A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 7 Annual Report and Accounts 2017 HELICAL PLC IS A UK FOCUSED PROPERTY INVESTMENT AND DEVELOPMENT COMPANY Helical invests in and develops high quality real estate which best serves the needs of our occupiers and maximises value. Through intelligent property selection, development and active asset management, we drive capital and rental income growth. Our portfolio is primarily targeted toward mixed used assets in London, offices in Manchester and a diverse portfolio of logistics assets. helical.co.uk Helical plc @helicalplc ONE CREECHURCH PLACE London EC3 02 STRATEGIC REPORT 64 GOVERNANCE Financial Highlights Our Portfolio Operational Highlights Our Market Our Business Model Chief Executive’s Statement Our Strategy Key Performance Indicators Helical’s Property Portfolio Financial Review Principal Risks Review Corporate Responsibility Chairman’s Review Governance Structure Board of Directors Governance Review Nominations Committee Report Audit and Risk Committee Report Directors’ Remuneration Report Report of the Directors 66 68 70 72 76 78 80 98 Statement of Directors’ Responsibilities 100 2 4 6 12 14 16 18 20 22 48 54 58 101 FINANCIAL STATEMENTS 140 ADDITIONAL INFORMATION Independent Auditor’s Report to the Members of Helical plc Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated and Company Balance Sheets Consolidated and Company Cash Flow Statements Consolidated and Company Statements of Changes in Equity Notes to the Financial Statements 102 106 106 107 108 109 1 10 Appendix 1 - See-through Analysis Appendix 2 - See-through Analysis Ratios Appendix 3 - Five Year Review Appendix 4 - Property Portfolio Appendix 5 - EPRA Performance Measures Shareholder Information Glossary of Terms Financial Calendar and Advisors 141 143 143 144 146 148 149 150 1 HELICAL PLCAnnual Report and Accounts 2017 EPRA NET ASSET VALUE PER SHARE TOTAL PROPERTY RETURN 473p 2016 2015 £79.9m 456p 2016 385p 2015 £164.6m £155.3m PROFIT BEFORE TAX EPRA EARNINGS PER SHARE £41.6m 0.5p 2016 2015 £114.0m 2016 £87.4m 2015 17.1p 2.4p SEE-THROUGH PORTFOLIO VALUE NET ASSETS £1,205.2m £516.9m 2016 2015 £1,240.0m 2016 £1,021.4m 2015 £480.7m £404.4m LONDON PORTFOLIO 63% READ LONDON HIGHLIGHTS P.6 See Appendix 5 for all EPRA performance measures page 146. FINANCIAL HIGHLIGHTS 2 HELICAL PLC Annual Report and Accounts 2017 PORTFOLIO RETURN - IPD TOTAL SHAREHOLDER RETURN 9.4% 2016 2015 -18.0% 21.7% 2016 20.4% 2015 TOTAL DIVIDEND DECLARED PER SHARE INTEREST COVER RATIO 8.60p 2016 2015 2.6x 8.17p 2016 7.25p 2015 SEE-THROUGH NET GEARING SEE-THROUGH LOAN TO VALUE 120% 2016 2015 51% 142% 2016 132% 2015 1.0% 7.6% 5.4x 2.5x 55% 52% REGIONAL PORTFOLIO 37% READ REGIONAL HIGHLIGHTS P.8 See Glossary of Terms used throughout the Annual Report page 149. 3 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 OUR PORTFOLIO PORTFOLIO OVERVIEW The portfolio comprises office, logistics, retail and residential properties, located in London and throughout the UK. TOTAL PORTFOLIO BY FAIR VALUE £1,205.2m 11 9 10 1 5 . 5 % 7 8 5 4 3 1 2 % 8 4 . 5 INVESTMENT PROPERTIES DEVELOPMENT STOCK £1,016.9m 1 London Offices 2 Regional Logistics 3 Regional Offices 4 Regional Retail 5 Retirement Villages 6 Land 55.3% £665.6m 13.0% £156.5m 7.9% 6.6% 1.7% £95.3m £79.5m £19.9m – £0.1m £188.3m 7 London Offices 8 London Residential 9 Regional Offices 10 Retirement Villages 11 Land 1.6% 6.5% £19.8m £78.8m – £0.5m 6.9% 0.5% £82.9m £6.3m 4 HELICAL PLC Annual Report and Accounts 2017 THE BOWER London EC1 5 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 OPERATIONAL HIGHLIGHTS LONDON HIGHLIGHTS CITY AND TECH BELT AND THE WEST Strong valuation performance supported by ongoing lettings progress and the completion of refurbishments. LONDON PROPERTIES City and Tech Belt Barts Square EC1 The Bower EC1 C-Space EC1 25 Charterhouse Square EC1 One Creechurch Place EC3 The Loom E1 The West Power Road Studios W4 The Powerhouse W4 The Shepherds Building W14 LONDON PORTFOLIO 63% PROPERTY PORTFOLIO P.22 6 9.8% VALUATION INCREASE, ON A LIKE-FOR-LIKE BASIS, OF SEE-THROUGH LONDON INVESTMENT PORTFOLIO, VALUED AT £666m at 31 March 2017 (65.5% of investment portfolio) compared with £593m at 31 March 2016 (56.4%). CONTRACTED RENTS ON OUR SEE-THROUGH LONDON PORTFOLIO AT 31 MARCH 2017, INCLUDING PRE- LETS AT THE BOWER, INCREASED TO £27.9m (2016: £23.6m) compared to an ERV of £45.0m (2016: £45.4m). AT 25 CHARTERHOUSE SQUARE EC1, REFURBISHMENT WORKS ON THIS 43,600 SQ FT BUILDING WERE COMPLETED IN MARCH 2017 WITH 50% of the office space (18,725 sq ft) let at £75 psf. AT THE BOWER EC1 58,907 sq ft of Phase 2, The Tower, was pre-let to WeWork in November 2016. HELICAL PLC Annual Report and Accounts 2017 THE LOOM London E1 7 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 OPERATIONAL HIGHLIGHTS CONTINUED REGIONAL HIGHLIGHTS Asset recycling providing stronger focus on Manchester offices and logistics units. KEY REGIONAL PROPERTIES REGIONAL PORTFOLIO Manchester Churchgate & Lee House Dale House 31 Booth Street Trinity Court Logistics Sainsbury’s Yate Royal Mail Chester Next Doncaster Retirement villages Bramshott Place Liphook Durrants Village Faygate Millbrook Village Exeter Maudslay Park Great Alne 2.1% VALUATION DECREASE, ON A LIKE- FOR-LIKE BASIS, IN THE SEE-THROUGH REGIONAL INVESTMENT PORTFOLIO, VALUED AT £351m at 31 March 2017 (34.5% of investment portfolio) compared with £460m at 31 March 2016 (43.6%). CONTRACTED GROSS RENTS ON SEE-THROUGH REGIONAL INVESTMENT PORTFOLIO AT 31 MARCH 2017 OF £24.3m (2016: £32.4m) compared to an ERV of £26.6m (2016: £35.6m). 8 37% REGIONAL INVESTMENT PORTFOLIO 15.4% Logistics 9.3% Offices 2.8% Retail Parks 5.0% In Town Retail 2.0% Other (percentages of whole investment portfolio at year end). HELICAL PLC Annual Report and Accounts 2017 CHURCHGATE & LEE HOUSE Manchester 9 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 OPERATIONAL HIGHLIGHTS CONTINUED FINANCING Significant cash resources and bank facilities available to complete the Group’s capex and development plans and to take advantage of future opportunities. SEE-THROUGH LOAN TO VALUE REDUCED TO 51% (31 March 2016: 55%). AVERAGE MATURITY OF THE GROUP’S SHARE OF DEBT OF 3.6 years (31 March 2016: 4.5 years) at an average cost of 4.3% (31 March 2016: 4.2%). GROUP’S SHARE OF CASH AND UNDRAWN BANK FACILITIES AT 31 MARCH 2017 OF £267m (31 March 2016: £193m). FINANCIAL REVIEW P.48 10 HELICAL PLC Annual Report and Accounts 2017 THE BOWER London EC1 11 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 OUR MARKET PICTURED 25 Charterhouse Square, London EC1. THE LONDON MARKET OVERVIEW Helical’s core business is developing and owning dynamic, well located office space in London and Manchester and also includes a portfolio of logistics units along the motorway network of England and Wales. With intelligent stock selection, we aim to maximise returns by development and refurbishment as well as through significant asset management initiatives. IN LONDON 54% of our new lettings in the year to 31 March 2017 were to companies involved in media advertising and marketing, technology and other creative industries. ERV OF PORTFOLIO £69m In our judgement, the London commercial property market currently provides the best source of potential capital profits and we expect this to remain the case for the foreseeable future, notwithstanding the risks associated with our exit from the European Union and other potential headwinds. In order for Helical to generate capital profits the Company needs to identify those areas where it believes tenant demand is, or will become, strong and to source opportunities in those areas at an appropriate entry price. Using the skills, knowledge and expertise gained over many years, the Helical team aims to deliver attractive and exciting office space, in locations with growing tenant demand. The Company has recognised three continuing major developments in the London office market. First, the growth of the London population, which exceeded its previous peak during 2015. Second, the continuing and rapid expansion of the creative industries, predominantly in technology and media. Third, the migration of occupiers from the West End to the City and East London. London’s population reached 8.7 million in 2015, exceeding its previous peak in 1939, and is forecast to continue growing towards 10 million by 2030. Whilst this growth will present challenges to London, particularly in terms of its infrastructure, the opening of the Elizabeth Line (Crossrail) at the end of 2018 will assist in alleviating these problems. Our properties in the City and Tech Belt are all in locations that will benefit from this rail link. Recently published research by CBRE noted that the UK is a global leader in the creative industries and we have targeted these industries with our portfolio. In London, companies involved in media, advertising and marketing, technology and other creative industries comprised 54% of our new lettings in the year to 31 March 2017. The third factor influencing our choice of location for our portfolio is the migration of occupiers across central London to the City and East London. The desire to be part of creative hubs, surrounded by like-minded individuals, located a short travelling distance from home is a common theme in discussing requirements with tenants. Most obviously, those hubs are in the Tech Belt from King’s Cross to Whitechapel. In London, Helical is building up a portfolio of multi-tenanted office buildings in the Tech Belt locations of Farringdon, the Old Street roundabout and Whitechapel and also in West London from Chiswick to Shepherd’s Bush. By owning these “clusters” or “villages” of office buildings it has a portfolio of assets with multiple lease events leading to ongoing asset management opportunities. The Company also seeks to expand its profitability by taking on additional schemes in Central London either by co-investment or by forward selling/ funding them, to allow for the generation of profit shares and development management fees but with reduced balance sheet exposure. 12 HELICAL PLCAnnual Report and Accounts 2017 LOOKING FORWARD The key areas of focus going forward for Helical are London, Manchester offices and logistics units. All other assets currently held are regarded as non-core and we will seek to continue to exit those assets as the opportunities to do so arise. Our ambition is to have a balanced portfolio which generates sufficient net rental income to exceed all of our recurring costs and provide a surplus significantly greater than our annual dividend to shareholders. We have an ERV on the portfolio, post recent sales, of £69m and expect to generate this surplus once all of our current asset management initiatives are completed. We also seek a pipeline of opportunities to grow the balance sheet of Helical through the creation of development profits and capital surpluses. PICTURED 31 Booth Street, Manchester. THE REGIONAL MARKET Outside London, the Company has identified two key areas that contribute the potential for capital growth and are a source of recurring net rental income at good yields. In Manchester we now have four assets (one acquired post year-end) with a potential capital value, after all refurbishment works and lettings are concluded, approaching £100m. Here, the occupational and investment market continues to strengthen. The city has high quality office stock and a diverse occupier base which has seen much international and institutional investment over the past few years. Companies have access to a deep and highly skilled talent pool in a cost effective location both for the employer and the employee. Recent research by CBRE identified Manchester as the “leading UK creative location outside London by some margin” and our buildings are designed to attract creative occupiers. Annual office take up is consistently in excess of 1m sq ft with high profile new occupiers coming to the city on a frequent basis. In addition, we have a portfolio of logistics units comprising 15% of our investment portfolio but which contribute 25% of our current contracted rents. This sector is characterised by strong occupational demand and limited available supply. These properties have little obsolescence and good prospects of rental growth. WHICH MARKETS HAVE BENEFITTED MOST FROM MIGRATION 2011-2016 (000 SQ FT) MIGRATION: ALL SECTORS King's Cross Canary Wharf Southbank Shoreditch Stratford City Western City Eastern City Northern Aldgate Paddington Clerkenwell Euston Victoria Hammersmith Covent Garden Waterloo St James's Wider Docklands North of Oxford Street Camden City core Soho Fitzrovia/Noho Marylebone Belgravia/Knightsbridge Kensington/Chelsea Bloomsbury City Southern City Midtown Mayfair -2,000 -1,000 0 1,000 2,000 Data source: JLL 13 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 OUR BUSINESS MODEL HELICAL’S BUSINESS MODEL We aim to deliver market-leading returns by developing dynamic properties and letting them to diverse tenants on flexible terms, and applying a proactive approach to asset management. LONG TERM Use our own capital combined with external debt where we see value in holding the asset for long-term income and capital growth. ACQUIRE ASSETS STRUCTURE AND FUNDING ACQUISITION Locate assets with significant development or asset management potential, within select locations or asset classes. SHORT-MEDIUM Identify a joint venture partner, limiting our capital commitment and risk exposure, whilst linking our return to performance. Manage the project on behalf of a partner, sharing in the profit on the successful sale or letting, with minimal equity invested. CORE ACTIVITIES P O L E V E D DEVELOP We actively manage our assets throughout their development, working with trusted contractors and focusing on quality, efficiency and safety. L E T S E T A GE N A A S M RESOURCES IN Property A high quality portfolio of land, buildings and identified future opportunities. People and Culture A motivated, qualified and experienced team. Market Expertise Comprehensive knowledge of the markets in which we operate, built through multiple property cycles. Relationships and Reputation An extensive network of joint venture partners, advisors, and industry contacts. A long-standing reputation for speed of execution and excellence in delivery. Financing A strong financial position with access to a variety of sources of funds, from shareholder capital to external borrowings. 14 HELICAL PLC Annual Report and Accounts 2017 KEY PERFORMANCE INDICATORS P.20 OUR STRATEGY P.18 RESOURCES OUT Property Innovative and modern properties with attractive public realm. A portfolio of diversified, robust tenants. People and Culture A motivated, qualified and experienced team. Market Expertise Greater and more focused market, product and customer knowledge. Relationships and Reputation Increased presence in the industry and deeper relationships that will unlock new opportunities. Financing Capital growth through rental income, valuation gain and development profit. Long-term shareholder returns, including a growing dividend stream. 15 RENTAL VALUE Value creation through rent collection and valuation gains, derived from maximising rental value and driving a high level of occupancy. VALUE CREATION EXIT Through sale at the right point in the market or upon completion of projects, recycling capital into new opportunities or repayment of finance/ return of equity. LET We look to let our properties on flexible terms to diverse tenants who are financially robust. L E T P O L E V E D S E T A GE N A A S M ASSET MANAGE Through proactive asset management we drive the rental value forward while maximising occupancy. GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 CHIEF EXECUTIVE’S STATEMENT EPRA NAV INCREASE +3.7% to 473p EPRA EPS 0.5p RENTAL INCOME +8.3% to £47.0m INCREASE IN TOTAL DIVIDEND 5.3% TOTAL PROPERTY RETURN £79.9m IPD PROPERTY RETURN 9.4% 16 GERALD KAYE CHIEF EXECUTIVE I am pleased to present the Company’s 2017 Annual Results, the first since my appointment as Chief Executive of Helical plc at the 2016 AGM. OVERVIEW The year to 31 March 2017 has been eventful with the real estate sector proving resilient against a background of both UK and international political change. Looking back 12 months it was clear that the exceptional growth in property values that we experienced over the period from 2012 to 2016, as the market recovered from the 2008 Global Financial Crisis, was coming to an end with yields approaching historic lows, but with some prospect for growth in rental values. At Helical, we took advantage of the strong recovery in property values during this period by expanding the Company’s business activities, investing in development opportunities in London and higher yielding regional assets to provide a stable flow of rental income. Using the proceeds of our 2013 Retail Bond and our 2014 Convertible Bond, together with additional borrowings, we increased our property portfolio from £626m at 31 March 2013 to over £1.2bn, generating significant surpluses which have more than doubled shareholders’ funds from £254m to £517m at 31 March 2017. During the year we have sought to recycle some of the capital created in this period into the schemes which we believe will continue to support the future growth of the Company. We have narrowed the focus of the Company to London, offices in Manchester and a portfolio of logistics units. We expect to complete this process during the current year with the sale of the remaining non-core assets, being the retail properties and regional offices outside of Manchester, whilst continuing to work through the retirement village programme. HELICAL PLCAnnual Report and Accounts 2017 In the year under review, the majority of our performance has come from the assets we own in London, where we have increased our weighting to 63% of the total portfolio. Sales of regional assets since the year end have increased this London weighting further to 66%. In the investment portfolio we have created buildings which reflect the needs of our tenants, acknowledging that modern lifestyles increasingly merge work and leisure needs. We now have a portfolio of multi-let, flexible and desirable properties which also provide ongoing asset management opportunities to add value. Our London portfolio remains reversionary with further value to be created through the completion of our redevelopment and refurbishment programme, letting vacant space and upcoming rent reviews. We believe that London will continue to outperform the rest of the UK over the medium and long term and our strategy is to continue to increase our London holdings. RESULTS FOR THE YEAR The profit before tax for the year to 31 March 2017 was £41.6m (2016: £114.0m). Total Property Return reduced to £79.9m (2016: £164.6m) and included growing net rents of £47.0m, an increase of 8.3% on 2016 (£43.4m), and development losses of £5.7m (2016: profit of £27.5m) after deducting provisions of £12.8m (2016: £6.4m). The gain on sale and revaluation of the investment portfolio contributed £38.6m (2016: £93.7m). Net finance costs of £21.2m were lower than in 2016 (£22.6m) and the Income Statement benefited from the shortening of the maturity period for the Group’s remaining interest rate swaps which led to a £0.8m credit (2016: charge of £6.9m) arising from the valuation of the Company’s derivative financial instruments. The revaluation of the Company’s Convertible Bond provided a credit of £3.0m (2016: £0.5m). Recurring administration costs were marginally higher at £10.8m (2016: £10.7m). Performance related awards were substantially lower at £6.9m (2016: £13.3m) with National Insurance on these awards of £0.7m (2016: £2.1m). These results allow the Board to continue its progressive dividend policy and to recommend to Shareholders a final dividend of 6.20p which, together with the interim dividend of 2.40p paid in December 2016, takes the total dividend for the year to 8.60p (2016: 8.17p), an overall increase of 5.3%. PERFORMANCE We measure our performance at both portfolio and Company level, seeking to outperform the relevant sector indices and our peer group in the medium and long term. EPRA earnings per share fell from 17.1p to 0.5p, reflecting growing net rental income offset by reduced development profits. On a like-for-like basis, the investment portfolio increased by 5.2% (4.5% including sales and purchases). Sales during the year offset this growth in values contributing to an overall reduction in the portfolio value to £1,205m (2016: £1,240m). The unleveraged return of our property portfolio, as measured by IPD, was 9.4% (2016: 21.7%), compared to 4.4% (2016: 11.4%) for the benchmark index. These investment gains contributed to an increase in EPRA net asset value per share, up 3.7% to 473p (2016: 456p). FINANCE The Company has expanded its activities significantly in recent years, seeking to increase shareholder funds through the generation and retention of increased net rental streams, development profits and valuation surpluses. This growth has been financed through an increase in secured debt borrowed primarily from UK high street banks and, since 2013, through the use of unsecured debt in the form of a Retail Bond and a Convertible Bond. In assessing the needs of the business the Company is conscious that it needs to manage any risks inherent in this leveraged approach to growing the business. It seeks to do this through the use of unsecured debt (24% of total debt), by maintaining an appropriate debt maturity profile and by hedging its interest rate exposure. The Company uses gearing on a tactical basis throughout the property cycle, being raised to accentuate property performance when property returns are judged to materially outperform the cost of debt and lowered when seeking to reduce exposure to the property cycle. At 31 March 2017, the Company’s see-through loan to value (“LTV”), being the ratio of see-through net borrowings to the value of the see-through property portfolio, was 51%. This metric has varied between 45% and 55% in the last five years and, subsequent to the year end, has fallen below 50% following the recent sales of properties in Cardiff and Great Yarmouth. Looking forward, the Company will seek to operate within an LTV range of 40%-50% for the foreseeable future, subject to being able to maximise opportunities in the market whilst remaining aware of the risks of higher levels of gearing. During the year, the average debt maturity reduced to 3.6 years (2016: 4.5 years), with no secured loan repayable before November 2019, whilst marginally increasing the average cost of debt at 4.3% (2016: 4.2%). The Company has a significant level of liquidity with cash and unutilised bank facilities of £267m (2016: £193m) to fund capital works on its portfolio. BOARD MATTERS In July 2016, I became CEO of Helical plc succeeding Michael Slade who became the Company’s Non-Executive Chairman. The Board also consists of three Executive Directors and five Independent Non-Executive Directors. Our Executive team has an average of over 19 years’ experience at Helical and are supported by a strong team of property and finance professionals and administrative staff. THE FUTURE Helical has a dynamic portfolio with good upside potential through a combination of development, refurbishment and significant asset management opportunities. We believe our concentration on offices and mixed use assets in London, offices in Manchester and well located logistics units will provide capital growth from development gains and rising income streams. We have ambition to continue to grow the Company and have actively sought to add to our development pipeline with exciting new schemes, particularly in London. Rebalancing the portfolio through the sale of non-core assets enables us to recycle some of the capital we have created in recent years and fully pursue those opportunities that we have identified. GERALD KAYE Chief Executive 25 May 2017 17 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 OUR STRATEGY HELICAL’S STRATEGY We develop and invest in high quality real estate which best serves the needs of our occupiers and maximises value. We realise capital and rental income growth through development, refurbishment and active asset management with a focus on offices and mixed use assets in London, offices in Manchester and a diverse portfolio of logistics units. London for capital growth and development profits. Manchester offices for capital growth, asset management and income. Logistics for income and liquidity. Locate sites where complexity presents opportunity to add significant value through innovative development and asset management. Maximise income through attracting a diverse and financially robust portfolio of tenants. Continue a culture that is committed to the highest standards in Health & Safety. Improve the communities in which we are active and ensure sustainability underpins our approach. Small core team supported by valued advisors to allow scalability. Clear plan for succession. Use our network of contacts to attract the best opportunities then deliver quickly and to a high standard. Strong relationships and a reputation which generates off market opportunities. Work with joint venture partners to increase project scale and to manage risk. LTV target 40-50%. Use of “equity lean” structures to maximise returns. Strong banking relationships for quick access to finance at competitive pricing. Build cash reserves to weather current climate and take advantage of opportunities as they arise. PORTFOLIO Manage a balanced portfolio with clear market focus, combining assets with significant development and asset management potential with high yielding property for income. PEOPLE Attract and retain the best people encouraging their development and progression to ensure future succession is secured. Maintain our excellent reputation and network of trusted partners and advisors. CAPITAL Operate a sustainable capital structure in which the core business costs are covered by income from the investment portfolio. Use gearing on a tactical basis throughout the cycle to accentuate returns. 18 HELICAL PLC Annual Report and Accounts 2017 KEY PERFORMANCE INDICATORS P.20 OUR BUSINESS MODEL P.14 Performance Measures • Total property return • ERV and contracted rental income • Vacancy rate • WAULT KEY PERFORMANCE INDICATORS Principal Associated Risks • Property values decline/reduced tenant demand for space • Inability to asset manage, develop and let property assets • Health and Safety/Bribery and corruption risk • The Group’s strategy is inconsistent with the market EPRA NAV 473p EPRA NAV CAGR (3 YEARS) 14.8% Performance Measures • Training and development days per employee Principal Associated Risks • Employment and retention of key personnel • Poor management of stakeholder relations Performance Measures • LTV • Gearing • Average cost of debt and maturity • Interest cover ratio • Cash and undrawn bank facility levels Principal Associated Risks • Availability of bank borrowing and cash resources • Breach of loan and bond covenants • Increase in cost of borrowing • Political risk TOTAL SHAREHOLDER RETURN (3 YEARS) IPD UNLEVERAGED RETURN -3.8% 9.4% AVERAGE EMPLOYEE SERVICE AVERAGE STAFF TURNOVER 8.0 yrs 5.7% ADDITIONAL PERFORMANCE MEASURES EPRA EARNINGS PER SHARE TOTAL DIVIDEND DECLARED PER SHARE 0.5p 8.60p 19 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 KEY PERFORMANCE INDICATORS We measure our performance using a number of financial and non-financial key performance indicators (“KPIs”). EPRA NET ASSET VALUE PER SHARE INVESTMENT PROPERTY DATABANK EPRA NAV EPRA NAV INCREASE IPD UNLEVERAGED RETURN 473p 17p 9.4% EPRA NET ASSET VALUE COMPOUND ANNUAL GROWTH RATE (3 YEARS) HELICAL’S UNLEVERAGED PORTFOLIO RETURNS TO 31 MARCH 2017 20.0% 15.5% 14.8% 7.4% -1.0% 2013 2014 2015 2016 2017 EPRA NET ASSET VALUE PER SHARE (P) 473 456 385 313 264 deferred taxation, the EPRA net asset value per share at 31 March 2017 increased by 3.7% to 473p (2016: 456p). LINK TO REMUNERATION Director Bonuses The calculation of the Directors’ bonuses under the Annual Bonus Scheme 2016 is based on a model where Directors share in the profits generated by the Company’s property activities. As these are the same profits that drive increases in EPRA NAV, the Directors’ bonus is strongly aligned to this performance measure. Performance Share Plan A third of the Performance Share Plan (“PSP”) vesting criteria is based on compound growth in net asset value (“NAV”) over three years, so these awards are directly linked to this performance measure. 2017 2016 2015 2014 2013 DESCRIPTION Our Group’s main objective is to maximise growth in net asset value which we seek to achieve through increases in investment portfolio values and from retained earnings from other property related activity. EPRA net asset value per share is the property industry’s preferred measure of the share of net assets attributable to each share as it includes the fair value of net assets on an ongoing long-term basis. The adjustments to net asset value to arrive at this figure are shown in note 32 to the financial statements. PERFORMANCE The diluted net asset value per share, excluding trading stock surplus, at 31 March 2017 increased by 6.4% to 431p (2016: 405p). Including the surplus on valuation of trading and development stock and adjusting for the fair value of derivatives and 20 1 YEAR % pa 3 YEARS % pa 5 YEARS % pa 9.4% 4.4% Helical’s Percentile Rank: 8 Helical’s Percentile Rank: 3 11.0% 10.0% 17.0% 16.6% Helical’s Percentile Rank: 3 10 YEARS % pa 8.4% 4.3% Helical’s Percentile Rank: 3 20 YEARS % pa 14.5% 8.8% Helical’s Percentile Rank: 2 LINK TO REMUNERATION Performance Share Plan A third of the PSP vesting criteria is based on performance compared with the IPD so these awards are directly linked to this performance measure. Helical IPD Benchmark Source: Investment Property Databank. DESCRIPTION The Investment Property Databank (“IPD”) produces a number of independent benchmarks of property returns which are regarded as the main industry indices. IPD has compared the unleveraged performance of Helical’s total property portfolio against portfolios within IPD for the last 20 years. The Group’s annual performance target is to exceed the top quartile of the IPD database, which it has consistently achieved. PERFORMANCE Helical’s unleveraged performance for the year to 31 March 2017 was 9.4% (2016: 21.7%) compared to the IPD benchmark of 4.4% (2016: 11.4%) and upper quartile benchmark of 6.9% (2016: 13.0%). HELICAL PLCAnnual Report and Accounts 2017 We incentivise management to outperform the Group’s competitors by setting appropriate levels for performance indicators against which rewards are measured. We also design our remuneration packages to align management’s interests with shareholders’ aspirations. Key to this is the monitoring and reporting against identifiable performance targets and benchmarks. OUR STRATEGY P.18 TOTAL SHAREHOLDER RETURN TOTAL SHAREHOLDER RETURN (3 YEARS) -3.8% HELICAL’S RETURNS TO 31 MARCH 2017 1 YEAR % pa -18.0% 22.0% 3 YEARS % pa 5 YEARS % pa 10 YEARS % pa 15 YEARS % pa 20 YEARS % pa 25 YEARS % pa -0.3% 3.8% -3.8% -1.3% -2.1% 7.7% 4.7% 11.2% 13.0% 9.7% 12.2% 10.0% 5.7% 3.9% 6.4% 6.6% 5.6% 7.8% 10.6% 6.7% 5.8% 8.8% 16.2% 8.7% 8.2% 8.9% Helical Plc. Growth over all periods to 31/03/17 UK equity market. Growth in FTSE All-Share Return Index over all periods to 31/03/17 Listed real estate sector index. Growth in FTSE 350 Real Estate Super Sector Return Index over all periods to 31/03/17. For data prior to 30 September 1999 FTSE All Share Real Estate Sector Index has been used Direct property – monthly data. Growth in total return of IPD UK monthly index (all property) over all periods to 31/03/17 Source: Thomson Reuters Datastream. DESCRIPTION Total Shareholder Return is a measure of the return on investment for shareholders. It combines share price appreciation and dividends paid to show the total return to the Shareholder expressed as an annualised percentage. PERFORMANCE The Total Shareholder Return in the year to 31 March 2017 was -18.0% (2016: 1.0%). Over five, ten, fifteen, twenty and twenty five years Helical’s Total Shareholder Return exceeded that of the Listed Real Estate Sector Index. LINK TO REMUNERATION Performance Share Plan A third of the PSP vesting criteria is based on performance against the FTSE 350 Super Sector Real Estate Index, excluding storage companies and agencies. These awards are therefore directly linked to this performance measure. AVERAGE LENGTH OF EMPLOYEE SERVICE AND STAFF TURNOVER AVERAGE LENGTH OF EMPLOYEE SERVICE AVERAGE STAFF TURNOVER 8.0 yrs 5.7% AVERAGE LENGTH OF EMPLOYEE SERVICE (YEARS) 2017 2016 2015 2014 2013 8.0 7.6 7.6 8.7 10.2 AVERAGE STAFF TURNOVER (%) 2017 2016 2015 2014 2013 5.7 5.9 14.3 12.5 10.3 AVERAGE EMPLOYEE NUMBERS 2017 2016 2015 2014 2013 35 35 32 34 29 LINK TO REMUNERATION Director Bonuses Under the rules of the Annual Bonus Scheme 2016 a third of the bonuses are settled in deferred shares, which are required to be held for a period of three years. Performance Share Plan These awards have a three year vesting period and the Directors are required to hold them for a further two years after they vest. DESCRIPTION High levels of staff retention remain a key feature of Helical’s business. The Group retains a highly skilled and experienced team. We assess our success based on two key metrics, the average length of service of the Group’s head office employees and average staff turnover. PERFORMANCE The average length of service of the Group’s head office employees at 31 March 2017 was eight years and the average staff turnover was 5.7%. 21 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO Helical divides its property activities into three core markets: London, Manchester offices and logistics. The London Portfolio represents 63% of the total property portfolio and drives capital growth, development profits and, increasingly, income. Manchester offices accounts for 6%, and logistics account for 13%. In addition, we have a portfolio of four retirement villages which are being completed and sold over the next three years, a small portfolio of regional offices and four regional retail assets (two of which were sold post year end). TOTAL PROPERTY PORTFOLIO £1,205.2m TOTAL PROPERTY RETURN £79.9m HELD AS INVESTMENT PROPERTIES 84.5% 9 8 % 7 al 36.6 n o i g e R 6 5 1 % 4 . 3 n 6 o n do L 4 3 2 TOTAL PORTFOLIO BY FAIR VALUE LONDON London Offices 1 Completed, let and available to let 2 Being redeveloped 3 Held for future development 4 London Residential REGIONAL 5 Regional Offices 6 Regional Logistics 7 Regional Retail 8 Retirement Villages 9 Land 22 HELICAL PLC Annual Report and Accounts 2017 ONE CREECHURCH PLACE London EC3 TOTAL PORTFOLIO BY FAIR VALUE London Offices Completed, let and available to let Being redeveloped Held for future development London Residential Total London Regional Offices Regional Logistics Regional Retail Retirement Villages Land Total Regional TOTAL TRADING AND DEVELOPMENT PORTFOLIO London Offices London Residential Total London Regional Offices Retirement Villages Land Total Regional TOTAL Investment £m % Development £m 501.5 125.7 38.4 – 665.6 95.3 156.5 79.5 19.9 0.1 351.3 49.3 12.4 3.8 – 65.5 9.3 15.4 7.8 2.0 – 34.5 19.8 – – 78.8 98.6 0.5 – – 82.9 6.3 89.7 % 10.5 – – 41.9 52.4 0.3 – – 44.0 3.3 47.6 Total £m 521.3 125.7 38.4 78.8 764.2 95.8 156.5 79.5 102.8 6.4 441.0 % 43.3 10.4 3.2 6.5 63.4 7.9 13.0 6.6 8.6 0.5 36.6 1,016.9 100.0 188.3 100.0 1,205.2 100.0 Book value £m 15.8 75.8 91.6 Fair value £m 19.8 78.8 98.6 0.2 79.0 5.0 84.2 0.5 82.9 6.3 89.7 Surplus £m 4.0 3.0 7.0 0.3 3.9 1.3 5.5 Fair value % 10.5 41.9 52.4 0.3 44.0 3.3 47.6 175.8 188.3 12.5 100.0 23 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 25 CHARTERHOUSE SQUARE London EC1 24 HELICAL PLC Annual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO CONTINUED THE LONDON PORTFOLIO PERCENTAGE OF TOTAL PORTFOLIO 63% VALUATION INCREASE IN INVESTMENT ASSETS 9.1% ERV 45.0m REVERSIONARY YIELD 5.5% Our strategy is to continue to increase our London holdings, focusing on areas where we see strong tenant demand and growth potential, such as the “Tech Belt” that runs from King’s Cross through Old Street and Shoreditch to Whitechapel and in West London, in particular Shepherds Bush, Chiswick and Hammersmith. Our London portfolio comprises income producing multi-let offices, office refurbishments and developments and residential development schemes. 25 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO CONTINUED 1 4 5 2 3 6 CITY AND TECH BELT PORTFOLIO 1 The Bower EC1 2 Barts Square EC1 3 One Creechurch Place EC3 4 C-Space EC1 5 25 Charterhouse Square EC1 6 The Loom E1 26 HELICAL PLC Annual Report and Accounts 2017 1 THE BOWER OLD STREET EC1 This asset was acquired in November 2012 for £60.8m in a joint venture with Crosstree Real Estate Partners LLP. The site is in the heart of an area which has become a “creative halo”, a district of London which is a hub for technology, media and telecommunications companies and which is benefiting from substantial investment in infrastructure. A planning consent has been implemented to increase the floor space on the site by 116,000 sq ft, to refurbish existing areas and significantly upgrade the public realm with the creation of a new pedestrian street. On 20 January 2016, Helical acquired The Warehouse and The Studio (211 Old Street) and The Tower (207 Old Street) from the joint venture. 211 OLD STREET EC1 The development of Phase One, comprising The Warehouse, 128,262 sq ft, and The Studio, 23,177 sq ft, completed in November 2015. Phase One is fully let to CBS, Farfetch, Pivotal, Allegis and Stripe (The Warehouse) and John Brown Media (The Studio), and all tenants are in occupation. The retail operators are Bone Daddies, Draft House, Enoteca da Luca, Honest Burger, Maki and Franze & Evans. 207 OLD STREET EC1 At The Tower, 178,724 sq ft, the refurbishment and construction works are well underway with practical completion scheduled for Q2 2018. Whilst the formal letting campaign for the building is expected to commence closer to completion, we have already pre-let six floors, comprising 58,907 sq ft, to WeWork, the leading global provider of flexible collaborative co-working space. 