ordinary share capital: Growthpoint Properties Limited Black Crane Capital Mstead Limited Peens Family Holdings No. of shares 100,505,493 6,902,813 5,742,052 4,975,494 % 60.77 4.17 3.47 3.01 As at 4 April 2022 (the latest practicable date prior to the issue of this report), the Company has been notified of the following interests in its issued ordinary share capital: Growthpoint Properties Limited Black Crane Capital Mstead Limited Peens Family Holdings Mstead Limited is part of the Homestead Group of investors. No. of shares 100,505,493 6,902,813 5,742,052 4,996,494 % 60.77 4.17 3.47 3.02 107 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCE Directors’ Report CONTINUED Shares held by Employee Share Ownership Trust At 30 December 2021, the Capital & Regional Employee Share Ownership Trust held 31,876 shares in the Company. The shares held by the Trust are registered in the nominee name, Forest Nominees Limited, and a dividend waiver is in place to cover the entire holding. Purchase of own shares The Company did not make any purchases of its own shares during 2021 or up to 13 April 2022 being the latest practicable date prior to the issue of this report. The Company was authorised by shareholders at the 2021 AGM held on 20 May 2021 to purchase up to a maximum of 10.0% of its ordinary shares in the market. This authority will expire at the 2022 AGM and the Directors will be seeking a new authority for the Company to purchase its ordinary shares. This will only be exercised if market and financial conditions make it advantageous to do so. Share capital As at 30 December 2021, the Company’s total issued share capital was 165,399,863 ordinary shares of 10 pence each, all with equal voting rights. The changes in the Company’s Issued share capital during 2021 are detailed in Note 20 to the financial statements. The Company has a Secondary Listing of shares on the Johannesburg Stock Exchange (JSE). At 30 December 2021, 7,690,574 of the Company’s shares were held on the JSE share register representing 4.7% of the total shares in issue. Controlling shareholder Growthpoint, through its nominees, holds 60.8% of the issued share capital of the Company. The Relationship Agreement, entered into on 17 October 2019, incorporates those terms required by the Listing Rules as a result of Growthpoint becoming a controlling shareholder. It remains effective as long as Growthpoint and any of its nominees hold at least 20% of the voting rights in the Company. The Relationship Agreement provides various rights including the ability to appoint two Non-Executive Directors nominated by Growthpoint to the Board for so long as they own 20% or more of the issued ordinary capital in the Company and one Non-Executive Director to the Board if they own less than 20%, but not less than 15%. The Directors believe that the terms of the Relationship Agreement enable the Group to carry on its business independently of Growthpoint. A copy of the Relationship Agreement is available on the Company’s website at capreg.com. Change in control The Group’s £39 million debt facility in respect of The Exchange Centre, Ilford allows the lender to potentially demand repayment of the facility with 120 days’ notice following an individual or entity taking control of 50% or more of Capital & Regional plc’s shares. In addition, certain potential tax liabilities could be crystallised in some circumstances where there are varying degrees of change of ownership of the Group’s shares. Furthermore, the Group could lose its status as a REIT as a result of the actions of third parties (for example, in the event of a successful takeover by a company that is not a REIT and which does not, unlike Growthpoint Properties Limited, qualify as an “institutional investor” for REIT purposes) or due to a breach of the close company condition if it is unable to remedy the breach within a specified period. Articles of Association The rules governing the appointment and replacement of Directors are contained in the Company’s Articles of Association. Changes to the Articles of Association must be approved by shareholders in accordance with the legislation in force from time to time. Human rights The Group operates in the UK and Jersey and, as such, is subject to the European Convention on Human Rights and the UK Human Rights Act 1998. The Group respects all human rights and in conducting its business, the Group regards those rights relating to non-discrimination, fair treatment and respect for privacy to be the most relevant and to have the greatest potential impact on its key stakeholder groups of customers, employees and suppliers. The Board has overall responsibility for ensuring the Group upholds and promotes respect for human rights. The Group seeks to anticipate, prevent and mitigate any potential negative human rights impacts as well as enhance positive impacts through its policies and procedures and, in particular, through its policies regarding employment, equality and diversity, treating its stakeholders and customers fairly and information security. Group policies seek to ensure that employees comply with the relevant legislation and regulations in place to promote good practice. The Group’s policies are formulated and kept up to date and communicated to all employees through the Staff Policy Manual. The Group has not been made aware of any incident in which the organisation’s activities have resulted in an abuse of human rights. 108 capreg.comAuditor’s information The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s Auditor is unaware; and each Director has taken all the steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information. This confirmation is given, and should be interpreted, in accordance with the provisions of s418 of the Companies Act 2006. A resolution to reappoint Deloitte LLP as the Company’s Auditor will be proposed at the forthcoming Annual General Meeting. Annual General Meeting The Company’s Annual General Meeting is due to be held on the 19 May 2022. The Notice of Annual General Meeting 2022, accompanies this report, which accounts for and explains the business to be covered at the Annual General Meeting of the Company. The Directors Report was approved by the Board of Directors on 13 April 2022 and is signed on its behalf by: STUART WETHERLY COMPANY SECRETARY 13 April 2022 Registered Company name: Capital & Regional plc Registered Company number: 01399411 Registered office: 22 Chapter Street, London, SW1P 4NP Employees The Group is committed to a policy that treats all of its employees and job applicants equally. No employee or potential employee receives less favourable treatment or consideration on the grounds of race, colour, religion, nationality, ethnic origin, sex, sexual orientation, marital status, or disability. Nor is any employee or potential employee disadvantaged by any conditions of employment or requirements of the Group that cannot be justified, as necessary, on operational grounds. We give full consideration to applications for employment from disabled persons where the requirements of the job can be adequately fulfilled by people with disabilities. We endeavour to retain the employment of, and arrange suitable retraining for, any employee who becomes disabled during their employment as well as providing training, career development and promotion to disabled employees wherever appropriate. During the year, the Group maintained arrangements to provide employees with information on matters of concern to them, to regularly consult employees for views on matters affecting them, to encourage employee involvement in the Group’s performance through share schemes, and to make all employees aware of financial and economic factors affecting the performance of the Group. At 30 December 2021, the total number of employees was as follows: Employees Directors Senior Leadership Team Employees – Support Office Employees – Assets Employees – Snozone Male 6 Female 2 Total 8 4 2 6 20 21 152 22 42 124 42 63 276 Political donations The Group has not made any political donations during the year and intends to continue its policy of not doing so for the foreseeable future. 109 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCEDirectors’ Responsibilities Statement 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 to enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company 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 corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ responsibilities statement We confirm that to the best of our knowledge: • • • the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation as a whole, together with a description of the principal risks and uncertainties that they face; and the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. This responsibility statement was approved by the Board of Directors on 13 April 2022 and is signed on its behalf by: LAWRENCE HUTCHINGS CHIEF EXECUTIVE STUART WETHERLY GROUP FINANCE DIRECTOR The Directors are responsible for preparing the Annual 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 are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the parent Company financial statements in accordance with FRS 101, as published by the Financial Reporting Council, and applicable law in the United Kingdom. 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 Company and of the profit or loss of the Company for that year. In preparing the parent Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and accounting estimates that are reasonable and prudent; • state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. In preparing the Group financial statements, International Accounting Standard 1 requires that Directors: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and • make an assessment of the Company’s ability to continue as a going concern. 110 capreg.comIndependent Auditor’s Report TO THE MEMBERS OF CAPITAL & REGIONAL PLC REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS 1. Opinion In our opinion: • • • the financial statements of Capital & Regional plc (the ‘parent Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 30 December 2021 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) as adopted by the European Union; the parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements which comprise: • • • • • • the consolidated income statement; the consolidated statement of comprehensive income; the consolidated and parent Company balance sheets; the consolidated and parent Company statements of changes in equity; the consolidated cash flow statement; and the related notes 1 to 32 and parent Company related notes A to F. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice). 2. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to the Group for the year are disclosed in note 6 to the financial statements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent Company. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 111 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCEIndependent Auditor’s Report TO THE MEMBERS OF CAPITAL & REGIONAL PLC 3. Summary of our audit approach Key audit matters The key audit matters that we identified in the current year were: • Valuation of investment properties. • Going concern. • Impairment of parent Company investments and intercompany debtors. Within this report, key audit matters are identified as follows: Newly identified. Increased level of risk. Similar level of risk. Decreased level of risk. Materiality Scoping Significant changes in our approach The materiality that we used for the Group financial statements was £3.38 million (2020: £3.40 million), which was determined on the basis of 2% (2020: 2%) of net assets. We applied a lower threshold of £0.38 million (2020: £0.52 million) for testing of all balances impacting Adjusted Profit (as defined in note 1 of the Group financial statements), which is 5% (2020: 5%) of Adjusted Profit. Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group- wide controls, and assessing the risks of material misstatement at the Group and component levels. Our audit scoping provides audit coverage of 98% (2020: 98%) of net assets, 100% (2020: 100%) of revenue and 100% (2020: 100%) of loss. Our component audit work was executed at levels of materiality applicable to each individual component which were lower than Group materiality. There have been no significant changes in our audit approach in the current year with the exception of the change in the key audit matter on the going concern and covenant compliance has been refocused solely to going concern. The Group have obtained covenant waivers as explained in note 18a to the financial statements and therefore, whilst going concern overall remains a key audit matter, the covenant waivers obtained in the year mean that covenant compliance specifically is not referred to separately as a key audit matter. We still test covenant compliance and forecast covenant compliance as part of our response to the going concern key audit matter. 4. Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group’s and parent Company’s ability to continue to adopt the going concern basis of accounting is discussed in section 5.2. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group’s and parent Company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 5. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 112 capreg.com 5.1 Valuation of investment properties Key audit matter description The investment property has a carrying value of £374.8 million at 30 December 2021 (30 December 2020: £536.1 million), comprising 59% (30 December 2020: 80%) of the Group’s assets. The portfolio consists of five (30 December 2021: seven) shopping centres within the Group. At the year end the Luton and Hemel Hempstead assets have been classified as assets held for sale, as they meet the IFRS 5 criteria. They continue to be valued under IAS 40 but are not presented within investment property. How the scope of our audit responded to the key audit matter We assessed the fair value of the Group’s property portfolio to be a significant area of focus due to the level and nature of the judgements and estimates that form inputs into the valuation process performed by the Group’s independent valuers, such as yields and sustainability of the cash flows. The liquidity within the shopping centre investment sector is still relatively limited, though transaction volumes and real estate investor lending opportunities are increasing. The valuations continued to be impacted by current COVID-19 and the retail climate. Changes in these assumptions and judgements could lead to significant movements in property values and consequently unrealised gains or losses in the consolidated income statement. There is also a risk of fraud in relation to the valuation of the property portfolio, where the use of valuation methodology and model, large volume of data involved and assumptions and judgements applied are more critical and could be subject to undue influence by management. The accounting policy for investment property is set out in note 1 to the Group financial statements including management’s assessment of this as a key source of estimation uncertainty. The Audit Committee’s discussion of this key audit matter is set out on page 82. The investment property portfolio is disclosed in note 10 of the Group financial statements. • We obtained an understanding of the Group’s relevant controls around investment property valuations. • We evaluated the competence, capabilities and objectivity of the Group’s independent valuers. • We met with the Group’s independent valuers appointed by management to value the property portfolio and challenged the significant judgements, assumptions applied and impact from COVID-19 in their valuation model. • We analysed the individual property valuations to understand significant movements against prior year and comparative market evidence considered by the valuers. • We considered contradictory evidence across the work performed. • We evaluated the integrity of the methodology, model and data transfer. • We tested the integrity of the information provided to the valuers by management pertaining to rental income, purchasers’ costs and occupancy. • We verified movements in the key judgements and assumptions and we benchmarked and discussed yields in detail with the valuers and our own in-house valuation specialists, who are members of the Royal Institution of Chartered Surveyors. We determined whether the trend and sentiment on each specific asset was in line with expectations relevant to that asset and its location, prospects and expected cash flows. Where possible, market evidence was also used to corroborate yield assumptions. • To test the sustainability of the cash flows we have performed our audit procedures on revenue and expected credit losses. Additionally we have tested specifically the void assumptions, tenant incentives, cash collection as well as variable income and car park income of each of the properties to conclude that the assumptions used in the assessment of sustainability of the cash flows are reasonable. • We reviewed the associated disclosures within the financial statements and focus on any additional requirements that may be necessary, for example, the FRC’s expectations in relation to sensitivity disclosures in note 10 and narrative reporting around the impact of COVID-19. Key observations We concur with the assumptions adopted by management in the valuation were reasonable and the methodology applied was appropriate. 113 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCEIndependent Auditor’s Report TO THE MEMBERS OF CAPITAL & REGIONAL PLC 5.2 Going concern Key audit matter description The Group operates in the retail and leisure sectors, which have led to significant pressure on cash flows and property valuations. Going concern is a significant area of focus, particularly due to the impact of ongoing retail sector restructuring and COVID-19 on property valuations with underlying cash flow and the ongoing negotiations with the Group’s lenders. As at 30 December 2021, Group’s borrowings totalled £238.2 million (30 December 2020: £423.9 million). Following the reclassification of the balances of Luton and Hemel Hempstead as held for sale, the liabilities (including borrowings) of these structures amounting to £34.5 million for Hemel Hempstead and £131.3 million for Luton, have been reclassified to “Liabilities directly associated with assets classified as held for sale”. The Group also had cash and cash equivalents of £58.5 million (30 December 2020: £84.1 million), of which £32.5 million was maintained centrally and without any restriction (30 December 2020: £60.3 million). We identified a key audit matter relating to the ability of the group to continue trading as a going concern. The Group going concern assessment is built on cash flow projections, considering only the cash readily available to the Group which is not restricted, nor trapped. It is the Group’s intention to sell the Luton and Hemel Hempstead assets, which at the end of the year have been classified as held for sale. Operationally, the Group has demonstrated sufficient cash to trade for the lookout period of 12 months and this would enable them to still operate as going concern. However, in the event that covenant waivers could not be extended for Illford or the liabilities classified as held for sale and in the event of a default of some of the Group’s assets, the Group would need to take alternative courses of action to secure the cash position of the Group. This could involve the surrender of ring-fenced assets to the relevant lenders instead of curing the associated breach of covenant. This course of action is available due to the fact that none of the facilities are cross-default and any of the facilities can be in default without recourse to the other ring-fenced facilities in the Group. In addition to considering cash flow forecasts, the ability of the Group to meet the loan covenant requirements relating to loan to value and interest rate cover during the year and for a period of at least one year from the date when the financial statements are authorised for issue is also relevant. There are waivers in place for all covenants at the year end, however if these were not in place, the covenants would be in a breach position. The Group completed a restructuring and reduction of the debt secured over the four assets of The Mall in November 2021. The restructuring of the debt resulted in the Group acquiring £100 million of debt for a discounted amount of £81 million (at discount of £19 million), financed with a new loan (£35 million), raise in equity (£30 million before costs) and existing cash (£16 million) and termination of certain derivative instruments. This included the covenants of The Mall facility being waived until November 2023. The Mall facility does not expire until 2027 and the Group is forecast to have sufficient cash to keep operating for at least the next two years. The completion of The Mall debt restructuring and equity raise addressed concerns that led to the Directors concluding there was a material uncertainty over going concern at the time of the half year results in September 2021. The covenants of Ilford, Hemel Hempstead and Luton facilities were either waived or met as at the year end but waivers have not yet been agreed beyond April 2022 for Ilford. As detailed above, the Hemel Hempstead and Luton liabilities are classified as held for sale and ring fenced, but should the Group not secure a longer term modification to the Ilford covenants, the group would consider further courses of action including the potential to surrender the asset. Management’s consideration of the going concern basis of preparation is set out in the Going Concern statement on page 42 and note 1 together with a detailed presentation of the likely actions they could take to respond to potential covenant breaches and further mitigation actions available should the Group’s lenders not provide waivers to covenant breaches if required. Management have adopted the going concern basis of accounting for the Group and parent Company and have concluded that there are no material uncertainties that may cast significant doubt over the Group’s and parent Company’s ability to adopt going concern basis for a period of at least twelve months from the date when the financial statements are authorised for issue. The Audit Committee’s discussion of this key audit matter is set out on page 83. 