27 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO CONTINUED 2 BARTS SQUARE EC1 In a joint venture with The Baupost Group LLC, Helical owns the freehold interest of Barts Square, a 3.2 acre site between St Pauls and Smithfield Market, situated a short walk from Farringdon East station on the Elizabeth Line (Crossrail) which is due to be operational at the end of 2018. Barts Square will ultimately provide an entirely new quarter of the City consisting of 236 residential apartments, three office buildings of 213,000 sq ft, 23,485 sq ft and 10,200 sq ft and 20,400 sq ft of retail/A3 at ground floor as well as major public realm improvements. PHASE 1 Residential/Offices/Retail Phase 1 of Barts Square comprises 144 residential units, 8,900 sq ft of retail space, 23,485 sq ft of new office space and extensive public realm improvements. Construction work is progressing well with the first apartments being handed over to purchasers in Summer 2017. Contracts have been exchanged for the sale of 118 residential units for a total value of £151.3m at an average of £1,570 psf, with a further three units under offer. 28 PHASE 2 One Bartholomew Close - Offices One Bartholomew Close was sold to clients of Ashby Capital LLP (“Ashby”) for £102.4m in August 2015. The demolition of the existing building and the construction of a new 12 storey office block of 213,000 sq ft commenced in January 2016. The building is due to be completed in August 2018. Ashby’s clients finance the development costs and when the building is completed and successfully let the joint venture will be entitled to receive a profit share payment. Helical is the development manager for delivery of the project. PHASE 3 Residential/Retail Demolition work on Phase 3 of Barts Square is well underway. This phase will comprise 92 apartments and 11,500 sq ft of retail space. Completion is due in Summer 2019. HELICAL PLCAnnual Report and Accounts 2017 3 ONE CREECHURCH PLACE CITY OF LONDON EC3 One Creechurch Place is a landmark City office scheme in the heart of the insurance sector in London. In May 2014, Helical signed a joint venture agreement with HOOPP (Healthcare of Ontario Pension Plan) to redevelop the site. Under the terms of the joint venture, HOOPP and Helical jointly funded the project on a 90:10 split, with Helical acting as development manager for which it will receive a promote payment depending on the successful outcome of the scheme. The new building, comprising 272,505 sq ft NIA of offices and 786 sq ft of retail, achieved practical completion on 7 November 2016 and is currently being marketed for occupation. There are a number of potential tenants interested in the building. 4 C-SPACE 37–45 CITY ROAD EC1 Helical acquired C-Space in June 2013. Planning consent was obtained for a complete refurbishment of the building which increased the previous 50,000 sq ft office building to 61,973 sq ft. The works, which were completed in October 2015, involved an additional floor and extensions to the third floor, a landscaped courtyard and entrance pavilion to the rear and full height glazing to the raised ground floor. 75% of the space was pre-let to the creative agency MullenLowe in June 2015, with the remaining space let to NeuLion in November 2016. 29 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO CONTINUED 5 25 CHARTERHOUSE SQUARE SMITHFIELD EC1 In January 2016, Helical was granted a new 155 year leasehold interest in 25 Charterhouse Square, from the Governors of Sutton’s Hospital in Charterhouse for £16m. Helical has carried out a major refurbishment of the existing building, which increased the previous 34,000 sq ft to 38,355 sq ft of offices, with the addition of a new sixth floor, and added 5,138 sq ft of retail/restaurant. The building achieved practical completion on 28 March 2017. The top two floors, totalling 12,200 sq ft, have been let to Anomaly at £75.00 psf for a ten year lease term. 30 HELICAL PLCAnnual Report and Accounts 2017 6 THE LOOM WHITECHAPEL E1 This 110,000 sq ft listed former wool warehouse was acquired in 2013. A major repositioning was completed in September 2016 to include a new entrance and reception onto Gowers Walk, café, showers and a bike store. During the year we completed 11 new lettings and five renewals securing £1.8m of contracted rent. We also completed two rent reviews with an uplift to contracted rent of £300,000. The largest, most prominent, unit in the building of 9,000 sq ft was let in July for £54 psf. The average contracted rent for the building is £37.50 psf. 19,275 sq ft is currently available in five units with an ERV of circa £950k, of which 2,750 sq ft is under offer. 31 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO CONTINUED 11 7 8 9 10 THE WEST LONDON PORTFOLIO 7 The Shepherds Building W14 8 Power Road Studios W4 9 The Powerhouse W4 10 King Street W6 11 Drury Lane & Dryden Street WC2 32 HELICAL PLC Annual Report and Accounts 2017 7 THE SHEPHERDS BUILDING SHEPHERDS BUSH W14 This 151,000 sq ft multi-let office building close to the Westfield London shopping centre maintains an occupancy approaching 100%, as it has for nine consecutive years. The average contracted rent for the building is £44 psf with a total contracted rent of £6.57m and a passing net rent of £3.6m. During the year, 13 new lettings, all in excess of £47.50 psf, were completed securing a contracted rent of £500,000. Two rent reviews were settled with an uplift to contracted rent of £225,000. 2,550 sq ft is currently available in four studio units. 9 THE POWERHOUSE CHISWICK W4 Helical acquired this 24,288 sq ft office and recording studios by way of sale and leaseback in 2013. The Powerhouse is a listed building on Chiswick High Road and is fully let on a long lease to Metropolis Music Group. 8 10 POWER ROAD STUDIOS CHISWICK W4 KING STREET HAMMERSMITH W6 Hammersmith & Fulham Borough Council, who have been opposed to this regeneration project since the Council became Labour controlled, have exercised their option to terminate the development agreement. With our partners Grainger plc we will now seek to maximise the value of the land held by the joint venture company. The site comprises 62,000 sq ft of offices across five buildings and is multi-let to a wide range of predominantly media tenants. Recent lettings have been concluded at a rent of £38 psf with £40 psf having been achieved in Studio 1, compared to an average rental of £24 psf at acquisition. Cineworld, which occupied 16,000 sq ft, has surrendered its lease and vacated, which permits the comprehensive refurbishment of the unit and creation of a new entrance at the front of the building. These works started in November 2016 and are expected to last nine months, increasing the rental value for this space from £22.00 psf to £42.50 psf. Planning permission to add a further 42,500 sq ft of office space has been granted. In addition to our holdings in the City and Tech Belt and West London we have one scheme in Covent Garden WC2. 11 DRURY LANE & DRYDEN STREET COVENT GARDEN WC2 The existing buildings, which are in office and retail use, sit on an island site of approximately 0.5 acres. Approximately half of the site, adjacent to Dryden Street, sits within the Covent Garden Conservation Area. In July 2015, contracts were exchanged with Diageo Pension Fund (a fund managed by Savills Investment Management) for the conditional acquisition of the Drury Lane site. The contract is conditional on the viability of the scheme and Helical securing planning consent. A planning application for the residential led scheme of 68 apartments was submitted in August 2015 and resolution to grant consent was issued at a planning committee in April 2016. A further planning consent for an alternative office led scheme was submitted in December 2016 and is currently being considered by Westminster City Council. 33 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 31 BOOTH STREET Manchester 34 HELICAL PLC Annual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO CONTINUED THE REGIONAL PORTFOLIO PERCENTAGE OF TOTAL PORTFOLIO 37% PERCENTAGE OF NET RENTAL INCOME 60% PERCENTAGE LET 95% Our approach to regional investment is to acquire assets where occupational demand is robust throughout the property cycle and the barriers to new supply are high. Successfully picking the sectors and assets with these attributes will ensure strong cash flows and rental growth. In general, yields for regional assets are higher than those in London and these assets are acquired to provide significant cash flow for the Group. We anticipate that income will become an increasingly important part of total returns as yield compression slows and, as such, we focus our attention on areas where we believe the occupational market remains robust. Our regional portfolio contributed 60% of our net rental income from tenants in diverse sectors and geographical locations. The £351m regional portfolio comprises £156m of logistics (44% of the regional investment portfolio), £95m of offices (27%), £80m retail warehousing and in-town retail (23%), mainly The Morgan Quarter, Cardiff, which has been sold for £55m since year end, and £20m of value from ground rents and assignment fees from our retirement village development programme (6%). 35 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO CONTINUED 2 4 3 1 MANCHESTER OFFICES PORTFOLIO 1 Churchgate and Lee House 2 Dale House 3 31 Booth Street 4 Trinity Court 36 HELICAL PLC Annual Report and Accounts 2017 2 4 3 1 Our regional office investment portfolio comprises seven assets including four in Manchester and others in Crawley, Glasgow and Reading. During the year we sold three assets in Cobham, Castle Donnington and Cheadle for £14.15m, a 6.8% premium to book value. Manchester is a city with a diverse, thriving and growing economy which is widely regarded as England’s second city and the centre of the ‘Northern Powerhouse’. The assets we hold there are: 1 3 CHURCHGATE AND LEE HOUSE 31 BOOTH STREET This asset, comprising 249,000 sq ft of multi-let offices, was purchased in March 2014. Since purchase we have refurbished the reception and 75,254 sq ft of office space. With the successful letting of the 1st floor of Lee House and the Sunshine Suite (15,536 sq ft), Churchgate and Lee House is now 100% occupied. Looking forward asset management initiatives still exist to drive further rental growth. We will continue to refurbish the asset as space becomes available through lease events. This 25,441 sq ft office located in the prime city core was acquired in January 2016 for £4.7m. The building has been fully refurbished and was launched to the market in March 2017. We have received significant occupational interest to date and hope to secure our first letting soon. 2 4 DALE HOUSE TRINITY COURT Dale House is a 54,000 sq ft office building situated in the Northern Quarter of Manchester. Following purchase we have pursued surrenders across the building. We successfully achieved surrenders of the top three floors, lower ground and basement spaces which amounts to circa 33,000 sq ft. Refurbishment of these areas has commenced with delivery in Q4 2017. We have secured a pre-let of the 5th floor (7,100 sq ft) and have significant interest in the remaining space that is being delivered. Trinity Court, purchased in May 2017 for £12.9m, is a 47,500 sq ft office building situated in the central business district of Manchester. The building is currently 100% let with secured income until the end of 2017 at a passing rent of £26.94 psf. The building will be vacated in 2018 and a full refurbishment and extension will be implemented delivering new office space to the market in early 2019. 37 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO CONTINUED 5 OTHER LOGISTIC ASSETS 9 6 8 10 7 LOGISTICS PORTFOLIO 5 Doxford Technology Park Sunderland 6 Jacknell Road Hinckley 7 Royal Portbury Dock Road Bristol 8 Raglan Court Warrington 9 Aspect Way Doncaster 10 Olympus Park Quedgeley 38 Helical had 25 distribution and logistics units located around major UK transport networks at 31 March 2017. These units generally have few bespoke features making them straightforward to re-let if vacancies occur with minimal capital expenditure required. The majority of the assets are single-let. Significant assets within the portfolio include a 256,000 sq ft distribution warehouse let to Sainsbury’s in Yate, Bristol, a 203,000 sq ft facility in Leighton Buzzard, Bedfordshire and a 183,000 sq ft distribution warehouse let to the Royal Mail in Chester. HELICAL PLC Annual Report and Accounts 2017 9 6 5 8 10 7 5 6 7 DOXFORD TECHNOLOGY PARK SUNDERLAND JACKNELL ROAD HINCKLEY ROYAL PORTBURY DOCK ROAD BRISTOL 8 9 10 RAGLAN COURT WARRINGTON ASPECT WAY DONCASTER OLYMPUS PARK QUEDGELEY 39 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO CONTINUED RETAIL DEVELOPMENTS OUT-OF-TOWN RETAIL 13 12 18 11 17 15 16 14 RETAIL AND RETIREMENT VILLAGES PORTFOLIO 11 The Morgan Quarter Cardiff 12 Parkgate Shirley 13 Cortonwood Barnsley 14 Truro Cornwall 15 Bramshott Place Liphook 16 Durrants Village Faygate 17 Millbrook Village Exeter 18 Maudslay Park Great Alne 40 HELICAL PLC Annual Report and Accounts 2017 13 12 18 11 17 15 16 14 Our retail assets total £80m, 7% of our portfolio (31 March 2016: £143m). This part of the portfolio includes a prime retail asset in Cardiff, three retail parks and a number of pre-let and/or pre-funded retail developments. During the year, six retail properties were sold for a total of £44.1m, at c. 6% below book value. At the year end the portfolio consisted of four assets of which Cardiff and Great Yarmouth have since been sold, reducing the total value of the portfolio to £24.2m. RETAIL 11 THE MORGAN QUARTER CARDIFF During the year we continued to reposition the asset and strengthen the tenant mix. We concluded 12 retail leases representing over £400,000 pa in rental income which included two tenants upsizing within the estate. Negotiations with Jack Wills, first started in 2015, for them to extend their store finally came to fruition in December. Along with this expansion, we also completed all of the planned lease renewals and regears with the Hayes retailers, Molton Brown, White Stuff and Joules. In addition we completed the lease renewal with Route One in the Morgan Arcade. Within the Creative Quarter we completed six office leases and work on Phase Three of the refurbishment completed in May 2017 providing 5,700 sq ft of new space. Since the year end this asset has been sold for £55m, a net initial yield of 5.9% in line with its March 2016 book value. 13 CORTONWOOD RETAIL PARK BARNSLEY This 79,750 sq ft retail park has been 100% pre-let to tenants including Outfit, H&M, New Look, River Island and Marks and Spencer. The scheme has been forward funded with clients of Aberdeen Asset Management and construction is continuing with completion due in July 2017. RETAIL DEVELOPMENTS 12 PARKGATE SHIRLEY, WEST MIDLANDS 14 TRURO CORNWALL Helical has entered into a Conditional Purchase Agreement on the six acre Truro City Football Club site which has planning consent, subject to a s.106 Agreement, for a 78,000 sq ft non-food retail park. The scheme proposals provide for the relocation of the football club and we anticipate starting on site in 2018. The shopping centre at Parkgate, Shirley, where Helical had a 50% interest, was completed in 2014 and the 80,000 sq ft Asda, which had been pre-sold to the food-store, together with a number of other retailers including Poundland, Peacocks and Store Twenty-one have all opened successfully for trade. In November 2016 the scheme was sold to a private purchaser. A second phase of high density residential is being progressed on a ten acre site opposite the Parkgate scheme. Completions of the first phase of the site sales has occurred to Extracare Charitable Trust and Lioncourt Homes and demolition and infrastructure works have completed. A site for a petrol filling station has been sold to Asda. 41 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO CONTINUED Our retirement village portfolio consists of four villages. We design each of the villages with an active, independent retirement in mind and the communities that we create are the ideal place to live a social and varied lifestyle. Each private, age-exclusive retirement community is centred around a residents’ clubhouse, and features many amenities including an indoor pool and gym, landscaped gardens, bar, restaurant and library. With an increasing proportion of the UK population over 65 years old, and a severe under supply in retirement housing, this sector creates significant opportunities for investors and developers. RETIREMENT VILLAGES 15 BRAMSHOTT PLACE LIPHOOK, HAMPSHIRE This village is situated amongst natural parkland near the village of Liphook on the border of Hampshire, West Sussex and Surrey. The village features a selection of two and three bedroom cottages and one, two and three bedroom apartments arranged around a residents’ clubhouse. All construction works to Phases One to Three are completed where 151 units in total have been built and sold. Phase Four commenced in August 2016 with the construction of 40 additional cottages, due for completion in January 2018. Sales on the site will be formally launched in July 2017, with six of the 40 new cottages already having been reserved and a further two of the 40 being exchanged. The residents’ clubhouse is now fully refurbished. 42 16 DURRANTS VILLAGE FAYGATE, WEST SUSSEX Durrants Village is set within 30 acres of private parkland in the hamlet of Faygate, near Horsham in West Sussex. The village features a selection of cottages and apartments. The first two phases of construction completed in January 2016 with 105 units located around the residents’ clubhouse. Phase 3A has commenced and consists of an additional 20 units and is due to complete in September 2017. Sales have progressed well with 99 units sold, one exchanged and an additional ten units reserved. Good interest is being shown in Phase 3A and more reservations are expected to be secured leading up to the delivery of this section in September 2017. HELICAL PLCAnnual Report and Accounts 2017 17 MILLBROOK VILLAGE EXETER, DEVON Millbrook Village is nestled close to the River Exe in the heart of the historic cathedral city of Exeter. The village features a selection of two and three bedroom cottages and one, two and three bedroom apartments. The site will comprise 164 units once completed. The clubhouse was completed in March and includes a restaurant and bar, games room, gym, cinema and a swimming pool. The build programme is well advanced with 114 units currently completed with more stock now coming online at regular three month intervals. We anticipate that the village will be fully constructed by November 2017. 59 units have been sold, two exchanged and an additional 22 reserved. 18 MAUDSLAY PARK GREAT ALNE, WARWICKSHIRE Maudslay Park is set in 90 acres of parkland in the Warwickshire village of Great Alne, near Stratford-upon-Avon. The village will comprise 166 units with a mixture of cottages and apartments built around the central clubhouse facility. Similar to our other villages the clubhouse will include a restaurant and bar, games room, gym, cinema and a swimming pool. Phase 1 of the development is currently under construction which consists of 14 cottages, 35 apartments and the central clubhouse facility. The first cottages were completed in April 2017 with the central clubhouse facility being completed in January 2018. Currently we have sold one unit and have a further ten reservations. 43 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO CONTINUED PORTFOLIO ANALYTICS TOTAL PORTFOLIO BY FAIR VALUE London Offices Completed, let and available to let Being redeveloped Held for future development London Residential Total London Regional Offices Regional Logistics Regional Retail Retirement Villages Land Total Regional Investment £m Development £m % 501.5 125.7 38.4 - 665.6 95.3 156.5 79.5 19.9 0.1 351.3 49.3 12.4 3.8 - 65.5 9.3 15.4 7.8 2.0 - 34.5 19.8 - - 78.8 98.6 0.5 - - 82.9 6.3 89.7 % 10.5 - - 41.9 52.4 0.3 - - 44.0 3.3 47.6 Total £m 521.3 125.7 38.4 78.8 764.2 95.8 156.5 79.5 102.8 6.4 441.0 % 43.3 10.4 3.2 6.5 63.4 7.9 13.0 6.6 8.6 0.5 36.6 Total 1,016.9 100.0 188.3 100.0 1,205.2 100.0 TRADING AND DEVELOPMENT PORTFOLIO London Offices London Residential Total London Regional Offices Retirement Villages Land Total Regional Total Book value £m Fair value £m Surplus £m Fair value % 15.8 75.8 91.6 0.2 79.0 5.0 84.2 19.8 78.8 98.6 0.5 82.9 6.3 89.7 4.0 3.0 7.0 0.3 3.9 1.3 5.5 10.5 41.9 52.4 0.3 44.0 3.3 47.6 175.8 188.3 12.5 100.0 CAPITAL EXPENDITURE We have a planned development and refurbishment programme. Property London Offices 207 Old Street, London EC1 Power Road Studios, W4 The Loom, London E1 London Residential Barts Square, London EC1 Regional Offices Dale House, Manchester Capex budget (Helical share) £m Remaining spend (Helical share) £m Current total space Sq ft Refurbished space Sq ft New space Sq ft Completion date 94.5 4.5 7.9 87.4 4.3 62.9 3.4 1.8 55.7 114,000 60,000 112,000 179,000 20,000 80,500 65,000 - - Jun 2018 Sep 2017 Mar 2018 n/a n/a n/a Sep 2019 3.5 54,000 30,000 - Dec 2017 44 HELICAL PLCAnnual Report and Accounts 2017 RETIREMENT VILLAGES Property Millbrook Village, Exeter Durrants Village, Faygate Maudslay Park, Great Alne Bramshott Place, Liphook Capex budget £m Remaining spend £m Total number of units Completed units Units under construction Completion date 43.5 49.3 60.9 17.8 171.5 7.1 17.9 53.1 9.5 87.6 164 173 166 40 543 114 105 5 - 224 50 20 45 40 155 Nov 2017 Sep 2019 May 2019 Jan 2018 ASSET MANAGEMENT Asset management is a critical component in driving Helical’s performance. Through having well considered business plans and by maximising the combined skills of our management team, we are able to create value in our assets without relying on market movements. Fair value weighting % Passing rent £m Contracted rent £m % Investment portfolio London Offices Completed, let and available to let Being redeveloped Held for future development Total London Regional Offices Regional Logistics Regional Retail Retirement Villages Total Regional 49.3 12.4 3.8 65.5 9.3 15.4 7.8 2.0 34.5 11.3 - 1.2 12.5 5.5 10.9 5.6 - 32.8 - 3.5 36.3 15.9 31.6 16.2 - 22.0 63.7 % 47.1 - 2.7 22.8 - 1.3 24.1 49.8 6.3 12.2 5.8 - 24.3 13.0 25.2 12.0 - 50.2 ERV £m 29.1 13.4 2.5 45.0 7.9 12.5 6.2 - 26.6 % 40.6 18.7 3.4 62.7 11.0 17.6 8.7 - 37.3 ERV change since March 2016 % ERV change like-for-like % (2.6) 2.6 (3.3) (1.1) (9.9) (25.1) (38.6) - (25.1) 5.1 2.6 17.3 4.9 3.9 (1.4) (0.9) - 0.3 Total 100.0 34.5 100.0 48.4 100.0 71.6 100.0 (11.7) 3.1 During the year contracted income increased by £3.5m as a result of new lettings and rent reviews, net of any losses from breaks and lease expiries (2016: £12.7m). The significant contributors to the new lettings were: The Loom, London E1 (£1.6m), C-Space, London EC1 (£1.0m), and 25 Charterhouse Square, London EC1 (£0.9m). There was significant activity within the investment portfolio with 165 lease events. Rent lost at break/expiry Rent reviews Uplift at lease renewals New lettings Total increase in the year Contacted rent £m (2.3) 0.5 0.2 5.1 3.5 45 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 HELICAL’S PROPERTY PORTFOLIO CONTINUED PORTFOLIO ANALYTICS CONTINUED PORTFOLIO YIELDS London Offices Completed, let and available to let Being redeveloped Held for future development Total London Regional Offices Regional Logistics Regional Retail Total Regional Total CAPITAL VALUES, VACANCY RATES AND UNEXPIRED LEASE TERMS London Offices Completed, let and available to let Being redeveloped Held for future development Total London Regional Offices Regional Logistics Regional Retail Total Regional Total * The vacancy rates exclude assets in the course of redevelopment. VALUATION MOVEMENTS London Offices Completed, let and available to let Being redeveloped Held for future development Total London Regional Offices Regional Logistics Regional Retail Retirement Villages Total Regional Total 46 EPRA topped up NIY % Reversionary % 4.3 – 3.1 4.2 6.2 7.3 6.9 6.9 5.2 5.4 5.8 5.6 5.5 7.4 7.3 7.2 7.3 6.1 Capital value psf £ Vacancy rate* % WAULT Years 926 619 645 828 201 54 217 94 220 10.0 n/a 43.2 33.2 12.9 4.3 2.8 5.2 10.0 6.8 - 0.1 6.9 5.1 4.8 4.9 5.0 5.9 Val change inc capex, sales and purchases % Val change inc capex, excl sales and purchases % Investment portfolio weighting 31.3.17 % Investment portfolio weighting 31.3.16 % 11.1 0.3 3.9 9.1 1.7 1.6 (9.6) 14.3 (1.3) 4.5 12.3 0.3 3.9 9.8 1.4 0.2 (11.4) 10.6 (2.1) 49.3 12.4 3.8 65.5 9.3 15.4 7.8 2.0 34.5 45.0 8.6 2.8 56.4 9.7 20.0 12.8 1.1 43.6 5.2 100.0 100.0 HELICAL PLCAnnual Report and Accounts 2017 LEASE EXPIRIES OR TENANT BREAK OPTIONS % of rent roll Number of leases Average rent per lease (£) Year ended 31.3.18 Year ended 31.3.19 Year ended 31.3.20 Year ended 31.3.21 Year ended 31.3.22 9.8 91 10.6 90 11.2 68 5.1 22 14.7 35 51,742 56,770 79,331 111,898 202,620 We have a strong rental income stream and a diverse tenant base, with the largest tenant in the portfolio accounting for only 8.1% of the rent roll. The top ten tenants account for 34.8% of the total rent roll and the tenants come from a variety of industries. 2 3 4 5 6 7 8 9 Rank 1 Tenant Endemol UK Limited Tenant industry Media MullenLowe Limited Gopivotal (UK) Limited Farfetch UK Limited Marketing communications Technology Online retail Sainsbury’s Supermarkets Limited Food retail Economic Solutions Limited Employment and skills training Neulion Limited CBS Interactive Limited Allegis Group Limited 10 Anomaly UK Limited Total Technology Media Recruitment Marketing Rent £m 3.9 2.6 2.0 1.9 1.2 1.1 1.0 1.0 1.0 0.9 Rent roll % 8.1 5.4 4.1 3.9 2.6 2.3 2.2 2.2 2.1 1.9 16.6 34.8 47 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 FINANCIAL REVIEW IFRS PERFORMANCE PROFIT BEFORE TAX £41.6m (2016: £114.0m) IFRS EPS 34.0p (2016: 91.3p) IFRS DILUTED NAV 431p (2016: 405p) EPRA PERFORMANCE EPRA EPS 0.5p (2016: 17.1p) EPRA NAV 473p (2016: 456p) EPRA TRIPLE NAV 442p (2016: 424p) 48 TIM MURPHY FINANCE DIRECTOR Helical aims to deliver market leading returns by investing in and developing real estate that best serves the needs of its tenants and maximises value for its Shareholders. BASIS OF DISCLOSURE OF FINANCIAL INFORMATION The financial information, tables and graphs included in the Financial Review are taken from the Group’s financial statements which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). In measuring and reporting on the financial performance of the Group’s activities, the Group uses a number of alternative performance measures (“APM’s”) to ensure that these financial statements reflect such performance on a basis consistent with that used by management to monitor and assess the Group’s property portfolio and to facilitate comparisons with other companies in the real estate sector. Since 2010, Helical has held a significant proportion of its property assets in joint ventures with partners that provide the majority of the equity required to purchase the assets, whilst relying on the Group to provide asset management or development expertise. Accounting convention requires Helical to account under IFRS for our share of the net results and net assets of joint ventures in limited detail in the income statement and balance sheet. In this review and elsewhere in this statement, we have incorporated the separate components of such joint ventures into a more detailed “see-through” analysis of our property portfolio and debt profile and the associated income streams and financing costs to assist in providing a more comprehensive overview of the Group’s activities. This see-through analysis can be found in Appendix 1. Helical is a member of the European Public Real Estate Association (“EPRA”), a body which aims, through its best practice recommendations, to make the financial statements of public real estate companies clearer, more transparent and comparable across Europe. Earnings reported in the income statement as required under IFRS do not provide HELICAL PLCAnnual Report and Accounts 2017 KEY PERFORMANCE INDICATORS OUR BUSINESS MODEL P.20 P.14 TOTAL ACCOUNTING RETURN % TOTAL PROPERTY RETURN £m 36.8 21.1 22.5 155.3 164.6 140.1 79.9 2.4 8.3 35.9 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 stakeholders with the most relevant information on the operating performance of the underlying property portfolio of real estate companies. A key measure of a company’s operational performance and the extent to which its dividend payments to shareholders are underpinned by earnings is the level of recurring income arising from operational activities. Unrealised changes in valuation, gains or losses on disposals of properties and certain other items do not necessarily provide an accurate picture of the Company’s underlying operational performance and are, therefore, excluded from the EPRA performance measures. Net asset value is a key performance measure used in the real estate industry. However, net asset value as reported in the financial statements under IFRS does not provide stakeholders with the most relevant information on the fair value of the assets and liabilities within an ongoing real estate investment company with a long-term investment strategy. The objective of the EPRA NAV measure is to highlight the fair value of net assets on an ongoing, long-term basis. Assets and liabilities that are not expected to crystallise in normal circumstances such as the fair value of financial derivatives and deferred taxes on property valuation surpluses are therefore excluded. Similarly, trading properties and developments are adjusted to their fair value under the EPRA measure. RESULTS FOR THE YEAR The year to 31 March 2017 saw the Group deliver continued growth in net rental income and a valuation surplus on the investment portfolio leading to pre-tax profit of £41.6m and an increase in EPRA net asset value per share of 3.7%. The proposed final dividend of 6.20p takes the total dividend for the year to 8.60p, a 5.3% increase on the previous year. With growing rents from our core London portfolio, supported by strong income streams from the regional portfolio, the Company aims to continue to grow this dividend. The Group’s real estate portfolio, including its share of assets held in joint ventures, reduced to £1,205m (2016: £1,240m) as gains from its annual revaluation and capital expenditure on the investment portfolio and development programme were offset by the sale of £199m of assets. There were no purchases of new investment, trading or development assets during the year. The sale of investment assets during the year has resulted in a reduction in the Group’s loan to value to 51% (2016: 55%) which has been reduced further since the year end to 49% on a pro-forma basis following the sale of £65m of assets and the purchase of one asset for £13m. The Group’s debt maturity profile shortened to 3.6 years (2016: 4.5 years) and its weighted average cost of debt increased to 4.3% (2016: 4.2%). At 31 March 2017, the Group had unutilised bank facilities of £158m and £109m of cash. The bank facilities are primarily available to fund Phase Two of the Group’s redevelopment of The Bower, London EC1, the construction works at Barts Square, London EC1, including the last phase of residential, its retirement village development programme and future potential investment purchases. TOTAL ACCOUNTING RETURN The total accounting return is the growth in the net asset value of the Company plus dividends paid in the year, expressed as a percentage of the net asset value at the beginning of the period. The metric measures the growth in shareholders’ funds each year and is expressed as an absolute measure. TOTAL PROPERTY RETURN We calculate our Total Property Return to enable us to assess the aggregate of income and capital profits made each year from our property activities. Our business is primarily aimed at producing surpluses in the value of our assets through asset management and development, with the income side of the business seeking to cover our annual administration and finance costs. 49 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 FINANCIAL REVIEW CONTINUED IFRS EARNINGS PER SHARE pence EPRA EARNINGS PER SHARE pence 91.3 33.3 75.0 64.6 34.0 17.1 5.0 2.4 2.4 2013 2014 2015 2016 2017 2013 2014 2015 2016 0.5 2017 IFRS DILUTED NAV PER SHARE pence EPRA NAV PER SHARE pence 405 431 456 473 385 332 288 217 313 264 2013 Growth 2014 +33% 2015 +15% 2016 +22% 2017 +6% 2013 Growth 2014 +18% 2015 +23% 2016 +18% 2017 +4% 3 year CAGR 14.4% 3 year CAGR 14.8% SEE-THROUGH NET RENTAL INCOME £m GROWTH IN SEE-THROUGH NET RENTAL INCOME £m 43 47 43 39 30 24 2013 2014 2015 2016 2017 e m o c n i l a t n e r t e N 6 1 0 2 -7 +10 s l a s o p s i D s t n e r n i h t w o r G +1 s d a e h r e v o y t r e p o r P 47 e m o c n i l a t n e r t e N 7 1 0 2 50 EARNINGS PER SHARE The IFRS earnings per share decreased from 91.3p to 34.0p and is based on the after tax earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. On an EPRA basis, earnings per share were 0.5p (2016: 17.1p), reflecting the Group’s share of net rental income of £47.0m (2016: £43.4m) and development losses of £5.7m (2016: profits of £27.5m) but excluding gains on sale and revaluation of investment properties of £38.6m (2016: £93.7m). NET ASSET VALUE IFRS diluted net asset value per share increased from 405p to 431p and is a measure of shareholders’ funds divided by the number of shares in issue at the period end, excluding those held by the Company’s Employee Share Ownership Plan Trust, adjusted to allow for the effect of all dilutive share awards. EPRA net asset value per share increased by 3.7% to 473p per share (2016: 456p). This increase arose principally from a total comprehensive income (retained profits) of £39.2m (2016: £104.9m) less dividends paid of £3.6m (2016: £14.4m) and reflecting a reduction in the surplus on valuation of the trading and development stock to £12.5m (2016: £19.4m). INCOME STATEMENT Rental Income and Property Overheads Gross rental income receivable by the Group in respect of wholly owned properties increased by 7.3% to £48.8m (2016: £45.5m) reflecting the partial capture of the investment portfolio’s reversionary potential offset by sales of assets during the year. In the joint ventures, gross rents fell from £1.8m to £0.9m. Property overheads in respect of wholly owned assets and in respect of those assets in joint ventures fell from £3.4m to £2.5m. After taking account of net rents payable to our profit share partners of £0.3m (2016: £0.5m), see-through net rents increased by 8.3% to £47.0m (2016: £43.4m). Development Profits The majority of the Group’s development activities are carried out on assets held as investment properties such as The Bower, London EC1 and 25 Charterhouse Square, London EC1, schemes funded with third parties, or in joint ventures. In the year under review the Company made progress at its retirement village portfolio, increasing sales to £40.0m, including the sale of land, (2016: £29.9m) HELICAL PLCAnnual Report and Accounts 2017 with profits of £1.8m (2016: £0.6m). In its development management role at Barts Square, London EC1 and One Creechurch Place, London EC3 and in respect of the development of the Scottish Power headquarters in Glasgow, it earned fees of £2.8m. Our retail development programme generated net profits of £2.3m (2016: loss of £1.8m) as the pre-let scheme at Cortonwood was forward funded during the year. In total, the Group generated development profits of £7.1m (2016: £30.7m). At the year end we reviewed the book value of our land holdings and made provisions of £6.3m (2016: £6.4m), primarily in respect of the retirement village at Great Alne, where forecast costs have increased during the year. Net of these provisions, a development property profit of £0.8m (2016: £24.3m) was recognised. In the previous year to 31 March 2016, profits included a development management fee of £23.2m in respect of The Bower, London EC1 and £3.7m in respect of One Creechurch Place and the Scottish Power headquarters. Share of Results of Joint Ventures The sale of our retail development at Shirley and the termination of the lease to the NHS at Barts Square to allow the final phase of development to commence reduced net rents in our joint ventures from £1.3m to £0.8m. No further rents are expected in respect of assets currently held in joint ventures in the short term. At the year end we reviewed the book value of our land holdings in the joint ventures and made provisions of £6.5m against the carrying value of our schemes at Hammersmith Town Hall and Barts Square. Finance, administration and taxation costs and sundry provisions against the carrying value of assets added a further £0.8m of losses leaving a net loss from our joint ventures of £6.5m. In the previous year to 31 March 2016, gains on the sale or revaluation of the investment assets of £43.9m, mainly in respect of The Bower, London EC1 and Barts Square, London EC1, contributed to a total net profit from joint ventures for that year of £50.5m. Gain on Sale and Revaluation of Investment Properties During the year, we sold 24 investment assets for a total of £159m generating a net overall profit of £1.4m. In London we sold two office buildings at One King Street, Hammersmith, W6 and Chart House, EC1 for £42.0m at a small net loss of £0.3m. In the regions we sold three office buildings at Castle Donnington, Cheadle and Cobham for £14.2m at a profit of £0.7m after costs. We sold six retail assets during the period, being a shop in Leicester and five retail parks in Ellesmere Port, Harrogate, Huddersfield, Scarborough and Stockport for a combined £44.1m at a net loss of £2.9m. From our logistics portfolio we sold 13 assets for £58.5m at a net profit of £3.8m. The valuation of our investment portfolio continued to reflect the benefit of our refurbishment activities in London where we generated an increase of 9.1% overall and 9.8% on a like-for-like basis. The regions contributed a loss of 1.3% overall and 2.1 % on a like-for-like basis. In total, the investment portfolio showed a valuation increase of 4.5%, or 5.2% on a like-for-like basis. The total impact on our results of the gain on sale and revaluation of our investment portfolio, including in joint ventures, was a net gain of £38.6m (2016: £93.7m). NET GAIN ON SALE AND REVALUATION OF INVESTMENT PROPERTIES £m 97 94 45 36 4 2014 2013 Gain on revaluation Gain on sale 93 50 39 37 2015 2016 2017 TOTAL DIVIDEND DECLARED pence 8.17 8.60 6.75 7.25 Administration Costs Administration costs, before performance related awards, increased marginally from £10.7m to £10.8m. 5.55 Performance related share awards and bonus payments, before National Insurance costs, were £6.9m (2016: £13.3m). Of this amount, the £1.7m (2016: £6.7m) charge for share awards under the Performance Share Plan is expensed through the Income Statement but added back to Shareholders’ Funds through the Statement of Changes in Equity. In addition, National Insurance of £0.7m (2016: £2.1m) has been charged in the year. Administration Costs 10,800 2017 £000 Share awards Directors’ and senior executives’ bonuses NIC on share awards and bonuses 2016 £000 10,717 6,666 6,633 1,672 5,182 718 2,087 Total 18,372 26,103 Finance Costs, Finance Income and Derivative Financial Instruments Interest payable on secured bank loans including our share of loans on assets held in joint ventures, but before capitalised interest, increased to £24.7m (2016: £23.9m). Interest payable in respect of the unsecured Retail and Convertible Bonds was £8.8m (2016: £8.8m). The movement in medium and long-term interest rate projections during the year, offset by the shortening maturity period of the Group’s financial instruments, contributed to a credit of 2013 2014 Growth +21.6% 2015 +7.4% 2016 +12.7% 2017 +5.3% 3 year CAGR 8.4% £0.8m (2016: charge of £6.9m) on their mark-to-market valuation. Capitalised interest increased from £4.9m to £7.9m as development schemes progressed. Total finance costs, including joint ventures, reduced from £27.8m to £25.6m. Finance income earned was £4.4m (2016: £5.1m). Taxation Helical pays corporation tax on its UK sourced net rental income, trading and development profits and realised chargeable gains, after offset of administration and finance costs. The deferred tax charge for the year is principally derived from the revaluation surpluses recognised in the year offset by the recognition of tax losses which the Group believes will be utilised against profits in the foreseeable future. 51 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 FINANCIAL REVIEW CONTINUED Investment Portfolio Wholly owned £000 In joint venture £000 See- through £000 Lease incentives £000 Book value £000 Valuation at 31 March 2016 1,041,100 11,552 1,052,652 (6,067) 1,046,585 Acquisitions – – – Capital expenditure 63,712 4,230 67,942 – – – 67,942 Disposals Transfer from stock Revaluation surplus Helical (155,548) 5,066 – – (155,548) 685 (154,863) 5,066 – 5,066 49,210 (1,875) 47,335 (10,058) 37,277 Profit share partners (540) – (540) – (540) Valuation at 31 March 2017 1,003,000 13,907 1,016,907 (15,440) 1,001,467 Debt Profile at 31 March 2017 - Excluding the Effect of Arrangement Fees Total facility £000’s Total utilised £000’s Available facility £000’s Net LTV % Weighted average interest rate % Average maturity Years Investment facilities 572,859 457,992 114,867 Development facilities 60,000 42,949 Total wholly owned 632,859 500,941 In joint ventures 72,270 55,886 17,051 131,918 16,384 Total secured debt 705,129 556,827 148,302 Retail Bond 80,000 80,000 Convertible Bond 100,000 100,000 – – Working capital 10,000 – 10,000 Fair Value of Convertible Bond (226) (226) – Total unsecured debt 189,774 179,774 10,000 Total debt 894,903 736,601 158,302 – – – – 37 – – – – – 51 4.3 3.7 4.3 3.4 4.2 6.0 4.0 – – 4.9 4.3 4.1 3.4 3.6 2.7 3.9 3.2 2.2 – – 2.7 3.6 Debt and Financial Risk In seeking to finance Helical’s expansion in recent years, the Group has used a combination of new secured facilities, whose purpose and terms reflect the nature of the assets charged to the lenders, and unsecured bonds, which have provided the firepower to acquire many of the assets which have contributed to the recent growth in Shareholders’ Funds. The composition of the Group’s debt structure has significantly changed since 31 March 2013 with unsecured debt now representing 24% of debt drawn at 31 March 2017. In total, Helical’s outstanding debt at 31 March 2017 of £737m (2016: £778m) had an average maturity of 3.6 years (2016: 4.5 years) and a weighted interest cost of 4.3% (2016: 4.2%). Dividends Helical follows a progressive dividend policy increasing its dividends in line with its results, whilst retaining the majority of funds generated for investment in growing the business. The interim dividend paid on 30 December 2016 of 2.40p was an increase of 4.3% on the previous interim dividend of 2.30p. The Company has proposed a final dividend of 6.20p, an increase of 5.6% on the previous year (2016: 5.87p). In total, the dividend paid or payable in respect of the results for the year to 31 March 2017 is 8.60p (2016: 8.17p), an increase of 5.3%. Since 2014 the compound annual growth rate of the Company’s dividends has been 8.4%. BALANCE SHEET Shareholder’s Funds Shareholders’ Funds at 1 April 2016 were £480.7m. The Group’s results for the year added £39.2m, net of tax, representing the total comprehensive income for the year. Movements in reserves arising from the Group’s share schemes increased funds by £0.6m. The Company paid dividends to shareholders amounting to £3.6m leaving a net increase in Shareholders’ Funds from the Group activities during the year of £36.2m to £516.9m. 52 Secured Debt The Group arranges its secured investment and development facilities to suit its business needs as follows: • Investment facilities We have £190m of revolving credit facilities which enable the Group to acquire, refurbish, reposition and hold significant parts of our investment portfolio. We have used these facilities to finance our regional portfolio. Our London investment assets are primarily held in £383m of term loan secured facilities which, where appropriate, allow us to finance refurbishment projects including the redevelopment of The Tower at The Bower, Old Street, London EC1. The value of the Group’s properties secured in these facilities at 31 March 2017 was £983m (31 March 2016: £945m) with a corresponding loan to value of 47% (2016: 54%). The average maturity of the Group’s investment facilities at 31 March 2017 was 4.1 years (2016: 5.0 years) with a weighted average interest rate of 4.3% (2016: 3.8%). • Development facilities These facilities finance the construction of the retirement villages at Durrants Village, Faygate; Maudslay Park, Great Alne; Millbrook Village, Exeter; and the fourth phase of Bramshott Place, Liphook. The average maturity of the Group’s development facilities at 31 March 2017 was 3.4 years (2016: 4.4 years) with a weighted average interest rate of 3.7% (2016: 3.8%). • Joint venture facilities We hold a number of investment and development properties in joint venture with third parties and include in our reported figures our share, in proportion to our economic interest, of the debt associated with each asset. The average maturity of the Group‘s share of bank facilities in joint ventures at 31 March 2017 was 2.7 years (2016: 3.7 years) with a weighted average interest rate of 3.4% (2016: 3.4%). Unsecured Debt The Group’s unsecured debt, including the Convertible Bond at its mark-to-market valuation, is £179.8m (2016: £182.7m) as follows: • Retail Bond In June 2013, the Group raised £80m from the issue of an unsecured Retail Bond with a 6.00% coupon. This bond is repayable in June 2020. HELICAL PLCAnnual Report and Accounts 2017 DEBT MATURITY PROFILE £m 363.2 218.1 Secured In joint venture (non recourse) Unsecured 2.5 4.1 1.1 1.1 <1 year 1–2 years 2–3 years 3–4 years 4–5 years 5–6 years 6–7 years 7–8 years 74.5 72.0 Fixed rate debt Secured borrowings Retail Bond Convertible Bond Fair value of Convertible Bond Total Floating rate debt Secured Total In joint ventures Fixed rate Floating rate Total borrowings Effective interest rate % 4.0 6.0 4.0 – 4.2 8.91 4.4 – 3.4 4.3 2017 £m 471.6 80.0 100.0 (0.2) 651.4 29.3 680.7 – 55.9 736.6 Effective interest rate % 3.9 6.0 4.0 – 4.2 3.9 4.2 – 3.4 4.2 2016 £m 452.8 80.0 100.0 2.7 635.5 107.1 742.6 – 35.3 777.9 1 This includes commitment fees on undrawn facilities. Excluding these would reduce the effective rate to 3.0%. • Convertible Bond In June 2014, the Group raised £100m from the issue of a listed unsecured Convertible Bond with a 4.0% coupon, repayable in June 2019, or, subject to certain conditions, convertible at the option of the bond holders into ordinary shares, unless a cash settlement option is exercised by the Company. The initial conversion price has been set at £4.9694 per share, representing a 35% premium above the price on the day of the issue and a premium of 59% above the Company’s EPRA net asset value per share at 31 March 2014. The value of the Bond at 31 March 2017, as determined by the listed market price, was £99.8m (2016: £102.7m). • Short-term working capital facilities These facilities provide access to additional working capital for the Group. Cash and Cash Flow At 31 March 2017, the Group had £267m (2016: £193m) of cash and agreed, undrawn, committed bank facilities including its share in joint ventures as well as £17m (2016: £153m) of uncharged property on which it could borrow funds. Net Borrowings and Gearing Total gross borrowings of the Group, including in joint ventures, have reduced from £777.9m to £736.6m during the year to 31 March 2017. After deducting cash balances of £109.0m (2016: £86.8m) and unamortised refinancing costs of £7.6m (2016: £9.3m), net borrowings reduced from £681.8m to £620.0m. The gearing of the Group, including in joint ventures, reduced from 142% to 120%. See-through gross borrowings See-through cash balances Unamortised refinancing costs See-through net borrowings 2017 2016 £736.6m £777.9m £109.0m £86.8m £7.6m £9.3m £620.0m £681.8m Shareholders’ Funds £516.9m £480.7m See-through gearing - IFRS 120% 142% Hedging At 31 March 2017, the Group had £651.4m (2016: £635.5m) of fixed rate debt with an average effective interest rate of 4.2% (2016: 4.2%) and £29.3m (2016: £107.1m) of floating rate debt with an average effective interest rate, excluding commitment fees, of 3.0% (2016: 3.9%). In addition, the Group had £3.3m of interest rate caps at an average of 0.75% (2016: £157m at 4.0%). In our joint ventures, the Group’s share of fixed rate debt was £nil (2016: £nil) and £55.9m (2016: £35.3m) of floating rate debt with an effective rate of 3.4% (2016: 3.4%) with interest rate caps set at 1.5% plus margin on £61.8m and 0.5% plus margin on £56.9m (2016: £nil). Interest Cover In assessing the results of the Group for each financial year, Helical considers its interest cover as a measure of its performance and its ability to finance its annual interest payments from its net operating income, before revaluation gains or losses on the investment portfolio and net realisable provisions on the trading and development stock. In the year to 31 March 2017, this interest cover was 2.6 times (2016: 5.4 times). See-through net operating income See-through net finance costs Interest cover 2017 2016 £55.4m £121.3m £21.2m £22.6m 2.6x 5.4x INVESTMENT PROPERTY ACCOUNTING TREATMENT International Accounting Standard 40 - Investment Property requires that accrued operating lease income assets should be shown separately and deducted from the fair value of the investment properties in the Statement of Financial Position. This accounting treatment had not been applied at 31 March 2016 but has been adopted for the period ended 31 March 2017. A prior year adjustment has been made to ensure consistency of comparative information, clarity and transparency. The effect of the adjustment on the relevant financial statement line items for the year ended 31 March 2016 is detailed in note 35. TIM MURPHY Finance Director 25 May 2017 53 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 PRINCIPAL RISKS REVIEW Risk is an integral part of any group’s business activities and Helical’s ability to identify, assess, monitor and manage each risk to which it is exposed is fundamental to its financial stability, current and future financial performance and reputation. As well as seeing changes in our internal and external environment as potential risks, we also see them as being opportunities which can drive performance. Risk management starts at Board level where the Directors set the overall risk appetite of the Group and the risk management strategies. Helical’s management runs the business within these guidelines and part of its role is to act within these strategies and to report to the Board on how they are being operated. The Group’s risk appetite and risk management strategies are continually assessed by the Board to ensure that they are appropriate and consistent with the Group’s overall strategy and with external market conditions. The effectiveness of the Group’s risk management strategy is reviewed regularly by the Audit and Risk Committee and by the full Board. The Board has ultimate responsibility for risk within the business. However, the small size of the team and our flat management structure allows the Executive Directors to have close contact with all aspects of the business and allows them to ensure that the identification and management of risks and opportunities is part of the mindset of all decision makers at Helical. a n d f u n d i n g S t r u c t u r e S T R A c q uire assets Reputational risk A T E G I C R I S K e u l a v l a t n e R t i x e / Develop, let a n d asset mana g e PERATIONAL R I S K O FIN A N C A L I R I S K 54 HELICAL PLC Annual Report and Accounts 2017 VIABILITY STATEMENT The Directors have assessed the viability of the Group for a period of five years to March 2022, being the period for which the Board regularly reviews forecasts and which encompasses the lifetime of the Group’s major development projects. The Board does consider the future performance of the Group beyond the five years but a longer timeframe involves less certainty over the forecasting assumptions. The viability of the Group is reviewed throughout the year and through multiple channels, detailed below: • The strategic direction of the Group is established by the Board once a year and is captured in the Business Plan which forms the basis of the detailed budgets and actions for the year; • The Board reviews the principal risks of the Group twice a year, reassessing the severity of each risk and determining the Group’s proposed response; • The five year forecasts for the Group are updated and reviewed by the Board on a quarterly basis; and • Management reviews the short-term (three-four months) cash requirements of the Group on a weekly basis and cash balances and movements are monitored daily. In making their assessment, the Board considers the principal risks and then assesses the potential impacts in severe, but plausible, downside scenarios together with the likely effectiveness of mitigating actions that the Group would have at its disposal. The most relevant risks and the potential impact of them on the viability of the Group are considered to be: • A significant reduction in the fair value of the Group’s property portfolio, which could result in the Group breaching loan covenants and being required to repay a proportion of borrowings; • A lack of demand from tenants as the Group’s development properties near practical completion, which could reduce the Group’s levels of rental income and profitability; and • An inability to maintain sufficient levels of rental income, which could present a short-term liquidity risk for the Group. The Group subjected the cashflow forecasts to sensitivity analysis in which it assessed the impact of significant reductions to the property portfolio fair value and associated rental income on the Group’s loan covenants. Management also modelled the rental income profile of the Group, taking into account expected changes to leases and contracted rents, comparing expected income with the loan covenant requirements in order to determine points of potential pressure. Based on the outcomes of the procedures outlined above and other matters considered by the Board, it has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the five year period of their assessment. 55 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 PRINCIPAL RISKS REVIEW CONTINUED OUR PRINCIPAL RISKS The principal risks faced by the Group, and the steps taken by the Group to mitigate these risks, are as follows: STRATEGIC RISKS Strategic risks are external risks that could prevent the Group delivering its strategy. These risks principally impact our decision to purchase or exit from a property asset. The Group’s strategy is inconsistent with the market Risk description Changing market conditions could hinder the Group’s ability to buy and sell properties envisioned in its strategy. The location, size and mix of properties in the Helical portfolio determine the impact of the risk. If the Group’s chosen markets underperform, the impact on the Group’s liquidity, investment property revaluations and rental income is greater. The Group carries out significant development projects over several years and is therefore exposed to fluctuations in the market over time. Mitigation/action Management constantly monitors the market and makes changes to the Group’s strategy in light of market shifts. The Group’s management is highly experienced and has a strong track record of understanding the property market. Due to the Group’s small management team, changes in strategy can be implemented quickly. Management carefully reviews the risk profile of individual developments and in some cases builds properties in several phases to minimise the exposure to reduced demand for particular asset classes or geographical locations over time. The Group limits the number of speculative developments it does on its own balance sheet. Property values decline/reduced tenant demand for space Risk description The property portfolio is at risk of revaluation falls through changes in market conditions, including under-performing sectors or locations, lack of tenant demand or general economic uncertainty. Mitigation/action The Group’s property portfolio is diverse in asset type, location and tenant industries, reducing over-exposure to one sector. Management reviews external data, seeks the advice of industry experts and monitors the performance of individual assets and sectors in order to dispose of non-performing assets and rebalance the portfolio for the changing market. Political risk Risk description There is a risk that regulatory and tax changes could adversely affect the market in which the Group operates and changes in legislation could lead to delays in receiving planning permission. Mitigation/action Management seeks advice from experts to ensure continued monitoring of upcoming regulatory and tax changes and to understand the potential impact on the Group. It maintains good relationships with planning consultants and local authorities. This risk has increased significantly following the United Kingdom’s decision to leave the European Union in June 2016. FINANCIAL RISKS Availability of bank borrowing and cash resources Financial risks are those that could prevent the Group from funding its chosen strategy, both in the long and short term. Risk description The inability to roll over existing facilities or take out new borrowing would impact on the Group’s ability to maintain its current portfolio and purchase new properties. The Group may forego opportunities if it does not maintain sufficient cash to take advantage of them as they arise. Mitigation/action The Group maintains a good relationship with many established lending institutions and borrowings are spread across a number of these. Funding requirements are reviewed weekly by management, who ensure that the maturity dates of borrowings are spread over several years. Management monitors the cash levels of the Group on a daily basis and maintains sufficient levels of cash resources and undrawn committed bank facilities to fund opportunities as they arise. Breach of loan and bond covenants Risk description If the Group breaches debt covenants, lending institutions may require the early repayment of borrowings. Mitigation/action Covenants are closely monitored throughout the year. Management carries out sensitivity analysis to assess the likelihood of future breaches based on significant changes in property values or rental income. Increase in cost of borrowing Risk description The Group is at risk of increased interest rates on unhedged borrowings. Mitigation/action The Group hedges the interest rates on the majority of its borrowings, effectively fixing the rates over several years. 56 HELICAL PLCAnnual Report and Accounts 2017 OUR STRATEGY P.18 OPERATIONAL RISKS Operational risks are internal risks that could prevent the Group from delivery its strategy. Employment and retention of key personnel Risk description The Group’s continued success is reliant on its management and staff and successful relationships with its joint venture partners. Inability to asset manage, develop and let property assets Risk description The Group relies on external parties to support it in asset managing, developing and letting its properties, including planning consultants, contractors, architects, project managers, marketing agencies, lawyers and managing agents. Health and Safety/Bribery and corruption risk Risk description The nature of the Group’s operations and markets expose it to potential health and safety and bribery and corruption risks. Mitigation/action The senior management team is very experienced and the average length of service is high. The Nominations Committee and Board regularly review succession planning issues and remuneration is set to attract and retain high calibre staff. The Group has well established relationships with joint venture partners. Mitigation/action The Group has a highly experienced team managing its properties. It seeks to maintain excellent relationships with its specialist professional advisors. Management actively monitors these parties to ensure they are delivering the required quality on time. Mitigation/action The Group reviews and updates its Health and Safety policy regularly and it is approved by the Board annually. The Group engages an external health and safety consultant to review contractor contracts prior to appointment to ensure they have appropriate policies and procedures in place, then monitors the adherence to policies throughout the project. The Executive Committee reviews the report by the external consultant every month and the Board reviews them at every scheduled meeting. The internal asset managers carry out regular site visits. The Group’s anti-bribery and whistleblowing policies are reviewed and updated annually and projects with greater exposure to bribery and corruption are monitored closely. The Group avoids doing business in high risk territories. All employees are required to complete an online anti-bribery and corruption course and to submit details of corporate hospitality and gifts received. Disruption to the business from failure of Information Technology systems Risk description The Group relies on Information Technology to perform effectively. Failure would adversely affect the Group’s operations. Commercially sensitive information is electronically stored by the Group. Theft of this information could adversely impact the Group’s commercial advantage and result in penalties where the information is protected by law. Mitigation/action The Group engages and actively manages external Information Technology experts to ensure the systems operate effectively and that we respond to the evolving I.T. security environment. This includes regular off-site backups and a comprehensive disaster recovery process. The external provider also ensures the system is secure and this is subject to routine testing. REPUTATIONAL RISKS Poor management of stakeholder relations Reputational risks are those that could affect the Group in all aspects of its strategy. Risk description The Group risks suffering from reputational damage resulting in a loss of credibility with key stakeholders including Shareholders, analysts, banking institutions, contractors, managing agents, tenants, property purchasers/sellers and employees. Mitigation/action The Group believes that by successfully delivering its strategy and mitigating its strategic, financial and operational risks its good reputation will be protected. The Group regularly reviews its strategy and risks to ensure it is acting in the interests of its stakeholders. The Group maintains a strong relationship with investors and analysts through regular meetings. The Group has a formal approval procedure for all press releases and public announcements. A Group Disclosure Policy and Share Dealing Code, Policy & Procedures have been circulated to all staff in accordance with the EU Market Abuse Regulation (MAR). Modern Slavery and Human Trafficking Risk description The Group would attract criticism and negative publicity were any instances of “modern slavery” identified within its supply chain. Mitigation/action Our Modern Slavery Act statement, which is prominently displayed on our website, gives details of our policy and our approach. 57 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 CORPORATE RESPONSIBILITY “ THE QUESTION THAT WE ALWAYS ASK OURSELVES WHEN WE BUY A BUILDING IS “WOULD WE WANT TO WORK HERE OURSELVES?” Gerald Kaye Chief Executive RESPONSIBLE ENVIRONMENTAL AND SOCIAL PRACTICES PEOPLE ENVIRONMENT CHARITABLE, COMMUNITY AND SOCIAL ACTIVITIES HEALTH AND SAFETY 58 CORPORATE RESPONSIBILITY FRAMEWORK Our management of our corporate responsibilities is achieved through a focus on four key areas above. HELICAL PLC Annual Report and Accounts 2017 SCOTTISH POWER GLASGOW Helical implements responsible environmental and social practices across its direct business, via partners, contractors and suppliers and through its joint venture activities. An endorsement of Helical’s commitment to managing environmental and social impacts is its continued listing in the FTSE4Good Index. The FTSE4Good Index measures the performance of companies that meet globally recognised Corporate Responsibility standards and facilitates investment in those companies. Maintaining listed status on this Index remains a key priority for Helical, and informs the evolving approach to Corporate Responsibility and Sustainability. The benefits of managing environmental and social impacts include an increased ability to secure planning consent, improved marketability of assets to prospective tenants, reduced operating costs of assets, mitigating the risk of future legislation and regulation, and enhanced corporate reputation. are incorporated into all decisions throughout the development lifecycle. In addition, an Environmental Impact Checklist is issued to individual contractors in order to address corporate goals at the construction stage; and • Effective use of internal audit and review through quarterly meetings of key Helical personnel, external Corporate Responsibility advisors and principal managing agents to ensure effective delivery of the objectives and targets. The management system has been designed specifically to reflect the flexibility of Helical’s business model. It also reflects the key role that Helical’s partners play in delivering enhanced sustainability outcomes in all its business ventures, be they developments/ refurbishments or in the management of individual multi-let assets. We comment overleaf on some of the highlights across our four key areas. MANAGING CORPORATE RESPONSIBILITY Each year Helical reviews and updates its environmental management system, which has been in place since 2003. The environmental management system, is available on the Company website and key elements of the system include: • “Environment” and “Corporate Responsibility” policies which set out the Group’s high-level commitment across a number of impact areas. These are reviewed annually at Board level and are implemented by the senior management team; • Annual (and ongoing) performance targets to enable Helical to focus its efforts throughout the year on measurable, and achievable performance goals; • Key Performance Measures to help Helical monitor progress towards these targets and to ensure they can report in line with investor disclosure requirements, notably FTSE4Good; • Checklists to assist in applying minimum sustainability requirements across its development activities. Helical has developed a sustainability project management checklist to ensure that sustainability issues 59 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 CORPORATE RESPONSIBILITY CONTINUED PEOPLE Helical has a small core team, working closely with trusted partners in multiple disciplines. Our success is built on the skills of our staff so finding, developing, rewarding and retaining our people is a key element of our corporate strategy. As at 31 March 2017, Helical had 30 permanent and three temporary employees (9.1% of the staff) based at the Group’s head office in London. In addition, there were two employees in the Polish subsidiary and three employees of the retirement village companies. The majority of the staff working at the retirement villages were transferred to the external company responsible for the day to day management of the sites during the year. The information set out below is in respect of the head office only. Gender diversity of the Board and the Company as at 31 March 2017 is set out in the charts to the left. Helical continues to enforce its equal opportunities, harassment and sexual discrimination policies. We also continue to monitor compliance with its anti- bribery and whistle blowing policies. There have been no incidents to report against these policies to date. A high level of staff retention remains a key feature of the business. Staff turnover is low at 5.7% (representing two permanent employees leaving in the year). Helical has retained a highly skilled and experienced team and the table below shows a breakdown of staff by length of service: Total number of staff as at 31 March 2017 Average length of service (years) Executive Directors Executives All employees 4 15 30 19.5 5.7 8.0 THE AVERAGE LENGTH OF SERVICE OF OUR PEOPLE IS 8 YEARS. Helical’s staff retention levels not only reflect competitive remuneration and benefits packages but also its commitment to enhancing the professional and personal skills of its team by supporting employee training and development, by means of training courses, seminars and mentoring. As in previous years, Helical continues to evaluate training needs in line with business objectives. Collectively, our people spent 1,148 hours on training and development during the year, an average of 5.3 days per employee. There are no human rights issues of which the Board is aware that are considered relevant to the Group. As Helical operates with a small team, our ability to establish excellent long-term relationships with our advisers, agents and other suppliers is very important. As part of this, fair treatment of suppliers remains a key priority for Helical and the Group’s policy is to settle all agreed liabilities within the terms established with them. COLLECTIVELY, OUR PEOPLE SPENT 1,148 HOURS ON TRAINING AND DEVELOPMENT DURING THE YEAR. ENVIRONMENT The Group’s corporate commitments to environmental issues are outlined in the Group’s Environmental Policy which can be found on the Company’s website. The policy details Helical’s commitments across a range of impact areas and its development and property management activities. The Group sets itself targets to guide its environmental responsibilities, including resource use and waste production, pollution, biodiversity, timber sourcing, tenant engagement, flood risk and sustainable design and construction. BOARD Male Female 90% 10% EXECUTIVES Male Female 67% 33% ALL EMPLOYEES Male Female 50% 50% 60 HELICAL PLCAnnual Report and Accounts 2017 Full details of the Group’s performance against the targets during the year is available in the Corporate Responsibilities section of the Company’s website, but a selection of highlights are presented below: • Due to changes in the portfolio over the year, it is difficult to provide meaningful overall like-for-like statistics. However, of the properties that can be compared: – The Shepherds Building, London W14, has shown an increase in energy consumption of 6%, which can be partially attributed to the ongoing major essential repairs to the lifts. Water consumption increased by 24% with the addition of new showers in the common parts last year and varying usage based on occupancy levels. – The Hub, Glasgow, has shown an 8% increase in gas consumption attributable to increased occupancy levels (although a decrease of 8% in electricity consumption has also been achieved) and a 54% decrease in water consumption, which is principally a result of works to faulty toilet cisterns. – Churchgate & Lee House, Manchester, has shown a small decrease in electricity consumption compared with last year, but increases of 11% for gas and 34% for water are principally attributed to increased occupancy. – The Morgan Quarter, Cardiff, has shown a 15% decrease in electricity consumption through implementing a successful awareness raising programme for staff regarding the role they can play in reducing costs and lessening environmental impact. • The Group continues to offer recycling facilities at the larger of its managed assets. Where data is available Helical comfortably exceeded its ongoing target of a recycling rate of at least 35% at most properties with over 80% of waste generated being recycled at The Loom, London E1, 211 Old Street, London EC1, The Hub, Glasgow, and Churchgate & Lee House, Manchester. • In line with the mandatory requirement for reporting its greenhouse gas emissions, Helical provides a separate disclosure in this report below. GREENHOUSE GAS (GHG) EMISSIONS REPORTING For the reporting year to 31 March 2017 the 2014 UK Government’s Conversion Factors for Company Reporting has been followed. Greenhouse gas emissions are reported using the following parameters to determine what is included within the reporting boundaries. • Scope 1 - direct emissions includes any gas data for landlord controlled parts and fuel use for Group owned vehicles. Fugitive emissions from air conditioning are included where it is Helical’s responsibility within the managed portfolio, when the data is available. • Scope 2 - indirect energy emissions includes purchased electricity throughout the Group’s operations within landlord controlled parts. Electricity used in refurbishment projects has been recorded separately where appropriate. In the majority of cases the electricity consumed is recorded for the individual properties as part of the data collection for the management of common parts, and contractors have been required to collect project specific data. The table below highlights that overall GHG emissions have increased by 27% year on year. The reason for this is primarily due to an increase in tenant occupation at a number of the larger multi-let properties, which has also increased the common parts consumption. Data for last year has been restated due to metering and billing issues at a number of properties, in particular Churchgate & Lee House, Manchester, and Leighton Buzzard. For Scope 1 this represents an increase of 226 tonnes and for Scope 2 an increase of 469 tonnes. Due to the changing portfolio, the like-for-like GHG emissions are only reported for a small number of properties (seven properties for electricity and three properties for gas). Although consumption overall for the portfolio has increased, the like-for-like performance across the assessed properties has reduced by 8%. This is due in part to improved energy efficiency, light fittings and a greater awareness of responsibilities regarding personal impact on consumption. Only three multi-let office buildings and one shopping centre can report on carbon intensity. At Churchgate & Lee House, Manchester, The Hub, Glasgow, and The Shepherds Building, London W14, the average carbon intensity equates to 0.11 tCO2e/m2, whilst The Morgan Quarter, Cardiff, has a carbon intensity of 0.01 tCO2e/m2. These levels are consistent with last year’s performance. Greenhouse gas emissions (tonnes CO2e) are set out below for the year: Total portfolio Tonnes CO2e Like-for-like portfolio Tonnes CO2e Year ended 31.3.16 Year ended 31.3.17 Year ended 31.3.16 Year ended 31.3.17 Scope 1: Direct emissions Scope 2: Indirect emissions Total all scopes 796 2,877 3,673 1,009 3,628 4,637 366 1,288 1,654 382 1,144 1,526 The specific target set by Helical is to reduce energy consumption by 2% pa in the principal managed assets. As discussed earlier in this section of the report, year on year performance is variable across the portfolio and complicated by the changing nature of the portfolio through acquisition and divestment, increasing occupancy and ongoing refurbishment of the component assets. Like-for-like has seen an improvement of 8% on the 2016 baseline performance achieving the 2% reduced energy consumption target. 