114 capreg.comHow the scope of our audit responded to the key audit matter • We obtained an understanding of the Group’s relevant controls around the risk of non-compliance with covenants and the going concern status of the Group. • We challenged the judgements and assumptions applied by management in their going concern assessment and associated forecasts of financial performance and financial position. • We considered the reasonableness of assumptions included in the downside scenario regarding lower rental collection levels. • We assessed the refinancing of The Mall facility, and verified the relevant termination agreements and a newly subscribed loan facility, as well as the termination of the relevant derivative contracts. • We have assessed the equity raise in the year by inspecting and agreeing it to the relevant documents and to the cash receipts. • We evaluated the cash and borrowings forecast for the next two years including the assessment of the viability statement of the Group and obtained an understanding and relevant support for material cash movements. • We evaluated management’s modelling of alternative scenarios taking into consideration projected capital expenditure, discount rates applied to future cash flows, current business and economic trends and significant developments during and subsequent to the year ended 30 December 2021. • We assessed key loan documentation to understand the principal terms, including financial covenants and current waivers in place, and performed an assessment of the Group’s existing and forecast compliance with debt covenants and any associated equity cures and cash traps. • We assessed the availability of further mitigating actions available to management as presented in Note 1 and assessed the sufficiency of the disclosures made in the annual report. • We assessed the non-recourse and no cross-default nature of the facilities in place. Key observations We concur with management’s conclusion to prepare the Group and parent Company financial statements on a going concern basis. 5.3 Impairment of parent Company investments and intercompany debtors Key audit matter description There is a risk that the carrying value of the investments and intercompany debtors cannot be supported. The accuracy of forecast future cash flow model to support the carrying values of the investments is a key area of judgement and is identified as a key audit matter. In particular, this relates to the reasonableness of cash flow forecasts, long-term growth rates and the discount rates applied in the discounted cash flow calculations used to support investments held at above net asset value of the subsidiaries. Investments had a carrying value of £144.4 million at 30 December 2021 (30 December 2020: £124.8 million), comprising 82% (30 December 2020: 66%) of the parent Company’s assets. The refinancing process generated a £46m increase in the value of investments in subsidiaries in the current year. An impairment of £26.5 million (2020: £219.2 million) has been provided by management as a result of comparing the carrying value of the investment against its recoverable amount. Intercompany debtors had a carrying value of £37 million at 30 December 2021 (30 December 2020: £5.5 million), comprising 14% (30 December 2020: 3%) of the parent Company’s assets. Investments are subject to an impairment review using discount rate of 16.3% (2020: 17.8%). Management has assessed the recoverability of investments on the basis of nil growth. The recoverability of the group debtors of the parent Company is determined using the expected credit loss model. Following the assessment of intercompany debtors recoverability no further provision (2020: £26.3 million) has been booked in the parent Company’s financial statements. The accounting policies for both investments and intercompany debtors are set out in note A to the parent Company financial statements including management’s assessment of this as a key source of estimation uncertainty. The Audit Committee’s discussion of this key audit matter is set out on page 83. • We obtained an understanding of the parent Company’s relevant controls to address the risk of impairment of investments and intercompany debtor balances. • We challenged management’s discounted cash flow model and the cash flow forecasts employed therein, including comparison of the input assumptions to externally and internally derived data with the involvement of our internal valuations specialists. The inputs considered included the cash flow projections, long-term growth rates and discount rates. • We also assessed whether the forecasts employed are consistent with those used to support other judgements in the financial statements. • We assessed the recoverability of the group debtors of the parent Company and how expected credit loss model has been applied. • We assessed the disclosures included in the annual report. How the scope of our audit responded to the key audit matter Key observations We concur with the level of impairment recognised by management for all investments. We consider that the carrying value of parent Company investment and intercompany debtor balances is appropriate. 115 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCEIndependent Auditor’s Report TO THE MEMBERS OF CAPITAL & REGIONAL PLC 6. Our application of materiality 6.1 Materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Group financial statements Parent Company financial statements Materiality £3.38 million (2020: £3.40 million) £3.04 million (2020: £3.10 million) Basis for determining materiality Rationale for the benchmark applied We determined materiality to be 2% of net assets (2020: 2% of net assets). We applied a lower threshold of £0.38 million (2020: £0.52 million) for testing of all balances impacting Adjusted Profit (as defined in Note 1 to the Group financial statements), which is 5% of Adjusted Profit (2020: 5% of Adjusted Profit). We used net assets as a benchmark when determining materiality as it is considered to be the most critical financial performance measure for the Group. We applied a lower threshold of £0.38 million (2020: £0.52 million) for testing of all balances impacting Adjusted Profit on the basis that it is a key metric used by management, is the basis of the discussion of the financial performance in the strategic report and is a metric used by analysts and other users of the financial statements. Parent Company materiality equates to 2% of net assets (2020: 2% of net assets), which is capped at 90% of Group materiality (2020: capped at 90% of Group materiality). We used net assets as a benchmark when determining materiality as it is considered to be the most critical financial performance measure for the parent Company as a holding company. Net assets £168.4 million Net assets Group materiality Group materiality £3.38 million Component materiality range £0.12 million to £3.04 million Audit Committee reporting threshold £0.17 million We applied a lower threshold of £0.38 million (2020: £0.52 million) for testing of all balances impacting Adjusted Profit (as defined in Note 1 to the Group financial statements), which is 5% (2020: 5%) of this financial performance measure. 116 capreg.com6.2 Performance materiality We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Performance materiality Basis and rationale for determining performance materiality Group financial statements Parent Company financial statements 70% (2020: 70%) of Group materiality 70% (2020: 70%) of parent Company materiality In determining performance materiality, we considered the following factors: a. the changes in the business have been factored into the level of materiality; b. control environment of the Group and our ability to rely on controls; and c. our past experience of the audit, which has indicated a low number of corrected and uncorrected misstatements identified in prior periods. 6.3 Error reporting threshold We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.17 million (2020: £0.10 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. 7. An overview of the scope of our audit 7.1 Identification and scoping of components Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement at the Group and component levels. Our Group audit scope focused primarily on the audit work on the major lines of business. These major lines of business are wholly- owned assets, Snozone and Group/Central. These are included within individual IFRS 8 segments as disclosed in note 2 to the Group financial statements. The businesses subject to a full scope audit or specific audit procedures account for 98% (2020: 98%) of the Group’s net assets, 100% (2020: 100%) of the Group’s revenue and 100% (2020: 100%) of the Group’s loss. All investment properties have been included within the scope of our work. The businesses subject to a full scope audit or specific audit procedures were also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. All components are audited directly by the Group audit team. Our audit work at each component was executed at levels of materiality applicable to each individual entity which were between 4% and 90% (2020: 3% and 90%) of Group materiality, which corresponds to component materiality of between £0.12 million and £3.04 million (2020: between £0.11 million and £3.06 million). At the Group level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to full scope audit or specific audit procedures. 7.2 Our consideration of the climate-related risks As a part of our audit, we have obtained management’s climate-related risk assessment and held discussions with management to understand the process of identifying climate-related risks, the determination of mitigating actions and the impact on the Group’s financial statements. Management has assessed that there is currently no material impact arising from climate change on the judgements and estimates determining the valuations within the financial statements. We performed our own assessment of the potential impact of climate change on the Group’s account balances and classes of transaction and did not identify any reasonably possible risks of material misstatement. Our procedures also included reading disclosures included in the Strategic Report to consider whether they are materially consistent with the financial statements and our knowledge obtained in the audit. 117 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCEIndependent Auditor’s Report TO THE MEMBERS OF CAPITAL & REGIONAL PLC 8. Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 9. Responsibilities of directors As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. 10. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org. uk/auditorsresponsibilities. This description forms part of our auditor’s report. 11. Extent to which the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. 11.1 Identifying and assessing potential risks related to irregularities In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following: • • • the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets; the Group’s own assessment of the risks that irregularities may occur either as a result of fraud or error that was approved by the board on 13 April 2022; results of our enquiries of management and the audit committee about their own identification and assessment of the risks of irregularities; • any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to: − identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance; − detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged-fraud; and − the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; • the matters discussed among the audit engagement team and relevant internal specialists, including tax, IT, valuations and industry specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. 118 capreg.comAs a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the significant judgements and assumptions used in the valuation of investment properties. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override. We also obtained an understanding of the legal and regulatory framework that the Group operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act, REIT legislation, Listing Rules, RICS standards and tax legislation. In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the Group’s environmental regulations. 11.2 Audit response to risks identified As a result of performing the above, we identified valuation of investment properties as a key audit matter related to the potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific procedures we performed in response to that key audit matter. In addition to the above our procedures to respond to risks identified included the following: • reviewed the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements; • enquiring of management, the audit committee and external legal counsel concerning actual and potential litigation and claims; • performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; • • reading minutes of meetings of those charged with governance and reviewing correspondence with HMRC; and in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. 119 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCEIndependent Auditor’s Report TO THE MEMBERS OF CAPITAL & REGIONAL PLC REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS 12. Opinions on other matters prescribed by the Companies Act 2006 In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and the parent Company and their environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report. 13. Corporate governance statement The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit: • • • • • the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 42; the directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is appropriate set out on page 42; the directors’ statement on fair, balanced and understandable set out on page 85; the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 36 to 37; the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on pages 84 to 85; and • the section describing the work of the Audit Committee set out on pages 80 to 85. 14. Matters on which we are required to report by exception 14.1 Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent Company financial statements are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. 120 capreg.com14.2 Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. 15. Other matters which we are required to address 15.1 Auditor tenure Following the recommendation of the Audit Committee, we were appointed by Directors on 19 January 1998 to audit the financial statements for the year ending 25 December 1997 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 25 years, covering the years ending 25 December 1997 to 30 December 2021. 15.2 Consistency of the audit report with the additional report to the audit committee Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK). 16. Use of our report This report is made solely to the parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent Company and the parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. MATTHEW HALL FCA (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor London, United Kingdom 13 April 2022 121 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021GOVERNANCEConsolidated Income Statement For the year to 30 December 2021 Revenue Other income Expected credit loss Cost of sales Gross profit Administrative costs Loss on revaluation of investment properties Other gains and losses Loss on ordinary activities before financing Finance income Finance costs Loss before tax Tax Loss for the year All results derive from continuing operations. Basic earnings per share Diluted earnings per share EPRA basic earnings per share EPRA diluted earnings per share Note 3 3 6 4 10a 6 5 5 6 8a 2a 9a 9a 9a 9a Consolidated statement of Comprehensive Income For the year to 30 December 2021 Loss for the year Other comprehensive income Total comprehensive expense for the year 2021 £m 70.0 2.5 (4.9) (33.3) 34.3 (12.7) (49.2) 14.0 (13.6) 7.6 (17.3) (23.3) (3.1) (26.4) 2020 Restated1 £m 72.7 – (7.3) (27.9) 37.5 (12.5) (208.3) 1.6 (181.7) 0.4 (22.8) (204.1) 0.2 (203.9) (22.0)p (22.0)p (188.8)p (188.8)p 2.9p 2.9p 9.2p 9.2p 2021 £m (26.4) – (26.4) 2020 Restated1 £m (203.9) – (203.9) The results for the current and preceding year are fully attributable to equity shareholders. The EPRA alternative performance measures used throughout this report are industry best practice performance measures established by the European Public Real Estate Association (EPRA). They are defined in the Glossary to the Financial Statements. EPRA Earnings and EPRA EPS are shown in Note 9 to the Financial Statements. EPRA net reinstatement value (NRV), net tangible assets (NTA) and net disposal value (NDV) are shown in Note 6 to the Financial Statements. We consider EPRA NTA to be the most relevant measure for our business. 1 2020 results have been restated for a prior year adjustment of £0.5 million to the treatment of Software as a Service (SaaS) configuration costs as explained in Note 1. 122 capreg.com Consolidated Balance Sheet At 30 December 2021 Non-current assets Investment properties Plant and equipment Right of use assets Fixed asset investments Receivables Total non-current assets Current assets Receivables Cash and cash equivalents Assets classified as held for sale Total current assets Total assets Current liabilities Trade and other payables Current tax Lease liabilities Liabilities directly associated with assets classified as held for sale Total current liabilities Net current assets Non-current liabilities Bank loans Other payables Derivatives Lease liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Share premium Merger reserve Capital redemption reserve Own shares reserve Retained earnings Equity shareholders’ funds Basic net assets per share EPRA net reinstatement value per share EPRA net tangible assets per share EPRA net disposal value per share 2021 £m 374.8 1.7 24.5 0.1 10.0 411.1 20.0 58.5 146.4 224.9 636.0 (29.3) (1.1) (2.8) (165.8) (199.0) 25.9 (238.2) (0.3) – (30.1) (268.6) (467.6) 168.4 16.5 266.1 60.3 4.4 – (178.9) 168.4 101.8p 101.6p 101.6p 101.0p 2020 Restated1 £m 536.1 1.8 12.2 0.9 14.2 565.2 21.3 84.1 – 105.4 670.6 (30.9) – – – (30.9) 74.5 (423.9) (0.2) (8.9) (39.6) (472.6) (503.5) 167.1 11.2 244.3 60.3 4.4 – (153.1) 167.1 149.5p 157.0p 157.0p 138.8p Note 10 11 12 14 14 15 16 2b 17 27 16 18a 17 17 27 2b 20 20 22 25 25 25 These financial statements were approved by the Board of Directors, authorised for issue and signed on their behalf on 13 April 2022 by: STUART WETHERLY GROUP FINANCE DIRECTOR 1 2020 results have been restated for a prior year adjustment to the treatment of SaaS configuration costs as explained in Note 1. 