61 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 CORPORATE RESPONSIBILITY CONTINUED HELICAL HAS DELIVERED OVER TWO MILLION HOURS OF CONSTRUCTION DURING THE YEAR. CHARITABLE, COMMUNITY AND SOCIAL INITIATIVES Helical takes a strong interest in charitable, community and social issues. As a group, we recognise that the buildings that we own and develop have an impact on the local environment and the communities that live and work there and we believe that engagement with those communities is an important part of our activities. Community engagement is an on-going concern throughout the development process, from planning until development completion and operation. Over the past year Helical has set up social media accounts on Twitter, LinkedIn and Instagram in order to communicate more effectively with our tenants and other stakeholders. A quarterly online newsletter, City Life, has also been introduced which circulates articles on the Group’s projects, occupiers and contributing partners. These can all be accessed through the Helical website. As part of our commitment to the regions in which we operate, we regularly support community initiatives. Some examples from the year to 31 March 2017 include: • The Morgan Quarter, Cardiff, team worked with Cardiff Pride last summer to provide a hub for the LGBT community for a week in the run up to the Pride Festival. They have also been shortlisted for a Cardiff Life Award in the Property category; • A number of charity fundraising events have been held at The Shepherds Building, London W14, over the last 12 months, many of which tie into high- profile national charity campaigns (for example the MacMillan baking event, Wear It Pink Day and Children in Need); HEALTH & SAFETY Helical has a corporate culture that is committed to the prevention of injuries and ill health to its employees or other people that may be affected by its activities. The Group’s Health & Safety policy reflects this commitment. The Board of Directors and senior executives are responsible for implementing this policy and they look to ensure that health and safety considerations are always given priority in planning and in day-to-day activities. The Group’s Health & Safety Policy was last reviewed and updated in February 2017 to reflect the latest legislative and regulatory developments. Training of Helical staff in the updated Health and Safety Policy and supporting CDM requirements has been undertaken during the reporting year. The Group’s Health & Safety policy can be found on the Company’s website and a summary of performance for the 18 active sites is below. Helical has delivered over two million hours of construction during the year with no fatalities or major accidents and only seven RIDDOR reportable incidents. Overall Health and Safety performance using Lost Time Accident Frequency Rate is a 61% improvement over last year. The majority of Helical projects are managed by principal contractors holding OHSAS 18001 certification and that maintain 100% Construction Skills Certification Scheme (CSCS) accreditation for all full time and subcontracted staff. Number of Lost Time accidents Number RIDDOR reportable Number of fatalities Number of hours worked Accident frequency rate for Lost Time accidents Accident frequency rate for RIDDOR reportable Year ended 31.3.16 Year ended 31.3.17 13 10 23 7 nil nil 2,557,524 2,104,085 0.90 0.48 0.51 0.33 62 HELICAL PLCAnnual Report and Accounts 2017 WE RECOGNISE THAT THE BUILDINGS WE OWN AND DEVELOP HAVE AN IMPACT ON THE LOCAL ENVIRONMENT AND THE COMMUNITIES THAT LIVE AND WORK THERE AND WE BELIEVE THAT ENGAGEMENT WITH THOSE COMMUNITIES IS AN IMPORTANT PART OF OUR ACTIVITIES. • At Churchgate & Lee House, Manchester, the team attended a local conference linked to Manchester Metropolitan University about coffee cup recycling and litter prevention and invited tenants along to join. We have also held several events for our tenants that have involved partnerships with local businesses, organisations and musicians; • Helical continues to be a member of The Aldgate Partnership (“TAP”), formed in 2014 to help drive a powerful agenda for change. Membership of the Group currently includes landowners, commercial occupiers, and developers. TAP works in partnership with its members to develop Aldgate as ‘One Location’, delivering a range of interventions to support community development and develop a premier business hub with high quality public realm and environment that produces a safe, convenient and inspiring destination for all employees, residents and visitors; • During the year Helical staff raised funds for numerous charities, most particularly LandAid, the property industry’s charity. LandAid works with young disadvantaged people in the UK who are living on the streets, or who are at severe risk of homelessness, to provide them with accommodation and training as well as working to tackle the root causes of homelessness. Seven members of Helical’s staff participated in the 10k LandAid Run and five employees took part in “LandAid Day” (touring around London raising over £17,000 in donations from local businesses). One Helical staff member participated in the “Source to Sea” - a non-stop relay race from the source of the River Thames to the sea stretching 237 miles, averaging more than 33 miles per runner and raising over £9,000 for LandAid; • Helical has been a sponsor of the Property Race Day every year since it started in 2006, raising funds for a number of national charities; • Alongside the Group’s formal charitable activities, Helical employees raise funds for charities on a personal basis and, where appropriate, the Group will make donations to help the staff reach their fundraising goals; and • To help encourage young people to enter the property industry, for the last ten years Helical has held a work experience event comprising a two-day intensive introductory programme into London Real Estate run by Helical’s Chief Executive with support from the senior members of the Property team. The package is available to 8-10 students studying either a BA or Masters in Real Estate or equivalent qualification. FUTURE ENVIRONMENTAL RISKS AND OPPORTUNITIES Helical recognises that changing social and environmental factors need to be taken into account when considering our broad business strategies, as these may give rise to opportunities to be exploited or risks to be mitigated. Such factors include: • The uncertainties surrounding future changes to environmental and social legislation and potential changes to labour markets following the UK’s decision to leave the European Union; • The implications for the property sector of global agreements to tackle climate change and more local actions that may be taken to tackle specific environmental issues (for example measures to reduce air pollution in city centres); and • Broader technological and social changes that may impact on our tenants, our partners and the wider communities where our properties are sited. As a group, we keep such matters under review and act as necessary to ensure that we meet our obligations. The Strategic Report, on pages 2 to 63, was approved by the Board on 25 May 2017. On behalf of the Board GERALD KAYE Chief Executive 63 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 GOVERNANCE The Board of Helical is collectively responsible for providing the leadership of the Company within a framework of controls and reporting structures which assist in pursuing its strategic aims and business objectives. It comprises a Non-Executive Chairman, a Chief Executive, five Non-Executive Directors and three Executive Directors. The Board delegates operational responsibilities to an Executive Committee and governance responsibilities to Nominations, Audit and Risk, Remuneration and Property Valuations Committees whilst retaining overall responsibility for the running of the Company. Chairman’s Review Governance Structure Board of Directors Governance Review Nominations Committee Report Audit and Risk Committee Report Directors’ Remuneration Report Report of the Directors Statement of Directors’ Responsibilities 66 68 70 72 76 78 80 98 100 64 HELICAL PLC Annual Report and Accounts 2017 C-SPACE London EC1 65 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 CHAIRMAN’S REVIEW MICHAEL SLADE CHAIRMAN It has been another good year at Helical with a reshaping of the Board completed, equity recycled through the sale of almost £200m of assets and the Company’s activities streamlined. We have also sought to strengthen our compliance with Corporate Governance requirements. DEAR SHAREHOLDER, I am pleased to be able to address Shareholders for the first time as Chairman of Helical. After leading the Company as Chief Executive for 32 years I was delighted the Board selected Gerald Kaye to be my successor and am confident he will lead the Company with distinction for many years. BOARD DECISIONS Much of the year was taken up in discussion of the changing economic and political environment and outlook for our markets, against a background of the decision to leave the European Union and other geopolitical factors. In addition, the Board meeting agendas during the year contained many issues including: • A review of the Group’s corporate, property and financial strategy; • A complete review of the Company’s compliance with the UK Corporate Governance Code 2014 and the introduction of new policies on diversity and slavery; • Consideration and approval of significant property transactions; and, • Completion of the changes to the composition of the Board as outlined on page 76. The Company has had a good year despite an uncertain background following the decision to leave the European Union. The rationalisation of the portfolio leaves the Company with a focused portfolio balanced between a London investment and development programme providing both capital and rental growth opportunities and a high yielding regional investment portfolio. COMPOSITION OF THE BOARD The composition of the Board is discussed in greater detail in the Nominations Committee Report on pages 76 to 77. Following the changes implemented at the 2016 AGM, the Board consists of a Non-Executive Chairman, four Executive Directors and five independent Non- Executive Directors, a balance which satisfies governance requirements for a FTSE 350 Company, notwithstanding that we are currently outside of that index. There are no changes proposed at the AGM on the 13 July 2017 and none are anticipated before 2019. Good governance is reflected in the contribution that a diverse Board offers and the Company will seek to make further progress in this area in future years. COMPOSITION OF THE BOARD Non-Executive Chairman Executive Directors Independent Non-Executive Directors 10% 40% 50% TENURE 15 years or more 10-15 years 5-10 years 1-5 years 2 0 3 5 66 HELICAL PLCAnnual Report and Accounts 2017 The Chief Executive, Gerald Kaye, and the Finance Director, Tim Murphy, attended the majority of these meetings during the year with the remaining Executive Directors, Duncan Walker and Matthew Bonning-Snook, also attending as appropriate. The Senior Independent Director, Richard Gillingwater, attended a small number of meetings. Richard Gillingwater and I are available to meet Shareholders if they wish to discuss any matters with us. Finally, I would like to thank my fellow Non-Executive Directors, Gerald Kaye and his Executive team, the senior property professionals, finance team and all the staff for their hard work during the year. The following pages describe in greater detail our governance structure and the work of the Board and its Committees. MICHAEL SLADE Chairman 25 May 2017 ANNUAL STRATEGY REVIEW In March 2017, the Board considered the Executive Directors’ Annual Strategy Review of the business, examining the economic, geopolitical, societal and environmental risks affecting the business. This review reaffirmed the Company’s principal objective of combining investment and development activity to ensure maximum shareholder returns whilst managing risks appropriately. BOARD EVALUATION For the first time, the Board Evaluation was undertaken by an external advisor and the results of this review are outlined in the Governance Review on pages 72 to 75. I am pleased to report that the overall findings noted that Helical has an effective Board with many strengths. Recognising that some improvements can be made, the Governance Review also notes the actions to be taken during the year to 31 March 2018 and I will be reporting on these in the 2018 Annual Report. BOARD COMMITTEES The work of the Nominations, Remuneration and Audit and Risk Committees are discussed in detail in their individual reports on pages 76 to 97. With regard to remuneration and in the light of increasing shareholder scrutiny of this area I note that Shareholders approved the Company’s Remuneration Policy at the 2016 AGM with 97% in favour and no changes are being proposed at the 2017 AGM. INVESTOR RELATIONS We have an extensive programme of meetings and presentations with shareholders throughout the year with the majority of these taking place in the periods following our annual and half year results. PRINCIPAL RISKS REVIEW P.54 67 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 GOVERNANCE STRUCTURE BOARD OF DIRECTORS EXECUTIVE COMMITTEE Gerald Kaye - Chairman Matthew Bonning-Snook Tim Murphy Duncan Walker NOMINATIONS COMMITTEE Richard Gillingwater - Chairman Susan Clayton Richard Cotton Richard Grant AUDIT AND RISK COMMITTEE Richard Grant - Chairman Susan Clayton Richard Cotton REMUNERATION COMMITTEE Michael O’Donnell - Chairman Susan Clayton Richard Cotton Richard Gillingwater Richard Gillingwater Michael O’Donnell Michael O’Donnell Richard Grant PROPERTY VALUATIONS COMMITTEE Susan Clayton - Chairman Gerald Kaye Duncan Walker Michael Slade Responsibilities Leads the process for Board appointments and the annual Board evaluation process and makes recommendations to the Board. Responsibilities Assists the Chief Executive in the performance of his duties within the bounds of his authority and subject to the limitations of authority set out in the schedule of matters reserved for the Board. Responsibilities Reviews the valuations of the Company’s property portfolio and reports to the Audit and Risk Committee on its findings. Responsibilities Reviews and monitors the integrity of the financial information provided to Shareholders, the Company’s system of internal controls and risk management, the external audit process and auditors and the processes for compliance with laws, regulations and ethical codes of practice. Responsibilities Assists the Board to fulfil its responsibility to Shareholders to ensure that the remuneration policy and practices of the Company reward fairly and responsibly, with a clear link to corporate and individual performance, having regard to statutory and regulatory requirements. READ P.76-77 READ P.78-79 READ P.80-97 The Board of Helical is collectively responsible for providing the leadership of the Company within a framework of controls and reporting structures which assist in pursuing its strategic aims and business objectives. It comprises a Non-Executive Chairman, a Chief Executive, five Non-Executive Directors and three Executive Directors. The Board delegates operational responsibilities to an Executive Committee and governance responsibilities to Nominations, Audit and Risk, Remuneration and Property Valuations Committees whilst retaining overall responsibility for the running of the Company. LEADERSHIP The Chairman is Michael Slade. The Chief Executive is Gerald Kaye and the three Executive Directors are Tim Murphy (Finance Director), Matthew Bonning-Snook and Duncan Walker. The Non-Executive Directors are Richard Gillingwater (Senior Independent Director), Susan Clayton, Richard Cotton, Richard Grant and Michael O’Donnell. All the Directors will be offering themselves for re-election at the 2017 AGM. Biographies of all Directors and details of their shareholdings in the Company are on pages 70 to 71 and 96 respectively. ROLES OF CHAIRMAN AND CHIEF EXECUTIVE The Chairman and the Chief Executive are responsible for the leadership of the Company. The Chairman’s primary responsibility is to lead the Board and ensure its effectiveness, whilst the Chief Executive is responsible for running the Company’s business. The division of responsibilities is clearly established at Helical, is set out in writing and is approved by the Board. 68 HELICAL PLCAnnual Report and Accounts 2017 BOARD RESPONSIBILITIES The main purpose of the Board is to create and deliver the long-term success of the Group and returns for its Shareholders. The Board is collectively responsible for providing the entrepreneurial leadership of the Group within a framework of controls and reporting structures which assist the Group in pursuing its strategic aims and business objectives. The Board sets the Group’s strategic aims, ensures that the necessary financial and human resources are in place for the Group to meet its objectives and also reviews management performance. The Board sets the Group’s values and standards and ensures that the Group’s obligations to its Shareholders and others are understood and met. All Directors take decisions objectively in the interests of the Group. As part of their roles as members of the Board, Non-Executive Directors constructively challenge and help develop proposals on strategy and the risk appetite of the Group. Non-Executive Directors scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. They satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible. They are responsible for determining appropriate levels of remuneration for the Executive Directors and have a prime role in appointing and, where necessary, removing Executive Directors. In conjunction with the Nominations Committee, the Board considers succession planning of Board members and senior management. In addition to Boardroom discussions, the Chairman maintains contact with other Non- Executive Directors by telephone and at least annually, will hold meetings with the Non-Executive Directors without the Executive Directors present. Richard Gillingwater (Senior Independent Director) holds meetings of the independent Non-Executive Directors separately from the rest of the Board at least once a year to ensure that any issues may be discussed without the presence of a non-independent Director. The Board has a schedule of matters specifically reserved to it for decision. The Board controls the business but delegates day-to-day responsibility to the executive management. An Executive Committee, comprising all the Executive Directors, meets regularly to discuss the development of strategy, to review and implement proposed transactions, to review policies and procedures (including health and safety), to monitor budget and financial performance and to assess risk. The full Board reviews all minutes of proceedings at Executive Committee meetings and receives reports from the Executive Committee Chairman at every Board meeting. However, there are a number of matters which are required to be or, in the interests of the Group, should only be, decided by the Board as a whole. A summary of the schedule of matters reserved for the Board is set out below: BOARD RESPONSIBILITIES Strategy and management Responsibility for the overall leadership of the Group; approval of the Group’s long-term strategic aims and objectives; approval of annual operating and capital expenditure budgets; oversight of the Group’s operations and review of performance; extension of the Group’s activities into new business areas; approval of major capital projects and projects outside the normal course of business; entering into a binding commitment to a major strategic alliance, joint venture partnership or profit sharing arrangement; any decision to cease to operate all or any material part of the Group’s business. Structure and capital Changes to the Group’s capital structure; major changes to the Group’s corporate structure; changes to the Group’s management and control structure; changes to the Company’s listing or plc status. Financial reporting and controls Approval of interim and final results announcements; approval of half yearly report and Annual Report and Accounts, including the Directors’ Report, Corporate Governance Statement and the Directors’ Remuneration Report; approval of dividend policy, recommendation and declaration of dividends; approval of significant changes in accounting policies or practices; approval of material unbudgeted capital or operating expenditures. Internal controls Ensuring maintenance of a sound system of control and risk management. Contracts Communication Approval of major capital projects and investments; approval of contracts above limits of authority delegated by the Board. Approval of resolutions and corresponding documentation to be put to Shareholders at a general meeting; approval of all circulars and listing particulars. Board membership and other appointments Appointment and removal of the Company Secretary; membership of Board committees following recommendations from the Nominations Committee; proposing resolutions for the appointment, re-appointment or removal of the external auditor to Shareholders for approval, following recommendation of the Audit and Risk Committee. Corporate governance matters Undertaking a formal and rigorous review of its own performance; considering the balance of interests between Shareholders, employees and other stakeholders; authorise conflicts of interest where permitted by the Company’s Articles of Association; review the Company’s overall corporate governance arrangements. Remuneration Approval of core policies Determine the remuneration policy for the Chairman, Executive Directors, Company Secretary and other senior executives following recommendation from the Remuneration Committee; determine the remuneration of the Non-Executive Directors subject to the Articles of Association and Shareholder approval as appropriate. Including anti-bribery policy; anti-slavery policy; whistleblowing procedures; equal opportunities policy; diversity policy; disclosure policy and share dealing code; health and safety policy; environmental and corporate social responsibility policy; charitable donations policy. Delegation of authority The division of responsibilities between the Chairman and the Chief Executive, approval of any delegated levels of authority, establishment of Board committees and approval of their terms of reference. 69 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 BOARD OF DIRECTORS EXECUTIVE COMMITTEE REMUNERATION COMMITTEE NOMINATIONS COMMITTEE AUDIT AND RISK COMMITTEE PROPERTY VALUATIONS COMMITTEE COMMITTEE CHAIRMAN MICHAEL SLADE CHAIRMAN GERALD KAYE CHIEF EXECUTIVE Board meetings attended 7/7 Tenure 32 years Skills and experience Michael Slade, BSc (Est Man) FRICS, joined the Board as an Executive Director in 1984, was appointed Chief Executive in 1986 and Chairman in 2016. He is President of LandAid, the property industry charity, a Fellow of the College of Estate Management, Fellow of Wellington College, a Trustee of Purley Park charity and Sherborne School Foundation and Vice Admiral of the Marie Rose Trust. In April 2017, Mike was appointed Chairman of The Royal Marsden Cancer Charity’s Clinical Care and Research Centre Appeal to build a £50 million global cancer treatment and research centre at The Royal Marsden NHS Foundation Trust. Mike is a member of the Nominations Committee. Board meetings attended 7/7 Tenure 22 years Skills and experience Gerald Kaye, BSc (Est Man) FRICS, was appointed Chief Executive in 2016. He joined the Board as an Executive Director in 1994, responsible for the Group’s development activities. Gerald is a past President of the British Council for Offices, a former Director of London & Edinburgh Trust Plc and former Chief Executive of SPP. LET. EUROPE NV. TIM MURPHY FINANCE DIRECTOR MATTHEW BONNING-SNOOK DIRECTOR Board meetings attended 7/7 Tenure 4 years Board meetings attended 7/7 Tenure 9 years Skills and experience Tim Murphy, BA (Hons) FCA, joined the Group in 1994 and became Finance Director of the Company in 2012. Prior to joining Helical, he worked for accountants Grant Thornton. He has responsibility for financial strategy and reporting, treasury and taxation. Skills and experience Matthew Bonning-Snook, BSc (Urb Est Surveying) MRICS, was appointed to the Board as an Executive Director in 2007. Prior to joining Helical in 1995 he was a Development Agent and Consultant at Richard Ellis (now CBRE). He is responsible for the Group’s development activities. DUNCAN WALKER DIRECTOR RICHARD GILLINGWATER SENIOR INDEPENDENT DIRECTOR Board meetings attended 7/7 Tenure 5 years Board meetings attended 7/7 Tenure 4 years Skills and experience Duncan Walker, MA (Hons) (Oxon), PG Dip Surveying, joined the Group in 2007 and was appointed to the Board as an Executive Director in 2011. Prior to joining Helical, Duncan led Edinburgh House Estate’s investment team. He is responsible for the Group’s investment portfolio. Skills and experience Richard Gillingwater, CBE, is the Non-Executive Chairman of Janus Henderson Group plc and of SSE plc. He was, until 2013, Dean of Cass Business School. Prior to this he was Chief Executive and later Chairman of the Shareholder Executive, after a career in investment banking at Kleinwort Benson and then at BZW/Credit Suisse First Boston. He has also been a Non-Executive Director of P&O, Debenhams, Tomkins, Qinetiq Group, Kidde Hiscox and Morrisons. Richard is the Senior Independent Director, Chairman of the Nominations Committee and a member of the Audit and Remuneration Committees. 70 HELICAL PLCAnnual Report and Accounts 2017 RICHARD GRANT CHAIRMAN OF THE AUDIT AND RISK COMMITTEE Board meetings attended 7/7 Tenure 4 years MICHAEL O’DONNELL CHAIRMAN OF THE REMUNERATION COMMITTEE Board meetings attended 7/7 Tenure 5 years Skills and experience Richard Grant, BA (Oxon), ACA is the Finance Director at Cadogan Estates Limited and former Corporate Finance Partner at PricewaterhouseCoopers, whom he joined in 1975. Richard is the Chairman of the Audit and Risk Committee and a member of the Nominations and Remuneration Committees. Skills and experience Michael O’Donnell was appointed to the Board in June 2011. He is a former Managing Director of LGV Capital, a private equity firm. Through his company, Ebbtide Partners, he acts as a consultant to, and investor in, private companies. Michael is Chairman of the Remuneration Committee and a member of the Nominations and Audit and Risk Committees. SUSAN CLAYTON CHAIRMAN OF THE PROPERTY VALUATIONS COMMITTEE Board meetings attended 7/7 Tenure 1 year Skills and experience Susan Clayton FRICS, was appointed to the Board in February 2016. Sue is an Executive Director at CBRE and former Managing Director of CBRE’s Capital Markets Team. She has sat on the CBRE UK Management and Executive Boards and on the CBRE Group Inc. Board as Employee Director. Sue currently chairs CBRE UK’s Women’s Network. In addition to her roles at CBRE, Sue is a Board Member of the Committee of Management of Hermes Property Unit Trust, and a Trustee of the Reading Real Estate Foundation. Barwood Capital have appointed Sue as Chair of the Barwood Property Fund 2017. Sue chairs Helical’s Property Valuations Committee and is a member of the Nominations, Audit and Risk and Remuneration Committees. RICHARD COTTON NON-EXECUTIVE DIRECTOR Board meetings attended 7/7 Tenure 1 year Skills and experience Richard Cotton was appointed to the Board as a Non-Executive Director in March 2016. Richard was formally head of UK Real Estate at J.P. Morgan Cazenove which he left in 2009 and spent the subsequent five years at Forum Partners. Richard is a Non-Executive Director of Big Yellow Group plc and a member of the Commercial Development Advisory Group of Transport for London. He was previously Chairman of Centurion Properties and a Non-Executive Director of Hansteen Holdings plc. Richard is a member of the Nominations, Audit and Risk and Remuneration Committees. JAMES MOSS COMPANY SECRETARY AND GROUP FINANCIAL CONTROLLER Board meetings attended 7/7 Tenure 2 years Skills and experience James Moss, MChem (Hons) (Oxon) FCA, joined Helical in September 2014 as Group Financial Controller and was appointed Company Secretary in May 2015. He was previously at Grant Thornton, where he was responsible for leading audit and other assurance assignments in their real estate team. 71 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 GOVERNANCE REVIEW At Helical we believe that robust corporate governance is of fundamental importance in delivering for shareholders the long-term success of the Company through the effective, entrepreneurial and prudent management of the Company. During the year under review we have sought to strengthen further our compliance with the UK Corporate Governance Code 2014 (“Governance Code”/“Code”) and are aware of the changes reflected in the UK Corporate Governance Code 2016, which will be fully effective for the year to 31 March 2018. We have also sought to reflect the recommendations of the Financial Reporting Council in their note on ‘Developments in Corporate Governance and Stewardship 2016’, issued in January 2017. COMPOSITION OF THE BOARD AND ALIGNMENT TO CORPORATE STRATEGY The Code requires a Board and its committees to have an appropriate balance of skills, experience, independence and knowledge of the Company to enable them to discharge their duties and responsibilities effectively and in line with its corporate strategy. Helical operates with a strong management team of senior decision makers backed up by a finance team and other support staff. The Group is keen to promote exceptional talent to Board level at the earliest opportunity to expose such individuals to the broader issues facing the business, encourage their long-term commitment to the Group and provide for future succession. Provision B.1.2 of the Code notes that companies such as Helical, which are below the FTSE350, are required to have at least two independent Non-Executive Directors. Following the changes to the Board at the 2016 AGM, the Board comprises the Chairman, four Executive Directors and five independent Non-Executive Directors, a balance in line with the Code’s requirement for FTSE 350 companies. The Chairman is Michael Slade, former Chief Executive of Helical, who was re-elected as a Director and assumed his new role as Chairman at the 2016 AGM with 85% of votes cast by Shareholders in favour of his re-election. In advance of these changes, the Company consulted with Shareholders and proceeded with the indicated approval of a significant majority. However, as noted in last year’s 72 Annual Report, Michael Slade is not considered to have been independent on his appointment as required by the Governance Code. As a consequence, the Board has ensured that there are safeguards in place to counter any concerns regarding his independence status. In particular, he does not chair the Nominations Committee, although he is a member of that Committee, and is not a member of the Audit and Risk or Remuneration Committees. Furthermore, the Board Evaluation process is run by Richard Gillingwater, the Company’s Senior Independent Director. Notwithstanding this, the Board considers Michael Slade to be of independent character and judgement. In assessing his contribution to the business, the other members of the Board consider Michael Slade to be a valuable asset to the Company, providing almost 50 years of experience in the real estate sector. The independent Non-Executive Directors are Richard Gillingwater (Senior Independent Director), Susan Clayton, Richard Cotton, Richard Grant and Michael O’Donnell. Between them the Non-Executive team provide a current FTSE 100 Chairman, an Executive Director of CBRE (the leading advisor on commercial property and real estate matters), a former head of UK Real Estate at J P Morgan Cazenove, the current Finance Director at Cadogan Estates (a real estate family owned trust owning a substantial part of West London) and a private equity corporate advisor with residential and retirement living experience. In the Board’s view, the Board and its Committees have the appropriate balance of skills, experience, independence and knowledge of the real estate sector, the listed environment, financial accounting and the Company to discharge their respective duties effectively as required by the Code. CULTURE OF THE COMPANY In July 2016, the Financial Reporting Council (“FRC”) issued a report entitled ‘Corporate Culture and the Role of Boards’. During the year under review the Company has started to reflect the recommendations of the report in its governance structures and culture, with greater engagement and involvement of Board members and employees in identifying, documenting and targeting its strategic aims and objectives. In particular, senior property professionals below Board level regularly make presentations to the Board on assets they are responsible for. In addition, in considering the Company’s Annual Strategy Review, the Executive Directors met with and discussed the views of the senior management of Helical and incorporated their views in the final Strategy Report. In taking this action the Company is seeking to reflect the main aims of the FRC report which are to: • Connect purpose and strategy to culture; • Align values and incentives; and • Assess, measure and report on the Company’s culture. The Company will consider how it can adopt the recommendations of the report during the year to 31 March 2018 and will report back to Shareholders on its impact in the Annual Report 2018. THE UK CORPORATE GOVERNANCE CODE 2014 (THE “CODE”) The Board is accountable to the Group’s Shareholders for good corporate governance and we believe in applying the highest principles of corporate governance. We have complied throughout the year with the principles as set out in the section of the Code headed “The Main Principles of the Code” and, except where stated above in relation to Michael Slade, and in respect of sending out the Notice of the AGM and related papers to shareholders at least 20 working days before the meeting (where they were sent out 18 days before the 2016 AGM), have complied with the provisions of the Code throughout the year under review. HELICAL PLCAnnual Report and Accounts 2017 The key features of the Group’s system of internal control are as follows: • Clearly defined organisational responsibilities and limits of authority. 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 controls and review procedures; • Financial information systems including cash flow, profit and capital expenditure forecasts. The Board receives regular and comprehensive reports on the day-to-day running of the business; • An Audit and Risk Committee which meets with the Auditors and deals with any significant internal control matters. In the year under review the Audit and Risk Committee met with the Auditors on two occasions; and • The Board is responsible for the management of the Group’s risk profile which is reviewed by the Audit and Risk Committee during the year. An analysis of the Group’s principal risks can be found on pages 54 to 57. ANNUAL EVALUATION OF THE BOARD Since the Company is not in the FTSE 350, the Code does not require our annual Board evaluation to be externally facilitated every three years. However, following the changes to the Board in 2016, it was proposed that the 2017 Board evaluation would be carried out externally to ensure that the Group’s Board and governance process is highly effective in carrying out its responsibilities. In January 2017, we retained SA Associates, an executive search and board evaluation services firm, to undertake a full external evaluation, which involved: • An initial briefing on the future strategy of the Company from the Chairman, Senior Independent Director and the Chief Executive; • The observation of Board meetings and Committee meetings; • Distribution of a short, focussed questionnaire to each Board member; • Conducting one-to-one interviews; and, • Reviewing governance documents and Board meeting agendas and minutes. The key areas for consideration were: Board composition, roles and responsibilities, Board culture, dynamics, teamwork and leadership, Board processes, reporting and agendas, overall Board effectiveness, strategy input and relationship between Board and management. The evaluation report by SA Associates was presented for discussion at the March Board meeting. The overall findings noted that Helical has an effective Board with a positive dynamic and a good platform to challenge and support. The following key strengths and development opportunities were identified: Key Strengths • The new Chairman and Chief Executive have settled well into their respective roles; • The relationships between Executive and Non-Executive Directors is strong; • The Board applies good governance practices across the business; • Discussion of strategic issues, including consideration of the annual Strategy Review, receive suitable discussion time; and, • Health and safety issues receive appropriate focus. Development Opportunities • Time allocated to discussion of a broader Corporate Strategy could be increased; • Elevating the importance of discussion of risks facing the business; and, • Talent development and succession throughout the Company could receive more focus. Actions for 2017-18 At the March 2017 Board meeting, the Board discussed and agreed the following actions: • The introduction of a Strategy Day for the whole Board, incorporating external speakers; • The reallocation of the primary responsibility for risk from the Executive Committee to a renamed Audit and Risk Committee; and, • Greater exposure for those below Board level to the full Board. NOMINATIONS COMMITTEE The Nominations Committee Report which describes the work of the Committee, is on pages 76 to 77. REMUNERATION COMMITTEE The Directors’ Remuneration Report, which describes the work of the Committee and discloses the Company’s Remuneration Policy and Annual Report on Remuneration, is on pages 80 to 97. AUDIT AND RISK COMMITTEE The Audit and Risk Committee Chairman is Richard Grant, the Finance Director of Cadogan Estates Limited and a former partner of PWC. As a result, the Board considers that he has recent and relevant financial experience as required by the Code. The report of the Chairman of the Audit and Risk Committee describing the issues considered by the Committee in the year under review is on pages 78 and 79. Risk Management and Internal Controls The Board is responsible for maintaining a sound system of internal control to safeguard shareholders’ investment and the Group’s assets. Such a system is designed to manage, but cannot 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 against material misstatement or loss. 73 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 The re-election of Michael Slade received a vote in favour of 84.5% with 15.5% against. In addition, shares representing 2.1% of the Company’s shareholders withheld their vote on this resolution. We believe that these votes provide strong support for Michael Slade’s Chairmanship of the Company whilst recognising some Shareholder concern regarding his lack of independence on appointment. At the 2017 Annual General Meeting to be held on the 13 July 2017, the Company will be seeking re-election of all the current Board members, consideration of the Annual Report to 31 March 2017 and approval of the final dividend to be paid on 21 July 2017, the re-appointment of and authorisation to set the remuneration of the Company’s auditors, the approval of the Directors’ Remuneration Report and a number of regular technical resolutions. The resolution to approve the Company’s Directors’ Remuneration Report (“DRR”) also received 84.5% of votes cast in favour with 15.5% against and, again, 2.1% of Shareholders withholding their vote on the resolution. Engagement with shareholder representative bodies suggests that the overall quantum of remuneration remains a concern for them. We were, however, pleased to note the strong support for the Company’s renewal of its Remuneration Policy (97%) and the changes to the rules of the Annual Bonus Scheme (98%). ATTENDANCE AT BOARD AND COMMITTEE MEETINGS DURING THE YEAR Seven scheduled meetings of the Board were held during the year ended 31 March 2017. In addition, several unscheduled meetings were arranged to discuss particular transactions and events. On occasions, Directors who are not members of the Committees attend at the invitation of the Committee Chairman. The attendance record of the Directors at the scheduled meetings and at meetings of the Board’s committees is shown in the table below: Chairman Michael Slade Executive Directors Gerald Kaye Tim Murphy Matthew Bonning-Snook Duncan Walker Non-Executive Directors Richard Gillingwater Susan Clayton Richard Cotton Richard Grant Michael O’Donnell Former Directors Nigel McNair Scott2 Andrew Gulliford2 Full Board Audit and Risk Committee Remuneration Committee Nominations Committee 7/7 7/7 7/7 7/7 7/7 7/7 7/7 7/7 7/7 7/7 3/31 3/31 – – – – – 5/5 5/5 5/5 5/5 5/5 – – – – – – – 5/5 5/5 5/5 5/5 5/5 – – 2/21 – – – – 3/3 3/3 3/3 3/3 3/3 1/1 1/1 1 Michael Slade became a member of the Nominations Committee on his appointment as Chairman at the AGM on 25 July 2016. His attendance relates to the period since this appointment. 