123 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS Consolidated Statement of Changes in Equity For the year to 30 December 2021 Share capital £m 10.4 – Share premium1 £m 238.0 – Merger reserve2 £m 60.3 – Capital redemption reserve1 £m 4.4 – Own shares reserve3 £m – – – – – – 0.8 11.2 – – – – 5.3 16.5 – – – – 6.3 244.3 – – – – 21.8 266.1 – – – – – 60.3 – – – – – 60.3 – – – – – 4.4 – – – – – 4.4 – – – – – – – – – – – – Retained earnings £m 61.8 (203.9) Total equity £m 374.9 (203.9) – – (203.9) (203.9) 0.4 (4.3) (7.1) (153.1) 0.4 (4.3) – 167.1 (26.4) (26.4) – – (26.4) (26.4) 0.6 – (178.9) 0.6 27.1 168.4 Balance at 30 December 20194 Loss for the year4 Other comprehensive income for the year Total comprehensive expense for the year4 Credit to equity for equity-settled share-based payments (Note 20) Dividends paid, net of scrip Shares issued, net of costs (Note 20) Balance at 30 December 20204 Loss for the year Other comprehensive income for the year Total comprehensive expense for the year Credit to equity for equity-settled share-based payments (Note 21) Shares issued, net of costs (Note 20) Balance at 30 December 2021 Notes: 1 These reserves are not distributable. 2 The merger reserve of £60.3 million arose on the Group’s capital raising in 2009 which was structured so as to allow the Company to claim merger relief under section 612 of the Companies Act 2006 on the issue of ordinary shares. The merger reserve is available for distribution to shareholders. 3 Own shares relate to shares purchased out of distributable profits and therefore reduce reserves available for distribution. 4 2020 results and opening equity have been restated for a prior year adjustment to the treatment of SaaS configuration costs as explained in Note 1. 124 capreg.com Consolidated Cash Flow Statement For the year to 30 December 2021 Operating activities Net cash from operations Distributions received from fixed asset investments Interest paid Interest received Income tax paid Cash flows from operating activities Investing activities Disposal of investment properties Purchase of plant and equipment Capital expenditure on investment properties Cash flows from investing activities Financing activities Dividends paid (net of scrip) including withholding tax Bank loans drawn down Bank loans repaid Derivatives settled Loan arrangement costs Issue of ordinary shares (net of costs) Fixed payments under head leases Cash flows from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Assets classified as held for sale Cash and cash equivalents excluding assets classified as held for sale Note 23 10 15 2021 £m 25.1 0.7 (14.4) – (2.5) 8.9 11.3 (0.4) (8.3) 2.6 – 35.0 (84.9) (0.2) (0.7) 27.1 (1.4) (25.1) (13.6) 84.1 70.5 (12.0) 58.5 2020 £m 17.9 1.5 (14.3) 0.2 – 5.3 4.9 (0.8) (15.6) (11.5) (4.2) – – – – – (1.4) (5.6) (11.8) 95.6 84.1 – 84.1 125 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS Notes to the Financial Statements For the year to 30 December 2021 1 Significant Accounting Policies General information Capital & Regional plc is a public company limited by shares domiciled and incorporated in England, United Kingdom under the Companies Act 2006. The address of the registered office is 22 Chapter Street, London, SW1P 4NP. The Group is a specialist real estate investor and asset manager, focused on dominant in-town community shopping centres. Further information on the Group’s operations is disclosed in Note 2a and the operating and financial reviews. Basis of accounting The financial statements comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and Notes 1 to 32. They are prepared on the historical cost basis except for the revaluation of certain properties and financial instruments that are measured at revalued amounts or fair values at the end of the reporting year, as explained in the accounting policies below. Other than as noted in the “Accounting developments and changes” section below, the accounting policies have been applied consistently to the results, other gains and losses, assets, liabilities, income and expenses. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such basis, except for share- based payments that are within the scope of IFRS 2, leasing transactions that are within the scope of IFRS 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3 inputs are unobservable inputs for the asset or liability. The financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the accounting policies set out below. Statement of compliance The consolidated financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. Accounting developments and changes The accounting policies used in these financial statements are consistent with those applied in the last annual financial statements, as amended where relevant to reflect the adoption of new standards, amendments and interpretations which became effective during the year. In April 2021, the IFRS Interpretations Committee published a decision which addressed how a customer should account for their costs configuring or customising software that is utilised through a Software as a Service (SaaS) agreement that is determined to be a service contract. They concluded that: • Where the configuration and customisation costs do not result in an intangible asset of the customer, the customer should recognise the costs as an expense when the configuration or customisation services are received. If the customer pays the supplier before receiving those services, the prepayment should be recognised as an asset. • • If the configuration or customisation services are performed by the supplier of the application software (or its agent) and the services received are not distinct from the right to receive access to the supplier’s application software, then the customer should recognise the costs as an expense over the term of the SaaS arrangement. In limited circumstances, certain configuration and customisation activities undertaken in implementing SaaS arrangements may give rise to a separate asset. This may be the case if the arrangement results, for example, in additional code from which the customer has the power to obtain the future economic benefits and to restrict others’ access to those benefits. In this case, the customer should recognise an intangible asset if the additional code is “identifiable” and meets the recognition criteria in IAS 38 Intangible Assets. In adopting the above treatment the Group has restated the 2020 results for a prior year adjustment of £0.5m. 2020 Opening equity has been restated by £0.2m. 126 capreg.com1 Significant Accounting Policies CONTINUED The following table summarises the impact of the change in policy on the financial statements of the Group. There is no impact of the change in policy on both basic and diluted earnings per share. Consolidated income statement Administrative costs Decrease in profit for the financial year Consolidated balance sheet Plant and equipment Decrease in net assets Consolidated statement of changes in equity 2020 opening retained earnings 30/12/2020 £m 0.5 (0.5) (0.7) (0.7) (0.2) Negative goodwill arising from the purchase of Snozone Madrid has been recognised in the period. This has been credited to the income statement in administrative expenses. Further details can be obtained from Note 31. Impact of the initial application of Interest Rate Benchmark Reform amendments In the current year, the Group adopted the Phase 2 amendments Interest Rate Benchmark Reform—Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. Adopting these amendments enables the Group to reflect the effects of transitioning from interbank offered rates (IBOR) to alternative benchmark interest rates (also referred to as “risk free rates” or RFRs) without giving rise to accounting impacts that would not provide useful information to users of financial statements. The Group has not restated the prior period. Instead, the amendments have been applied retrospectively with any adjustments recognised in the appropriate components of equity as at 1 January 2021. The amendments are relevant for the Group’s LIBOR linked borrowings and interest rate swap derivatives. Details of the financial instruments affected by the interest rate benchmark reform together with a summary of the actions taken by the Group to manage the risks relating to the reform and the accounting impact, appear in Note 19. As a result of the Phase 2 amendments: • when the contractual terms of the Group’s bank borrowings are amended as a direct consequence of the interest rate benchmark reform and the new basis for determining the contractual cash flows is economically equivalent to the basis immediately preceding the change, the Group changes the basis for determining the contractual cash flows prospectively by revising the effective interest rate. If additional changes are made, which are not directly related to the reform, the applicable requirements of IFRS 9 are applied to the other changes. • when changes are made to the hedging instruments, hedged item and hedged risk as a result of the interest rate benchmark reform, the Group updates the hedge documentation without discontinuing the hedging relationship. New and revised standards issued but not yet effective At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS Standards that have been issued but are not yet effective: IFRS 17 Insurance Contracts including Amendments to IFRS 17 Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Amendments to IFRS 3 – References to the Conceptual Framework Amendments to IAS 16 – Property, Plant and Equipment – Proceeds before Intended Use Amendments to IAS 37 – Onerous Contracts – Cost of Fulfilling a Contract Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 Agriculture–Annual Improvements to IFRS Standards 2018–2020 Amendments to IAS 1 – Classification of Liabilities as Current or Non-current including Classification of Liabilities as Current or Non-current Amendments to IAS 12 – Deferred Tax related to Assets and Liabilities arising from a Single Transaction Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of Accounting Policies Amendments to IAS 8 – Definition of Accounting Estimates None of these standards are anticipated to have a material impact upon the Group’s results. 127 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS1 Significant Accounting Policies CONTINUED Critical accounting judgements The preparation of financial statements requires the Directors to make the following judgement that may affect the application of accounting policies. Going concern Under the UK Corporate Governance Code, the Board needs to report whether the business is a going concern. In making its assessment of Going Concern, the Group has considered the general risk environment and specifically the impact on the business of the significant disruption arising from Covid-19 as well as the acceleration of the structural trends that were already under way in the retail industry. At 30 December 2021, the Group had total cash at bank on balance sheet of £53.7 million, which is equivalent to more than the Group’s annual Contracted Rent. This excludes cash held within the Hemel Hempstead and Luton structures which has been reclassified as assets held for sale. Of the £53.7 million, more than £30 million was held centrally and free of any restrictions. This provides a significant cash contingency to cover any disruption to operations for an extended period of time. The Group completed a £30 million Capital Raise and £100 million restructuring of The Mall debt facility in November 2021. As part of the restructure of The Mall debt facility, the lender provided covenant waivers that run until November 2023 and modifications to cash trap provisions that run until May 2023. On the Ilford facility the Group is in advanced discussions to agree a package of waivers and covenant relaxation to cover at least the next 18 months, linked to supporting the funding of major asset management initiatives at the asset through central cash. The Mall loan facility matures in January 2027, while Ilford matures in March 2024. All of the Group’s asset backed loan facilities are ring-fenced within their own SPV structures with no recourse to Capital & Regional plc and no cross-default provisions. The Group is working with the lenders on its Hemel Hempstead and Luton loan facilities on a disposal of the investments. While this is almost certain to realise less than the value of the debt outstanding, due to the ring-fenced SPV structure, the net liability of Capital & Regional plc is effectively capped at nil. In making its assessment of Going Concern, the Group has run updated forecasts on both a base case and downside basis. In the latter, the Group has sensitised rent collection, car park and ancillary income and Snozone revenue to reflect how a downturn in expected trading, such as might be caused by a further wave of government restrictions, could impact cashflows. The Group’s analysis projects that the central cash maintained provides sufficient funds to cover the potential operational disruption. In coming to its Going Concern conclusion, the Group has also considered, but not relied upon, other options available to generate or conserve additional cash, to reduce debt levels and to fund value accretive capital expenditure and letting initiatives. These include but are not limited to: the potential disposal of assets either in whole or part; the opportunity to continue to suspend dividend payments (or offer a Scrip alternative); and the potential raising of additional funds. Having due regard to all of the above matters and after making appropriate enquiries including considerations of the impact of Covid-19 and sensitivities, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. Therefore, the Board continues to adopt the Going Concern basis in preparing the financial statements. Assets and liabilities held for sale Note 16 describes the reclassification of the two “Managed Assets”, Hemel Hempstead and Luton, as held for sale. In making this reclassification, the Directors were required to make a judgement about whether these assets met the criteria to be classified as held for sale in accordance with IFRS 5. After taking into consideration the position of the two assets and the probability that they would be disposed within 12 months of the balance sheet date, the Directors have decided the two assets meet the criteria for reclassification. Key sources of estimation uncertainty The preparation of financial statements requires the Directors to make estimates that may affect the reported amounts of assets and liabilities, income and expenses. The following are the key sources of estimation uncertainty that have the most significant effect on the amounts recognised in the financial statements: Property valuation The valuation of the Group’s property portfolio is inherently subjective due to, among other factors, the individual nature of each property, its location and the expected future rental revenues from that particular property. 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. We are now in a phase of the valuation cycle where there is persistent negative sentiment and low transactional evidence as such greater judgement has been applied. 128 Notes to the Financial Statements CONTINUEDcapreg.com1 Significant Accounting Policies CONTINUED The investment property valuation contains a number of assumptions upon which the valuation of the Group’s properties as at 30 December 2021 was based. The assumptions on which the property valuation reports have been based include, but are not limited to, matters such as the tenure and tenancy details for the properties, the condition of the properties, prevailing market yields and comparable market transactions. These assumptions are market standard and accord with the Royal Institution of Chartered Surveyors (RICS) Valuation – Professional Standards UK 2014 (revised January 2020). If the assumptions upon which the valuation was based prove to be inaccurate, this may have an impact on the value of the Group’s investment properties, which could in turn have an effect on the Group’s financial position and results. Estimated rental values and equivalent yields are considered key assumptions. Note 10c provides sensitivity analysis estimating the impact that changes in the estimated rental values or equivalent yields would have on the Group’s property valuations. Increase in credit risk When measuring expected credit loss the Group uses reasonable and supportable forward-looking information, which is based on assumptions for the future movement of different economic drivers and how these drivers will affect each other. In assessing whether the credit risk of an asset has significantly increased, the Group takes into account qualitative and quantitative reasonable and supportable forward-looking information. Due to the impact of Covid-19 on collection rates, there has been a significant increase in our assessed credit risk. Probability of default constitutes a key input in measuring expected credit losses (ECL). Probability of default is an estimate of the likelihood of default over a given time horizon, the calculation of which includes historical data, assumptions and expectations of future conditions. Sensitivity of the expected credit loss to probability of default is disclosed in Note 14. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries at 30 December. Control of subsidiaries is achieved where the Company has the power over the investee, is exposed, or has rights, to variable return from its involvement with the investee and has the ability to use its power to affect its returns. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal. The reporting year for all material subsidiaries and affiliates ends on 31 December and their financial statements are consolidated from this date. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Subsidiaries The results of subsidiaries acquired or disposed of during the year are included from the effective date of acquisition or up to the effective date of disposal. Accounting practices of subsidiaries which differ from Group accounting policies are adjusted on consolidation. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Foreign currency Foreign currency transactions Transactions in foreign currencies are translated into sterling at exchange rates approximating to the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to sterling at the exchange rate ruling at that date and differences arising on translation are recognised in the income statement. Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into sterling at the exchange rates ruling at the balance sheet date. The operating income and expenses of foreign operations are translated into sterling at the average exchange rates for the year. Significant transactions, such as property sales, are translated at the foreign exchange rate ruling at the date of each transaction. The principal exchange rate used to translate foreign currency denominated amounts in the balance sheet is the rate at the end of the year: £1 = €1.1918 (2020: £1 = €1.1123). The principal exchange rate used for the income statement is the average rate for the year: £1 = €1.1727 (2020: £1 = €1.1248). Property, plant and equipment Group/central Property, plant and equipment (PPE) is stated at cost, net of depreciation and any provision for impairment. Depreciation is provided on all PPE, other than investment properties and land, on a straight-line basis over their expected useful lives: • • Leasehold improvements – over the term of the lease Fixtures and fittings – over three to five years • Motor vehicles – over four years 129 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS1 Significant Accounting Policies CONTINUED Snozone PP&E is stated at cost or valuation, net of depreciation and any provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is provided so as to write off the cost of the assets, less their estimated residual values, on a straight-line basis over their expected useful lives, which are given below as a general rule; however, as part of the day-to-day running of the business, there may be some assets which fall outside of this. These assets are treated the same and are always depreciated on a straight-line basis over their expected useful lives. The expected useful lives of the assets are reassessed periodically in the light of experience. Snow Equipment 20%–100% or 1–5 years Computer Equipment 20%–50% or 2–5 years Office Equipment 20%–50% or 2–5 years Operations Equipment 20%–50% or 2–5 years Property portfolio Investment properties Investment properties are properties owned or leased, which are held either for long-term rental income or for capital appreciation or both. Investment property is initially recognised at cost (including directly related transaction costs) and is revalued at the balance sheet date to fair value, being the market value determined by professionally qualified external valuers, with changes in fair value being included in the income statement. Valuations are generally carried out twice a year. In accordance with IAS 40 Investment Property, no depreciation is provided in respect of investment properties. Leasehold properties Leasehold properties that are leased to tenants under operating leases are classified as investment properties or development properties, as appropriate, and included in the balance sheet at fair value. Capital expenditure Refurbishment expenditure in respect of major works is capitalised. Renovation and refurbishment expenditure of a revenue nature is expensed as incurred. Our business model for developments is to use a combination of in-house staff and external advisers. The cost of external advisers is capitalised to the cost of developments. The cost of staff working on developments is capitalised subject to meeting certain criteria related to the degree of time spent on and the nature of specific projects. Property transactions Acquisitions and disposals are accounted for at the date of legal completion. Investment properties are reclassified as held for sale once it is highly probable that a transaction will be completed within the next 12 months. Leases The Group as lessor Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. Incentives and costs associated with entering into tenant leases are amortised on a straight- line basis over the term of the lease. The Group as lessee The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the Group’s incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise fixed lease payments (including in-substance fixed payments), less any lease incentives receivable. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever: • • The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used). 130 Notes to the Financial Statements CONTINUEDcapreg.com1 Significant Accounting Policies CONTINUED A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. The Group did not make any such adjustments during the periods presented. The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. The right of use assets are amortised on a straight-line basis over the length of each lease. To assess for impairment of the right of use asset the directors have considered whether the group can reasonably expect to recover the costs of each lease through operation. No indication of impairment has been deemed to exist. Fixed asset investments Fixed asset investments are stated at cost, together with subsequent capital contributions, less provisions for any impairment in value. Financial instruments Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes party to the contractual provisions of the instrument. Assets classified as held for sale Assets that are classified as held for sale in accordance with IFRS 5 are measured in accordance with that Standard. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. The Group’s two “Managed Assets”, Hemel and Luton, have been classified as held for sale as the Group, in conjunction with the respective lenders who have effective ultimate control of the vehicles, had decided to seek to dispose of whole or part of the investments. It is viewed as highly probable that it will be concluded within 12 months of the balance sheet date. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Financial assets Financial assets are classified into the following specified categories: financial assets “at fair value through profit or loss (FVTPL)”, ”fair value through other comprehensive income (FVOCI)” and “amortised cost”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective interest rate method The effective interest rate method is a method of calculating the amortised cost of a debt instrument and of allocating the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount in initial recognition. Debt instruments that have fixed or determinable payments that are not quoted in an active market are classified as amortised cost. These are measured at amortised cost using the effective interest method less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Trade receivables Trade receivables are carried at the original invoice amount less provision for impairment (credit losses). Discounts and similar allowances are recorded on an accrual basis, consistent with the recognition of the related sales, using estimates based on existing contractual obligations, historical trends and the Group’s experience. Long-term accounts receivables are discounted to take into account the time value of money, where material. Loss allowances for trade receivables are always measured at an amount equal to lifetime expected credit losses (“ECLs”). The Group calculates impairment of trade receivables using the expected credit loss model as required by IFRS 9. ECLs are calculated by: (a) identifying scenarios in which a loan or receivable defaults; (b) estimating the cash shortfall that would be incurred in each scenario if a default were to happen; (c) multiplying that loss by the probability of the default happening; and (d) summing the results of all such possible default events. The Group has adopted the simplified “provision matrix” approach to calculate expected credit losses on trade receivables. The Group loss allowance is based on the expected credit loss as calculated using the provision matrix approach and a forward-looking component based on individual tenant profiles. The Group considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full. The Group writes off trade receivables when there is no reasonable expectation of recovery, receivables are written off after six months. Cash and cash equivalents Cash and cash equivalents include cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Restricted cash balances relate to amounts held by the Group on behalf of tenants including ring-fenced service charge funds and tenant deposits. 131 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS1 Significant Accounting Policies CONTINUED Financial liabilities Borrowings Borrowings are initially measured at fair value net of transaction costs. Borrowings are subsequently measured at amortised cost using the effective interest method with interest expense recognised on an effective yield basis. Derivative financial instruments Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The fair value of forward foreign exchange contracts is calculated by reference to spot and forward exchange rates at the balance sheet date. The fair value of interest rate swaps is calculated by reference to appropriate forecasts of yield curves between the balance sheet date and the maturity of the instrument. Changes in fair value are included as finance income or finance costs in the income statement. Derivative financial instruments are classified as non-current when they have a maturity of more than twelve months and are not intended to be settled within one year. As the Group does not apply hedge accounting, the provisions of IFRS 9 do not apply. Trade payables Trade payables are carried at fair value with any gains or losses arising on remeasurement recognised in the income statement. Taxation Income tax on the profit for the year comprises current and deferred tax. Current tax is the tax payable on the taxable income for the year and any adjustment in respect of previous years. Deferred tax is provided in full using the balance sheet liability method on timing differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the asset is realised or the liability is settled. No provision is made for timing differences (i) arising on the initial recognition of assets or liabilities, other than on a business combination, that affect neither accounting nor taxable profit and (ii) relating to investments in subsidiaries to the extent that they will not reverse in the foreseeable future. Employee benefits Pension costs Pension liabilities, all of which relate to defined contribution schemes, are charged to the income statement as incurred. Share-based payments Equity settled share-based payments are measured at fair value at the date of grant. The fair values of the LTIP and the SAYE scheme are calculated using Monte Carlo simulations and the Black-Scholes model as appropriate. The fair values are dependent on factors including the exercise price, expected volatility, period to exercise and risk free interest rate. Market-related performance conditions are reflected in the fair values at the date of grant and are expensed on a straight-line basis over the vesting period. Non-market- related performance conditions are not reflected in the fair values at the date of grant. At each reporting date, the Group estimates the number of shares likely to vest under non-market-related performance conditions so that the cumulative expense will ultimately reflect the number of shares that do vest. Where awards are cancelled, including when an employee ceases to pay contributions into the SAYE scheme, the remaining fair value is expensed immediately. Own shares Own shares held by the Group are shown as a deduction from shareholders’ funds and included in other reserves. The cost of own shares is transferred to retained earnings when shares in the underlying incentive schemes vest. The shares are held in an Employee Share Ownership Trust. Revenue The Group recognises revenue on an accruals basis, when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the Group. Gross rental income – Gross rental income is rental income, adjusted for tenant incentives, recognised on a straight-line basis over the term of the underlying lease. Contingent rents, being lease payments that are not fixed at the inception of a lease, for example turnover rents, are recorded as income in the periods in which they are earned. Lease incentives are capitalised and amortised over the length of the lease. Amortisation is offset against rental income. Ancillary income – Ancillary income comprises rent and other income from short-term tenancies of mobile units, car park income and other sundry income and is recognised over the period of the lettings and contracts. Service charge – Service charge income represents recharges of the running costs of the shopping centres made to tenants and is recognised on an accruals basis, when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the Group. Management fees – Management fees are recognised, in line with the property management contracts, in the year to which they relate. They include income in relation to services provided by Capital & Regional Property Management Limited (“CRPM”) to associates for asset and property management, project co-ordination, procurement, and management of service charges and directly recoverable expenses. 132 Notes to the Financial Statements CONTINUEDcapreg.com1 Significant Accounting Policies CONTINUED Dividend and interest income – Dividend income from investments is recognised when the shareholders’ right to receive payment has been established. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Snozone income – Revenue arises from the operation of indoor ski operations. Revenue represents the amounts received from customers (excluding sales taxes) for admissions tickets, membership, retail, food and beverage sales and sponsorship. Ticket revenue is recognised at point of entry. Revenue from the sale of memberships is deferred and then recognised over the period that the membership is valid. Retail and food and beverage sales revenues are recognised at the point of sale. Sponsorship revenue is recognised over the relevant contract term. Government grants Government grants relate to the coronavirus job retention scheme and are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable, offset against the expense they are intended to compensate where applicable. Finance costs All borrowing costs are recognised under Finance costs in the income statement in the year in which they are incurred. Finance costs also include the amortisation of loan issue costs and any loss in the value of the Group’s wholly-owned interest rate swaps. Operating segments The Group’s has made a change to its reportable segments for this period reflecting the position of its shopping centre investments. The Group has split out what was previously called Shopping Centres into ”Shopping Centres – Investment Assets” and “Shopping Centres – Managed Assets”. This reflects the fact that management consider these groups separately in operating decisions. Shopping Centres – Investment Assets incorporating the centres at Ilford and within The Mall loan facility, namely Blackburn, Maidstone, Walthamstow and Wood Green. These represent the asset pools where the Group retains net equity and is focused on long-term solutions for the loan positions potentially involving the investment of further capital in some shape or form. Shopping Centres – Managed Assets incorporates Hemel Hempstead and Luton where the current debt values in the non-recourse SPV structures exceed the respective property value and therefore the Group has negative equity. The Group has determined that the economic and strategic rationale for additional investment to cure and/or to pay down these non-recourse facilities is, at the present time, is insufficient. In agreement with and at the request of the various lenders, the Group continues to manage these assets for the time being, whilst various outcomes are explored in conjunction with the lenders. As at 30 December 2021, the Group concluded that the two “Managed Assets”, Hemel Hempstead and Luton, met the criteria to be reclassified as “Held for Sale”. Further detail is disclosed in Note 16. Group/Central includes management fee income, Group overheads incurred by Capital & Regional plc, Capital & Regional Property Management and other subsidiaries and the interest expense on the Group’s central borrowing facility. The Shopping Centres segments derive their revenue from the rental of investment properties. The Snozone and Group/Central segments derive their revenue from the operation of indoor ski slopes and the management of property funds or schemes respectively. The split of revenue between these classifications satisfies the requirement of IFRS 8 to report revenues from different products and services. Depreciation and charges in respect of share-based payments represent the only significant non-cash expenses. Prior period comparatives have also been restated as a result. Adjusted Profit Adjusted Profit is the total of Contribution from wholly-owned assets, the profit from Snozone and property management fees less central costs (including interest, excluding non-cash charges in respect of share-based payments) after tax. Adjusted Profit excludes revaluation of properties, profit or loss on disposal of properties or investments, gains or losses on financial instruments and adjusting one-off items. Results from Discontinued Operations are included up until the point of disposal or reclassification as held for sale. Further detail on the use of Adjusted Profit and other Alternative Performance Measures is provided within the Financial Review. Adjusted profit within Snozone is Leisure EBITDA. Leisure EBITDA is an alternative performance measure for the Snozone business. It excludes Depreciation, Amortisation, (notional) Interest, Tax and non-operational one-off items. It includes rent expense, based on contractual payments adjusted for rent-free periods. This provides a measure of Snozone trading performance which removes the profiling impact of IFRS 16 that would otherwise see a significantly higher charge in early years of a lease and significantly lower net charge in later years. A reconciliation of Adjusted Profit to the statutory result is provided in Note 2a and, on a per share basis, in Note 9, where EPRA earnings figures are also provided. 133 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS2a Operating segments Year to 30 December 2021 Rental income from external sources Property and void costs1 Net rental income Net interest expense Snozone income/Management fees2 Other income4 Management expenses Depreciation Variable overhead Adjusted Profit/(loss) Revaluation of properties Loss on disposal Snozone depreciation and amortisation Notional interest (net of rent expense within EBITDA) Gain on financial instruments Long-term incentives Tax charge Prior period tax3 Other items Gain on debt repurchase Loss Total assets Total liabilities Net assets/(liabilities) 1 Includes expected credit loss. Shopping Centres – Investment Assets £m Shopping Centres – Managed Assets £m Snozone £m Group/ Central £m Note 3b 3b 35.5 (14.0) 21.5 (10.8) – – – – – 10.7 (29.2) (1.4) – – 2.7 – – – – – (17.2) 14.2 (6.7) 7.5 (5.4) – – – – – 2.1 (20.0) (1.1) – – 3.2 – – – – – (15.8) – – – – 6.8 2.5 (8.5) – – 0.8 – – (2.5) 0.5 – – 0.2 1.4 (0.7) – (0.3) 3b 3b 425.6 (267.9) 157.7 146.4 (165.8) (19.4) 29.0 (31.2) (2.2) Total £m 49.7 (20.7) 29.0 (16.4) 9.2 2.5 (15.0) (0.3) (0.9) 8.1 (49.2) (2.5) (2.5) 0.5 5.9 (0.9) 0.2 (1.9) (2.5) 18.4 (26.4) 636.0 (467.6) 168.4 – – – (0.2) 2.4 – (6.5) (0.3) (0.9) (5.5) – – – – – (0.9) – (3.3) (1.8) 18.4 6.9 35.0 (2.7) 32.3 2 Asset management fees of £3.6 million charged from the Group’s Capital & Regional Property Management entity to wholly owned assets have been excluded from the table above. 3 £1.4 million in Snozone relates to a £1.4 million reclaim of VAT. 4 Other income includes £2.5 million insurance proceeds. 134 Notes to the Financial Statements CONTINUEDcapreg.com2a Operating segments CONTINUED Year to 30 December 2020 Rental income from external sources Property and void costs1 Net rental income Net interest expense Snozone income/Management fees2 Management expenses Investment income Depreciation Current Tax Adjusted Profit/(loss) Revaluation of properties Profit on disposal Snozone depreciation and amortisation Notional interest (Net of rent expense within EBITDA) Loss on financial instruments Long-term incentives Other items Loss Total assets Total liabilities Net assets/(liabilities) 1 Includes expected credit loss. Shopping Centres – Investment Assets Restated £m Shopping Centres – Managed Assets3 Restated £m Snozone4 Restated £m Group/ Central Restated4 £m 36.0 (15.8) 20.2 (11.4) – – – – – 8.8 (137.6) 0.4 – – (2.8) – – (131.2) 440.4 (329.4) 111.0 19.6 (5.7) 13.9 (5.6) – – – – – 8.3 (70.7) – – – (2.2) – – (64.6) – – – – 4.6 (6.3) – – – (1.7) – – (2.2) 1.5 – – – (2.4) 150.5 (153.5) (3.0) 14.3 (16.0) (1.7) – – – – 2.3 (6.5) 0.1 (0.5) 0.2 (4.4) – – – – – (0.4) (0.9) (5.7) 65.4 (4.6) 60.8 Note 3b 3b 3b 3b Total4 £m 55.6 (21.5) 34.1 (17.0) 6.9 (12.8) 0.1 (0.5) 0.2 11.0 (208.3) 0.4 (2.2) 1.5 (5.0) (0.4) (0.9) (203.9) 670.6 (503.5) 167.1 2 Asset management fees of £3.6 million charged from the Group’s Capital & Regional Property Management entity to wholly owned assets have been excluded from the table above. Includes the benefit of £4 million of surrender premiums received during the period. 3 4 2020 results have been restated for a prior year adjustment in respect of the treatment of SaaS configuration costs as explained in Note 1. 2020 results have also been restated to reflect Snozone Leisure EBITDA performance measure and to eliminate intercompany interest amounts from net interest expense. 135 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS2b Reconciliations of reportable revenue, assets and liabilities Revenue and other income Rental income from external sources Service charge income Management fees Snozone income Other income (Snozone business continuity insurance receipt) Revenue for reportable segments Elimination of inter-segment revenue Revenue and other income per consolidated income statement Revenue and other income by country UK Spain Revenue and other income per consolidated income statement Assets Investment assets Managed assets Snozone Group/Central Total assets of reportable segments and Group assets Liabilities Investment assets Managed assets Snozone Group/Central Total liabilities of reportable segments and Group liabilities Net assets by country UK Spain Germany Group net assets Note 2a 2a 2a 2a 3 Note 16 2a 16 2a Year to 30 December 2021 £m Year to 30 December 2020 £m 49.7 12.7 2.4 6.8 2.5 74.1 (1.6) 72.5 70.4 2.1 72.5 2021 £m 425.6 146.4 29.0 35.0 636.0 (267.9) (165.8) (31.2) (2.7) (467.6) 167.8 0.6 – 168.4 55.6 11.7 2.3 4.6 – 74.2 (1.5) 72.7 72.7 – 72.7 20201 £m 440.4 150.5 14.3 65.4 670.6 (329.4) (153.5) (16.0) (4.6) (503.5) 166.2 – 0.9 167.1 1 2020 results have been restated for a prior year adjustment to the treatment of SaaS configuration costs as explained in Note 1. 136 Notes to the Financial Statements CONTINUEDcapreg.com3 Revenue Gross rental income Car Park and ancillary income Lease surrender premiums received Income from external sources Service charge income External management fees Snozone income1 Other income1 Revenue and other income per consolidated income statement Year to 30 December 2021 £m Year to 30 December 2020 £m Note 41.1 8.1 0.5 49.7 12.7 0.8 9.3 2.5 72.5 43.5 7.4 4.7 55.6 11.7 0.8 4.6 – 72.7 2a 2b 2a 2a 2b 1 Other income includes £2.5m insurance proceeds in Snozone and Snozone income includes £1.4m VAT rebate received from HMRC. Management fees represent revenue earned by Capital & Regional Plc and the Group’s wholly owned Capital & Regional Property Management subsidiary. Fees charged to wholly owned assets have been eliminated on consolidation. 4 Cost of sales Property and void costs Service charge costs Snozone expenses Total cost of sales 5 Finance income and costs Finance income Interest receivable Income from fixed asset investments Gain in fair value of financial instruments: − Interest rate swaps Total finance income Finance costs Amortisation of deferred loan arrangement fees Interest payable on bank loans and overdrafts Other interest payable Lease liabilities Loss in fair value of financial instruments: − Total finance costs Interest rate swaps Year to 30 December 2021 £m Year to 30 December 2020 £m (14.4) (11.1) (7.8) (33.3) (13.4) (10.2) (4.3) (27.9) Year to 30 December 2021 £m Year to 30 December 2020 £m – – 7.6 7.6 (1.0) (13.7) (0.2) (2.4) – (17.3) 0.3 0.1 – 0.4 (1.0) (14.5) (0.4) (1.9) (5.0) (22.8) 137 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS 6 Loss before tax The loss before tax has been arrived at after charging/(crediting) the following items: Variable lease payments not capitalised under IFRS 16 Expected credit loss Other gains and losses (see below) Depreciation of plant and equipment Depreciation of right of use assets Staff costs Auditor’s remuneration for audit services (see below) Other gains and losses Discount on purchase of loan net of costs (Loss)/gain on disposal of investment property Foreign exchange (loss)/gain Impairment of investment Investment income Total other gains and losses Auditor’s remuneration The analysis of the Auditor’s remuneration is as follows: Note 14 11 12 7 Note 18 Fees payable to the Company’s Auditor and its associates for the audit of the Company’s annual financial statements Fees payable to the Company’s Auditor and its associates for other services to the Group – the audit of the Company’s subsidiaries Total audit fees for the Company and its subsidiaries Fees payable to the Company’s Auditor and its associates for other services to the Group – reporting to parent company auditors Audit related assurance services – Review of Interim Report Other assurance services Total non-audit fees Total fees paid to Auditor and their associates Year to 30 December 2021 £m Year to 30 December 2020 £m 0.3 4.9 14.0 0.5 2.2 11.1 0.4 0.4 7.3 1.6 0.5 2.2 8.7 0.3 Year to 30 December 2021 £m Year to 30 December 2020 £m 16.7 (2.5) (0.2) (0.7) 0.7 14.0 – 0.4 0.1 (0.4) 1.5 1.6 Year to 30 December 2021 £’000 Year to 30 December 2020 £’000 231 88 319 26 52 – 78 397 213 73 286 – 45 – 45 331 138 Notes to the Financial Statements CONTINUEDcapreg.com 7 Staff costs Salaries Discretionary bonuses Share-based payments Social security Other pension costs Note 21 Year to 30 December 2021 £m Year to 30 December 2020 £m 7.7 1.3 0.6 9.7 1.1 0.3 11.0 6.9 0.4 0.4 7.7 0.7 0.3 8.7 Staff costs amounting to £nil million (2020: £0.2 million) have been capitalised as development costs during the year. Staff numbers The monthly average number of employees (including Executive Directors), being full-time equivalents, employed by the Group during the year was as follows: CRPM/PLC Shopping centres Snozone Total staff numbers Year to 30 December 2021 Number Year to 30 December 2020 Number 40 56 66 162 41 87 60 188 The monthly average number of total employees (including Executive Directors) employed within the Group during the year was 248 (CRPM – 44, Shopping centres – 65, Snozone – 139) compared to 263 in 2020 (CRPM – 41, Shopping centres – 87, Snozone – 135). These do not agree to the table above as they are average total employees not adjusted for full-time equivalents. There were no employees (2020: nil) employed by the Company during 2021. The Group has received £0.2m in funds from HMRC for furloughed employees between January to December 2021 (CRPM – £nil, Shopping centres – £nil, Snozone – £0.2m (2020: £1.2m comprising CRPM – £nil, Shopping centres – £0.2m, Snozone – £1.0m). This has been credited against staff costs in the income statement. 8 Tax 8a Tax (charge)/credit Current tax UK corporation tax Adjustments in respect of prior years Total current tax (charge)/credit Deferred tax Prior year adjustments Origination and reversal of temporary timing differences Total deferred tax Total tax (charge)/credit £nil (2020: £nil) of the tax charge relates to items included in other comprehensive income. Year to 30 December 2021 £m Year to 30 December 2020 £m (1.0) (2.6) (3.6) (0.1) 0.6 0.5 (3.1) – – – – 0.2 0.2 0.2 139 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS 8 Tax CONTINUED 8b Tax (charge)/credit reconciliation Loss before tax on continuing operations Expected tax credit at 19% (2020: 19%) REIT exempt income and gains Non-allowable expenses and non-taxable items Excess tax losses Other adjustments Prior year adjustments Effect of tax rate change on deferred tax Actual tax (charge)/credit Year to 30 December 2021 £m Year to 30 December 2020 £m Note (23. 3) 4.4 (3.6) (0.1) (0.3) (1.0) (2.7) 0.2 (3.1) (204.3) 38.7 (38.0) 0.1 (0.6) – – – 0.2 8a 8c Deferred tax The Finance Act 2020 enacted provisions maintaining the main rate of UK corporation tax at 19% for the years starting 1 April 2020 and 1 April 2021. On 10 June 2021, Finance Act 2021 received Royal Assent and enacted provisions maintaining the main corporation tax rate at 19% for the year commencing 1 April 2022 and increasing the rate to 25% for the year commencing 1 April 2023. Consequently, the UK corporation tax rate at which deferred tax is booked in the Financial Statements is 25% (2020: 19%). The Group has recognised a deferred tax asset of £0.7 million (30 December 2020: £0.2m). The Group has recognised deferred tax assets for the non-REIT profit entities in respect of head lease payments and capital allowances to the extent that future matching taxable profits are expected to arise. No deferred tax asset has been recognised in respect of temporary differences arising from investments or investments in associates in the current or prior years as it is not certain that a deduction will be available when the asset crystallises. The Group has £24.1 million (30 December 2020: £22.5 million) of unused revenue tax losses, all of which are in the UK. No deferred tax asset has been recognised in respect of these losses due to the unpredictability of future taxable profit streams and other reasons which may restrict the utilisation of the losses (30 December 2020: £nil). The Group has unused capital losses of £24.9 million (30 December 2020: £24.9 million) that are available for offset against future gains but similarly no deferred tax has been recognised in respect of these losses owing to the unpredictability of future capital gains and other reasons which may restrict the utilisation of the losses. The losses do not have an expiry date. 8d REIT compliance The Group converted to a group REIT on 31 December 2014. Therefore, the Group does not pay UK corporation tax on the profits and gains from qualifying rental business in the UK provided it meets certain conditions. Non-qualifying profits and gains of the Group continue to be subject to corporation tax as normal. In order to retain group REIT status, certain ongoing criteria must be maintained. The main criteria are as follows: • • • at the start of each accounting year, the value of the assets of the property rental business plus cash must be at least 75% of the total value of the Group’s assets; at least 75% of the Group’s total profits must arise from the property rental business; and at least 90% of the Group’s UK property rental profits as calculated under tax rules must be distributed. A UK REIT is expected to pay dividends (PIDs) of at least 90 per cent of its taxable profits from its UK property rental business by the first anniversary of each accounting date. By agreement with HMRC, the Group had an extension to the payment date of the balance of the 2019 PID. However, as the Group made no PID distributions in the year to 30 December 2021, the Group paid tax on the outstanding PID balance for 2019 as well as the outstanding PID balance for 2020 to HMRC in December 2021 in the sum of £2.5 million. This amount together with an additional provision of £0.2 million to cover interest on the prior year amounts paid as well as a small balancing amount of tax estimated to be payable for the prior years is included in the prior year adjustment of £2.7 million. At 30 December 2021, the Company does not have sufficient distributable reserves to declare a dividend. The Company plans to undertake a capital reduction exercise for which it will seek shareholder approval at the 2022 AGM in order to create distributable reserves. The Directors intend that the Group should continue as a group REIT for the foreseeable future, with the result that deferred tax is no longer recognised on temporary differences relating to the property rental business. As a REIT, the Group will endeavour to meet its mandatory PID distribution requirements for the year ended 30 December 2021 by the due date of 30 December 2022. However, until there is certainty on the quantum of any dividends payable in the year to 31 December 2022, a provision for tax in the sum of £1 million has been maintained in respect of the estimated 2021 mandatory PID distribution. The final tax to be settled may be reduced to the extent dividends are paid within the year to 30 December 2022. 140 Notes to the Financial Statements CONTINUEDcapreg.com 9 Earnings per share The European Public Real Estate Association (“EPRA”) has issued recommendations for the calculation of earnings per share information as shown in the following tables: 9a Earnings per share calculation Year to 30 December 2021 Year to 30 December 20201 Note Loss EPRA Adjusted Profit Loss EPRA Adjusted Profit (26.4) (26.4) (26.4) (203.9) (203.9) (203.9) Profit (£m) (Loss) for the year Revaluation loss on investment properties (net of tax) (Profit)/Loss on disposal (net of tax) Changes in fair value of financial instruments2 Share-based payments Other items3 (Loss)/profit (£m) Earnings per share (pence) Diluted earnings per share (pence) 9b 9b 9b 2a – – – – – (26.4) (22.0) (22.0) 49.2 2.5 (5.9) – (15.9) 3.5 2.9 2.9 49.2 2.5 (5.9) 0.9 (12.2) 8.1 6.8 6.7 None of the current or prior year earnings related to discontinued operations. Weighted average number of shares (m) Ordinary shares in issue Own shares held Basic Dilutive contingently issuable shares and share options Diluted – – 208.3 (0.4) 208.3 (0.4) – – – (203.9) (188.8) (188.8) Note 21 5.0 – 0.9 9.9 9.2 9.2 5.0 0.4 1.6 11.0 10.2 10.2 Year to 30 December 2021 Year to 30 December 2020 119.9 – 119.9 0.3 120.2 108.0 – 108.0 0.3 108.3 At the end of the year, the Group had no (2020: 678,919) share options and contingently issuable shares granted under share-based payment schemes that could potentially dilute earnings per share in the future, but which have not been included in the calculation because they are not dilutive or the conditions for vesting have not been met. 1 2020 results have been restated for a prior year adjustment to the treatment of SaaS configuration costs as explained in Note 1. 2 2021 includes £0.2 million cost related to the termination of interest rate swap liabilities within The Mall loan facility. 3 Other Items includes the £18.4 million gain on repurchase of debt at a discount (see Note 17 for further details) and other non-operating transactional costs. 9b Headline earnings per share Headline earnings per share is an alternative performance measure as required by the JSE Listing Requirements. It has been calculated and presented in line with the JSE guidance. Profit (£m) (Loss) for the year Revaluation loss on investment properties (including tax) (Profit)/Loss on disposal (net of tax) Other items Headline earnings Weighted average number of shares (m) Ordinary shares in issue Own shares held Dilutive contingently issuable shares and share options Headline Earnings per share (pence) Basic/Diluted Year to 30 December 2021 Year to 30 December 20201 Basic Diluted Basic Diluted (26.4) 49.2 2.5 (15.9) 9.4 119.9 – – 119.9 7.8 (26.4) 49.2 2.5 (15.9) 9.4 119.8 – 0.3 120.2 7.8 (203.9) 208.3 (0.4) 0.4 4.2 108.0 – – 108.0 3.9 (203.9) 208.3 (0.4) 0.4 4.2 108.0 – 0.3 108.3 3.9 1 2020 results have been restated for a prior year adjustment to the treatment of SaaS configuration costs as explained in Note 1. 141 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS10 Investment properties 10a Wholly owned properties Cost or valuation At 30 December 2019 Capital expenditure (excluding capital contributions) Disposal Valuation deficit1 IFRS 16 transition adjustment At 30 December 2020 Capital expenditure (excluding capital contributions) Disposal Valuation deficit1 Transfer to held for sale At 30 December 2021 Freehold investment properties £m Leasehold investment properties £m Total property assets £m Note 379.1 4.2 (4.6) (98.6) – 280.1 1.6 (13.3) (32.5) (10.2) 225.7 391.8 9.8 – (109.6) (36.0) 256.0 7.3 – (16.8) (97.5) 149.0 770.9 14.0 (4.6) (208.2) (36.0) 536.1 8.9 (13.3) (49.3) (107.7) 374.8 1 16 1 £49.2 million per Income statement and Note 2a includes letting fee amortisation adjustment of £(0.1) million (2020: £0.1million). During the period, the Group sold a parade of properties at Hemel Hempstead known as Edmonds Parade and Stephyns Chambers. These properties had a value of £5.3m. A loss on disposal of £1.1m has been recognised in the accounts in relation to this sale. In December 2021, the Group sold Maidstone House, an office block attached to The Mall Maidstone, this office block had a value of £7.07m. A loss on disposal of £1.4m has been recognised in the income statement in relation to this sale with reference to the valuation of the property at the start of the year. 10b Property assets summary Investment properties at fair value as reported by the valuer Add back of lease liabilities Unamortised tenant incentives on investment properties IFRS Property Value 30 December 2021 £m 30 December 2020 £m 380.1 6.0 (11.3) 374.8 527.0 25.3 (16.2) 536.1 As described in Note 1 summary of significant accounting policies, where the valuation obtained for investment property is net of all payments to be made, it is necessary to add back the lease liability to arrive at the carrying amount of investment property at fair value. 10c Valuations External valuations at 30 December 2021 were carried out on all of the gross property assets detailed in the table above. The fair value was £380.1 million (2020: £527.0 million). External valuations were carried out on all of the property assets detailed in the table above. The valuations at 30 December 2021 were carried out by independent qualified professional valuers from CBRE Limited and Knight Frank LLP in accordance with RICS standards. These valuers are not connected with the Group and their fees are charged on a fixed basis that is not dependent on the outcome of the valuations. Real estate valuations are complex and derived from data that is not widely publicly available and involves a degree of judgement. For these reasons, the valuations are classified as Level 3 in the fair value hierarchy as defined by IFRS 13. The valuations are sensitive to changes in rent profile and yields. The Group considers all of its investment properties to fall within “Level 3”, as defined in Note 1. The table below summarises the key unobservable inputs used in the valuation of the Group’s wholly owned investment properties at 30 December 2021: Wholly owned assets 380.1 Market Value £m Low 9.24 Portfolio 16.65 High 23.99 Low 6.6 Portfolio 8.6 High 13.2 Estimated rental value £ per sq ft Equivalent yield % 142 Notes to the Financial Statements CONTINUEDcapreg.com 10 Investment properties CONTINUED Sensitivities The following table illustrates the impact of changes in key unobservable inputs (in isolation) on the fair value of the Group’s properties: Wholly owned assets Wholly owned assets 11 Plant and equipment Cost At the start of the year (restated) Additions Disposals At the end of the year Accumulated depreciation At the start of the year (restated) Additions Charge for the year Eliminated on disposal At the end of the year Carrying amount At the end of the year Impact on valuations of 5% change in estimated rental value Impact on valuations of 25bps change in equivalent yield Impact on valuations of 50bps change in equivalent yield Increase £m 15.5 Decrease £m (15.4) Increase £m 15.4 Decrease £m (14.6) Increase £m 32.0 Decrease £m (28.0) Impact on valuations of 100bps change in equivalent yield Increase £m 68.8 Decrease £m (53.1) 30 December 2021 £m 30 December 2020 Restated1 £m 5.9 0.7 (0.8) 5.8 (4.1) (0.2) (0.6) 0.8 (4.1) 1.7 5.7 0.2 – 5.9 (3.7) – (0.4) – (4.1) 1.8 1 2020 results have been restated for a prior year adjustment to the treatment of SaaS configuration costs as explained in Note 1. 12 Leases Right of use Assets Cost At the start of the year Additions Remeasurement At the end of the year Accumulated depreciation At the start of the year Charge for the year Disposals At the end of the year Carrying value At the end of the year 30 December 2021 £m 30 December 2020 £m 14.4 3.3 11.2 28.9 (2.2) (2.2) – (4.4) 14.4 – – 14.4 – (2.2) – (2.2) 24.5 12.2 Lease commitments relate to the leasing of the Group’s registered office and the leases of the Snozone business on its Basingstoke, Yorkshire and Milton Keynes sites. During the period, the Group has signed amendments to the lease agreements for the Yorkshire and Milton Keynes sites within its Snozone business, resulting in the remeasurement of the right of use asset and the related lease liability. Additions for the year relate to the lease acquired on acquisition of Snozone Madrid. 143 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS 12 Leases CONTINUED The maturity analysis of lease liabilities is presented in Note 27. Amounts recognised in profit and loss Depreciation expense on right-of-use assets Interest expense on lease liabilities Year ended 30 December 2021 £m Year ended 30 December 2020 £m 2.2 1.0 2.1 0.6 13 Subsidiaries A list of the subsidiaries of the Group, including the name, country of incorporation, and proportion of ownership interest is given in Note F to the Company financial statements. 14 Receivables Non current: Non-financial assets Deferred tax Unamortised tenant incentives Unamortised rent-free periods Current: Financial assets Trade receivables (net of allowances) Other receivables Accrued income Current financial assets Non-financial assets Prepayments Unamortised tenant incentives Unamortised rent-free periods Current non-financial assets 30 December 2021 £m 30 December 2020 £m 0.7 2.1 7.2 10.0 8.9 4.2 0.9 14.0 4.0 0.4 1.6 6.0 20.0 0.2 3.8 10.2 14.2 14.7 2.7 0.2 17.6 1.5 0.8 1.4 2.7 21.3 Credit losses are calculated at an amount equal to lifetime expected credit losses. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtor and an assessment of both the current as well as the forecast direction of conditions at the reporting date. There has been no change in the estimation techniques or significant assumptions made during the current reporting period. The Group writes off a trade receivable when there is information indicating that there is no realistic prospect of recovery. Changes in expected credit loss allowance arise from increase in calculated expected credit loss, as well as amounts written off. The Group does not recognise revenue where collectability is not reasonably expected. In the case of rental income, this relates to tenants who are insolvent and closed. 144 Notes to the Financial Statements CONTINUEDcapreg.com 14 Receivables CONTINUED The following table details the risk profile of trade receivables based on the Group’s provision matrix. 