2 Nigel McNair Scott and Andrew Gulliford stood down from the Board on 25 July 2016. Their attendance relates to the period from 1 April 2016 to 25 July 2016. GOVERNANCE REVIEW CONTINUED VIABILITY AND GOING CONCERN The Company’s Viability Statement is included on page 55 within the Principal Risks Review of the Strategic Report. The Directors have reviewed the current and projected financial position of the Group making reasonable assumptions about future trading performance. The key areas of sensitivity are: • Timing and value of property sales; • Availability of loan finance and related cash flows; • Future property valuations and their impact on covenants and potential loan repayments; • Committed future expenditure; • Future rental income; and • Receipt, amount and timing of development profits. The forecast cash flows have been sensitised to reflect those cash inflows which are less certain and to take account of a potential deterioration of property valuations. In addition, the forecasts have been subject to sensitivity analysis in which the impact of significant reductions to the fair value of the property portfolio and associated rental income on the Group’s loan covenants was assessed. From their review, the Directors believe that the Group has adequate resources to continue to be operational as a going concern for the foreseeable future. ANNUAL GENERAL MEETINGS At the 2016 Annual General Meeting, held on the 25 July 2016, all the Directors, with the exception of Michael Slade (discussed below), were re-elected with over 98% of the votes cast in favour of their re-election. The two resolutions relating to the re-appointment and remuneration of the Auditors also received over 98% of the votes cast in favour. The resolution to renew the Company’s Remuneration Policy received a vote in favour of over 97%, whilst the resolution to approve amendments to the rules of the Company’s Annual Bonus Scheme were approved by over 98%. The non-binding vote in respect of the approval of the Company’s Directors’ Remuneration Report received a vote in favour of over 84% (see below). All the remaining resolutions were approved with votes cast in favour by between 94% and 100%. 74 HELICAL PLCAnnual Report and Accounts 2017 The Board is supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties and its Directors are free to seek any further information they consider necessary. The Directors have access to the services of a Company Secretary who is responsible for advising the Board on all governance matters and ensuring compliance with Board procedures and applicable laws and regulations. Under the direction of the Chairman, the Company Secretary’s responsibilities include ensuring good information flows within the Board and its Committees and between senior management and Non-Executive Directors, as well as facilitating induction of new Directors and assisting with professional development as required. The Board ensures that Directors have access to independent professional advice at the Group’s expense where they judge it necessary to discharge their responsibilities as Directors. Training is available for all Directors as necessary. ENGAGEMENT WITH SHAREHOLDERS The Directors value the views of the Company’s Shareholders and recognise their interest in the Group’s strategy and performance, Board membership and quality of management. They hold regular meetings with, and give presentations to, the Company’s institutional Shareholders to discuss the Group’s results and objectives. The Directors regularly meet, with the help of the Company’s brokers, institutions that do not currently hold shares in the Group to inform them of the Company’s objectives. Gerald Kaye, as Chief Executive, attended all of the meetings during the year and he is usually accompanied by at least one of the other Executive Directors. The Senior Independent Director, Richard Gillingwater, met with a small number of shareholders and was available to meet with other Shareholders throughout the year under review and will hold meetings with Shareholders whenever requested in order to ensure sufficient understanding of any issues and concerns they may have. The AGM is used to communicate with investors and they are encouraged to participate. The Chairman, Senior Independent Director and members of the Audit and Risk, Remuneration and Nominations Committees will attend the AGM and will be available to answer questions. Separate resolutions are proposed on each issue in order that they can be given proper consideration and there is a separate resolution to consider the Annual Report and accounts. All proxy votes are counted and the level of proxies lodged on each resolution will be indicated after it has been dealt with by a show of hands. The Directors receive regular reports from sector analysts and investor relations advisors on how the Group is viewed by its Shareholders. The Group communicates with all Shareholders through the issue of regular press releases and through its website at www.helical.co.uk. – Annual results announcement and analysts presentation for 2016 – Investor Roadshow presentations in London, Edinburgh and Netherlands – AGM Trading Update – Annual General Meeting – Update on portfolio activity – JPMC Investor Conference – London portfolio property tour – Half year results announcement and analysts presentation – Investor Roadshow presentation, London, Edinburgh and Netherlands – JPMC Investor Conference and property tour Principal Investor Relations Activities May 2016 May/June 2016 July 2016 September 2016 November 2016 November/December 2016 January 2017 By Order of the Board JAMES MOSS FCA Company Secretary 25 May 2017 75 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 NOMINATIONS COMMITTEE REPORT DEAR SHAREHOLDER, In accordance with the UK Corporate Governance Code, the role of the Nominations Committee, and my primary responsibility as its Chairman, is to ensure that the Company is headed by an effective Board which is collectively responsible for the long-term success of the Company. RICHARD GILLINGWATER CBE SENIOR INDEPENDENT DIRECTOR COMMITTEE MEMBERS* Chairman Richard Gillingwater Susan Clayton Richard Cotton Richard Grant Michael O’Donnell Michael Slade * With the exception of Michael Slade, all of the Committee are independent Non-Executive Directors and all served throughout the year. Michael Slade became a member of the Committee on his appointment as Chairman of the Company on 25 July 2016. The Company Secretary acts as Secretary to the Committee. ROLE OF THE COMMITTEE Leads the process for Board appointments, Board evaluation, succession planning and makes recommendations to the Board. TERMS OF REFERENCE The terms of reference of the Committee are available on request and are included on the Group’s website at: www.helical.co.uk THE WORK OF THE NOMINATIONS COMMITTEE IN THE YEAR The Committee met three times during the year. A record of attendance at all Board and Committee meetings is shown on page 74. The Committee reviewed the following matters during the year: • Recommendations arising from the Board evaluation; • Composition of the Board and Membership of the Board Committees; and • Succession planning. BOARD APPOINTMENTS AND DIVERSITY Appointments to the Board and its Committees are made against objective criteria. The Committee controls the process for Board appointments and makes recommendations to the Board. The Board is mindful of the Group’s diversity policy and the Committee gives full consideration to diversity, including gender diversity, when recommending to the Board any future Board appointments. All Board appointments are based on experience and will be made on merit. Care is taken to ensure that appointees have enough time available to devote to the job on appointment. To enable the Board to identify any potential conflicts of interest and ensure that Directors will continue to have sufficient time available to devote to the Company, Directors are required to inform the Board of any changes to their other significant commitments. In February 2017, Susan Clayton informed the Board that she had been appointed Chairman of Barwood Property Fund, which is to launch this year. In April 2017, Mike Slade informed the Board that he had been appointed Chairman of The Royal Marsden Cancer Charity’s Clinical Care and Research Centre Appeal. The Board is satisfied that both Directors will continue to have sufficient time to devote to their roles. COMPOSITION OF THE BOARD Several Board changes, together with details of the recruitment process for the new appointments, were set out in last year’s report and I am pleased that Shareholders voted in support of the Committee’s recommendations to approve those changes at the 2016 AGM. The refreshed Board consists of a Non-Executive Chairman, four Executive Directors and five independent Non-Executive Directors. This provides a strong balance of entrepreneurial leadership and a talented executive team, supported by committees with an appropriate balance of skills, experience, independence and knowledge of the Company to be able to constructively challenge and assist the executive team in achieving its objectives. No further changes have been made to the composition of the Board during the year. 76 HELICAL PLCAnnual Report and Accounts 2017 SUCCESSION PLANNING By strengthening our Board evaluation process in employing an external assessor the Company has sought to improve its processes with regard to succession at all levels. The issue of who should succeed the previous Chief Executive and the balance of the Board with regard to the number of independent Non-Executive Directors compared to Executive Directors has been settled for the foreseeable future. The focus of the Committee and future Board evaluation processes will now be on ensuring there is a pipeline of potential future senior executives, both for below and at Board level. In considering these matters, the Board will seek to reflect a greater diversity at Board and senior management level whilst ensuring that the Company has the requisite balance of skills to ensure its long-term success. BOARD EVALUATION As detailed in the Governance Review on pages 72 to 75, the Board retained an external assessor, SA Associates, to undertake a full evaluation of the Board and governance process in January 2017. At the March 2017 meeting, the Committee and Executive Directors discussed the recommendations made in the evaluation report in detail. ANNUAL GENERAL MEETING The Board believes that the requirements of Code Provision B.7.1 of the UK Corporate Governance Code should be fulfilled. This provision requires all directors of FTSE350 companies to be subject to annual re-election by shareholders. Whilst the Company is not in the FTSE350, the Board has chosen to comply with this provision as it accepts that shareholders should annually have the right to vote on each Director’s election or re-election to the Board. At the Annual General Meeting to be held on 13 July 2017, the following resolutions relating to the appointment of Directors are being proposed: • The re-election of Mike Slade as Non-Executive Chairman; • The re-election, as Executive Directors, of Gerald Kaye, Tim Murphy, Matthew Bonning-Snook and Duncan Walker; and • The re-election, as Non-Executive Directors, of Susan Clayton, Richard Cotton, Richard Gillingwater, Richard Grant and Michael O’Donnell. The Nominations Committee confirms to Shareholders that, following the annual formal performance evaluation and taking into account their qualifications and experience, these Directors continue to be effective and demonstrate commitment to their roles. Biographical details of the Directors are given on pages 70 and 71. I trust that Shareholders will support the Committee and vote in favour of these resolutions. RICHARD GILLINGWATER, CBE Chairman of the Nominations Committee 25 May 2017 BOARD OF DIRECTORS P.70 77 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 AUDIT AND RISK COMMITTEE REPORT DEAR SHAREHOLDER, During the year the responsibilities of the Audit Committee were broadened to include Risk. This formalised the Committee’s mandate to oversee the Group’s identification, monitoring and mitigation of risk. The Committee endorses the principles set out in the FRC Guidance on Audit and Risk Committees. The Board has formal and transparent arrangements for considering how it applies the Group’s financial reporting and internal control principles and for maintaining an appropriate relationship with its auditors. Whilst all Directors have a duty to act in the interests of the Group, this Committee has a particular role, acting independently from the Executive Directors, to ensure that the interests of Shareholders are properly protected in relation to financial reporting and internal control. Appointments to the Committee are made by the Board on the recommendation of the Nominations Committee in consultation with the Audit and Risk Committee members. THE WORK OF THE AUDIT AND RISK COMMITTEE IN THE YEAR The Committee met five times during the year and a record of attendance at these meetings is shown on page 74. It is common practice at Helical for Audit and Risk Committee meetings to be attended by all Board members, whether or not they are members of the Committee, so that their contribution to the matters discussed may be obtained. In conjunction with the Board, the Audit and Risk Committee reviewed the following matters during the year: • Risk and internal controls; • The financial statements of the Group and the announcement of the annual results to 31 March 2016 and the interim statement on the half year results to 30 September 2016; • The Annual Report for the year to 31 March 2016 to ensure it is fair, balanced and understandable; • The performance of the external auditors and their programme of work; • The re-appointment of the Group’s external auditor; • The external auditors’ independence and the provision of non-audit services by the external auditor; and • The consideration of the requirement for an internal audit function. The Audit and Risk Committee met the external auditor on two occasions to discuss matters arising from the annual and interim audits. Other matters formally reviewed and discussed by the Committee during the year included: • Review of company policies including those relating to anti-bribery and the Modern Slavery Act; • The Company’s whistleblowing procedures to ensure that they remain effective. Under the Company’s Whistleblowing Policy, employees and workers within the Group may raise concerns about malpractice or misconduct in confidence, either internally or outside of the Company to the independent audit partner; and • Review of IT risk and business continuity planning. In discharging its responsibilities in connection with the preparation of the financial statements for the year to 31 March 2017, the Committee is responsible for reviewing the appropriateness of the Group’s accounting policies, assumptions, judgements and estimates as applied by the executive management to the financial statements. During this review the following significant issues were considered: • Internal Controls The Committee annually reviews the need for an internal audit function and recently reaffirmed its stance that, in view of the small scale and simplicity of the business, it does not consider that an internal audit function would be effective. However, periodically, the Committee asks the Group’s auditors to review its internal controls and their most recent report was presented to the Committee in April 2015. Grant Thornton’s “Report on the Design and Operating Effectiveness of Internal Controls of Helical plc” provided a review of the Group’s control environment and internal controls. Neither this report nor the Audit and Risk Committee’s review highlighted any material weaknesses in the design and effectiveness of the Group’s systems and controls. RICHARD GRANT CHAIRMAN OF THE AUDIT AND RISK COMMITTEE COMMITTEE MEMBERS* Chairman Richard Grant Susan Clayton Richard Cotton Richard Gillingwater Michael O’Donnell * All of whom are independent Non-Executive Directors and all served throughout the year. The Company Secretary acts as secretary to the Committee. ROLE OF THE COMMITTEE Assists the Board in fulfilling its oversight responsibilities by reviewing and monitoring: The integrity of the financial information provided to shareholders; The Company’s system of internal controls and risk management; The external audit process and auditors; and The processes for compliance with laws, regulations and ethical codes of practice. TERMS OF REFERENCE The terms of reference of the Committee are available on request and are included on the Group’s website at: www.helical.co.uk 78 HELICAL PLCAnnual Report and Accounts 2017 • Property Valuation The valuation of the Group’s investment and trading and development portfolio is a key area of judgement in preparing the annual and half yearly financial statements and reports. For this reason the fair value of the Group’s investment portfolio is determined by independent third party experts who are familiar with the markets in which the Group operates and have suitable professional qualifications. The Group’s trading and development stock is accounted for in the financial statements at the lower of cost and net realisable value. Accordingly, the Committee reviews the assumptions made in considering whether an asset should be written down to its net realisable value, if lower than cost. In addition, the Committee reviews those instances where stock is considered to have a fair value above its current book value. The surplus of fair value above book value is not included in the Group’s Balance Sheet, nor is any movement reflected in the Income Statement. However, in accordance with the best practice recommendations of the European Public Real Estate Association, the surplus is included in the calculation of the EPRA Net Asset Value per share at each reporting date. The fair value calculation of the trading and development stock is reviewed by a suitably qualified independent third party valuer. In order to assist the Audit and Risk Committee in considering the valuations, the fair values of the investment, trading and development property portfolios are reviewed and approved by the Property Valuations Committee which is chaired by Susan Clayton, FRICS, an independent Non-Executive Director. • Revenue Recognition Revenue recognition is a presumed significant risk under International Standards on Auditing (UK and Ireland) and where the Group enters into complex transactions, judgment must be applied in determining when, and to what extent, revenue should be recognised. For material transactions, technical papers are presented to the Committee by Management and the Committee also requests that the Group’s external auditors review and report on these judgments. The Committee assesses the appropriateness of the proposed revenue recognition for each transaction and these are discussed between the external auditor and myself. In addition to the significant issues discussed above, the Committee also considered, and concluded upon, the Group’s ability to continue as a going concern and the estimates and judgements discussed in note 37 to these accounts. EFFECTIVENESS OF THE EXTERNAL AUDITOR During the year, the Audit and Risk Committee reviewed Grant Thornton UK LLP’s fees, effectiveness and whether the agreed audit plan had been fulfilled and the reasons for any variation from the plan. The Audit and Risk Committee also considered their robustness and the degree to which they were able to assess key accounting and audit judgements and the content of their reports. This was performed through reviewing their reports and meeting with them to discuss their audit approach and findings. In addition, the Committee was notified by the Financial Reporting Council (FRC) that they had carried out a review of Grant Thornton UK LLP and the work they performed in conducting the audit of Helical’s 31 March 2016 results. The FRC assessed that Grant Thornton’s audit procedures in respect of investment property valuations could be significantly improved. Grant Thornton subsequently agreed the changes it would make in its approach with the FRC to address the shortcomings in their audit work identified in the FRC report. The Committee took the results of this review seriously and met with Grant Thornton and management in advance of the 2017 audit to discuss their revised approach and then, at the conclusion of the audit process, to satisfy itself that these changes had been appropriately implemented. As a result of their review the Committee concluded that the audit process was effective. AUDIT INDEPENDENCE The Audit and Risk Committee considers the external auditor to be independent. The Committee’s policy is not to award non-audit services where the outcome of the work is relevant to a future audit judgement or that could impact the independence or objectivity of the audit firm. This policy is designed to ensure that the Group receives the most appropriate advice without compromising the independence of the Auditor. As part of this policy prior approval of non-audit services that exceed £20,000 is required. During the year, the following non-audit fees were paid to Grant Thornton UK LLP: • £45,750 for the review of the Half Year Results; • £6,000 for the review of the Performance Share Plan and Directors’ Bonus Scheme; • £4,311 for advisory services in relation to the Group’s Polish operations, carried out by a separate team to the audit and the work was not relied upon by the audit team in reaching their opinion; and • £13,440 for local taxation compliance work in the Netherlands. The Committee considered all the services to be appropriate and that they did not impact the audit independence. AUDITOR ROTATION The Audit and Risk Committee has reviewed the EU guidance for mandatory auditor rotation, which has now been adopted into UK law. Under this legislation, Grant Thornton are required to rotate from the audit after the 31 March 2020 year end. After considering this legislation, best practice guidance and the Group’s strategic position, the Committee has determined to carry out a tender process in 2018 with the aim of having a new firm in place to report on the 31 March 2019 year end. Given their period of tenure as the incumbent auditor, Grant Thornton will not be included in this process. The proposed timeline for the tender process is set out below: January 2018 February 2018 • Meet with a selection of audit firms to assess their proposed team and credentials. • Select a shortlist of firms and issue them the formal invitation to tender. • Provide detailed information and arrange for the firms to meet with management. March 2018 • Receive and evaluate the tender documents and presentations. • Audit and Risk Committee to submit their recommendation for Board approval. April/May 2018 • Arrange for the new firm to shadow Grant Thornton’s audit of the 31 March 2018 year end. July 2018 • Seek shareholder approval at the 2018 AGM of the formal appointment of the new auditor. ANNUAL GENERAL MEETING At the Annual General Meeting to be held on 13 July 2017 the following resolutions relating to the Auditor are being proposed: • The re-appointment of Grant Thornton UK LLP as Independent Auditor; and • To authorise the Directors to set the remuneration of the Independent Auditor. I hope that Shareholders will support the Committee and vote in favour of these resolutions. RICHARD GRANT Chairman of the Audit and Risk Committee 25 May 2017 79 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 DIRECTORS’ REMUNERATION REPORT The Company has, once again, produced a good set of results, with an increase in EPRA NAV per share of 3.7% (3 year CAGR of 14.8%) and with Shareholders’ Funds more than doubled since 2013. MICHAEL O’DONNELL CHAIRMAN OF THE REMUNERATION COMMITTEE COMMITTEE MEMBERS* Chairman Michael O’Donnell Susan Clayton Richard Cotton Richard Gillingwater Richard Grant * All of whom are independent Non-Executive Directors and all served throughout the year. The Company Secretary acts as Secretary to the Committee. ROLE OF THE COMMITTEE Assists the Board to fulfil its responsibility to Shareholders to ensure that the remuneration policy and practices of the Company reward fairly and responsibly, with a clear link to corporate and individual performance, having regard to statutory and regulatory requirements. Areas of focus: Remuneration policies, including base pay, long and short-term incentives; Remuneration practice and its cost to the Company; ANNUAL STATEMENT DEAR SHAREHOLDER, I am pleased to present the Remuneration Committee’s Report on Directors’ remuneration for the year to 31 March 2017. This report has been approved by the Board of Helical plc. This Directors’ Remuneration Report has been divided into the following three sections: • This Annual Statement; • Remuneration Policy Report, which sets out the Group’s shareholder approved policy on the remuneration of Executive and Non-Executive Directors; and, • Annual Report on Remuneration, which discloses how the remuneration policy was implemented in the year ended 31 March 2017 and how the policy will be operated in the year ending 31 March 2018. Following the changes made to the remuneration policy last year to reflect the reshaping of the Board and the Committee’s desire to simplify and reduce variable pay quantum and introduce additional shareholder protections, the Committee remains committed to its overall approach to Executive Directors’ remuneration of: Recruitment, service contracts and severance policies; and • Maintaining fixed remuneration packages below the median level of its peers; and, The engagement and independence of external remuneration advisers. TERMS OF REFERENCE The terms of reference of the Committee are available on request and are included on the Group’s website at: www.helical.co.uk 80 • Aligning variable incentive-based bonus and share schemes with the long-term success of the Company and the interests of its Shareholders. As such, no changes will be made to the remuneration policy at the 2017 AGM. WORK OF THE COMMITTEE DURING THE YEAR The Committee met five times during the year and a record of attendance at these meetings is shown on page 74. In the year to 31 March 2017, the Committee completed its review of its remuneration policy in the light of the 2016 reshaping of the Board, the Executive Bonus Plan 2011 reaching the end of its shareholder approved life at the end of the previous financial period and a desire to acknowledge sensitivities surrounding executive pay. At the 2016 AGM, shareholders approved an amended Helical Annual Bonus Scheme 2016, which removed potential additional bonus awards of 300% of salary in 2017 and 2022 which would have been available under the previous scheme, and introduced additional shareholder protections and an updated Remuneration Policy. In addition, the Committee considered a number of other matters during the financial year as follows: • New service contracts were introduced for all Executive Directors, which included a reduction in notice periods from 12 to six months. These contracts came into effect on 25 July 2016; • The bonuses payable under the terms of the Annual Bonus Scheme 2012 for the year to 31 March 2016 were finalised. Two thirds of these bonuses were paid in cash in June 2016, and one third in deferred shares to be held for a minimum of three years; • The final bonuses payable in accordance with the terms of the Executive Bonus Plan 2011 were paid in June 2016 for the year to 31 March 2016; • The three year performance conditions in respect of the share awards granted in 2013 under the Performance Share Plan 2004 were considered. The performance conditions were fully satisfied and, therefore, 100% of shares vested; • The terms of unvested PSP awards held by Michael Slade were amended to reduce the awards to reflect the proportion of the vesting period served as an Executive Director; • The Committee resolved in June 2016 to make an award of shares under the terms of the 2014 Performance Share Plan which is expected to vest in June 2019, subject to performance conditions; • Changes to the basic salaries of the Executive Directors, as noted below, were approved; and • The fees paid to the Chairman were reviewed in March 2017 and no increase was awarded. For completeness, HELICAL PLCAnnual Report and Accounts 2017 EPRA NET ASSETS PER SHARE (pence per share) 456 473 385 313 264 2013 Growth 2014 +18% 2015 +23% 2016 +18% 2017 +4% 3 year CAGR 15% SHAREHOLDERS’ FUNDS (£m) 404 341 254 517 481 2013 Growth 2014 +34% 2015 +18% 2016 +19% 2017 +7% 3 year CAGR 15% PORTFOLIO RETURN (%) 23.8 20.4 19.7 17.5 21.7 15.6 13.4 13.0 11.4 9.4 6.9 5.3 2014 2015 2016 2017 IPD Median IPD Upper Quantile Helical although not a Committee responsibility, the Board, excluding Non-Executive Directors, reviewed Non-Executive Director fees and no increases were awarded. THE YEAR TO 31 MARCH 2017 The Committee believes that the provision for annual cash and deferred share bonuses and the expected vesting of the 2014 PSP award in respect of the three-year performance period ended 31 March 2017 accurately and fairly represents the reward determined by the Group’s remuneration schemes based on the performance of the Group over the respective annual and three-year performance periods. PERFORMANCE As noted in the Strategic Report on pages 2 to 63, the Group has delivered an increase in EPRA net assets per share of 3.7% (2016: 18.4%) in the year under review with a CAGR over the three years to 31 March 2017 of 14.8% (2016: 20.0%). The Group’s total portfolio return, as reported by IPD was 9.4% (2016: 21.7%). Pre-tax profits of the Group, before performance related awards, were £49m (2016: £129m). REWARD Basic Salaries In the 2016 Directors’ Remuneration Report I reported on changes to the Company’s Remuneration Policy which were approved by shareholders at the 2016 AGM. Included in these changes was an indication that Gerald Kaye’s salary would be increased to £515,000, a level £20,800 below that of his predecessor. In addition, Duncan Walker’s salary would be increased to that of Matthew Bonning-Snook. It was noted that both increases would be implemented over a two year period with the final increase effective from 1 April 2017 and would be subject to the satisfactory performance of the two Directors in that period. In March 2017, the Remuneration Committee reviewed the performance of both Gerald Kaye and Duncan Walker and was satisfied that the final increases to the targeted salary levels should be implemented with effect from 1 April 2017. It is expected that future increases will be linked to RPI. The salaries of Matthew Bonning-Snook and Tim Murphy were increased by 3.1%, reflecting RPI to 31 March 2017. The salaries of all other staff were also reviewed and increased by an average of 6.7%. All increases were effective from 1 April 2017. Annual Bonus Scheme 2016 Subsequent to the year end, and in accordance with the rules of the Helical Annual Bonus Scheme 2016, cash and deferred shares have been approved for inclusion in the financial statements for the year to 31 March 2017. For the relevant participants, these are 50% of what would have been payable under the Annual Bonus Scheme 2012, should its final year have been implemented. Details of these annual bonus awards are disclosed in the Annual Report on Remuneration. Performance Share Plan 2014 Share awards made in 2014 under the terms of the 2014 Performance Share Plan (“PSP”) were subject to three performance conditions over the three years to 31 March 2017. One third of the awards were based on absolute net asset value performance, the second third of the awards were based on a comparison of the Group’s portfolio return to the IPD Total Return index and the final third of the awards were based on a comparison of the Group’s Total Shareholder Return to a basket of companies in the Real Estate Super Sector. The performance criteria were measured at the end of the three year period and both of the net asset value and IPD conditions were met in full. The TSR conditions were not met and consequently 66.7% of the awards are expected to vest in July 2017. Remuneration Policy for the Year to 31 March 2018 The Committee is committed to ensuring that its remuneration policy remains aligned to the long-term interests of shareholders - incentivising management to increase total returns and growing net asset value per share - whilst ensuring that an appropriate balance is maintained between the targets set for management and the risk profile of the Group. The Committee believes it has struck the right balance between fixed annual remuneration and an incentive structure with challenging targets which seek to reward outperformance with a mixture of cash-based bonus payments and longer term share awards. Further details of the proposed implementation of the remuneration policy for the year to 31 March 2018 can be found on pages 92 to 94. ANNUAL GENERAL MEETING The Company’s Remuneration Policy was approved at the 2016 AGM with over 97% of shareholders voting in favour of the new arrangements. We are not proposing any changes this year but, for reference purposes only, include the full policy for shareholders on pages 82 to 86. At the 2017 AGM to be held on 13 July 2017, a resolution in respect of the Annual Statement and Annual Report on Remuneration for the year to 31 March 2017 is being proposed. I trust that shareholders will support the Committee and vote in favour of this resolution. MICHAEL O’DONNELL Chairman of the Remuneration Committee 25 May 2017 81 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 DIRECTORS’ REMUNERATION REPORT CONTINUED REMUNERATION POLICY REPORT The Report of the Remuneration Committee has been prepared in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the “Regulations”). The Company’s remuneration policy follows the principles and guidelines of the Listing Rules and the UK Corporate Governance Code as they relate to directors’ remuneration. The Company’s Remuneration Policy Report was approved by shareholders at the Annual General Meeting held on 25 July 2016 for a maximum period of three years. No changes are proposed for the 2017 Annual General Meeting. REMUNERATION POLICY REPORT This section of the Remuneration Report sets out the remuneration policy of the Group. The Committee believes that the policy continues to support the Group’s strategy and is aligned with Shareholders’ interests. REMUNERATION POLICY Helical’s approach to the remuneration of its Executive Directors is to provide a basic remuneration package below the median level of its peers within the listed real estate sector (the FTSE 350 Super Sector Real Estate Index, excluding storage companies, agencies and companies run by external investment managers) combined with an incentive based bonus and share scheme structure aligned with the interests of its shareholders. The majority of performance based awards are judged on the absolute performance of the Group through its profitability and growth in net asset value per share. The remaining awards are judged on the relative performance of the Group’s real estate portfolio and its total shareholder return against appropriate industry benchmarks. Remuneration within the real estate sector is monitored and reviewed regularly to ensure that the Group’s positioning of its remuneration remains in line with these objectives. In addition to this external view, the Committee also monitors the remuneration levels of senior management below Board level and the remuneration of other employees to ensure that these are taken into account in determining the remuneration of Executive Directors. It also considers environmental, social, governance and risk issues. In determining such policy, the Committee takes into account all factors which it deems necessary. The objective of the remuneration policy is to ensure that Executive Directors and senior management are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Group. Within the terms of the agreed policy the Committee shall determine, for the Executive Directors: • The total individual remuneration packages of each Executive Director including, where appropriate, basic salaries, bonuses, share awards, and other benefits; • Targets and hurdles for any performance related remuneration schemes; and, • Service agreements incorporating termination payments and compensation commitments. DIRECTORS’ REMUNERATION POLICY TABLE The table below summarises the Directors’ remuneration policy which was approved by Shareholders at the 2016 AGM. Performance targets • N/A Purpose and link to strategy • Reflects the value of the individual and their role and responsibilities • Reflects delivery against key personal objectives and development • Provides an appropriate level of basic fixed income avoiding excessive risk arising from over reliance on variable income Operation • Normally reviewed annually, effective 1 April • Paid in cash on a monthly basis; not pensionable • Takes periodic account against companies with similar characteristics and sector comparators • Targeted below median level of its peers • Reviewed in context of the salary increases across the Group Maximum • No maximum or maximum salary increase is operated • Salary increases will be linked to RPI and will not normally exceed the average increase awarded to other employees • 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 • Provides focus on delivering returns from the Group’s property portfolio • Aligned with shareholders’ interests through a profit sharing model, with appropriate hurdles and shareholder protections • Rewards and helps retain key executives and is aligned with the Group’s risk profile • Maximum bonus only payable for achieving demanding targets • Payable in cash and • 300% of salary pa • Performance normally deferred shares • Non-pensionable (200% for Finance Director) measured over one year • Dividend equivalent payments (in cash or in shares) may be payable on deferred shares Targets/hurdles based on: • Profits/losses of the business plus growth in values of the investment, trading and development portfolio after charging for the Group’s finance, administration costs and the use of the Group’s equity • Clawback provisions apply • Details of profit sharing arrangements are set out on page 93 Element Salary Annual bonus 82 HELICAL PLCAnnual Report and Accounts 2017 Element Purpose and link to strategy Operation Maximum Performance targets Long-term incentive awards Pensions Other benefits • Aligned to main strategic objective of delivering long-term value creation • Aligns Executive Directors’ interests with those of Shareholders • Rewards and helps retain key Executives and is aligned with the Group’s risk profile • There is no Group pension scheme for Directors and no contributions are payable to Directors’ own pension schemes • Provide insured benefits to support the individual and their family during periods of ill health, accidents or death • Cars or car allowances and fuel allowances to facilitate effective travel Share ownership guidelines • To provide alignment of interests between Executive Directors and Shareholders • Discretionary annual grant of conditional share awards under the 2014 PSP • 300% of salary pa for all Executive Directors • Dividend equivalent payments (in cash or in shares) may be payable • Performance normally measured over three years • 10% of an award vests at threshold performance • Performance targets linked to net asset value per share, total property return and total shareholder return • Clawback provisions apply • Details of actual targets for the awards to be granted in 2017 are set out on page 94 • N/A • N/A • N/A • Benefits provided through • N/A • N/A third party providers • Insured benefits include: private medical cover, life assurance and permanent health insurance • Other benefits may be provided where appropriate • Executive Directors are required to build and maintain a specified shareholding through the retention of the post-tax shares received on the vesting of awards • PSP participants are required to retain shares acquired for at least two years after vesting • N/A • Aim to hold a shareholding to equal or exceed 300% of basic salary Non-Executive Director fees • Reflects time commitments and responsibilities of each role and fees paid by similarly sized companies • The remuneration of the Non-Executive Directors is determined by the Executive Board • Cash fee paid monthly • Fees are reviewed on a regular basis • Benefits may be provided where appropriate • Fixed three year contracts with three month notice periods • No maximum or maximum fee increase is operated • Fee increases may be guided • N/A by the average increase awarded to Executive Directors and other employees and/or general movements in the market • Increases may be above this level if there is an increase in the scale, scope or responsibility of the role In addition to the above, Executive Directors may also participate in any all-employee share arrangement operated by the Company, up to prevailing HMRC limits. However, employees including Directors who participate in the Group’s long-term incentive awards are excluded from the Helical Bar 2010 Approved Share Option Scheme. 