2021 Not past due 1–30 days 31–60 days 61–90 days >90 days Expected credit loss rate (%) Estimated total gross carrying amount at default (£m) Lifetime ECL (£m) Adjustment for forward-looking estimate Total expected credit loss 19.4 35.5 31.5 60.4 45.0 4.2 (0.8) (0.8) (1.6) 2.7 (1.0) – (1.0) 0.3 (0.1) – (0.1) 0.1 (0.1) – (0.1) 6.8 (3.0) – (3.0) 2020 Not past due 1–30 days 31–60 days 61–90 days >90 days Expected credit loss rate (%) Estimated total gross carrying amount at default (£m) Lifetime ECL (£m) Adjustment for forward-looking estimate Total expected credit loss 5.8 3.1 (0.2) (2.7) (2.9) 16.3 17.1 50.3 7.6 (1.2) – (1.2) 0.6 (0.1) – (0.1) 1.3 (0.6) – (0.6) 34.2 10.4 (3.6) – (3.6) 1 This represents the total lifetime expected credit loss as a percentage of total group receivables. Total 35.31 14.1 (5.0) (0.8) (5.8) Total 24.81 23.0 (5.7) (2.7) (8.4) Allowances for credit loss At the start of the year Additional allowances created Utilised during the year Unused amounts reversed Transfer to held for sale At the end of the year The following table illustrates the impact of a 5% change in the rate of expected credit loss. 30 December 2021 £m 30 December 2020 £m 8.4 3.7 (1.8) (3.6) (0.9) 5.8 1.4 11.5 (2.6) (1.9) – 8.4 Expected credit loss 15 Cash and cash equivalents Cash at bank and in hand Security deposits held in rent accounts Other restricted balances Provision at 30 December 2021 £m Impact of a 5% increase £m Impact of a 5% decrease £m 5.8 0.7 (0.7) 30 December 2021 £m 30 December 2020 £m 53.7 0.7 4.1 58.5 82.3 0.7 1.1 84.1 Cash at bank and in hand include amounts subject to a charge against various borrowings and may therefore not be immediately available for general use by the Group. Of the cash at bank and in hand, £32.5 million was held on short-term deposit and immediately available free of any restrictions or conditions at the year-end date (30 December 2020: £60.9 million). The remaining balances are subject to meeting conditions or having passed through relevant waterfall calculations within relevant loan facilities. All of the above amounts at 30 December 2021 were held in Sterling other than £0.6 million which was held in Euros (30 December 2020: £0.1 million). 145 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS 16 Assets and liabilities held for sale As at 30 December 2021, the Group concluded that the two “Managed Assets”, Hemel Hempstead and Luton, met the criteria to be reclassified as “Held for Sale”. This conclusion was reached as the Group, in conjunction with the respective lenders, which had decided to seek to dispose of whole or part of the investments as at that date. While no transaction has been agreed as at the time of results, it is viewed as highly probable that it will be concluded within 12 months of the balance sheet date. This has resulted in all of the assets and liabilities associated with the respective investments being reclassified to separate lines of “Assets classified as held for sale” and “Liabilities classified as held for sale”. The reclassification has been measured at the lower of expected net sale proceeds and current carrying value. Given each of the investments is in a net liability position and that the Group would not expect to realise any proceeds from a disposal (nor be obligated to clear the net liabilities), the reclassification has been made at their fair values being the same as the year end carrying value. The following are the amounts in the year end balance sheet: Amounts in £m Assets classified as held for sale Liabilities classified as held for sale Net liability in respect of held for sale 17 Trade and other payables Amounts falling due after one year: Financial liabilities Accruals Other creditors Non-derivative financial liabilities Financial liabilities carried as fair value through profit or loss Interest rate swaps Amounts falling due within one year: Financial liabilities Trade payables Accruals Other creditors Non-derivative financial liabilities Non-financial liabilities Deferred income Other taxation and social security Hemel Hempstead 21.9 (34.5) (12.6) Luton 124.5 (131.3) (6.8) Total 146.4 (165.8) (19.4) 30 December 2021 £m 30 December 2020 £m 0.3 – 0.3 – 0.3 1.4 8.0 11.0 20.4 7.3 1.6 29.3 0.1 0.1 0.2 8.9 9.1 1.2 8.3 11.1 20.6 7.1 3.2 360.9 The average age of trade payables is 9 days (2020: 7 days). No amounts incur interest (2020: £nil). During the year interest rate swaps relating to the Mall loan facility and Marlowes Hemel loan facility were terminated. 146 Notes to the Financial Statements CONTINUEDcapreg.com 18 Bank loans 18a Summary of borrowings The Group’s borrowings are arranged to ensure an appropriate maturity profile and to maintain short-term liquidity. There were no defaults or other breaches of financial covenants that were not waived under any of the Group borrowings during the current year or the preceding year. Borrowings at amortised cost Secured Fixed and swapped bank loans Variable rate bank loans Total borrowings before costs Unamortised issue costs Total borrowings after costs Analysis of total borrowings after costs Current Non-current Total borrowings after costs Note 18d 18d 30 December 2021 £m 30 December 2020 £m 239.0 – 239.0 (0.8) 238.2 – 238.2 238.2 427.4 – 427.4 (3.5) 423.9 – 423.9 423.9 On 12 November 2021, the Group completed a restructuring of its Mall loan facility. The Mall Facility had comprised of a £265 million debt facility with RBS and TIAA secured over the Four Mall Assets, being the Mall Blackburn, the Mall Maidstone, the Mall Wood Green and the Mall Walthamstow. TIAA previously held a balance of £165 million and RBS a balance of £100 million. Under the restructuring the Group acquired the £100 million of debt outstanding with RBS for a principal amount of £81 million, representing a discount of £19 million. This was funded through a combination of: • TIAA agreeing to acquire from the Group £35 million of the RBS Debt acquired for £35 million, increasing its lending in the facility to £200 million; • An equity raise of £30.0 million (before costs) that completed on 5 November 2021; and • Existing cash resources of £16 million. The transaction resulted in a one-off gain of £18.4 million being the benefit of the discount less directly associated costs. The transaction had the net result of reducing external debt by £65 million. As part of this restructure, £1.7 million of unamortised issue costs were written off to the income statement within finance costs. On 30 December 2021, £119.5 million of loans relating to Luton and Hemel Hempstead were reclassified to Held for Sale (see Note 16 for further details). The Luton facility has a fixed rate and a maturity date of 28 December 2023. The Hemel Hempstead facility has a variable rate and a maturity date of 5 February 2023. The movement of Secured loans in the year is summarised in the table below: Secured bank loans at 30 December 2020 Acquisition of RBS loan on The Mall Draw down of new TIAA loan Repayment of Hemel Hempstead loan from proceeds of Edmonds Parade sale Reclassification of Hemel Hempstead loan to liabilities in respect of assets held for sale Reclassification of Luton loan to liabilities in respect of assets held for sale £m 427.4 (100.0) 35.0 (3.9) (23.0) (96.5) 239.0 All loans are maintained in separate ring-fenced Special Purpose Vehicle (SPV) structures secured against the property interests and other assets within each SPV. There is no recourse to other Group companies outside of the respective SPV and no cross-default provisions. 147 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS 18 Bank loans CONTINUED 18b Maturity of borrowings From two to five years Greater than five years Due after more than one year Current 18c Undrawn committed facilities Expiring between two and five years Expiring greater than five years 30 December 2021 £m 30 December 2020 £m Note 39.0 200.0 239.0 – 239.0 262.4 165.0 427.4 – 427.4 18a 30 December 2021 £m 30 December 2020 £m – – 22.0 – The £22.0 million of undrawn facilities as at 30 December 2020 related to the group’s revolving credit facility and the Hemel Hempstead capital expenditure facility. Both facilities were cancelled in January 2021. 18d Interest rate profile of borrowings Fixed and swapped rate borrowings Between 2% and 3% Between 3% and 4% Between 6% and 7% Variable rate borrowings 30 December 2021 £m 30 December 2020 £m Note 39.0 165.0 35.0 239.0 – 239.0 39.0 388.4 – 427.4 – 427.4 18a 18a 19 Financial instruments and risk management 19a Overview Capital risk management The capital structure of the Group consists of debt, which includes the borrowings disclosed in Note 17a; cash and cash equivalents as disclosed in Note 15; and equity attributable to equity holders of the parent, comprising issued share capital, reserves and retained earnings as disclosed in the Statement of changes in equity. For the purpose of calculating gearing ratios, debt is defined as long and short-term borrowings (excluding derivatives) excluding unamortised issue costs. Equity includes all capital and reserves of the Group attributable to equity holders of the Company. The Group is not subject to externally imposed capital requirements. The risks associated with each class of capital are also considered as part of the risk reviews presented to the Audit Committee and the Board. Gearing ratios Statutory Debt before unamortised issue costs Cash and cash equivalents Group net debt Equity Net debt to equity ratio Note 18a 15 30 December 2021 £m 30 December 2020 £m 239.0 (53.7) 185.3 168.4 109.9% 427.4 (82.3) 345.1 167.1 206% 148 Notes to the Financial Statements CONTINUEDcapreg.com 19 Financial instruments and risk management CONTINUED Categories of financial (liabilities)/assets Financial assets Current receivables Cash and cash equivalents Financial assets measured at amortised cost Financial liabilities Current payables Current borrowings Non-current payables Non-current borrowings Financial liabilities measured at amortised cost Interest rate swaps Total financial (liabilities)/assets Note 14 15 17 18a 17 18a 17 2021 2020 Carrying value £m Gain/(loss) to income £m Gain to equity £m Carrying value £m Gain/(loss) to income £m Gain to equity £m 14.0 58.5 72.5 (20.4) – (0.3) (238.2) (258.9) – (186.4) – – – – – – (2.7) (2.7) 7.6 4.9 – – – – – – – – – – 17.6 84.1 101.7 (20.6) – (0.2) (423.9) (444.7) (8.9) (351.9) – – – – – – (1.0) (1.0) (5.0) (6.0) – – – – – – – – – – Significant accounting policies Details of the significant accounting policies adopted in respect of each class of financial asset, financial liability and equity instrument, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, are disclosed in the significant accounting policies in Note 1. Financial risk management objectives Exposure to credit, interest rate and currency risks arise in the normal course of the Group’s business. The Group seeks to minimise the effect of these risks by using derivative financial instruments to manage exposure to fluctuations in interest rates. Such instruments are not employed for speculative purposes. The use of any derivatives is approved by the Board, which provides guidelines on the acceptable levels of interest rate risk, credit risk, foreign exchange risk and liquidity risk, and the ranges of hedging required against these risks. 19b Interest rate risk The Group manages its interest rate risk through a combination of fixed rate loans and interest rate derivatives, typically interest rate swaps or caps. The Group’s objective in managing its interest rate risk is to ensure that it always maintains sufficient headroom to cover interest payments from anticipated cash flows and the Directors regularly review the ratio of fixed to floating rate debt to assist this process. The Group does not hedge account its interest rate derivatives and states them at fair value with changes in fair value included in the income statement. The following table shows a summary of the Group’s interest swap contracts and their maturity dates: Interest rate swap1 Interest rate swap The Mall, Luton The Exchange, Ilford 30 December 2023 8 March 2024 £96,500,000 £39,000,000 1.14% 1.00% Loan facility Maturity date Notional principal Contract fixed rate 30 December 2021 fair value £m Asset/(liability) (0.2) – 1 Reclassified to Assets Held for Sale at 30 December 2021. IBOR reform The above loan facilities and the fair value of the above interest rate swaps are affected by the IBOR reform. As at 30 December 2021, the Luton Loan Facility had transitioned from LIBOR floating rate to SONIA, impacting the value of the swap. The Ilford facility will transition in January 2022. The Directors do not consider the Group to be exposed to significant risks arising from the transition, owing to the negligible balance sheet value of the interest rate swaps. 149 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS 19 Financial instruments and risk management CONTINUED Sensitivity analysis The following table shows the Group’s sensitivity to a 100bps increase or decrease in interest rates. To calculate the impact on the income statement for the year the interest rates on all external floating rate interest bearing loans and borrowings and interest earning cash, have been increased or decreased by 100bps. The income statement impact includes the estimated effect of a 100bps decrease or increase in interest rates on the market values of interest rate derivatives. Floating rate loans and cash – gain/(loss) Interest rate derivatives – gain/(loss) Impact on the income statement – gain/(loss) Impact on equity – gain/(loss) 100bps increase in interest rates 100bps decrease in interest rates Year to 30 December 2021 £m Year to 30 December 2020 £m Year to 30 December 2021 £m Year to 30 December 2020 £m – 0.8 0.8 0.8 – 7.7 7.7 7.7 – (0.8) (0.8) (0.8) – (7.7) (7.7) (7.7) 19c Credit risk The Group’s principal financial assets are bank and cash balances, short-term deposits, trade and other receivables and investments. Credit risk, being the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group, is primarily attributable to loans and trade and other receivables, which are principally amounts due from tenants. Credit risk arising from tenants is mitigated as the Group receives most rents in advance, monitors credit ratings for significant tenants and makes an allowance for expected credit loss that represents the estimate of potential losses in respect of trade receivables. The Group’s expected credit loss allowance disclosed in Note 14 to the financial statements is considered to represent the Group’s best estimate of the exposure to credit risk associated to trade receivables, calculated in accordance with IFRS 9. The Group recalculates expected credit losses each year, with reference to forward-looking information, changes in credit risk, including improvements, are identified as part of this process. The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due. The credit risk on short-term deposits and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The Group is not exposed to significant credit risk on its other financial assets. 19d Liquidity risk Liquidity risk reflects the risk that the Group will have insufficient resources to meet its financial liabilities as they fall due. The day- to-day operations of the Group are largely funded through the items included in the breakdown of Adjusted Profit included in Note 2a. The majority of income within Adjusted Profit is received quarterly, since the inflows and outflows from net rental income and net interest payable generally coincide with English quarter days, and property management fees are billed quarterly. As a result, the Group normally has sufficient funds to cover recurring administrative expenses which occur throughout the year. Liquidity risk therefore arises principally from the need to make payments for non-recurring items, such as tax payments and the closeout of derivative financial instruments. The Group’s objective in managing liquidity risk is to ensure that it has sufficient funds to meet all its potential liabilities as they fall due, both in normal market conditions and when considering negative projections against expected outcomes, so as to avoid the risk of incurring contractual penalties or damaging the Group’s reputation. The Group maintains a rolling 18-month forecast of anticipated recurring and non-recurring cash flows under different scenarios. This is compared to expected cash balances and amounts available for drawdown on the Group’s core revolving credit facility to ensure that any potential shortfalls in funding are identified and managed. The Group’s primary means of managing liquidity risk are its cash reserves and its long-term debt facilities. 150 Notes to the Financial Statements CONTINUEDcapreg.com19 Financial instruments and risk management CONTINUED The following table shows the maturity analysis of non-derivative financial assets/(liabilities) at the balance sheet date and, where applicable, their effective interest rates. 2021 Financial assets Current receivables Cash and cash equivalents Non-current receivables Financial liabilities Borrowings – bank loans Borrowings – other loans Current payables Non-current payables 2020 Financial assets Current receivables Cash and cash equivalents Non-current receivables Financial liabilities Borrowings – bank loans Borrowings – other loans Current payables Non-current payables Note 14 15 14 17a 17 16 16 Note 14 15 14 17a 17 16 16 Effective interest rate % Less than 1 year £m 1–2 years £m 2-5 years £m More than 5 years £m n/a 0% n/a 3.7% n/a n/a n/a 14.0 58.5 – 89.8 – – (20.4) – (20.4) – – – – – – – (0.3) (0.3) – – – – (38.8) – – – (38.8) Effective interest rate % Less than 1 year £m 1–2 years £m 2–5 years £m n/a 0.3% n/a 3.4% 2.3% n/a n/a 17.6 84.1 – 101.7 – – (20.6) – (20.6) – – – – – – – (0.1) (0.1) – – – – (260.3) (0.1) – – (260.4) – – – – (199.4) – – – (199.4) More than 5 years £m – – – – (163.6) – – – (163.6) Total £m 14.0 58.5 – 89.8 (238.2) – (20.4) (0.3) (258.9) Total £m 17.6 84.1 – 101.7 (423.9) (0.1) (20.6) (0.1) (444.7) The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash inflows/(outflows) of financial liabilities based on the earliest date on which the Group can be required to pay, including both interest and principal cash flows. 2021 Borrowings – fixed bank loans Borrowings – other fixed loans Non-interest bearing 2020 Borrowings – fixed bank loans Borrowings – other fixed loans Non-interest bearing Less than 1 year £m (8.9) – (20.4) (29.3) Less than 1 year £m (14.6) – (20.6) (35.2) 1–2 years £m 2–3 years £m 3–4 years £m 4–5 years £m (8.9) – (0.3) (9.2) (47.1) – – (47.1) (7.9) – – (7.9) (208.3) – – (208.3) 1–2 years £m 2–3 years £m 3–4 years £m 4–5 years £m (14.6) – (0.1) (14.7) (40.6) – – (40.6) (244.6) – – (244.6) (176.7) – – (176.7) More than 5 years £m – – – – More than 5 years £m – – – – Total £m (281.1) – (20.7) (301.8) Total £m (491.1) – (20.7) (511.8) 151 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS 19 Financial instruments and risk management CONTINUED The following tables detail the Group’s remaining contractual maturity for its derivative financial assets/(liabilities), all of which are net settled, based on the undiscounted net cash inflows/(outflows). When the amount payable or receivable is not fixed, it has been determined by reference to the projected interest rates as illustrated by the yield curves existing at the reporting date. 2021 Net settled Interest rate swaps 2020 Net settled Interest rate swaps Less than 1 year £m – – Less than 1 year £m 1–2 years £m 2–3 years £m 3–4 years £m 4–5 years £m – – – – – – – – 1–2 years £m 2–3 years £m 3–4 years £m 4–5 years £m More than 5 years £m – – More than 5 years £m (3.3) (3.3) (2.9) (2.9) (2.6) (2.6) (0.1) (0.1) – – – – Total £m – – Total £m (8.9) (8.9) 19e Fair values of financial instruments The fair values of financial instruments excluding receivables and payables together with their carrying amounts in the balance sheet are as follows: Notional principal £m 2021 Book value £m 2021 Fair value £m 2020 Book value £m 2020 Fair value £m Financial liabilities not at fair value through income statement Sterling denominated loans Total on balance sheet borrowings Group share of associate borrowings Total see-through borrowings Derivative assets/(liabilities) at fair value through income statement Interest rate caps Interest rate swaps Total on balance sheet derivatives Total see-through derivatives Note 19a 19a 13 39.0 (239.0) (239.0) – (239.0) (240.0) (240.0) – (240.0) – – – – – – – – (427.4) (427.4) – (427.4) – (8.9) (8.9) (8.9) (438.9) (438.9) – (438.9) – (8.9) (8.9) (8.9) The fair value of borrowings has been estimated on the basis of quoted market prices. Details of the Group’s cash and deposits are disclosed in Note 15 and their fair values are equal to their book values. All of the above financial instruments are measured, subsequent to initial recognition, at fair value. All instruments were considered to be Level 2, as defined in Note 1. There were no transfers between Levels in the year. During the year interest rate swaps relating to the Mall loan facility and Marlowes Hemel loan facility were terminated. 