83 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 DIRECTORS’ REMUNERATION REPORT CONTINUED RECRUITMENT POLICY In considering the structure of the Board, the balance between Executive Directors and independent Non-Executive Directors and the skills, knowledge and experience required to ensure the Board functions in accordance with the Group’s objectives, the Committee will seek to apply the following principles in relation to the remuneration of new directors, whether by internal promotion or external appointment: Element Salary Benefits Pension Annual bonus Policy The salary of newly appointed Executive Directors would reflect the individual’s experience and skills, and be targeted below the median of appropriate sector comparables, taking into account internal comparisons. On initial appointment, salaries would generally be set at a level lower than benchmarked for that role to allow for pay increases to market levels subject to satisfactory progress and contribution. Benefits would be as are currently provided and periodically reviewed, being car or car allowance, car fuel allowance, private medical cover, permanent health insurance and life assurance. There is no Group pension scheme for Directors and no contributions are payable to Directors’ own pension schemes. Annual bonus arrangements under the terms of the 2016 Annual Bonus Scheme will be made in accordance with the terms of that scheme, with the Committee retaining the right to pro-rata any bonus payable in respect of the year of appointment. Long-term incentives Annual awards under the terms of the 2014 PSP will be made in accordance with the terms of that Plan. Share Incentive Plan In line with that of existing Executive Directors. Buy-out awards Should it be deemed necessary to compensate a new director for loss of bonus or incentives from a previous employer, the Committee may structure the remuneration of such director to buy-out any such bonus or incentives on a like-for-like basis in respect of currency (ie cash versus shares), timing and performance targets. Where possible such buy-out will be structured within the Company’s existing incentive arrangements but the Committee has the discretion to implement the exemption under rule 9.4.2 of the Listing Rules. Non-Executive Directors Newly appointed Non-Executive Directors will be paid fees at a level consistent with existing Non-Executive Directors. Fees would be paid pro-rata in the year of appointment. PERFORMANCE METRICS The performance metrics used in the Annual Bonus Scheme and the Long Term Incentives Plan are aligned with the Group’s Key Performance Indicators, discussed on pages 20 to 21. The Annual Bonus Scheme 2016 is a profit sharing model which takes the results of the Company, including valuation movements on its property portfolio, and, after charging all finance costs, non-performance related administration costs and a charge for the use of the Group’s equity (initially set at 7% but subject to regular review), allocates the net results into a profit pool for payment to participants with maximum limits, deferral, clawback and other shareholder protections. The scheme is open to all Executive Directors. Long-term incentives, awarded in accordance with the rules of the 2014 PSP, are subject to an absolute net asset value growth test, a relative performance metric based on the performance of the Group’s property portfolio compared to an IPD index and a relative performance metric based on Total Shareholder Return. HOW EMPLOYEE PAY IS TAKEN INTO ACCOUNT AND COMPARED TO THE REMUNERATION POLICY OF EXECUTIVE DIRECTORS All permanent employees of the Group, including Executive Directors, receive a basic remuneration package including basic salary, private medical cover, permanent health insurance, life assurance and membership of the Share Incentive Plan. In addition, Directors and senior management are entitled to the use of company cars or the payment of a car allowance and a car fuel allowance. There is no Group pension scheme for Directors and no contributions are payable into Directors’ own pension schemes. For all permanent employees below Board level, the Company pays pension contributions of either 7.5% or 10.0% into either a Group Pension Scheme or individual employees’ own pension scheme. Whilst employees below Board level are not entitled to participate in the Annual Bonus Scheme, discretionary bonuses are paid to employees on an individual basis depending on their performance and contribution. The Performance Share Plan is available to all employees but is primarily utilised to incentivise Executive Directors and senior management. An HMRC approved Share Option Scheme is available for the Committee to grant options to those who do not receive awards under the Performance Share Plan. Consequently, Directors are not granted awards under this scheme. In determining executive remuneration, the Committee considers the overall remuneration of all the Group’s employees and, other than in exceptional circumstances, seeks to award increases in salaries at levels below those made to other staff and within its own guidelines. The remaining remuneration is weighted towards performance related awards. The Committee does not consult with its employees when drawing up the Group’s remuneration policy. 84 HELICAL PLCAnnual Report and Accounts 2017 EXECUTIVE DIRECTORS’ DATES OF APPOINTMENT AND SERVICE CONTRACTS All service contracts are available for inspection at the registered offices of the Company. Original dates of appointment to the Board are as follows: Executive Director Gerald Kaye Tim Murphy Matthew Bonning-Snook Duncan Walker Notice period 6 months 6 months 6 months 6 months Date of 1st employment 6 March 1994 Board appointment 28 September 1994 1 March 1994 24 July 2012 13 March 1995 1 August 2007 28 August 2007 24 June 2011 Date of current contract 25 July 2016 25 July 2016 25 July 2016 25 July 2016 LEAVER POLICY On termination of employment each Director may be entitled to a payment in lieu of notice of basic salary and other contractual entitlements ie provision of a car, health and life insurance etc. The Group may make payments in lieu of notice as one lump sum or in instalments, at its own discretion. If the Group chooses to pay in instalments the Director is obliged to seek alternative income over the relevant period and to disclose the amount to the Group. Instalment payments will be reduced by any alternative income. Under the Annual Bonus Scheme 2016, participants shall not normally be entitled to receive any distribution under the scheme following cessation and shall immediately cease to have any interests, benefits, rights and/or entitlements under the scheme howsoever arising on the date of such cessation except where good leaver status applies (ie death; injury, disability; redundancy; retirement; sale or transfer of employing company or business outside of the Group or any other reason permitted by the Committee). For good leavers, individuals would cease to accrue future amounts into the Bonus Award Pool although would continue to receive deferred share awards and any remaining amounts held in the Bonus Award Pool for a period of two years after cessation. Any share-based entitlements granted to an Executive Director under the Group’s share plans will be determined based on the relevant plan rules. For awards granted under the 2014 PSP, awards held by good leavers will vest on the normal vesting date subject to performance conditions and time pro-rating, unless the Committee determines that awards should vest at cessation and/or time pro-rating should not apply. NON-EXECUTIVE DIRECTORS Non-Executive Directors are appointed by a Letter of Appointment and their remuneration is determined by the Board. Current Letters of Appointment, setting out the terms of appointment, operate from 1 April 2015 or, if later, the date of appointment. The appointment of Non-Executive Directors is terminable on three months’ notice. Non-Executive Directors are not eligible to participate in any new share awards made under the terms of the Group’s bonus or share award schemes. In exceptional circumstances, where an Executive Director becomes a Non-Executive Director eg Michael Slade becoming Chairman in 2016, ongoing participation in awards previously made in bonus and share schemes will be subject to the rules of those schemes and will be subject to the discretion of the Committee. NON-EXECUTIVE DIRECTORS’ LETTERS OF APPOINTMENT Non-Executive Director Michael Slade - Chairman Susan Clayton - Chairman of the Valuation Committee Richard Cotton Richard Gillingwater - Senior Independent Director Richard Grant - Chairman of the Audit and Risk Committee Michael O’Donnell - Chairman of the Remuneration Committee Board appointment 21 August 1984 Commencement date of current term 25 July 2016 1 February 2016 1 February 2016 1 March 2016 24 July 2012 24 July 2012 24 June 2011 1 March 2016 1 April 2015 1 April 2015 1 April 2015 85 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 DIRECTORS’ REMUNERATION REPORT CONTINUED SHARE OWNERSHIP GUIDELINES Directors will not normally be permitted to sell shares received through the 2014 PSP, other than to meet taxation (and national insurance contributions) liabilities, for at least two years and until they own shares to the value of 300% (increased from 200%) of basic salary for Executive Directors and 100% of salary for other Senior Management. returned as dividends to shareholders) that could accrue to all Executives through the Group’s long and short-term incentive and bonus plans at the point at which the maximum awards vest over the term of the plans might be of the order of 20%. At this point, in absolute terms, the Group will have increased its triple net asset value by at least 15% pa with the Group’s relative performance placing it in the top quartile of IPD and Total Shareholder Return, over each three year period. ALIGNMENT WITH SHAREHOLDER INTERESTS The Remuneration Committee has analysed the potential gains that may be made by Executives (Directors and those below Board level) through the 2014 PSP and other incentive arrangements currently in place. It has concluded that the share of the increase in the value of the Group (measured as the increase in the net asset value, before incentives, plus cash REWARD SCENARIOS The charts below show how the composition of the Executive Directors’ remuneration packages varies at three performance levels, namely, at minimum (ie fixed pay), target (assumed to be 50% of the maximum incentive levels) and maximum levels, under the policy set out in the table overleaf. VALUE OF REMUNERATION PACKAGES AT DIFFERENT LEVELS OF PERFORMANCE (£’000) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 42% 42% 37% 37% 26% 16% 49% 33% 18% 41% 28% 31% 42% 42% 36% 36% 42% 42% 36% 36% 28% 16% 28% 16% Minimum Target Maximum Minimum Target Maximum Minimum Target Maximum Minimum Target Maximum GERALD KAYE TIM MURPHY MATTHEW BONNING-SNOOK DUNCAN WALKER Basic salary & benefits Bonus PSP The chart is based on: • Salary levels effective 1 April 2017; • An approximated annual value of benefits (no pension is provided); • A 300% of salary maximum annual bonus for the CEO and other directors and 200% for the Finance Director (with target assumed to be 50% of the maximum); • A 300% of salary award under the 2014 PSP in line with the normal maximum award (with target assumed to be 50% of the maximum); and • No share price appreciation in respect of deferred bonus and PSP awards has been assumed. 86 HELICAL PLCAnnual Report and Accounts 2017 ANNUAL REPORT ON REMUNERATION APPLICATION OF THE REMUNERATION POLICY IN THE YEAR TO 31 MARCH 2017 BALANCE OF FIXED VERSUS VARIABLE PAY In line with its policy, the Committee seeks to ensure that the balance of remuneration provides a basic salary below the median, and performance related bonuses and share awards that reward absolute performance and outperformance relative to the Group’s peer group. In the year to 31 March 2017, the balance of fixed versus variable pay on an actual basis for the Executive Directors in office during the year compared to the maximum payable was as follows: Basic salaries and benefits-in-kind Annual Bonus Scheme 2016 Performance Share Plan shares vested Actual £000 1,866 4,051 3,023 8,940 Share of total Maximum Share of total % 21 45 34 100 £000 1,866 4,243 4,711 10,820 % 17 39 44 100 Note: Performance Share Plan shares vested reflect the market value of shares that are expected to vest (actual) or could vest (maximum) in respect of the three year performance period to 31 March 2017 in accordance with the terms of the Group’s Performance Share Plan. DIRECTORS’ REMUNERATION Remuneration in respect of the Directors was as follows: Year to 31 March 2017 Executive Directors Gerald Kaye Tim Murphy Matthew Bonning-Snook Duncan Walker As former Executive Director Michael Slade Non-Executive Directors Michael Slade Susan Clayton Richard Cotton Richard Gillingwater Richard Grant Michael O’Donnell Former Non-Executive Directors Nigel McNair Scott Andrew Gulliford Total Fixed Basic salary/fees £000 Benefits1 £000 Share Incentive Plan £000 Sub-total £000 Annual cash bonus £000 Variable Deferred bonus shares £000 Share2 awards £000 Sub-total £000 Total £000 475 291 389 357 170 106 55 45 55 55 55 52 17 48 22 52 19 15 44 – – – – – 5 – 7 7 7 7 – – – – – – – – – 530 320 448 383 185 150 55 45 55 55 55 57 17 950 259 777 714 475 130 389 357 – – – – – – – – – – – – – – – – – – 687 475 635 539 687 – – – – – – – – 2,112 864 1,801 1,610 687 – – – – – – – – 2,642 1,184 2,249 1,993 872 150 55 45 55 55 55 57 17 2,122 205 28 2,355 2,700 1,351 3,023 7,074 9,429 1 Benefits include the provision of a car/car allowance, fuel allowance, private medical cover, life assurance and permanent health insurance. 2 Value of share awards based on average share price over three months to 31 March 2017 of 303.17p. 87 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 DIRECTORS’ REMUNERATION REPORT CONTINUED Year to 31 March 2016 Executive Directors Michael Slade Tim Murphy Gerald Kaye Matthew Bonning-Snook Duncan Walker Non-Executive Directors Nigel McNair Scott Andrew Gulliford Richard Gillingwater Richard Grant Michael O’Donnell Susan Clayton Richard Cotton Total Fixed Basic salary/fees £000 Benefits £000 Share Incentive Plan £000 Sub-total £000 Annual cash bonus £000 Variable Deferred bonus shares £000 Share awards1 £000 Sub-total £000 Total £000 533 285 412 381 323 155 52 52 52 52 9 4 42 30 49 54 29 23 – – – – – – 7 7 7 7 7 – – – – – – – 582 322 468 442 359 178 52 52 52 52 9 4 1,500 500 828 765 649 – – – – – – – – – 414 383 325 – – – – – – – 1,785 916 1,415 1,132 916 – – – – – – – 3,285 1,416 2,657 2,280 1,890 – – – – – – – 3,867 1,738 3,125 2,722 2,249 178 52 52 52 52 9 4 2,310 227 35 2,572 4,242 1,122 6,164 11,528 14,100 1 Share awards are included at their actual vesting values in December 2016 of 290.00p and 297.75p. The table included in the 2016 financial statements included share awards at the average share price in the three months to 31 March 2016 of 398.75p. The information in this section has been audited. HELICAL ANNUAL BONUS SCHEME 2016 The Helical Annual Bonus Scheme 2016 was approved by shareholders at the 2016 AGM. This scheme provides annual cash bonuses based on the performance of the Group’s property portfolio and is aligned with shareholders’ interests through a profit sharing model, with appropriate hurdles and shareholder protections (including deferral and clawback). Total 2016 Bonus Scheme bonuses have been accrued in the financial statements for the year to 31 March 2017 and the cash element will be payable in June 2017. The main features of the 2016 Bonus Scheme as applied to the year to 31 March 2017 were as follows: • The scheme participants were Gerald Kaye, Tim Murphy, Matthew Bonning-Snook and Duncan Walker. Former Director, Jack Pitman, remained eligible for a bonus in respect of the bonus pool carried forward from 31 March 2015 in the Annual Bonus Scheme 2012; • The Bonus Pool carried forward at 31 March 2016 in respect of the Annual Bonus Scheme 2012 was rolled into the Annual Bonus Scheme 2016. The Bonus Pool transferred to the new scheme of £24.0m was reduced by £10.5m as the result of additional shareholder protections introduced into the new scheme; • All property assets held during the year were allocated to the ‘Profit Pool’; • Investment assets were included at valuation as at 31 March 2016 with subsequent valuation movements increasing or decreasing the size of the Profit Pool. Development assets were also included at valuation as at 31 March 2016 with subsequent valuation movements increasing or decreasing the size of the Profit Pool; • Development profits, development management fees, net rents, other income and profits/losses on the sale of property assets were allocated to the Profit Pool; and, • Profits in the Profit Pool were eligible for the award of bonuses once they were sufficient to exceed the recovery of all related finance costs, a charge for the use of the Company’s equity at an initial rate of 7% (reviewed regularly to reflect any changes in the risk profile of the Company’s activities), the Group’s total administrative costs (excluding performance related remuneration) and any unallocated losses from the previous three financial years. SHAREHOLDER PROTECTIONS • No more than 10% of profits were available to participants for distribution (“Bonus Award Pool”) at the end of the relevant financial year; • The distribution of the Bonus Award Pools to participants was restricted to 200% of salary for Tim Murphy and 300% for each of the other scheme participants. Any excess is deferred and carried forward to the subsequent year to form part of the Bonus Award Pool for up to a maximum of the next two years; • Two thirds of any payment is to be paid in cash in June 2017 and one third is deferred for three years into Helical plc shares; and • Other shareholder protections as noted on page 93 in respect of the Annual Bonus Scheme 2016. 88 HELICAL PLCAnnual Report and Accounts 2017 BONUS AWARD POOL - YEAR TO 31 MARCH 2017 The amount transferred to the Bonus Award Pool based on the results of the Group for the year to 31 March 2017 and its allocation to cash and deferred share awards is as follows: Profit Pool Gross profit Administration costs (before performance-related awards) Net finance costs Tax adjustment - joint ventures Accounting profits eligible for annual bonus award Movement in fair value of stock Equity charge in the year Net profits eligible for annual bonus award Bonus Award Pool Surplus Bonus Award Pool brought forward from 31 March 2016 Amount transferred to Bonus Award Pool - 10% of Profit Pool Bonuses awarded in year to 31 March 2017 Bonus Award Pool forfeited as a result of carry forward restriction Surplus Bonus Award Pool carried forward at 31 March 2017 £000 78,650 (10,800) (22,442) (1,396) 44,012 (5,122) (35,001) 3,889 £000 24,035 389 (4,051) (10,550) 9,823 The Surplus Bonus Award Pool carried forward at 31 March 2017 represents the balance remaining of the pool brought forward from 31 March 2016. This pool will either be utilised during the year to 31 March 2018 or reduced to £nil at that date. PSP AWARDS VESTING IN 2017 The PSP award granted on 25 July 2014 will vest after 26 July 2017. The expected vesting percentage is as follows: Metric NAV (fully diluted triple net) TPR TSR Total Performance Condition Net Asset Value Growth 10% of this part of an award vests for compound NAV growth of 7.5% pa increasing pro-rata to 100% of this part of an award vesting for compound NAV growth of 15% pa Total Property Return v IPD property 10% of this part of an award vests for median ranking increasing pro-rata to 100% of this part of an award vesting for upper quartile or above performance Total Shareholder Return 10% of this part of an award vests for median ranking increasing pro-rata to 100% of this part of an award for upper quartile or above performance Weighting 33.33% Threshold Target 7.5% Stretch Target 15.0% Actual 16.9% % Vesting (max 33.33% each) 33.33% 33.33% Median 5.3% 33.33% Median 19.5% Upper quartile 6.9% Upper quartile 39.6% 9.4% 33.33% (10.3%) 0.00% 66.66% Based on the above and given that net value per share (having added back dividends) increased over the three year performance period, details of the shares under award and the expected value at vesting are as follows: Directors Gerald Kaye Tim Murphy Matthew Bonning-Snook Duncan Walker Michael Slade2 Jack Pitman - former Director Number of shares at grant 340,055 235,055 Number of shares expected to lapse 113,352 78,352 Number of shares expected to vest 226,703 156,703 314,245 104,748 209,497 266,706 88,902 177,804 440,195 272,053 213,732 226,463 211,597 60,456 Estimated value at vesting1 £’000 687 475 635 539 687 183 1 The share price used to calculate the expected value at vesting was 303.17p, based on the average share price over the three months to 31 March 2017. 2 Reflecting Michael Slade’s switch from Chief Executive to Chairman last year, his PSP awards vest on the normal vesting dates, subject to pro-rating to reflect the period of time served as an Executive Director. 89 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 DIRECTORS’ REMUNERATION REPORT CONTINUED The 2004 PSP numbers presented for the comparatives in the remuneration table above are based on the 2004 PSP awards granted on 25 June 2013. The three year performance period to 31 March 2016 showed that the net asset value per share, calculated in accordance with the terms of the 2004 PSP, had increased by 22.2% pa. During this three year period the total return of Helical’s property portfolio, as determined by IPD, was 22.0% compared to the upper quantile of the IPD Benchmark which showed a return of 15.7%. Therefore, 100% of the shares vested. The share price used to calculate the expected value at vesting for the 2013 PSP awards was 398.75p (based on the average share price over the three months to 31 March 2016). The actual share prices at vesting on 9 December 2016 and 15 December 2016 were 297.75p and 290.00p respectively. The information in this section has been audited. PSP AWARDS GRANTED IN THE YEAR The following conditional awards were granted on 1 June 2016 under the 2014 PSP in the year: Individual Gerald Kaye Tim Murphy Matthew Bonning-Snook Duncan Walker Basis of award (as a % of salary) 300% 300% 300% 300% Face value £000 1,242 858 1,148 974 Vesting at threshold Vesting at maximum Performance period 10% 10% 10% 10% 100% 3 years to 31 March 2019 100% 3 years to 31 March 2019 100% 3 years to 31 March 2019 100% 3 years to 31 March 2019 Details of the performance targets attached to the awards are set out on page 94. The total number of awards made to Directors under the terms of the 2014 PSP which have not yet vested are as follows: Director Gerald Kaye Tim Murphy Matthew Bonning-Snook Duncan Walker Michael Slade1 Jack Pitman - former Director1 Shares awarded 25.07.14 at 358.00p Shares awarded 08.06.15 at 420.00p Shares awarded 01.06.16 at 395.00p Total shares awarded 340,055 289,857 314,354 944,266 235,055 200,357 217,291 652,703 314,245 267,857 290,506 872,608 266,706 339,694 90,684 227,335 246,531 740,572 125,071 – – – 464,765 90,684 1 Outstanding PSP awards made to Michael Slade and Jack Pitman have been amended and will vest on the normal vesting dates, pro-rated to reflect the period served as an Executive Director. It is currently expected that 66% of the shares awarded on 25 July 2014, 43% of the shares awarded on 8 June 2015 and 33% of the shares awarded on 1 June 2016 will vest. As detailed on page 91, Jack Pitman, a former Director, has been treated as a good leaver under the 2004 PSP and 2014 PSP. Awards will vest under terms of the relevant plans at the normal vesting dates, subject to performance and time pro-rating. The information in this section has been audited. 90 HELICAL PLCAnnual Report and Accounts 2017 VESTING OF PSP AWARDS Awards to Executive Directors, in office during each year and excluding leavers, which have vested or are expected to vest in accordance with the terms of the 2004 and 2014 PSP schemes in the last eight years are as follows: 2004 PSP scheme 2014 PSP scheme 100% 80% 60% 40% 20% 0% 67% 67% 29% 33% Nil 2010 Nil 2011 Nil 2012 Nil 2013 2014 2015 2016 2017 33% 33% 33% 33% IPD NAV TSR HELICAL BAR 2002 APPROVED SHARE INCENTIVE PLAN Under the terms of this Plan employees of the Group are given annual awards of free shares with a value of £3,600 and participants are allowed to purchase additional shares up to a value of £1,800, to be matched in a ratio of 2:1 by the Company. Provided participants remain employed by the Group for a minimum of three years they will retain the free and matching shares. Shares allocated to, or purchased on behalf of, the Directors under the rules of the Plan were as follows: Gerald Kaye Tim Murphy Matthew Bonning-Snook Duncan Walker 6 March 2017 at 312.50p 4 January 2017 at 283.75p 9 December 2016 at 297.75p 13 September 2016 at 281.75p 15 August 2016 at 274.25p 15 June 2016 at 365.75p 20 April 2016 at 374.50p 432 432 432 432 383 207 379 230 453 453 453 453 477 477 477 477 117 63 116 71 1,362 1,362 1,362 1,361 587 307 582 343 Shares held by the Trustees of the Plan at 31 March 2017 were 437,597 (2016: 437,597). The information in this section has been audited. PAYMENTS TO FORMER DIRECTORS - DEPARTURE OF JACK PITMAN Jack Pitman stepped down from the Board on 13 February 2015 and ceased employment on 31 March 2015. No payments in respect of salary and car allowance were made after 31 March 2015 although in line with his termination arrangements, Jack Pitman’s Group health insurance continued until the end of the policy in October 2015. In respect of his incentives, it was determined by the Remuneration Committee that Jack Pitman should be treated as a Good Leaver for the purposes of the Annual Bonus Scheme 2012 and his outstanding PSP awards. In accordance with his Good Leaver status, he ceased to accrue future amounts under the Annual Bonus Scheme 2012 from cessation of his employment but was entitled to his share of the balance remaining in that scheme at 31 March 2015 for a further two years in line with the plan rules, subject to offset of future losses and clawback. Any final payment under the terms of this scheme is expected to be paid in June 2017 and will be disclosed in the 2018 Annual Report. The 2013 PSP (granted under the 2004 PSP) vested in full. The value of this award, pro-rated for time, was £943,795. The 2014 PSP award (granted under the 2014 PSP) is expected to vest in July 2017 and its estimated value, based on the average share price over the three months to 31 March 2017 of 303.17p and the expected vesting of 66% of the shares originally awarded and time pro-rated, is £183,000. No further payments are to be made to Jack Pitman in respect of the Annual Bonus Scheme 2012 or the Performance Share Plan 2014 other than those referred to above. 91 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 DIRECTORS’ REMUNERATION REPORT CONTINUED IMPLEMENTATION OF THE REMUNERATION POLICY FOR THE YEAR TO 31 MARCH 2018 EXECUTIVE DIRECTORS’ BASIC ANNUAL SALARY AND BENEFITS-IN-KIND The basic package of salary and benefits is designed to match the experience and responsibilities of each Director and is reviewed annually to ensure that it is consistent with and appropriate to their responsibilities and expectations. The Group does not provide any separate pension provision for Executive Directors and expects individuals to provide for their retirement through their basic salaries and incentive payments. Executive Directors’ basic annual salaries at 31 March 2017 and increases from 1 April 2017 are as follows: Also consistent with the disclosures set out in last year’s Directors’ Remuneration Report, the second stage of Duncan Walker’s basic salary increase to reflect his increased responsibilities was approved following the Committee’s positive assessment of personal performance. As such, Duncan Walker’s basic salary was increased from £357,000 to £400,600 on 1 April 2017 (the same level as Matthew Bonning-Snook). Following completion of these planned changes, subsequent increases for all Executive Directors are expected to be limited to inflationary increases each year. In addition to these two changes, the Committee has determined that the basic salaries for the remaining two Executive Directors should increase by 3.1%, being the increase in RPI to 31 March 2017, from 1 April 2017, compared to an average 6.7% awarded to other employees. Director Gerald Kaye Tim Murphy Matthew Bonning-Snook Duncan Walker At 31 March 2017 £ Increases wef 1 April 2017 £ 475,000 40,000 290,700 388,600 357,000 9,000 12,000 43,600 400,600 At 1 April 2017 £ 515,000 299,700 400,600 BENEFITS-IN-KIND Benefits-in-kind provided to Executive Directors comprise the provision of a company car or car allowance, car fuel, private medical cover, permanent health insurance, life insurance and participation in the Company’s Share Incentive Plan. There is no Group pension scheme for Directors and no contributions will be paid by the Group to the Directors’ own pension schemes. The Committee’s policy in respect of basic salaries is that they should be reviewed annually and increased to reflect an appropriate level of inflation (being linked to the Retail Price Index) or greater to reflect increases in the scale, scope or responsibility of their roles or to allow recently appointed Executives to move to market norms as their experience and contributions increase. Consistent with the disclosure set out on page 97 of last year’s Directors’ Remuneration Report surrounding Gerald Kaye’s promotion to Chief Executive, and reflecting the Committee’s positive assessment of personal performance over this period, the Committee determined that it was appropriate to award the second stage of his two-year salary adjustment from 1 April 2017. As such, Gerald Kaye’s basic salary was increased from £475,000 to £515,000 pa from 1 April 2017 as planned. The adjusted salary remains £20,800 below that of the previous Chief Executive’s salary. NON-EXECUTIVE DIRECTORS’ FEES No increases to Non-Executive Directors’ annual fees were awarded from 1 April 2017. Current fees are as follows: Director Michael Slade Susan Clayton Richard Cotton Richard Gillingwater Richard Grant Michael O’Donnell 1 April 2017 £ 155,0001 55,000 45,000 55,000 55,000 55,000 1 Michael Slade is paid a fee of £155,000 and has the use of administrative staff in connection with non-Helical matters, the value of which is estimated at £20,000 pa 92 HELICAL PLCAnnual Report and Accounts 2017 • Net losses will be carried forward for offset against future net profits. Carry forward of losses will be for a minimum of two years, subject to extension at the request of the Remuneration Committee; • The scheme operates a clawback provision whereby amounts deferred, amounts held in Bonus Award Pools or the net of tax amounts paid may be recovered in the event of a misstatement of results, an error being made in assessing the calculation of Bonus Award Pools or in the event of gross misconduct; and, • The share of any increase in value of the Company (measured as the increase in net asset value plus cash returned as dividends) that could accrue to all Executives through the Group’s long and short-term incentive and bonus plans at maximum vesting/payouts during the lifetime of the plans will continue to be no more than 20%. OTHER MATTERS • Awards may be satisfied through shares purchased in the market or by new issue or treasury shares. Where new issue or treasury shares are used, the standard 5% in ten year dilution limit will apply; and • On a change of control of the Company, any amounts accrued over the financial year up to the relevant date, and any amounts held within the Bonus Award Pools will be paid out, subject to a cap on those awards of 600% of basic salary, and any deferred shares would vest immediately. LONG-TERM INCENTIVES PERFORMANCE SHARE PLAN 2014 It is anticipated that long-term incentives will be granted to all Executive Directors and senior management in June 2017 in the form of nil cost options awarded under the terms of the 2014 PSP Scheme. For Executive Directors the awards will be granted at 300% of base salary as at 31 March 2017. Awards will normally vest no earlier than the third anniversary of their grant to the extent that the applicable performance conditions (see below) have been satisfied and the participant is still employed by the Group. Once exercisable, awards will remain capable of exercise for a period of normally no more than six months. Performance conditions for the awards to be granted in 2017 will be equally weighted and measured over the three years to 31 March 2020 as follows: ANNUAL BONUSES HELICAL ANNUAL BONUS SCHEME 2016 Gerald Kaye, Tim Murphy, Matthew Bonning-Snook and Duncan Walker will participate in the Helical Annual Bonus Scheme 2016, which was approved by Shareholders at the 2016 AGM. This scheme provides annual bonuses based on the performance of the Group’s property portfolio and is aligned with shareholders’ interests through a profit sharing model, with appropriate hurdles and shareholder protections (including deferral and clawback). The main features of the Annual Bonus Scheme 2016 as applied to the year to 31 March 2018, are as follows: • All property assets held at 1 April 2017 will be included in the Profit Pool; • Investment assets will be included at valuation as at 31 March 2017 with subsequent valuation movements increasing or decreasing the size of the Profit Pool. Development assets will be included at valuation as at 31 March 2017 with subsequent valuation movements increasing or decreasing the size of the Profit Pool; • Development profits, development management fees, net rents, other income and profits/losses on the sale of property assets will be allocated to the Profit Pool; and, • Profits in the Profit Pool will be eligible for the award of bonuses once they are sufficient to exceed the recovery of all related finance costs, a charge for the use of the Company’s equity at a rate of 7% (reviewed regularly to reflect any changes in the risk profile of the Company’s activities), and the Group’s total administrative costs (excluding performance related remuneration). SHAREHOLDER PROTECTIONS • No more than 10% of profits will be available to participants for distribution (“Bonus Award Pool”) at the end of the relevant financial year; • The distribution of the Bonus Award Pool to participants will be restricted in any financial year to 300% of salary (200% for Tim Murphy). Any excess is deferred and carried forward to the subsequent year to form part of the Bonus Award Pool for the subsequent two year(s); • A maximum of 6.5 times the aggregate Executive Director salary pool may be carried forward to form part of the Bonus Award Pool for the subsequent year; • A maximum of two thirds of any payment is made in cash after the relevant financial year end and a minimum of one third is deferred for three years into Helical plc shares; • No payments will be made where the Company has not generated a profit (amounts will be deferred until a profit is generated). In addition, the Remuneration Committee will retain discretion to increase the deferred share amount (up to 100% of the payment) or not to make a payment at all (with any amounts reverting back to the Company rather than remaining in the Bonus Award Pool) where it is considered appropriate to do so; 93 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 DIRECTORS’ REMUNERATION REPORT CONTINUED GROWTH IN NET ASSET VALUE The “fully diluted triple net” asset value as at the start of the financial year in which a grant takes place will be compared to the value three years later (having added back dividends and changes in issued share capital): Annual compound increase after three years 15% pa or more % of award vesting 33.3 Between 7.5% pa and 15% pa Pro rata between 3.3 and 33.3 7.5% pa Below 7.5% pa 3.3 nil If UK inflation (RPI) is higher than 3% pa over the three year period then the required compound increases will be raised by the excess over the 3% pa average. TOTAL PROPERTY RETURN VERSUS IPD PROPERTY FUNDS Ranking after three years Upper quartile or above % of award vesting 33.3 Between median and upper quartile Pro rata between 3.3 and 33.3 OTHER REMUNERATION MATTERS SHARE PRICE PERFORMANCE AND TOTAL SHAREHOLDER RETURN The market price of the ordinary shares at 31 March 2017 was 313.25p (2016: 386.00p). This market price varied between 230.00p and 403.25p during the year. The total shareholder returns for a holding in the Group’s shares in the three, eight and ten years to 31 March 2017 compared to a holding in the FTSE 350 Super-Sector Real Estate Index are shown in the graphs below. This index has been chosen because it includes the majority of listed real estate companies. THREE YEARS TO 31 MARCH 2017 The graph showing the relative performance of Helical during the three years to 31 March 2017 matches the performance period for the 2014 PSP award granted on 25 July 2014 and which will be assessed against its performance criteria after 26 July 2017. Median Less than median RELATIVE TSR Ranking after three years Upper quartile or above TOTAL SHAREHOLDER RETURN 3.3 nil 200 % of award vesting 150 33.3 Between median and upper quartile Pro rata between 3.3 and 33.3 Median Less than median 3.3 nil The comparator group for the awards to be granted in 2017 will be the companies included in the FTSE 350 Super Sector Real Estate Index, excluding storage companies, agencies and companies run by external investment managers, as at 1 April 2017. Share awards will lapse in full where: • Net asset value per share (having added back dividends) does not increase over the three year performance period; or • The gross return falls below the IPD median, the growth in triple net asset value is below 7.5% pa and relative TSR is below median over the three year period. 100 50 0 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Helical FTSE 350 Supersector Real Estate Index Source: Datastream (Thomson Reuters) This graph shows the value, by 31 March 2017, of £100 invested in Helical on 31 March 2014, compared with the value of £100 invested in the FTSE 350 Super-Sector Real Estate Index. 94 HELICAL PLCAnnual Report and Accounts 2017 EIGHT YEARS TO 31 MARCH 2017 The base position at 31 March 2009, from which subsequent performance is measured as required by the Regulations, is the nearest accounting period end to the bottom of the last property cycle. Helical’s share price at that date was 287.50 per share, a small premium to the EPRA net asset value per share of 286.00p per share. The Company’s share price, at that stage, had not fallen as much as the average of the FTSE 350 Super-Sector Real Estate Index and remained at a premium until 2012. The subsequent performance of the Company’s TSR reflects the relatively higher base position of Helical’s share price. TEN YEARS TO 31 MARCH 2017 The ten years to 31 March 2017 covers the end of the previous property cycle, the impact of the Financial Crisis of 2008 and the subsequent economic recovery and the impact of the decision of the UK to leave the European Union in June 2016. The graph below shows that Helical’s share price remained at a premium to NAV per share until 2012, following which it fell to a low of 164.00p before recovering and growing to 474.75p at 31 December 2015. Since then the share price has fallen to a low of 230.00p before increasing to 313.25p at 31 March 2017. TOTAL SHAREHOLDER RETURN TOTAL SHAREHOLDER RETURN 350 300 250 200 150 100 50 0 150 125 100 75 50 25 0 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Helical FTSE 350 Supersector Real Estate Index Helical FTSE 350 Supersector Real Estate Index Source: Datastream (Thomson Reuters) Source: Datastream (Thomson Reuters) This graph shows the value, by 31 March 2017, of £100 invested in Helical on 31 March 2009, compared with the value of £100 invested in the FTSE 350 Super-Sector Real Estate Index. This graph shows the value, by 31 March 2017, of £100 invested in Helical on 31 March 2007, compared with the value of £100 invested in the FTSE 350 Super-Sector Real Estate Index. REMUNERATION OF THE CHIEF EXECUTIVE Comparing the eight year TSR of the Company, as noted above, to the remuneration of the Chief Executive, the table below presents single figure remuneration for the Chief Executive over the period, since 31 March 2009, together with past annual bonus payouts and the vesting of long-term incentive share awards: Year ended 31 March 2017 31 March 2016 31 March 2015 31 March 2014 31 March 2013 31 March 2012 31 March 2011 31 March 2010 Name Gerald Kaye Michael Slade Michael Slade Michael Slade Michael Slade Michael Slade Michael Slade Michael Slade Total Remuneration £000 Annual Bonus (% of max payout) LTIP (% of max vesting) 2,6421 3,867 5,534 3,343 1,523 541 538 1,5002 100 100 100 100 65 – – – 66 100 100 62 – – – – 1 The total remuneration of Gerald Kaye includes the period whilst he was an Executive Director but prior to his appointment as CEO on 25 July 2016. 2 The total remuneration in the year to 31 March 2010 includes £973,000 in respect of share options granted in 2000 and eligible to vest between 2005 and 2010. 95 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 DIRECTORS’ REMUNERATION REPORT CONTINUED CHIEF EXECUTIVE’S REMUNERATION COMPARED TO REMUNERATION OF HELICAL EMPLOYEES Percentage Increases in Chief Executive Remuneration Chief Executive Salary Benefits and share incentive plan Annual bonus 2017 £000 475 55 1,425 Relative importance of the spend on pay Staff costs Distributions to shareholders1 Net asset value of the Group 1 In respect of the financial year to which they relate. DIRECTORS’ SHARE INTERESTS AND SHAREHOLDING GUIDELINES 2016 £000 533 49 1,500 2017 £000 12,070 9,993 516,897 Change % Average change for Helical employee % (11%) 12% (5%) 2016 £000 15,622 9,361 480,721 9% 7% (36%) Changes % (23%) 7% 8% Gerald Kaye Tim Murphy Matthew Bonning-Snook Duncan Walker Salary1 £ 515,000 299,700 400,600 400,600 Shareholding requirement2 £ 1,545,000 899,100 1,201,800 1,201,800 Value of beneficially held shares3 £ 4,286,408 1,700,250 2,124,303 1,531,239 Ratio of shares held to salary % 832 567 530 382 1 Salaries as at 1 April 2017. 2 Shareholding requirement is 300% of salary. 3 Value as per the weighted average share price for the three months to 31 March 2017 of 303.17p. DIRECTORS’ SHAREHOLDINGS Executive Directors Gerald Kaye Tim Murphy Matthew Bonning-Snook Duncan Walker Non-Executive Directors Michael Slade Susan Clayton Richard Cotton Richard Gillingwater Richard Grant Michael O’Donnell Legally owned 31.3.16 Legally owned 31.3.17 Share Incentive Plan unrestricted 31.3.17 Deferred shares 31.3.17 Share Incentive Plan restricted 31.3.17 PSP awards unvested 31.3.17 Total 31.3.17 1,047,722 1,386,145 351,600 402,809 304,458 553,068 673,366 493,596 27,718 7,756 27,331 11,480 1,413,863 321,300 560,824 700,697 505,076 – 299,113 240,938 18,797 17,841 18,751 16,893 12,649,357 12,633,607 – – 11,500 15,000 62,000 – 25,000 11,500 15,000 67,000 – – – – – – 12,633,607 – 25,000 11,500 15,000 67,000 – – – – – – – – – – – – 944,266 652,703 872,608 740,572 464,765 – – – – – The four Executive Directors of Helical have an average length of service of over 19 years and have built up a shareholding during that time of c. 3.2m shares with a market value at 31 March 2017 of c. £9.6m. All shares acquired since 31 March 2010, in accordance with the Company’s annual bonus and long-term incentives schemes, have been retained (net of shares sold to pay tax and national insurance). 96 HELICAL PLCAnnual Report and Accounts 2017 ADVISORS TO THE COMMITTEE The Committee consults the Chief Executive and Finance Director about its proposals and has access to professional advice from independent remuneration consultants to help it determine appropriate remuneration arrangements. During the year the Committee reviewed the provision of remuneration advice by the consultants and appointed FIT Remuneration Consultants LLP (FIT) to replace New Bridge Street (NBS) in February 2017. Terms of reference for the remuneration consultants, which provided no other services to the Company, are available from the Company Secretary on request. Fees paid to FIT from appointment to 31 March 2017 amounted to £1,500. Fees paid to NBS for the year to 31 March 2017 amounted to £23,424 (2016: £20,384). SHAREHOLDER VOTING AT THE LAST AGM At the 2016 AGM a new Remuneration Policy was proposed to shareholders and there was an advisory vote on the Annual Remuneration Report. Voting by shareholders representing 84% of the issued share capital on these resolutions was as follows: Remuneration Policy Annual Remuneration Report Issued For 118,183,806 96,585,226 118,183,806 82,015,167 % 97.1 84.5 Against 2,927,565 15,011,788 % 2.9 15.5 Withheld Total 54,863 99,567,654 2,540,699 99,567,654 The Committee was pleased to note the level of shareholder support for the Remuneration Policy and the Annual Report on Remuneration. Approved by the Board on 25 May 2017 and signed on its behalf. MICHAEL O’DONNELL Chairman of the Remuneration Committee 97 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 REPORT OF THE DIRECTORS STRATEGIC REPORT A review of the Company’s business during the year, the principal risks and uncertainties facing the Group and future prospects and developments are included in the Strategic Report on pages 2 to 63 which should be read in conjunction with this report. RESULTS AND DIVIDENDS The results for the year are set out in the Consolidated Income Statement on page 106 and Consolidated Statement of Comprehensive Income on page 106. An interim dividend of 2.40p (2016: 2.30p) was paid on 30 December 2016 to Shareholders on the Shareholder register on 2 December 2016. A final dividend of 6.20p (2016: second interim dividend of 5.15p and final of 0.72p) per share is recommended for approval at the Annual General Meeting (“AGM”) to be held on 13 July 2017 and, if approved, will be paid on the 21 July 2017 to Shareholders on the register on 23 June 2017. The total ordinary dividend declared and paid in the year of 3.12p (2016: 12.60p) per share amounts to £3,566,000 (2016: £14,437,000). DIRECTORS The Directors who held office during the year and up to the date of this report are listed below. Details of the Directors’ interests in the ordinary shares of the Company are shown on page 96. Biographical details of all Directors are shown on pages 70 and 71. All the Directors currently serving will offer themselves for re-election at the AGM to be held on 13 July 2017. Details of Directors’ remuneration and their interests in share awards are set out in the Directors’ Remuneration Report on pages 80 to 97. Chairman Michael Slade Executive Directors Gerald Kaye Tim Murphy Matthew Bonning-Snook Duncan Walker Non-Executive Directors Susan Clayton Richard Cotton Richard Gillingwater Richard Grant Michael O’Donnell Former Non-Executive Directors Nigel McNair Scott Andrew Gulliford Age Date of appointment Date of retirement Title 70 August 1984 Chairman 59 September 1994 57 July 2012 49 August 2007 38 June 2011 59 February 2016 61 March 2016 60 July 2012 63 July 2012 50 June 2011 Chief Executive Finance Director Executive Director Executive Director Chairman Property Valuations Committee Senior Independent Director and Chairman Nominations Committee Chairman Audit and Risk Committee Chairman Remuneration Committee 71 December 1985 25 July 2016 Former Chairman 70 March 2006 25 July 2016 CORPORATE GOVERNANCE The Group’s corporate governance policies, compliance with the UK Corporate Governance Code and Going Concern statement are set out in the Governance Review on pages 72 to 75. DIRECTORS’ CONFLICT OF INTEREST Under the Companies Act 2006 (the “Act”), Directors are subject to a statutory duty to avoid a situation where they have, or can have, a direct or indirect interest that conflicts, or may possibly conflict, with the interests of the Company. As is permissible under the Act, the Company’s Articles of Association allow the Board to consider, and if it sees fit, to authorise situations where a Director has an interest that conflicts, or may possibly conflict, with the interests of the Company. Directors are required to notify the Company of any conflict or potential conflict of interest under an established procedure and any conflicts or potential conflicts are noted at each Board meeting. POLITICAL DONATIONS The Company’s policy with regard to political donations is to ensure that shareholder approval is sought before making any such payments. No shareholder approval has been sought and, accordingly, the Company made no political donations in the year to 31 March 2017. FINANCIAL INSTRUMENTS, CAPITALISED INTEREST AND LONG-TERM INCENTIVE SCHEMES The information required in respect of financial instruments, as required by Schedule 7 of the Large and Medium Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 is shown in note 34. Interest capitalised on the Group property portfolio is shown in notes 14 and 19. Long-term incentive schemes are explained in the Directors’ Remuneration Report on pages 80 to 97. DIRECTORS’ LIABILITY INSURANCE AND INDEMNITY The Company maintains Directors and Officers Liability Insurance. To the extent permitted by UK Law, the Company also indemnifies the Directors against claims made against them as a consequence of the execution of their duties as Directors of the Company. CHANGE OF CONTROL Certain agreements between the Company or its subsidiaries and entities including lending banks, joint venture partners and development partners contain termination rights to take effect in the event of a change of control of the Group. Given the commercial sensitivity of these agreements, the Directors do not intend to disclose specific details. 98 HELICAL PLCAnnual Report and Accounts 2017 The Company’s Employee Share Incentive Plan, Annual Bonus Scheme and Performance Share Plan contain provisions relating to the vesting and exercise of options or share awards in the event of a change of control of the Company. Further to the issue on 24 June 2013 of £80 million 6.00% bonds due in 2020 (the “Bonds”), upon a change of control event as defined by the terms and conditions of the Bonds, the bondholders will have the option to require the Company to redeem or, at the Company’s option, purchase the Bonds at their nominal amount together with accrued interest. Similarly, if a change of control event occurs, the holders of the Convertible Bonds of £100m, issued on 17 June 2014 at 4.00% and due for redemption in June 2019, have the right to require the issuer to redeem the Convertible Bonds at their principal amount and accrued interest. EMPLOYMENT AND ENVIRONMENTAL MATTERS Information in respect of the Group’s employment and environmental matters and greenhouse gas reporting is contained in the Corporate Responsibility Report on pages 58 to 63. POST BALANCE SHEET EVENTS Details of post balance sheet events are set out in note 36 to the financial statements. GROUP STRUCTURE Details of the Group’s subsidiary undertakings are disclosed in note 38 to the Financial Statements. SHARE CAPITAL Details of the Company’s issued share capital are shown in note 26 to the Financial Statements. The Company’s share capital consists of both ordinary shares and deferred shares. Each class of shares rank pari passu between themselves. There are no restrictions on the transfer of shares in the Company other than those specified by law or regulation (for example: insider trading laws) and pursuant to the Listing Rules of the Financial Conduct Authority whereby certain employees of the Group require the approval of the Company to deal in the ordinary shares. On a show of hands at a general meeting of the Company, every holder of ordinary shares present in person and entitled to vote shall have one vote and on a poll every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held. The notice of the 2017 Annual General Meeting (AGM) specifies deadlines for exercising voting rights and appointing a proxy or proxies to vote in relation to resolutions to be passed at the meeting. There are no restrictions on voting rights other than as specified by the Company’s Articles of Association. PURCHASE OF OWN SHARES The Company was granted authority at the 2016 Annual General Meeting to make market purchases of its own ordinary shares. No ordinary shares were purchased under this authority during the year and up to the date of this report. The authority will expire at the conclusion of the 2017 AGM, at which a resolution will be proposed to renew this authority. SUBSTANTIAL SHAREHOLDINGS As at 17 May 2017, the Shareholders listed below had notified the Company of a disclosable interest of 3% or more in the nominal value of the ordinary share capital of the Group: Michael E Slade Baillie Gifford & Co Aberdeen Group BlackRock Inc. Investec Group Aviva plc Dimensional Fund Managers Henderson Global Investors Government of Norway Affiliated Managers Group Old Mutual Artemis Investment Management Number of ordinary shares at 17 May 2017 12,633,607 10,608,826 6,834,796 6,591,441 5,212,412 5,196,280 4,953,781 4,452,470 4,222,258 4,093,410 3,578,023 % 10.7 9.0 5.8 5.6 4.4 4.4 4.2 3.8 3.6 3.5 3.0 AMENDMENT OF ARTICLES OF ASSOCIATION The Company’s Articles of Association can be amended only by a special resolution of the members, requiring a majority of not less than 75% of such members voting in person or by proxy. AUDITORS The Group’s auditors, Grant Thornton UK LLP, have expressed their willingness to continue in office and resolutions to reappoint them and to authorise the Directors to determine their remuneration will be proposed at the AGM. ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held on 13 July 2017 at 11.30am at The Connaught, Carlos Place, Mayfair, London W1K 2AL. The special business at the 2017 AGM will include resolutions dealing with the authority to issue shares, the disapplication of pre-emption rights, the authority for the Company to purchase its own shares and the authority to call general meetings on not less than 14 clear days’ notice. The Notice of Meeting, containing explanations of all the resolutions to be proposed at that meeting, is enclosed with this Annual Report and can be found on the Group’s website at www.helical.co.uk By Order of the Board JAMES MOSS FCA Company Secretary 25 May 2017 99 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 STATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing the Strategic Report, Governance and the Financial Statements in accordance with applicable law and regulations. We confirm to the best of our knowledge: • the Group financial statements, prepared in accordance with IFRSs as adopted by the European Union, 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; and • the Annual Report including 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 taken as a whole, together with a description of the principal risks and uncertainties that they face. GERALD KAYE Chief Executive 25 May 2017 TIM MURPHY Finance Director Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable IFRSs 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. 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 enable them to ensure that the financial statements and the Remuneration Report comply with the Companies Act 2006 and Article 4 of the IAS Regulation. 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 confirm that: • so far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and • the Directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the Auditors are aware of that information. The Directors consider the Annual Report and the financial statements, taken as a whole, provides the information necessary to assess the Company’s performance, business model and strategy and is fair, balanced and understandable. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 100 HELICAL PLCAnnual Report and Accounts 2017 FINANCIAL STATEMENTS Independent Auditor’s Report to the Members of Helical plc Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated and Company Balance Sheets Consolidated and Company Cash Flow Statements Consolidated and Company Statements of Changes in Equity Notes to the Financial Statements 102 106 106 107 108 109 1 10 THE BOWER London EC1 101 HELICAL PLCAnnual Report and Accounts 2017GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HELICAL PLC OUR OPINION ON THE FINANCIAL STATEMENTS IS UNMODIFIED In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March 2017 and of the Group’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; • the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. WHO WE ARE REPORTING TO This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. WHAT WE HAVE AUDITED Helical plc’s financial statements for the year ended 31 March 2017 comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Company Balance Sheets, the Consolidated and Company Cash Flow Statements, the Consolidated and Company Statements of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. OVERVIEW OF OUR AUDIT APPROACH • Overall group materiality: £12.7m, which represents 1% of the Group’s total assets; • In addition, we applied lower materiality of £2m, to all income statement items above operating profit excluding share of joint ventures’ gain or loss on investment properties, net gain on sale and revaluation of investment properties and impairment of available for sale investments, based on 5% of profit before tax for the year; • We performed full scope audit procedures at all material locations; and • Key audit risks were identified as revenue recognition and investment property valuation. OUR ASSESSMENT OF RISK In arriving at our opinions set out in this report, we highlight the following risks that, in our judgement, had the greatest effect on our audit: HOW WE RESPONDED TO THE RISK Our audit work included, but was not restricted to: • evaluating the Group’s revenue recognition policies to confirm that they comply with International Financial Reporting Standards as adopted by the European Union and have been applied consistently; • agreeing, on a sample basis, net rental income to managing agents’ reports and the underlying lease agreements; • testing all investment property and residential unit sales and profits in retirement villages, and development property sales and profits on a sample basis, to completion statements and proceeds received; and • assessing the appropriateness of judgements exercised by management in respect of complex contracts. The Group’s accounting policy on revenue recognition is shown in note 37 and related disclosures regarding revenues and profits are included in notes 2,3,4,5 and 18. The Audit and Risk Committee identified revenue recognition as a significant issue in its report on pages 78 and 79, where the Committee also described the action that it has taken to address this issue. Our findings: Based on our audit work, we are satisfied, that the judgements made, and assumptions used by management in determining the revenue recognised, were balanced and supported by the evidence obtained from our testing. AUDIT RISK Revenue recognition The risk: The revenue cycle includes fraudulent transactions. Under International Standard on Auditing (UK and Ireland) 240 ‘The auditor’s responsibilities relating to fraud in an audit of financial statements’, there is a presumed risk that revenue may be misstated owing to the improper recognition of revenue. The group has complex contracts for which the timing and quantum of revenue recognition require the exercise of management judgement. Dependent upon the nature of the contract, this risk applies to development property profit, share of results of joint ventures and net gain on sale and revaluation of investment properties. We therefore identified revenue recognition as a risk requiring special audit consideration. 102 HELICAL PLCAnnual Report and Accounts 2017 AUDIT RISK Investment property valuation The risk: Investment properties with a fair value of £1,003m are not valued appropriately. Investment property is held at fair value under International Accounting Standard (IAS) 40. The fair value of all of the Group’s investment properties is determined based on level 3 fair value inputs as defined by IFRS 13 ‘Fair value measurement’, which means that the inputs used in valuing investment properties are unobservable and are therefore subject to estimation. In determining a property’s valuation the valuers take into account property specific information such as the current tenancy agreements and rental income. They apply assumptions for yields and estimated market rent, which are influenced by prevailing market yields and comparable market transactions, to arrive at the final valuation. For developments classified as investment properties, the residual appraisal method is used, by estimating the fair value of the completed project less estimated costs to complete. We therefore identified investment property valuation as a risk requiring special audit consideration. HOW WE RESPONDED TO THE RISK Our audit work included, but was not restricted to: • examining the qualifications and experience of the Group’s independent external valuers and whether the basis of their valuations was consistent with the RICS “red book” as required by IAS 40; • evaluating evidence of the reliability of valuation estimations by comparing the historical trend of investment property sales with the related carrying values; • obtaining the information provided by management to the independent valuers to confirm it was consistent with information obtained during our audit; • analysis of year on year valuation movements including discussion of any outliers with both management and the independent valuers; • benchmarking, for outlier properties identified by the analysis above, valuation yields used in the external valuations to yields for comparable published market data and seeking further corroboration for those that fall outside a pre-determined range; • discussions with the independent valuers used to understand, and assess the appropriateness of the estimates, assumptions and valuation methodology used; and • ensuring that valuations are reviewed and approved by the Valuations Committee through review of minutes and discussions with the Chair of the Committee. The Group’s accounting policy on investment properties is shown in note 37 and related disclosures are included in note 14. The Audit and Risk Committee identified investment property valuation as a significant issue in its report on pages 78 and 79, where the Committee also described the action that it has taken to address this issue. Our findings: We were satisfied that: • investment property valuations were made by suitably qualified independent valuers using information provided by management that is consistent with information obtained during our audit; and • the judgements made, and assumptions used by, the valuers in determining the investment property valuations were balanced and supported by the evidence obtained from our testing. 103 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 OVERVIEW OF THE SCOPE OF OUR AUDIT A description of the generic scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate We conducted our audit in accordance with International Standards on Auditing (ISAs) (UK and Ireland). Our responsibilities under those standards are further described in the “Responsibilities for the financial statements and the audit” section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the Group in accordance with the Auditing Practices Board’s Ethical Standards for Auditors, and we have fulfilled our other ethical responsibilities in accordance with those Ethical Standards. In order to address the audit risks described above, as identified during our planning procedures, we performed a full scope audit of the financial statements of the Parent Company, Helical plc, and of the financial information of all the Group’s operations. For Group reporting purposes a group materiality is adopted for all subsidiary entities within the Group, unless there are specific reasons for adopting an entity materiality, for example where a subsidiary is partially owned by a third party. There are no separate Group components subject to audit by auditors other than the Group audit team. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HELICAL PLC CONTINUED OUR APPLICATION OF MATERIALITY AND AN OVERVIEW OF THE SCOPE OF OUR AUDIT 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 in determining the nature, timing and extent of our audit work and in evaluating the results of that work. We determined materiality for the audit of the Group financial statements as a whole to be £12.7m, which is 1% of the Group’s total assets (1% of the Group’s net assets in the year ended 31 March 2016). We concluded that determining materiality based on the Group’s total assets most appropriately reflects the ownership and valuation of investment properties of interest to the users of the financial statements, which is a key area of audit focus. In addition, we applied lower materiality of £2m to all consolidated income statement items above operating profit excluding share of joint ventures’ gain or loss on investment properties, net gain on sale and revaluation of investment properties and impairment of available for sale investments, based on 5% of the Group’s profit before tax for the year. We believe misstatement of these specific income statement items of a lesser amount than materiality for the financial statements as a whole could reasonably be expected to influence the Company’s members’ assessment of the financial performance of the Group. We also apply a lower level of specific materiality for certain areas such as Directors’ remuneration and related party transactions. We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 75% of financial statement materiality for the audit of the Group financial statements. We determined the threshold at which we will communicate misstatements to the Audit and Risk Committee to be £625,000 (except that all misstatements of Directors’ remuneration and related party transactions are communicated). In addition we communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. 104 HELICAL PLCAnnual Report and Accounts 2017 OTHER REPORTING REQUIRED BY REGULATIONS OUR OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 ARE UNMODIFIED 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 Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Report of the Directors have been prepared in accordance with applicable legal requirements. MATTER ON WHICH WE ARE REQUIRED TO REPORT UNDER THE COMPANIES ACT 2006 In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Report of the Directors. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION Under the Companies Act 2006 we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules, we are required to review: • the Directors’ statements in relation to going concern and longer-term viability, set out on pages 55 and 74; and • the part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the Annual Report is: • materially inconsistent with the information in the audited financial statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or • otherwise misleading. In particular, we are required to report to you if: • we have identified any inconsistencies between our knowledge acquired during the audit and the Directors’ statement that they consider the Annual Report is fair, balanced and understandable; or • the Annual Report does not appropriately disclose those matters that were communicated to the Audit and Risk Committee which we consider should have been disclosed. We have nothing to report in respect of any of the above matters. We also confirm that we do not have anything material to add or to draw attention to in relation to: • the Directors’ confirmation in the Annual Report that they have carried out a robust assessment of the principal risks facing the Group including those that would threaten its business model, future performance, solvency or liquidity; • the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated; • the Directors’ statement in the financial statements about whether they have considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the Group’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and • the Directors’ explanation in the Annual Report as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT What the Directors are responsible for: As explained more fully in the Statement of Directors’ Responsibilities set out on page 100, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. What we are responsible for: Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. STEPHEN MASLIN Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London 25 May 2017 105 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 CONSOLIDATED INCOME STATEMENT For the year ended 31 March 2017 Revenue Net rental income Development property profit Share of results of joint ventures Other operating income Gross profit before net gain on sale and revaluation of investment properties Net gain on sale and revaluation of investment properties Impairment of available-for-sale investments Gross profit Administrative expenses Operating profit Finance costs Finance income Change in fair value of derivative financial instruments Change in fair value of Convertible Bond Foreign exchange (loss)/gain Profit before tax Tax on profit on ordinary activities Profit after tax attributable to equity shareholders attributable to non-controlling interests Profit for the year Earnings per share Basic Diluted CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 March 2017 Profit for the year Exchange difference on retranslation of net investments in foreign operations Total comprehensive income for the year attributable to equity shareholders attributable to non-controlling interests Total comprehensive income for the year Year ended 31.3.17 £000 Notes Year ended 31.3.16 Restated £000 2 3 4 18 5 20 6 8 8 34 24 9 13 99,934 46,162 843 (6,528) 982 41,459 40,543 (3,352) 78,650 (18,372) 60,278 (25,598) 3,156 789 2,973 (3) 41,595 (2,471) 39,124 39,124 – 39,124 116,500 42,164 24,252 50,469 20 116,905 49,826 (1,370) 165,361 (26,103) 139,258 (24,113) 5,128 (6,860) 516 100 114,029 (9,146) 104,883 104,943 (60) 104,883 34.0p 33.2p 91.3p 88.0p Year ended 31.3.17 £000 39,124 48 39,172 39,172 – 39,172 Year ended 31.3.16 Restated £000 104,883 (16) 104,867 104,927 (60) 104,867 The exchange differences on retranslation of net investments in foreign operations will be reclassified to the Income Statement on disposal. 