152 Notes to the Financial Statements CONTINUEDcapreg.com 20 Share capital Ordinary shares of 10p each At the start of the year Shares issued Total called-up share capital Number of shares issued and fully paid Nominal value of shares issued and fully paid 2021 Number 2020 Number 111,819,626 53,580,237 165,399,863 103,884,038 7,935,588 111,819,626 2021 £m 11.2 5.3 16.5 2020 £m 10.4 0.8 11.2 The Company has one class of Ordinary shares which carry voting rights but no right to fixed income. On 15 January 2020, the Company completed a share consolidation whereby every ten Ordinary Shares of 1 pence each were consolidated into one ordinary share of 10 pence each; this resulted in 103,884,025 shares being in circulation. The Company maintains a Secondary Listing on the Johannesburg Stock Exchange (“JSE”) in South Africa. At 30 December 2021, 7,690,574 (2020: 6,270,782) of the Company’s shares were held on the JSE register. The table below outlines the movements of shares in the year: Brought forward at 31 December 2020 Shares issued on 5 November 2021 Carried forward at 30 December 2021 Price per share (Pence) No. of shares Total No. of shares Nominal value (£m) Share premium (£m) 56.0 53,580,237 111,819,626 165,399,863 165,399,863 11.2 5.3 16.5 244.3 21.8 266.1 21 Share-based payments The Group’s share-based payments comprise the 2008 LTIP and the Executive Directors’ deferred bonus share scheme (DBSS) and the combined incentive plan (CIP). Further details are disclosed in the Directors’ Remuneration Report. Awards under the Combined Incentive Plan are nil cost deferred shares that vest in equal thirds on the third, fourth and fifth anniversaries of the award date. The awards can be reduced by up to 100% if TSR performance does not achieve the median of performance against the Company’s relevant peer group. In accordance with IFRS 2, the fair value of equity-settled share-based payments to employees is determined at the date of grant. For options with market-based conditions, these are calculated using either a Black-Scholes option pricing model or a Monte Carlo simulation. For the elements of options that include non-market based conditions, an initial estimate is made of the likely qualifying percentage. This is subsequently updated at each reporting date. Income statement charge Equity-settled share-based payments – 2008 LTIP & CIP The figures above exclude a National Insurance credit in the year of £nil (2020: credit of £nil). Year to 30 December 2021 £m Year to 30 December 2020 £m 0.6 0.4 Movements during the year Outstanding at 30 December 2019 Granted during the year Exercised during the year1 10:1 share consolidation adjustment Forfeited during the year Outstanding at 30 December 2020 Granted during the year Exercised during the year1 Forfeited during the year Outstanding at 30 December 2021 Exercisable at the end of the year Number of Options Deferred Bonus Share Scheme 281,401 – (22,504) (253,261) – 5,636 – (5,636) – – – LTIP 8,209,256 – (234) (7,388,369) (441,670) 378,983 – (37,341) (341,642) – – CIP – 294,300 – – – 294,300 – – – 294,300 – 1 The weighted average share price of the options exercised under the deferred bonus scheme during the year was 58p (2020: 106.6p). The weighted average share price of the options exercised under the LTIP was 60p (2020: 55.9p). All options in the tables above have a nil exercise price. 153 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS 21 Share-based payments CONTINUED LTIP Assumptions Share price at grant date Exercise price Expected volatility Expected life including holding period (years) Average life remaining including holding period (years) Risk free rate Expected dividend yield Lapse rate Fair value of award at grant date per share August 2015 57.8p 0.0p 34% 4.50 0.68 0.96% 5.00% 0% 23p March 2016 59.5p 0.0p 27% 5.00 2.64 0.56% 5.00% 0% 26p August 2017 59.5p 0.0p 19% 5.00 3.30 0.53% 5.70% 0% 25p April 2018 53.5p 0.0p 16% 5.00 4.30 1.14% 6.80% 0% 21p Expected volatility is based on the historical volatility of the Group’s share price over the three years to the date of grant. The 10 year UK Gilt rate at time of grant is used for estimating the risk free rate. Options are assumed to be exercised at the earliest possible date. 22 Own shares held The own shares reserve represents the cost of shares in the Company purchased in the market. At 30 December 2021, the Capital & Regional plc 2002 Employee Share Trust (the “ESOT”) held 31,876 (2020: 38,070) shares to assist the Group in meeting the outstanding share awards under the schemes described above. The right to receive dividends on these shares has been waived. The market value of these shares at 30 December 2021 was £18,775 (2020: £26,725). 23 Reconciliation of net cash from operations Loss for the year Adjusted for: Income tax charge/(credit) Finance income Finance expense Finance lease costs (head lease) Loss on revaluation of wholly owned properties Depreciation of other fixed assets Other gains Increase in receivables Increase/(decrease) in payables Non-cash movement relating to share-based payments Net cash from operations Note 8a Year to 30 December 2021 £m Year to 30 December 2020 £m (26.4) (203.4) 3.1 (7.6) 17.3 (1.1) 49.2 0.5 (14.0) (4.1) 7.8 0.4 25.1 (0.2) (0.4) 22.8 (0.2) 208.3 2.7 (1.6) (4.9) (5.6) 0.4 17.9 154 Notes to the Financial Statements CONTINUEDcapreg.com 24 Changes in liabilities arising from financing activities 2021 Bank loans Interest rate swaps Lease liabilities Total liabilities from financing activities 2020 Bank loans Interest rate swaps Lease liabilities Total liabilities from financing activities 25 Net assets per share IFRS Equity attributable to shareholders Exclude fair value of financial instruments Include fair value of fixed interest rate debt Net asset value Fully diluted number of shares Net asset value per share Note 18a 17 Note 18a 17 Financing cash flows Non–cash changes Fair value adjustments Other changes 30 December 2021 (69.7) (0.2) – (69.9) – (8.8) – (8.8) (116.0) 0.1 (6.7) (122.6) 238.2 – 32.9 271.1 Financing cash flows Non–cash changes Fair value adjustments Other changes 30 December 2020 – – – – – 5.0 – 5.0 1.0 0.5 (21.9) (20.4) 423.9 8.9 39.6 472.4 Opening 423.9 8.9 39.6 472.4 Opening 422.9 3.4 61.5 487.8 EPRA NRV £m 30 Dec 2021 EPRA NTA £m 168.4 – – 168.4 165.7 101.6 168.4 – – 168.4 165.7 101.6 30 Dec 20201 EPRA NDV £m EPRA NRV £m EPRA NTA £m EPRA NDV £m 168.4 – (1.0) 167.4 165.7 101.0 167.1 8.9 – 176.0 112.1 157.0p 167.1 8.9 – 176.0 112.1 157.0p 167.1 – (11.5) 155.6 112.1 138.8p The number of ordinary shares issued and fully paid at 30 December 2021 was 165,399,863 (30 December 2020: 111,819,626). There have been no changes to the number of shares from 30 December 2021 to the date of this announcement. 1 2020 results have been restated for a prior year adjustment to the treatment of SaaS configuration costs as explained in Note 1. 26 Return on equity Total comprehensive expense attributable to equity shareholders Opening equity shareholders’ funds plus time weighted additions Return on equity 30 December 2021 £m 30 December 20201 £m (26.4) 171.2 (15.4)% (203.9) 375.1 (54.4)% 1 2020 results have been restated for a prior year adjustment to the treatment of SaaS configuration costs as explained in Note 1. 27 Lease arrangements The Group as lessee At the balance sheet date, the Company had outstanding commitments for future minimum lease payments under non-cancellable leases related to land and buildings, which fall due as set out below. These leases relate to its office premises and the Snozone business’ Basingstoke, Yorkshire, Milton Keynes and Madrid sites, as well as two leasehold investment properties. Lease payments Within one year Between one and five years After five years 2021 £m (3.9) (15.1) (125.2) (144.2) 2020 £m (3.8) (14.6) (100.7) (119.1) Lease payments are denominated in Sterling and have an average remaining lease length of 31 years (2020: 27 years) excluding head leases, rentals are fixed for an average of 2 years (2020: 2 years). The Group’s three leasehold investment properties are variable based on a percentage of performance, with a minimum payment per year of £0.3 million for Walthamstow (2020: £1.1 million for Luton and £0.3 million for Walthamstow, respectively). The Group signed new lease agreements on its Yorkshire and Milton Keynes sites within Snozone. 155 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS 27 Lease arrangements CONTINUED The Group as lessor The Group leases out all of its investment properties under operating leases for average lease terms of 9 years (2020: 6 years) to expiry. The leasing arrangements are summarised in the portfolio information on page 166. The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows: Unexpired average lease term Years 8.9 4.4 Less than 1 year £m 22.0 35.2 2–5 years £m 49.2 81.0 6–10 years £m 24.4 35.6 11–15 years £m 11.0 15.1 16–20 years £m 6.1 6.8 More than 20 years £m 32.5 39.3 Total £m 145.3 213.0 30 December 2021 30 December 2020 28 Capital commitments At 30 December 2021, the Group’s share of the capital commitments of its associates and wholly-owned properties was £4.5 million (2020: £3.6 million) relating to capital expenditure projects for the development of the Group’s investment properties. The Group also had £0.1 million relating to contractual commitments for the acquisition of property, plant and equipment (2020: £0.1 million). 29 Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates, all of which occurred at normal market rates, are disclosed below. Kingfisher Limited Partnership (Redditch) Fee income Net amounts receivable from Year to 30 December 2021 £m Year to 30 December 2020 £m As at 30 December 2021 £m As at 30 December 2020 £m 0.5 0.5 – 0.1 Amounts receivable from associates are unsecured and do not incur interest and they are payable on demand and settled in cash. Management fees are received by Capital & Regional Property Management Limited (CRPM) and are payable on demand. They are unsecured, do not incur interest and are settled in cash. Property Management incentive arrangements CRPM will earn an additional equity return from Kingfisher Limited Partnership if distributions result in a geared return in excess of a 15% IRR. The Group will bear 12% of the cost by virtue of its investment in the Partnership. No performance fee has been recognised during the year (2020: none) as the criteria have currently not been met. Transactions with key management personnel In accordance with IAS 24, key personnel are considered to be the Executive Directors and Non-Executive Directors and members of the Executive Committee as they have the authority and responsibility for planning, directing and controlling the activities of the Group. Their remuneration in the income statement is as follows: Short-term employment benefits Post-employment benefits Share-based payments Year to 30 December 2021 £m Year to 30 December 2020 £m 1.2 0.1 0.4 1.7 1.0 0.1 0.4 1.5 In both years, the highest paid Director was the Chief Executive whose remuneration is disclosed in the Directors’ Remuneration Report on page 97. There are no Directors included in a company pension scheme (2020: nil). 156 Notes to the Financial Statements CONTINUEDcapreg.com 30 Dividends The dividends shown below are gross of any take-up of Scrip offer. Final dividend per share for year ended 30 December 2019 of 11p Amounts recognised as distributions to equity holders in the year Year to 30 December 2021 £m Year to 30 December 2020 £m – – 11.4 11.4 31 Acquisition of subsidiaries Snozone Madrid On 9 February 2021, the Group acquired 100% of the issued share capital of Snozone SLU and Ocio y Nieve SLU, being the joint operators of Snozone Madrid, obtaining control of Snozone SLU and Ocio y Nieve SLU. Snozone SLU is the operating company of Snozone Madrid, Europe’s largest indoor snow slope; Ocio y Nieve SLU is a services company that employs the workforce of Snozone Madrid. On the 30 July, Snozone SLU and Ocio y Nieve SLU were merged. Both Snozone SLU and Ocio y Nieve qualify as businesses as defined in IFRS 3. Snozone Madrid was acquired to provide the group with an operating presence in continental Europe. The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below. Inventory Property, plant and equipment Working capital Cash Total identifiable assets acquired and liabilities assumed Negative Goodwill Total consideration Satisfied by: Cash Total consideration transferred Net cash outflow arising on acquisition: Cash consideration Less: cash and cash equivalent balances acquired 30 December 2021 £m 0.1 0.2 (0.6) 0.4 0.1 – 0.1 0.1 0.1 (0.1) 0.4 0.3 The negative goodwill of £0.02 million arising from the acquisition has been recognised in the income statement in the period. Acquisition-related costs (included in administrative expenses) amount to £0.2 million. Snozone Madrid contributed £2.1 million of revenue and £1.3m loss to the Group’s profit for the period between the date of acquisition and the reporting date. 32 Ultimate controlling party Growthpoint Properties Limited (“Growthpoint”) holds 60.8% of the issued share capital of the Company. As such Growthpoint is the ultimate controlling party of the Company and the largest group into which the results of the Company are consolidated. The registered office of Growthpoint Properties Limited is The Place, 1 Sandton Drive, Sandton, 2196, Johannesburg, South Africa. The financial statements of Growthpoint are available at this address. 157 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS Company Balance Sheet As at 30 December 2021 Registered number: 01399411 Prepared in accordance with FRS 101 Non-current assets Investments Receivables – amounts falling due after one year Total non-current assets Current assets Receivables – amounts falling due within one year Cash and deposits Total current assets Total assets Current liabilities Trade and other payables Net current assets Non-current liabilities Other payables Net assets Equity Share capital Share premium Merger reserve Capital redemption reserve Retained earnings Shareholders’ funds Note C D D 2021 £m 144.3 37.0 181.3 0.4 30.0 30.4 2020 Restated1 £m 124.8 5.4 130.2 0.1 59.6 59.7 211.7 189.9 E (20.5) (20.0) 10.0 39.7 (0.2) – 191.0 169.9 16.5 266.1 60.3 4.4 (156.3) 191.0 11.2 244.3 60.3 4.4 (150.3) 169.9 The loss for the year attributable to equity shareholders was £6.2 million (2020: £245.1 million loss). 1 2020 results have been restated for a prior year adjustment to the treatment receivables from group entities as explained in Note A. These financial statements were approved by the Board of Directors, authorised for issue and signed on their behalf on 13 April 2022 by: STUART WETHERLY GROUP FINANCE DIRECTOR 158 capreg.com Statement of Changes in Equity For the year to 30 December 2021 Non–distributable Distributable Share capital £m Share premium £m Capital redemption reserve £m Retained earnings £m Retained earnings £m Merger reserve £m Balance at 30 December 2019 Retained loss for the year Total comprehensive loss for the year Dividends paid, net of Scrip Shares issued, net of costs Balance at 30 December 2020 Retained profit for the year Total comprehensive profit for the year Dividends paid, net of Scrip Credit to equity for equity-settled share- based payments Shares issued, net of costs Balance at 30 December 2021 10.4 – – – 0.8 11.2 – – – – 5.3 16.5 238.0 – – – 6.3 244.3 – – – – 21.8 266.1 4.4 – – – – 4.4 – – – – – 4.4 – – – – – – – – – – – – 106.2 (245.1) (245.1) (4.3) (7.1) (150.3) (6.2) (6.2) – 0.2 – (156.3) 60.3 – – – – 60.3 – – – – – 60.3 Total £m 419.3 (245.1) (245.1) (4.3) – 169.9 (6.0) (6.0) – 0.2 27.1 191.0 The Company’s authorised, issued and fully paid-up share capital is described in Note 20 to the Group financial statements. The Company’s dividends are as described in Note 30 to the Group financial statements. The other reserves are described in the consolidated statement of changes in equity in the Group financial statements. The merger reserve of £60.3 million arose on the Group’s capital raising in 2009 which was structured so as to allow the Company to claim merger relief under section 612 of the Companies Act 2006 on the issue of ordinary shares. The merger reserve is available for distribution to shareholders. 159 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS Notes to the Company’s Separate Financial Statements For the year ended 30 December 2021 A Accounting policies The domicile and legal form of the entity, its country of incorporation and the address of its registered office can be found in Note 1 of the consolidated financial statements. A description of the nature of the entity’s operations and its principal activities can be found in the Strategic Report on pages 1 to 5 of the consolidated financial statements. The Company’s separate financial statements for the year ended 30 December 2021 are prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and in accordance with applicable accounting standards. The main accounting policies have been applied consistently in the current year and the preceding year. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to business combinations, share-based payments, non-current assets held for sale, financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation of a cash-flow statement, impairment of assets and related party transactions. The Company’s financial statements are presented in Pounds Sterling. Trade payables are carried at fair value, with any gains or losses arising on remeasurement recognised in the income statement. Transactions in foreign currencies are translated into sterling at exchange rates approximating to the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to sterling at the exchange rate ruling at that date and differences arising on translation are recognised in the income statement. The Company’s related party transactions are described in Note 29 to the Group financial statements. Except for the Directors, the Company had no direct employees during the year (2020: none). Information on the Directors’ emoluments, share options, long-term incentive schemes and pension contributions is shown in the Directors’ Remuneration Report. Further disclosures regarding the nature of the share-based payment schemes operated by the Group are included in Note 21 to the Group’s financial statements. Accounting developments and changes The 2020 financial statements have been restated to reclassify receivables from group entities as non-current rather than current, to reflect the liquidity of those receivables: as repayment is not expected within twelve months of the reporting period, these assets do not meet the definition of a current asset. In adopting the above treatment, the Company has restated the 2020 results for a prior year adjustment. The following table summarises the impact of the change in policy on the financial statements of the Group. There is no impact of the change in policy on net assets. Balance sheet Non-current assets Current assets Change in net assets 30/12/2020 5,4 (5.4) – Key sources of estimation uncertainty The preparation of financial statements requires the Directors to make estimates that may affect the reported amounts of assets and liabilities, income and expenses. The following are the key sources of estimation uncertainty that have the most significant effect on the amounts recognised in the financial statements: Impairment of investments and intercompany receivables Investments and amounts owed by subsidiaries are stated at cost less provision for expected credit loss under IFRS 9. Where there is an indication that an investment is impaired, an impairment review is carried out by comparing the carrying value of the investment against its recoverable amount, which is the higher of its estimated value in use and fair value less costs of disposal. This review involves accounting judgements about the future cash flows from the underlying associates and, in the case of CRPM, estimated asset management fee income less estimated fixed and variable expenses. Disclosure of accounting policy for expected credit losses can be found in Note 1 to the group financial statements. Sensitivities The following table shows the sensitivity of investment and intercompany receivable impairment to a 5% change in future cashflows and a 2% change in the discount rate used. The Directors consider these reasonably possible. Impairment of investments Impairment of intercompany receivables Impact of 5% change in future cashflows Impact of a 2% change in discount rate Increase £m Decrease £m Increase £m Decrease £m 0.4 – (0.4) – (0.8) – 1.0 – There are no critical accounting judgements that affect these financial statements. 160 capreg.comB Loss for the year As permitted by section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented as part of these financial statements. The fees payable to the Company’s Auditor for the audit of the Company and Group financial statements are disclosed in Note 6 to the Group financial statements. C Fixed asset investments Cost At the start of the year Additions Disposals At the end of the year Impairment At the start of the year Reversal of impairment/(impairment) of investments At the end of the year Carrying value 30 December 2021 30 December 2020 Subsidiaries £m Other investments £m 1,161.4 46.0 – 1,207.4 (1,037.6) (25.5) (1,063.1) 144.3 123.8 13.9 – – 13.9 (12.9) (1.0) (13.9) – 1.0 Total £m 1,175.3 46.0 – 1,221.3 (1,050.5) (26.5) (1,077.0) 144.3 124.8 Investments are subject to an impairment review using a discount rate of 16.3% (2020: 17.8%). Impairment is recognised after comparing the carrying value of the investment against its recoverable amount, which is the higher of its estimated value in use and fair value less costs to sell. During the year, the Company made an additional investment in Capital &Regional Holdings Limited. Note F shows the subsidiaries, associates held by the Group and the Company. D Receivables Amounts falling due after one year Amounts owed by subsidiaries Amounts falling due within one year Other receivables Taxation and social security 2021 £m 37.0 37.0 2021 £m 0.3 0.1 0.4 2020 £m 5.4 5.4 2020 £m – 0.1 0.1 Amounts owed by subsidiaries are stated after impairment of £nil (2020: £26.3 million) and are unsecured and repayable on demand. Impairment is recognised after comparing the carrying value of the receivable against its recoverable amount, which is the higher of its estimated value in use and fair value less costs of disposal. Interest is charged at 3.5% above Bank of England base rate per annum. E Trade and other payables Amounts falling due within one year Amounts owed to subsidiaries Trade payables Accruals and deferred income 2021 £m 19.2 0.2 1.1 20.5 2020 £m 19.1 – 0.9 20.0 Amounts owed to subsidiary companies are unsecured and repayable on demand. Interest is charged at 3.5% above Bank of England base rate per annum. 161 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS Notes to the Company’s Separate Financial Statements CONTINUED F Subsidiaries at 30 December 2021 Subsidiaries Capital & Regional (Europe Holding 5) Limited 2 Capital & Regional (Jersey) Limited 2 Capital & Regional (Mall GP) Limited Capital & Regional (Projects) Limited Capital & Regional (Shopping Centres) Limited 2 Capital & Regional Earnings Limited Capital & Regional Holdings Limited Capital & Regional Ilford Limited 2 C&R Ilford Limited Partnership C&R Ilford Nominee 1 Limited C&R Ilford Nominee 2 Limited C&R Ilford (General Partner) Limited Capital & Regional Income Limited 1, 3 Capital & Regional Property Management Limited Green-Sinfield Limited Lancaster Court (Hove) Limited Lower Grosvenor Place London One Limited Mall Nominee One Limited Mall Nominee Two Limited Mall Nominee Three Limited Mall Nominee Four Limited Mall People Limited Mall Ventures Limited Marlowes Hemel Limited 2 MB Roding (Guernsey) Limited 4 Selborne One Limited Selborne Two Limited Selborne Walthamstow Limited 2 Snozone Holdings Limited Snozone Leisure Limited Snozone Limited The Mall (General Partner) Limited The Mall (Luton) (General Partner) Limited The Mall Limited Partnership The Mall (Luton) Limited Partnership The Mall REIT Limited The Mall Shopping Centres Limited The Mall Unit Trust 2 The Mall Walthamstow One Limited The Mall Walthamstow Two Limited Wood Green London Limited 2 Wood Green One Limited Wood Green Two Limited Principal associate entities Euro B-Note Holding Limited 2 1 In liquidation/being dissolved. Nature of business Country of incorporation Share of voting rights Property investment Property investment Property investment Property investment Property investment Property investment Property investment Property investment Property investment Dormant Dormant Property investment Property investment Property management Dormant Dormant Dormant Dormant Dormant Dormant Dormant Property management Dormant Property investment Dormant Dormant Dormant Dormant Operator of indoor ski slopes Operator of indoor ski slopes Operator of indoor ski slopes Property investment Property investment Property investment Property investment Dormant Dormant Property investment Dormant Dormant Dormant Dormant Dormant Jersey Jersey Great Britain Great Britain Jersey Great Britain Great Britain Jersey Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Jersey Guernsey Great Britain Great Britain Jersey Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain Jersey Great Britain Great Britain Jersey Great Britain Great Britain 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Finance Jersey 39.90% 2 Registered office at 47 The Esplanade, St Helier, Jersey JE1 0BD. 3 Registered office at Griffins, Tavistock House South, Tavistock Square, London WC1H 9LG. 4 Registered office at PO Box 186, Royal Chambers, St Julian’s Avenue, St Peter Port, Guernsey GY1 4HP. The registered office of all subsidiaries, unless otherwise noted is 22 Chapter Street, London, SW1P 4NP. The shares of voting rights are equivalent to the percentages of ordinary shares or units held directly or indirectly by the Group. 162 capreg.com Glossary of Terms Adjusted Profit is the total of Contribution from wholly-owned assets and the Group’s joint ventures and associates, Snozone EBITDA and property management fees less central costs (including interest but excluding non-cash charges in respect of long-term incentive awards) after tax. Adjusted Profit excludes revaluation of properties, profit or loss on disposal of properties or investments, gains or losses on financial instruments and exceptional one-off items. Results from Discontinued Operations are included up until the point of disposal or reclassification as held for sale. ERV growth is the total growth in ERV on properties owned throughout the year including growth due to development. Gearing is the Group’s debt as a percentage of net assets. See-through gearing includes the Group’s share of non-recourse debt in associates and joint ventures. Interest cover is the ratio of Adjusted Profit (before interest, tax, depreciation and amortisation) to the interest charge (excluding amortisation of finance costs and notional interest on head leases). Adjusted Earnings per share is Adjusted Profit divided by the weighted average number of shares in issue during the year excluding own shares held. Like-for-like figures, unless otherwise stated, exclude the impact of property purchases and sales on year-to-year comparatives. C&R is Capital & Regional plc, also referred to as the Group or the Company. CRPM is Capital & Regional Property Management Limited, a subsidiary of Capital & Regional plc, which earns management and performance fees from the Mall assets and certain associates and joint ventures of the Group. Contracted rent is passing rent and the first rent reserved under a lease or unconditional agreement for lease but which is not yet payable by a tenant. Contribution is net rent less net interest, including unhedged foreign exchange movements. Capital return is the change in market value during the year for properties held at the balance sheet date, after taking account of capital expenditure calculated on a time weighted basis. Debt is borrowings, excluding unamortised issue costs. EPRA earnings per share (EPS) is the profit/(loss) after tax excluding gains on asset disposals and revaluations, movements in the fair value of financial instruments, intangible asset movements and the capital allowance effects of IAS 12 “Income Taxes” where applicable, less tax arising on these items, divided by the weighted average number of shares in issue during the year excluding own shares held. EPRA net disposal value represents net asset value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax. EPRA net reinstatement value is net asset value adjusted to reflect the value required to rebuild the entity and assuming that entities never sell assets. Assets and liabilities, such as fair value movements on financial derivatives are not expected to crystallise in normal circumstances and deferred taxes on property valuation surpluses are excluded. EPRA net tangible assets is a proportionally consolidated measure, representing the IFRS net assets excluding the mark- to-market on derivatives and related debt adjustments, the mark-to-market on the convertible bonds, the carrying value of intangibles as well as deferred taxation on property and derivative valuations. Estimated rental value (ERV) is the Group’s external valuers’ opinion as to 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 a unit or property. Leisure EBITDA or EBITDA is an alternative performance measure for the Snozone business. It excludes Depreciation, Amortisation, (notional) Interest, Tax and non-operational one-off items. It includes rent expense, based on contractual payments adjusted for rent-free periods. This provides a measure of Snozone trading performance which removes the profiling impact of IFRS 16 that would otherwise see a significantly higher charge in early years of a lease and significantly lower net charge in later years. Loan to value (LTV) is the ratio of debt excluding fair value adjustments for debt and derivatives, to the Market value of properties. Market value is an opinion of the best price at which the sale of an interest in a property would complete unconditionally for cash consideration on the date of valuation as determined by the Group’s external or internal valuers. In accordance with usual practice, the valuers report valuations net, after the deduction of the prospective purchaser’s costs, including stamp duty, agent and legal fees. Net Administrative Expenses to Gross Rent is the ratio of Administrative Expenses net of external fee income to Gross Rental income including the Group’s share of Joint Ventures and Associates. Net assets per share (NAV per share) are shareholders’ funds divided by the number of shares held by shareholders at the year-end, excluding own shares held. Net initial yield (NIY) is the annualised current rent, net of revenue costs, topped-up for contractual uplifts, expressed as a percentage of the capital valuation, after adding notional purchaser’s costs. Net debt to property value is debt less cash and cash equivalents divided by the property value. Net interest is the Group’s share, on a see-through basis, of the interest payable less interest receivable of the Group and its associates and joint ventures. Net rent or Net rental income (NRI) Net Rental Income is rental income from properties, less provisions for expected credit losses, property and management costs. It is a standard industry measure. Nominal equivalent yield (NEY) is a weighted average of the net initial yield and reversionary yield and represents the return a property will produce based upon the timing of the income received, assuming rent is received annually in arrears on gross values including the prospective purchaser’s costs. 163 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALSGlossary of Terms CONTINUED Occupancy rate is the ERV of occupied properties expressed as a percentage of the total ERV of the portfolio, excluding development voids. Passing rent is gross rent currently payable by tenants including car park profit but excluding income from non-trading administrations and any assumed uplift from outstanding rent reviews. Rent to sales ratio is Contracted rent excluding car park income, ancillary income and anchor stores expressed as a percentage of net sales. REIT – Real Estate Investment Trust. Return on equity is the total return, including revaluation gains and losses, divided by opening equity plus time-weighted additions to and reductions in share capital, excluding share options exercised. Reversionary percentage is the percentage by which the ERV exceeds the passing rent. Reversionary yield is the anticipated yield to which the net initial yield will rise once the rent reaches the ERV. Temporary lettings are those lettings for one year or less. Total property return incorporates net rental income and capital return expressed as a percentage of the capital value employed (opening market value plus capital expenditure) calculated on a time weighted basis. Total return is the Group’s total recognised income or expense for the year as set out in the consolidated statement of comprehensive income expressed as a percentage of opening equity shareholders’ funds. Total shareholder return (TSR) is a performance measure of the Group’s share price over time. It is calculated as the share price movement from the beginning of the year to the end of the year plus dividends paid, divided by share price at the beginning of the year. Variable overhead includes discretionary bonuses and the costs of awards to Directors and employees made under the 2008 LTIP and other share schemes which are spread over the performance period. 164 capreg.comFive Year Review (Unaudited) Balance sheet Property assets Other non-current assets Investment in associates Cash at bank Assets classified as held for sale Other net current (liabilities)/assets Bank loans greater than one year Other non-current liabilities Net assets Financed by Called-up share capital Share premium account Other reserves Retained earnings Capital employed Return on equity Return on equity (Decrease)/increase in NAV per share + dividend Total shareholder return Year end share price2 Total return Total comprehensive (expense)/income Net assets per share Basic net assets per share2 EPRA triple net assets per share3 EPRA net assets per share3 EPRA Net reinstatement value EPRA Net tangible assets EPRA net disposal value Gearing Income statement Group revenue Gross profit (Loss)/profit on ordinary activities before financing Net interest payable (Loss)/profit before tax Tax (charge)/credit (Loss)/profit after tax Adjusted Profit Adjusted Earnings per share2 Interest cover Earnings per share2 Basic Diluted EPRA Dividends per share 2021 £m 374.8 36.3 – 58.5 (19.4) (10.4) (238.2) (33.2) 168.4 16.5 266.1 64.7 (178.9) 168.4 (15.4)% (32.1)% (16.1)% 58.9p 20201 £m 536.1 29.1 – 84.1 – (9.6) (423.9) (48.7) 167.1 11.2 244.3 64.7 (153.1) 167.1 (54.4)% (55.6)% (68.0)% 70.2p 2019 £m 770.9 18.1 – 95.9 – (20.3) (422.8) (66.7) 375.1 10.4 238.0 64.7 62.0 375.1 (27.7)% (37.2)% (2.0)% 25.4p 2018 £m 898.2 21.3 – 32.0 – (21.8) (432.9) (63.8) 433.0 7.3 166.5 64.7 194.5 433.0 (5.3)% (5.5)% (46.5)% 27.6p 2017 £m 930.6 18.1 7.4 30.2 – (17.4) (422.2) (65.3) 481.4 7.2 163.3 64.6 246.3 481.4 4.7% 3.7% 12.7% 59p (26.4) (203.9) (121.0) (25.6) 22.4 102p – – 102p 102p 101p 142% 70.0 34.3 (13.6) (9.7) (23.3) (3.1) (26.4) 8.1 6.8p 2.3 (22.0)p (22.0)p 2.9p – 149.5p – – 157.0p 157.0p 138.8p 255% 72.7 37.5 (181.7) (22.4) (204.1) 0.2 (203.9) 11.0 10.2p 2.0 36p 36p 36p 363.3p 363.3p 355.8p 114% 89.0 53.6 (97.5) (23.5) (121.0) – (121.0) 27.4 37.0p 3.2 (188.8)p (188.8)p (8.8p) – (162.3)p (162.3)p (3.5)p 21.0p 60p 59p 59p 591.0p 591.0p 593.4p 101% 91.0 56.1 (9.7) (15.8) (25.5) (0.1) (25.6) 30.5 42.0p 3.4 (35.4)p (35.4)p 4.0p 2.42p 67p 66p 67p 665.9p 665.9p 661.9p 89% 89.2 55.7 40.0 (17.6) 22.4 – 22.4 29.1 41.0p 3.2 32.0p 31.0p 3.9p 3.64p 1 2020 results have been restated for a prior year adjustment to the treatment of SaaS configuration costs as explained in Note 1. Prior years are other than in this case as originally presented, no adjustment has been made to restate prior years for changes in IFRS standards that have been adopted in subsequent years. 2 Prior year numbers are other than where stated have not been adjusted for the 10:1 share consolidation subsequent to year-end. A multiple of 10 must be applied to arrive at the comparative figures. 3 EPRA net asset metrics no longer in use. 165 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALS Portfolio Information (Unaudited) At 30 December 2021 Physical data1 Number of properties Number of lettable units Size (sq ft – million) Valuation data Properties at independent valuation (£m) Adjustments for head leases and tenant incentives (£m) Properties as shown in the financial statements (£m) Revaluation loss in the year (£m) Initial yield Equivalent yield Reversion Lease length (years) Weighted average lease length to break Weighted average lease length to expiry Passing rent (£m) of leases expiring in: 2022 2023 2024–2026 ERV (£m) of leases expiring in: 2022 2023 2024–2026 Passing rent (£m) subject to review in: 2022 2023 2024–2026 ERV (£m) of passing rent subject to review in: 2022 2023 2024–2026 Rental Data Contracted rent (£m) Passing rent (£m) ERV (£m per annum) ERV movement (like-for-like) Occupancy 1 This data includes properties classified as held for sale. 166 7 730 3.5 473.1 9.3 482.4 (49.2) 8.4 9.5 11.7 4.5 6.2 6.2 3.9 8.5 6.4 4.6 7.5 4.5 3.0 3.4 3.9 2.1 3.0 50.9 48.2 53.8 0.6 92.8 capreg.comEPRA Performance Measures (Unaudited) As at 30 December 2021 EPRA earnings (£m) EPRA earnings per share (diluted) EPRA reinstatement value (£m) EPRA net reinstatement value per share EPRA net tangible assets (£m) EPRA net tangible assets per share EPRA net disposal value (£m) EPRA net disposal value per share EPRA vacancy rate Estimated rental value of vacant space Estimated rental value of whole portfolio EPRA vacancy rate EPRA net initial yield and EPRA topped-up net initial yield Investment property Completed property portfolio Allowance for capital costs Allowance for estimated purchasers’ costs Grossed up completed property portfolio valuation Annualised cash passing rental income Property outgoings Annualised net rents Add: notional rent expiration of rent-free periods or other lease incentives Topped up annualised rent EPRA net initial yield EPRA topped-up net initial yield EPRA net initial yield (investment assets only) EPRA topped-up net initial yield (investment assets only) Note 9a 9a 25 25 25 25 25 25 2021 3.5 2.9p 168.4 102p 168.4 102p 167.4 101p 2021 £m 3.9 53.8 7.2% 2021 £m 473.1 473.1 (10.1) 31.4 494.4 56.2 (13.7) 42.5 0.6 43.1 8.6% 8.7% 8.1% 8.3% 20201 9.9 9.2p 176.0 157p 176.0 157p 155.6 139p 2020 £m 4.2 55.0 7.8% 2020 £m 527.0 527.0 (2.7) 34.9 559.2 55.4 (12.7) 42.7 0.7 43.4 7.6% 7.8% 7.0% 7.2% 167 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALSEPRA Performance Measures (Unaudited) CONTINUED As at 30 December 2021 EPRA Cost ratios Cost of sales (adjusted for IFRS head lease differential) Administrative costs Service charge income Management fees Snozone (indoor ski operation) costs Less inclusive lease costs recovered through rent EPRA costs (including direct vacancy costs) Direct vacancy costs EPRA costs (excluding direct vacancy costs) Gross rental income Less ground rent costs Less inclusive lease costs recovered through rent Gross rental income EPRA cost ratio (including direct vacancy costs) EPRA cost ratio (excluding vacancy costs) 2021 £m 38.1 12.7 (12.7) (0.8) (8.5) (4.0) 24.8 (3.8) 21.0 49.7 (1.7) (4.0) 44.0 20201 £m 34.4 12.7 (11.6) (0.8) (6.5) (2.5) 25.7 (3.9) 21.8 55.6 (1.9) (2.5) 51.2 56.4% 47.8% 50.2% 42.6% 1 2020 results have been restated for a prior year adjustment to the treatment of SaaS configuration costs as explained in Note 1. 168 capreg.comAdvisers and Corporate Information Auditor Deloitte LLP Statutory Auditor 2 New Street Square London EC4A 3BZ Principal valuers CBRE Limited Kingsley House 1a Wimpole Street London W1G 0RE Knight Frank LLP 55 Baker Street London W1U 8AN Investment bankers/brokers Java Capital Trustees and Sponsors Proprietary Limited (JSE sponsor) 6A Sandown Valley Crescent Sandown, Sandton 2196 South Africa Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Principal legal advisers CMS Cameron McKenna Nabarro Olswang LLP Cannon Place 78 Cannon Street London EC4N 6AF Registered office 22 Chapter Street London SW1P 4NP Telephone: +44 (0)20 7932 8000 capreg.com Registered number 01399411 169 Stock Code: CALCapital & Regional plc Annual Report and Accounts for the year ended 30 December 2021FINANCIALSShareholder Information Registrars Equiniti Limited (LSE) Aspect House Spencer Road Lancing West Sussex BN99 6DA Telephone: 0371 384 2438* International dialling: +44 (0)121 415 7047 JSE Investor Services (Proprietary) Limited (South African Transfer Secretaries) PO Box 4844 Johannesburg, 2000 South Africa Helpline Number: 011 713 0800 (SA callers) +27 11 713 0800 (if calling from outside South Africa) info@jseinvestorservices.co.za * Lines open 08:30 - 17:30, Monday to Friday, excluding bank holidays in England and Wales. 170 capreg.comCAPITAL & REGIONAL PLC 22 Chapter Street London SW1P 4NP Tel: +44 (0)20 7932 8000 CAPREG.COM C a p i t a l & R e g i o n a l p l c A n n u a l R e p o r t a n d A c c o u n t s f o r t h e y e a r e n d e d 3 0 D e c e m b e r 2 0 2 1

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