106 HELICAL PLCAnnual Report and Accounts 2017 CONSOLIDATED AND COMPANY BALANCE SHEETS At 31 March 2017 Group 31.3.17 £000 Group 31.3.16 Restated £000 Company 31.3.17 £000 Company 31.3.16 £000 Notes Non-current assets Investment properties Owner occupied property, plant and equipment Investment in subsidiaries Investment in joint ventures Deferred tax asset Current assets Land, developments and trading properties Available-for-sale investments Corporate tax receivable Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Corporation tax payable Borrowings Non-current liabilities Borrowings Derivative financial instruments Deferred tax liability Total liabilities Net assets Equity Called-up share capital Share premium account Revaluation reserve Capital redemption reserve Other reserves Retained earnings Equity attributable to equity holders of the parent Non-controlling interests Total equity 14 16 17 18 10 19 20 21 22 23 24 24 34 10 26 987,560 1,035,033 2,124 – 19,882 – 2,200 – 27,990 – – 2,039 125,399 15 1,104 1,009,566 1,065,223 128,557 86,680 92,035 – 3,320 73,925 99,262 263,187 3,114 – 73,057 74,670 242,876 45 – 1,744 655,216 59,098 716,103 1,272,753 1,308,099 844,660 – 2,166 68,212 15 1,334 71,727 – – – 815,721 36,225 851,946 923,673 (56,349) (71,000) (438,911) (516,557) – (2,517) (58,866) (1,592) (885) – – (1,554) – (73,477) (438,911) (518,111) (671,184) (733,178) (173,604) (13,981) (11,825) (696,990) (755,856) (14,955) (5,768) (753,901) (827,378) (2,551) – (171,313) (7,134) – (176,155) (178,447) (615,066) (696,558) 516,897 480,721 229,594 227,115 1,447 98,798 164,190 7,478 291 244,693 516,897 – 1,447 98,798 143,699 7,478 291 229,008 480,721 – 1,447 98,798 – 7,478 1,987 119,884 229,594 – 516,897 480,721 229,594 1,447 98,798 – 7,478 1,987 117,405 227,115 – 227,115 107 GOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS For the year ended 31 March 2017 Cash flows from operating activities Profit before tax Depreciation Net revaluation gain on investment properties Gain on sales of investment properties Profit on sale of plant and equipment Net financing costs Change in fair value of derivative financial instruments Change in fair value of Convertible Bond Share based payment charge Share of results of joint ventures Impairment of available-for-sale investment Foreign exchange movement Cash inflows from operations before changes in working capital Change in trade and other receivables Movement in property derivative financial asset Change in land, developments and trading properties Change in trade and other payables Cash inflows generated from operations Finance costs Finance income Tax paid Cash flows from operating activities Cash flows from investing activities Additions to investment property Sale of investment property Investment in subsidiary Return of investment in joint ventures Dividends from joint ventures Available for sale asset additions Sale of plant and equipment Purchase of owner occupied property, plant and equipment Group 31.3.17 £000 41,595 391 (39,152) (1,391) (56) 22,442 (789) (2,973) 1,672 6,528 3,352 6 31,625 876 – 3,789 (9,338) 26,952 (33,041) 1,413 (3,392) (35,020) (8,068) Group 31.3.16 Restated £000 114,029 338 (47,441) (2,385) – 18,985 6,860 (516) 6,666 (50,469) 1,370 250 47,687 (5,074) 16,388 306 5,314 64,621 (25,312) 3,915 (4,712) (26,109) 38,512 Company 31.3.17 £000 Company 31.3.16 £000 6,317 316 – – (56) 7,106 – (4,583) – – – – 9,100 158,933 – (45) (77,095) 90,893 (7,972) 4,177 (3,341) (7,136) 83,757 11,286 318 – – – 5,639 (1,898) (2,049) – – – – 13,296 (30,992) – – 99,929 82,233 (9,388) 5,815 (4,000) (7,573) 74,660 (59,310) 156,254 (405,133) 121,770 – – – – – – 1,580 (238) 178 (442) – (57,187) (31,627) 11,495 82,569 (142) 70 (263) – – – 178 (309) – – – 70 (263) Net cash generated from/(used by) investing activities 98,022 (189,634) (57,318) (31,820) Cash flows from financing activities Borrowings drawn down Borrowings repaid Purchase of own shares Equity dividends paid Net cash (used by)/generated from financing activities Net increase/(decrease) in cash and cash equivalents Exchange gains/(losses) on cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year 41,986 (102,887) (944) (3,566) (65,411) 24,543 49 74,670 99,262 299,754 (161,648) (18,857) (14,437) 104,812 (46,310) (13) 120,993 74,670 – – – (3,566) (3,566) 22,873 – 36,225 59,098 – (6,120) – (14,437) (20,557) 22,283 – 13,942 36,225 108 HELICAL PLCAnnual Report and Accounts 2017 CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY At 31 March 2017 Own shares held £000 Non- controlling interests £000 Total £000 Group At 31 March 2015 Total comprehensive income Revaluation surplus Realised on disposals Performance share plan Performance share plan - deferred tax Share settled bonus Dividends paid Purchase of own shares Own shares held reserve transfer Share capital £000 1,447 Share premium £000 Re- valuation reserve £000 Capital redemption reserve £000 98,798 108,060 7,478 Other reserves £000 291 – – – – – – – – – – – – – – – – – – – 47,441 (11,802) – – – – – – – – – – – – – – – – – – – – – – – – Retained earnings £000 188,229 104,927 (47,441) 11,802 6,666 (3,002) 1,121 (14,437) – (18,857) (18,857) 18,857 – – – – – – – – At 31 March 2016 restated 1,447 98,798 143,699 7,478 291 229,008 Total comprehensive income Revaluation surplus Realised on disposals Performance share plan Performance share plan - deferred tax Share settled bonus Dividends paid Purchase of own shares Own shares held reserve transfer – – – – – – – – – – – – – – – – – – – 39,152 (18,661) – – – – – – – – – – – – – – – – – – – – – – – – 39,172 (39,152) 18,661 1,672 (2,062) 1,904 (3,566) – (944) At 31 March 2017 1,447 98,798 164,190 7,478 291 244,693 – – – – – – – – (944) 944 – 60 404,363 (60) 104,867 – – – – – – – – – – – – – – – – – – – – – 6,666 (3,002) 1,121 (14,437) (18,857) – 480,721 39,172 – – 1,672 (2,062) 1,904 (3,566) (944) – 516,897 For a breakdown of total comprehensive income see the Consolidated Statement of Comprehensive Income. The adjustment against retained earnings of £1,672,000 (31 March 2016: £6,666,000) adds back the share based payments charge in accordance with IFRS 2 Share Based Payments. There were net transactions with owners of £2,996,000 (31 March 2016: £28,509,000) made up of the Performance Share Plan charge of £1,672,000 (31 March 2016: £6,666,000) and related deferred tax debit of £2,062,000 (31 March 2016: £3,002,000), dividends paid of £3,566,000 (31 March 2016: £14,437,000), the purchase of own shares debit of £944,000 (31 March 2016: £18,857,000) and the share settled bonus credit of £1,904,000 (31 March 2016: £1,121,000). Company At 31 March 2015 Total comprehensive income Dividends paid At 31 March 2016 Total comprehensive income Dividends paid At 31 March 2017 Share capital £000 1,447 – – Share premium £000 98,798 – – Capital redemption reserve £000 7,478 – – Other reserves £000 1,987 – – 1,447 98,798 7,478 1,987 – – – – – – – – 1,447 98,798 7,478 1,987 Retained earnings £000 120,498 11,344 Total £000 230,208 11,344 (14,437) (14,437) 117,405 6,045 (3,566) 119,884 227,115 6,045 (3,566) 229,594 Total Comprehensive Income is made up of the profit after tax of £6,045,000 (2016: £11,344,000). Included within changes in equity are net transactions with owners of £3,566,000 (2016: £14,437,000) being dividends paid. Notes: Share capital - represents the nominal value of issued share capital. Share premium - represents the excess of value of shares issued over their nominal value. Revaluation reserve - represents the surplus/deficit of fair value of investment properties over their historic cost. Capital redemption reserve - represents amounts paid to purchase issued shares for cancellation at their nominal value. Retained earnings - represents the accumulated retained earnings of the Group. 109 GOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 1. BASIS OF PREPARATION These financial statements have been prepared in accordance with applicable International Financial Reporting Standards (“IFRS”), including International Financial Reporting Interpretations Committee (“IFRIC”) interpretations as adopted by the European Union. The Directors have taken advantage of the exemption offered by Section 408 of the Companies Act 2006 not to present a separate Income Statement for the Parent Company. The financial statements have been prepared in Sterling (rounded to the nearest thousand) under the historical cost convention as modified by the revaluation of investment properties, available-for-sale investments, convertible bonds and derivative financial instruments. The measurement bases and principal accounting policies of the Group are set out in note 37. These accounting policies are consistent with those applied in the year to 31 March 2016, as amended to reflect any new standards. Amendments to standards and interpretations which are mandatory for the year ended 31 March 2017 are detailed below: • Amendments to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (effective for periods beginning on or after 1 January 2016); • Amendments to IFRS 7 Financial Instruments: Disclosures (effective for periods beginning on or after 1 January 2016); • Amendments to IFRS 10 Consolidated Financial Statements regarding the application of the consolidation exception (effective for periods beginning on or after 1 January 2016); • Amendments to IFRS 11 Joint Arrangements Accounting for acquisitions of interests in joint operations (effective for periods beginning on or after 1 January 2016); • Amendments to IFRS 12 Disclosure of Interest in Other Entities regarding the application of the consolidation exception (effective for periods beginning on or after 1 January 2016); • Amendments to IAS 1 Presentation of Financial Statements (effective for periods beginning on or after 1 January 2016); • Amendments to IAS 16 Property, Plant and Equipment (effective for periods beginning on or after 1 January 2016); • Amendments to IAS 27 Separate Financial Statements (effective for periods beginning on or after 1 January 2016); and • Amendments to IAS 28 Investments in Associates and Joint Ventures (effective for periods beginning on or after 1 January 2016). The following standards, interpretations and amendments have been issued but are not yet effective and will be adopted at the point they are effective: • IFRS 9 Financial instruments (effective for periods beginning on or after 1 January 2018); • IFRS 15 Revenue from Contracts with Customers (effective for periods beginning on or after 1 January 2018); • IFRS 16 Leases (effective for periods beginning on or after 1 January 2019); • Amendments to IAS 7 Statement of Cash Flows (effective for periods beginning on or after 1 January 2017); and • Amendments to IAS 12 Income Taxes (effective for periods beginning on or after 1 January 2017). The Group is carrying out an initial impact assessment of the new standards noted above but does not expect that their adoption in future periods will have a material impact on the financial statements of the Group. 110 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 2. SEGMENTAL INFORMATION IFRS 8 requires the identification of the Group’s operating segments, which are defined as being discrete components of the Group’s operations whose results are regularly reviewed by the Chief Operating Decision Maker (being the Chief Executive) to allocate resources to those segments and to assess their performance. The Group divides its business into the following segments: • Investment properties, which are owned or leased by the Group for long-term income and for capital appreciation, and trading properties which are owned or leased with the intention to sell; and, • Developments, which include sites, developments in the course of construction, completed developments available for sale, and pre-sold developments. Revenue Rental income Development property income Other revenue Revenue Investment and trading Year ended 31.03.17 £000 48,835 – 1,105 Developments Year ended 31.03.17 £000 – 49,994 – 49,940 49,994 Total Year ended 31.03.17 £000 48,835 49,994 1,105 99,934 Investment and trading Year ended 31.03.16 £000 45,158 – 119 45,277 Developments Year ended 31.03.16 £000 347 70,876 – 71,223 Total Year ended 31.03.16 £000 45,505 70,876 119 116,500 All revenue is from external sales and is attributable to continuing operations. There were no inter-segmental sales. Revenue for the year comprises revenue from the sale of goods of £42,513,000 (2016: £42,910,000), revenue from other income £1,000,000 (2016: £nil), revenue from services of £7,586,000 (2016: £28,085,000), and rental income of £48,835,000 (2016: £45,505,000). All revenues are within the UK other than proceeds from the sale of a development property in Poland in 2016 for £12,351,000, rental income from development properties in Poland of £nil (2016: £347,000) and £63,000 (2016: £225,000) of development income derived from the Group’s operations in Poland. Developments Year ended 31.03.17 £000 Total Year ended 31.03.17 £000 Developments Year ended 31.03.16 £000 Total Year ended 31.03.16 £000 Investment and trading Year ended 31.03.17 £000 46,213 – (2,049) 40,543 (51) 843 (4,479) – Investment and trading Year ended 31.03.16 £000 42,010 – 47,592 49,826 154 24,252 2,877 – 84,707 (3,687) 139,428 27,283 Profit before tax Net rental income Development property profit Share of results of joint ventures Gain on sale and revaluation of investment properties Impairment of available for sale assets Other operating income Gross profit Administrative expenses Finance costs Finance income Change in fair value of derivative financial instruments Change in fair value of Convertible Bond Foreign exchange (loss)/gain Profit before tax Investment and trading 31.03.17 £000 987,560 28 1,814 989,402 Developments 31.03.17 £000 – 86,652 18,068 104,720 Net assets Investment properties Land, development and trading properties Investment in joint ventures Owner occupied property, plant and equipment Available-for-sale investments Trade and other receivables Corporation tax receivable Cash and cash equivalents Total assets Liabilities Net assets Investment and trading 31.03.16 £000 1,035,033 28 14,162 1,094,122 1,049,223 2,124 – 73,925 3,320 99,262 1,272,753 (755,856) 516,897 Developments 31.03.16 £000 Total 31.03.16 £000 – 1,035,033 92,007 13,828 105,835 92,035 27,990 1,155,058 2,200 3,114 73,057 – 74,670 1,308,099 (827,378) 480,721 All non-current assets are derived from the Group’s UK operations except for owner occupied property, plant and equipment with a net book value of £18,091 (2016: £31,600). 111 46,162 843 (6,528) 40,543 81,020 (3,352) 982 78,650 (18,372) (25,598) 3,156 789 2,973 (3) 41,595 Total 31.03.17 £000 987,560 86,680 19,882 42,164 24,252 50,469 49,826 166,711 (1,370) 20 165,361 (26,103) (24,113) 5,128 (6,860) 516 100 114,029 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 3. NET RENTAL INCOME Gross rental income Rents payable Property overheads Net rental income Net rental income attributable to profit share partner Net rental income Year ended 31.3.17 £000 Year ended 31.3.16 £000 48,835 (68) (2,283) 46,484 (322) 46,162 45,505 (80) (2,728) 42,697 (533) 42,164 Property overheads include lettings costs, vacancy costs and bad debt provisions. The amounts above include gross rental income from investment properties of £48,835,000 (2016: £45,158,000) and net rental income from investment properties of £46,213,000 (2016: £42,010,000). No contingent rental income was received in the year (2016: £nil). 4. DEVELOPMENT PROPERTY PROFIT Development property income Profit on forward property contract Cost of sales Sales expenses Provision against book values Development property profit 5. NET GAIN ON SALE AND REVALUATION OF INVESTMENT PROPERTIES Net proceeds from the sale of investment properties Book value (note 14) Tenants incentives on sold investment properties Gain on sale of investment properties Revaluation surplus on investment properties Net gain on sale and revaluation of investment properties 6. ADMINISTRATIVE EXPENSES Administrative expenses Operating profit is stated after the following items that are contained within administrative expenses: Depreciation Owner occupied property, plant and equipment Share-based payments charge Auditor’s remuneration: Audit fees Payable to the Company’s auditor for the audit of Parent Company and consolidated financial statements Payable to the Company’s auditor for the audit of Company’s subsidiaries Payable for the audit of Company’s subsidiaries by affiliate of Group Auditor Audit related assurance services Tax advisory services Other advisory services Operating lease costs Year ended 31.3.17 £000 49,994 – (37,576) (5,275) (6,300) 843 Year ended 31.3.16 £000 70,876 14 (29,519) (10,671) (6,448) 24,252 Year ended 31.3.17 £000 156,939 Year ended 31.3.16 £000 122,201 (154,863) (119,385) (685) 1,391 39,152 40,543 (431) 2,385 47,441 49,826 Year ended 31.3.17 £000 18,372 Year ended 31.3.16 £000 26,103 391 1,672 338 6,666 164 95 – 52 14 4 1,131 159 90 3 65 – 39 1,118 112 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 7. STAFF COSTS Staff costs during the year: Wages and salaries Social security costs Other pension costs Year ended 31.3.17 £000 Year ended 31.3.16 £000 10,473 1,396 201 12,070 12,536 2,896 190 15,622 Details of the remuneration of Directors amounting to £9,429,000 are included in the Directors’ Remuneration Report on pages 80 to 97. The amount of the share-based payments charge relating to share awards made to Directors is £1,171,000 (2016: £4,426,000). Included within wages and salaries are Directors’ bonuses of £4,051,000 (2016: £5,364,000) as discussed in the Directors’ Remuneration Report on pages 80 to 97. Other pension costs relate to payments to individual pension plans. The average number of employees (management and administration) of the Group during the year was 65 (2016: 53) of which 35 are UK head office staff, 25 are other UK staff and 5 are based in Poland. Of the staff costs of £12,070,000 (2016: £15,622,000), £11,612,000 is included within administrative expenses (2016: £14,810,000) and £458,000 is included within development costs (2016: £812,000). Within administrative costs is the share based payment charge for the year of £1,672,000 (2016: £6,666,000) which is not included in the staff costs above. 8. FINANCE COSTS AND FINANCE INCOME Interest payable on bank loans, bonds and overdrafts Other interest payable and similar charges Interest capitalised Finance costs Interest receivable and similar income Finance income Year ended 31.3.17 £000 Year ended 31.3.16 £000 (28,586) (25,353) (4,913) 7,901 (25,598) 3,156 3,156 (3,700) 4,940 (24,113) 5,128 5,128 On projects where specific third party loans have been arranged, interest has been capitalised in accordance with IAS 23 - Borrowing Costs, at the rate for the individual loan. The weighted average capitalised interest rate of such loans was 3.26% (2016: 3.50%). Where general finance has been used to fund the acquisition and construction of properties the rate used was a weighted average of the financing costs for the applicable borrowings of 4.19% (2016: 4.18%). 113 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 9. TAX ON PROFIT ON ORDINARY ACTIVITIES The tax credit/(charge) is based on the profit for the year and represents: United Kingdom corporation tax at 20% Group corporation tax Adjustment in respect of prior periods Overseas tax Current tax credit/(charge) Deferred tax Capital allowances Tax losses Unrealised chargeable gains Other timing differences Deferred tax charge Total tax charge for the year Factors Affecting the Tax Charge for the Year The tax assessed for the period is lower than the standard rate of corporation tax in the UK. The differences are explained below: Profit on ordinary activities before tax Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 20% Effect of: Net income/ (expenses) not taxable/(deductible) for tax purposes Adjustment to capital allowances Tax movements on share awards Movement on tax losses not previously recognised in deferred tax Operating (loss)/profit of joint ventures Prior year adjustment Movement on sale and revaluation not recognised through deferred tax Chargeable gain in excess of profit or loss on investment property Overseas tax Other timing differences Effect of change of rate of corporation tax Total tax charge for the year Year ended 31.3.17 £000 Year ended 31.3.16 £000 – 1,521 2 1,523 (1,023) (4,347) 1,803 (427) (3,994) (2,471) (7,010) (115) (712) (7,837) (385) 500 (7,447) 6,023 (1,309) (9,146) Year ended 31.3.17 £000 41,595 (8,319) 699 (203) 1,189 (1,855) (1,306) 1,521 6,864 (375) (151) (578) 43 Year ended 31.3.16 £000 114,029 (22,806) (534) 707 2,807 1,930 10,094 (115) 741 (2,472) (505) 943 64 (2,471) (9,146) Note: all deferred tax balances have been calculated at an effective rate of corporation tax of 19% which is the average of the substantively enacted future rates for the periods in which the deferred tax is expected to be realised. Factors that may Affect Future Tax Charges The tax charge is expected to be less than the full rate in future years, primarily due to the Group continuing to claim allowances in respect of eligible expenditure on investment properties. 114 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 10. DEFERRED TAX Deferred tax provided for in the financial statements is set out below: Deferred tax Capital allowances Tax losses Unrealised chargeable gains Other timing differences Deferred tax (liability)/asset Group 31.3.17 £000 (2,969) 8,174 (22,331) 5,301 (11,825) Group 31.3.16 £000 (1,946) 12,521 (24,134) 7,791 (5,768) Company 31.3.17 £000 Company 31.3.16 £000 (71) 983 192 – 1,104 6 1,255 73 – 1,334 Under IAS 12, deferred tax provisions are made for the tax that would potentially be payable on the realisation of investment properties and other assets at book value. Other timing differences include deferred tax assets arising from the recognition of the fair value of derivative financial instruments and future tax relief available to the Group from capital allowances and when share awards vest. A debit of £2,062,000 (2016: £3,002,000) in respect of future tax relief for share awards has been recognised in reserves in accordance with IAS 12. The Group contains entities with tax losses for which no deferred tax asset is recognised. The total unrecognised losses amount to approximately £10,621,000 (2016: £9,026,000). A deferred tax asset has not been recognised because the entities in which the losses have been generated either do not have forecast taxable profits or the losses have restrictions whereby their utilisation is considered to be unlikely. If upon sale of the investment properties the Group retained all the capital allowances, the deferred tax provision in respect of capital allowances of £2,969,000 (2016: £1,946,000) would be released and further capital allowances of £31,390,000 (2016: £20,340,000) would be available to reduce future tax liabilities. The net deferred tax asset in respect of other timing differences arises from tax relief available to the Group on the mark-to-market valuation of financial instruments, the future vesting of share awards and other timing differences. 11. DIVIDENDS PAID AND PAYABLE Attributable to equity share capital Ordinary Interim paid 2.40p per share (2016: 2.30p) Second interim paid of 5.15p per share Prior year final paid 0.72p per share (2015: 5.15p) Year ended 31.3.17 £000 Year ended 31.3.16 £000 2,743 – 823 3,566 2,652 5,886 5,899 14,437 A final dividend of 6.20p, if approved at the AGM on 13 July 2017, will be paid on 21 July 2017 to Shareholders on the register on 23 June 2017. This final dividend, amounting to £7,249,950, has not been included as a liability as at 31 March 2017, in accordance with IFRS. 12. PARENT COMPANY The Company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own income statement in the financial statements. The profit for the year of the Company was £6,045,000 (2016: 11,344,000). 115 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 13. EARNINGS PER SHARE The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. This is a different basis to the net asset per share calculations which are based on the number of shares at the year end. Shares held by the Helical Employees’ Share Ownership Plan Trust (the “ESOP”), which has waived its entitlement to receive dividends, are treated as cancelled for the purpose of this calculation. The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares and the post tax effect of dividends on the assumed exercise of all dilutive options. The EPRA earnings per share is calculated in accordance with IAS 33 and the best practice recommendations of the European Public Real Estate Association (“EPRA”). Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below: Ordinary shares in issue Weighting adjustment Weighted average ordinary shares in issue for calculation of basic and EPRA earnings per share Weighted average ordinary shares issued on share settled bonuses Weighted average ordinary shares to be issued under performance share plan Weighted average ordinary shares in issue for calculation of diluted earnings per share Earnings used for calculation of basic and diluted earnings per share Basic earnings per share Diluted earnings per share Earnings used for calculation of basic and diluted earnings per share Net (gain)/loss on sale and revaluation of investment properties – subsidiaries Tax on profit on disposal of investment properties Fair value movement on derivative financial instruments Fair value movement on Convertible Bond Impairment of available-for-sale investment Deferred tax on adjusting items Earnings used for calculation of EPRA earnings per share – joint ventures – subsidiaries – joint ventures Year ended 31.3.17 000’s Year ended 31.3.16 000’s 118,196 (3,110) 115,086 1,402 1,403 117,891 £000 39,124 34.0p 33.2p £000 39,124 (40,543) 1,929 420 (789) 42 (2,973) 3,352 (37) 525 118,184 (3,296) 114,888 1,197 3,212 119,297 £000 104,943 91.3p 88.0p £000 104,943 (49,826) (50,210) 998 6,860 (211) (516) 1,370 6,212 19,620 EPRA earnings per share 0.5p 17.1p The earnings used for the calculation of EPRA earnings per share include net rental income and development property profits but exclude trading property gains. 14. INVESTMENT PROPERTIES Group Book value at 1 April Additions and transfers at cost Disposals Revaluation surplus Revaluation surplus attributable to profit share partners Freehold 31.3.17 £000 920,015 51,366 Leasehold 31.3.17 £000 Total 31.3.17 £000 115,018 17,412 1,035,033 68,778 Freehold 31.3.16 £000 591,870 377,890 Leasehold 31.3.16 £000 109,651 27,243 Total 31.3.16 £000 701,521 405,133 (131,862) (23,001) (154,863) (96,237) (23,148) (119,385) 34,616 (540) 4,536 – 39,152 (540) 46,169 323 1,272 – 47,441 323 Book value at 31 March 873,595 113,965 987,560 920,015 115,018 1,035,033 116 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 Investment properties are stated at fair value as at 31 March 2017 as follows: Group Book value at 1 April Lease incentives and costs included in trade and other receivables Freehold 31.3.17 £000 873,595 15,430 Leasehold 31.3.17 £000 Total 31.3.17 £000 113,965 10 987,560 15,440 Freehold 31.3.16 £000 920,015 5,610 Leasehold 31.3.16 £000 Total 31.3.16 £000 115,018 457 1,035,033 6,067 Fair value at 31 March 889,025 113,975 1,003,000 925,625 115,475 1,041,100 Interest capitalised during the year in respect of the refurbishment of investment properties amounted to £4,401,000 (2016: £1,200,000). Interest capitalised in respect of the refurbishment of investment properties is included in investment properties to the extent of £10,972,000 (2016: £6,571,000). Investment properties with a total fair value of £993,900,000 (2016: £945,400,000) were held as security against borrowings. All of the Group’s properties are level 3, as defined by IFRS 13 Fair Value Measurement, in the fair value hierarchy as at 31 March 2017 and there were no transfers between levels during the year. Level 3 inputs used in valuing the properties are those which are unobservable, as opposed to level 1 (inputs from quoted prices) and level 2 (observable inputs either directly, ie as prices, or indirectly, ie derived from prices). Transfers into and transfers out of the fair value hierarchy levels are recognised on the date of the event or change in circumstances that caused the transfer. Valuation Methodology The fair value of the Group’s investment property as at 31 March 2017 was determined by independent external valuers at that date, except for investment properties valued by the Directors. The valuations are in accordance with the Royal Institution of Chartered Surveyors (“RICS”) Valuation - Professional Standards (“The Red Book”) and the International Valuation Standards and were arrived at by reference to market transactions for similar properties. Fair values for investment properties are calculated using the present value income approach. The main assumptions underlying the valuations are in relation to rent profile and yields as discussed below. A key driver of the property valuations is the terms of the leases in place at the valuation date. These determine the cash flow profile of the property for a number of years. The valuation assumes adjustments from these rental values to current market rent at the time of the next rent review (where a typical lease allows only for upward adjustment) and as leases expire and are replaced by new leases. The current market level of rent is assessed based on evidence provided by the most recent relevant leasing transactions and negotiations. The nominal equivalent yield is applied as a discount rate to the rental cash flows which, after taking into account other input assumptions such as vacancies and costs, generates the market value of the property. The equivalent yield applied is assessed by reference to market transactions for similar properties and takes into account, amongst other things, any risks associated with the rent uplift assumptions. The net initial yield is calculated as the current net income over the gross market value of the asset and is used as a sense check and to compare against market transactions for similar properties. The valuation output, along with inputs and assumptions, are reviewed to ensure these are in line with what a market participant would use when pricing each asset. The reversionary yield is the return received from an asset once the estimated rental value has been captured on today’s assessment of market value. There are interrelationships between all the inputs as they are determined by market conditions. The existence of an increase in more than one input would be to magnify the input on the valuation. The impact on the valuation will be mitigated by the interrelationship of two inputs in opposite directions. Details of the investment portfolio yields can be found on page 46 and in Appendix 5 of this report. The graph below illustrates the sensitivity of the value of the investment portfolio to the reversionary yield. Valuation – reversionary yield sensitivity ) m £ ( n o i t a u a v l o i l o f t r o P 1,400 1,200 1,000 800 600 400 200 0 5.02 5.27 5.52 5.77 6.06 6.27 6.52 6.77 7.02 Revisionary yield (%) 117 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS The investment properties have been valued at 31 March 2017 as follows: Cushman & Wakefield LLP Colliers International UK plc Directors’ valuation Group 31.3.17 £000 1,002,850 – 150 Group 31.3.16 £000 801,800 239,200 100 1,003,000 1,041,100 The historical cost of investment property is £822,161,000 (2016: £889,493,00). 15. OPERATING LEASE ARRANGEMENTS The Group earns rental income by leasing its investment properties to tenants under non-cancellable operating leases. At the balance sheet date, the Group had contracted with tenants to receive the following future minimum lease payments: Not later than one year Later than one year but not more than five years More than five years Group 31.3.17 £000 46,191 135,557 104,018 285,766 Group 31.3.16 £000 43,266 157,948 115,382 316,596 The Company has no operating lease arrangements as lessor. At the balance sheet date, the Group and Company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: Group and Company Not later than one year Later than one year but not more than five years More than five years 16. OWNER OCCUPIED PROPERTY, PLANT AND EQUIPMENT 31.3.17 £000 818 3,273 5,319 9,410 Group Cost at 1 April Additions at cost Disposals Cost at 31 March Depreciation at 1 April Provision for the year Eliminated on disposals Depreciation at 31 March Net book amount at 31 March Short leasehold improvements 31.3.17 £000 Plant and equipment 31.3.17 £000 2,106 – (33) 2,073 257 147 – 404 1,669 1,012 442 (251) 1,203 661 244 (157) 748 455 Short leasehold improvements 31.3.16 £000 Plant and equipment 31.3.16 £000 2,007 99 – 2,106 111 146 – 257 1,849 1,008 164 (160) 1,012 543 192 (74) 661 351 Total 31.3.17 £000 3,118 442 (284) 3,276 918 391 (157) 1,152 2,124 31.3.16 £000 818 3,273 5,319 9,410 Total 31.3.16 £000 3,015 263 (160) 3,118 654 338 (74) 918 2,200 Plant and equipment include vehicles, fixtures and fittings and other office equipment. All short leasehold improvements and plant and equipment relate to the Company except for plant and equipment with a net book value of £85,107 as at 31 March 2017 (2016: £34,000). 17. INVESTMENT IN SUBSIDIARIES At 1 April Acquired during year At 31 March Group 31.3.17 £000 – – – Group 31.3.16 £000 – – – Company 31.3.17 £000 68,212 57,187 125,399 Company 31.3.16 £000 36,585 31,627 68,212 A list of all the Company’s subsidiary undertakings, all of which have been consolidated, are shown in note 38 to the financial statements. 118 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 18. INVESTMENT IN JOINT VENTURES Investment and trading 31.3.17 £000 Development 31.3.17 £000 Investment and trading 31.3.16 £000 Development 31.3.16 £000 Summarised consolidated income statements Revenue Gross rental income Property overheads Net rental income Development (loss)/profit (Loss)/profit on sale of property 5 5 (52) (47) (3) (54) (Loss)/gain on revaluation of investment properties (1,872) Other operating (expense)/income Administrative expenses Finance costs Finance income Change in fair value movement of derivative financial instruments (Loss)/profit before tax Tax (Loss)/profit after tax Economic interest adjustment* Share of results of joint ventures Summarised balance sheets Non-current assets Investment properties Owner occupied property, plant and equipment Deferred tax Derivative financial instruments Current assets Land, development and trading properties Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Non-current liabilities Trade and other payables Borrowings Net assets 926 926 (48) 878 (6,556) – (3) (942) (208) – 1,120 (39) (5,750) 1,273 (4,477) – (176) (130) (2) 113 (3) (2,174) 123 (2,051) – Total 31.3.17 £000 931 931 (100) 831 (6,559) (54) (1,875) (1,118) (338) (2) 1,233 (42) (7,924) 1,396 (6,528) – 917 917 (483) 434 – 41,553 995 196 (705) (1,902) 12 211 40,794 458 41,252 6,341 47,593 (2,051) (4,477) (6,528) 12,417 – 174 1 12,592 – 260 3,550 3,810 (747) (747) – (6,172) (6,172) 9,483 1,490 30 1,637 51 3,208 89,115 1,067 6,195 96,377 (16,952) (16,952) (23,124) (49,110) (72,234) 10,399 13,907 10,107 30 1,811 52 50 50 – 15,800 10,207 89,115 1,327 9,745 100,187 (17,699) (17,699) (23,124) (55,282) (78,406) 19,882 – 769 6,433 7,202 (836) (836) – (2,413) (2,413) 14,160 Total 31.3.16 £000 1,828 1,828 (558) 1,270 3,223 41,553 2,316 218 (1,140) (3,673) 21 211 43,999 129 44,128 6,341 50,469 11,552 96 412 – 12,060 75,904 3,497 12,177 91,578 (14,436) (14,436) (26,586) (34,626) (61,212) 27,990 911 911 (75) 836 3,223 – 1,321 22 (435) (1,771) 9 – 3,205 (329) 2,876 – 2,876 1,445 46 362 – 1,853 75,904 2,728 5,744 84,376 (13,600) (13,600) (26,586) (32,213) (58,799) 13,830 * Under the Barts Square joint venture agreement the Group is entitled to varying returns dependent upon the performance of the development. Whilst the Group holds a 33.35% equity share in the Barts Square group, it has accounted for its share at 43.8% at the current and prior year end to reflect its expected economic interest in the joint venture. In the prior year, this had changed from the 33.35% interest shown at 31 March 2015, and resulted in a gain of £6,341,000 being recognised in the Consolidated Income Statement in the year to 31 March 2016 to reflect the Group’s increased share in the opening net assets of the joint venture. The Directors’ valuation of trading and development stock shows a surplus of £7,500,000 (2016: £7,000,000) above book value. Dividends of £1,580,000 were received from joint venture companies during the year (2016: £82,569,000). The joint venture companies are private companies, therefore no quoted market prices are available for their shares. In the year ended 31 March 2016, Old Street Holdings LP sold its investments in 207 Old Street Unit Trust, 211 Old Street Unit Trust, Old Street Retail Unit Trust and City Road Jersey Limited. The Group purchased the trust capital of 207 Old Street Unit Trust and 211 Old Street Unit Trust from Old Street Holdings LP. In the year ended 31 March 2016, Barts Two Limited sold its investment in Barts Two Investment Property Limited. The cost of the Company’s investment in joint ventures was £15,000 (2016: £15,000). The Group has one material joint venture (2016: three). The full results and position of these joint ventures are set out overleaf, of which we have included our share in the above table. 119 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 18. INVESTMENT IN JOINT VENTURES CONTINUED Summarised income statements Revenue Gross rental income Property overheads Net rental income Development (loss)/profit Profit on sale of property (Loss)/gain on revaluation of investment properties Other operating (expense)/income Administrative expenses Finance costs Finance income Change in fair value movement of derivative financial instruments (Loss)/profit before tax Tax (Loss)/profit after tax Summarised balance sheets Non-current assets Investment properties Owner occupied property, plant and equipment Deferred tax Derivative financial instruments Current assets Land, development and trading properties Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Non-current liabilities Trade and other payables Borrowings Deferred Tax Net assets Barts LP Group 31.03.17 £000 Barts LP Group 31.03.16 £000 Old Street Holdings LP Group 31.03.16 £000 Shirley Advance LLP 31.03.16 £000 828 828 (238) 590 (6,240) – (4,281) (967) (499) – 551 (96) (10,942) 1,501 (9,441) 31,750 69 2,430 118 34,367 158,648 2,428 17,339 178,415 1,681 1,681 (104) 1,577 – 20,113 5,287 50 (1,044) (1,134) 33 – 24,882 340 25,222 26,375 106 925 – 27,406 110,281 4,720 20,125 135,126 (38,385) (38,385) (25,855) (25,855) – – (126,214) (79,054) – – (126,214) (79,054) 1,772 1,772 (1,329) 443 – 98,232 – (34,506) (1,839) (4,738) 2 632 58,226 (95) 58,131 – 150 – – 150 – 1,671 1,554 3,225 (1,124) (1,124) – – – – 48,183 57,623 2,251 915 915 (59) 856 3,234 – – – – (3,192) – – 898 – 898 – – – – – 16,250 2,017 591 18,858 (2,598) (2,598) (15,373) – (2) (15,375) 885 120 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 At 31 March 2017 the Group and the Company had legal interests in the following joint venture companies: Barts Close Office Limited Barts Square First Office Limited Barts Square Active One Limited Barts Square First Limited Barts Square Land One Limited OBC Development Management Limited Old Street Holdings LP Abbeygate Helical (Leisure Plaza) Limited Abbeygate Helical (Winterhill) Limited Abbeygate Helical (C4.1) LLP Shirley Advance LLP King Street Developments (Hammersmith) Limited Creechurch Place Limited Country of incorporation Jersey Class of share capital held Ordinary Jersey Jersey United Kingdom United Kingdom United Kingdom Jersey United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom Jersey Ordinary Ordinary Ordinary Ordinary Ordinary n/a Ordinary Ordinary n/a n/a Ordinary Ordinary Proportion held Group Proportion held Company 33% 33% 33% 33% 33% 33% 33% 50% 50% 50% 50% 50% 10% Nature of business Investment Investment Investment – – – – Development – Development – Development – Investment 50% Development 50% Development 50% Development – Development – Development – Development Significant Judgements and Estimates There are a number of companies which are accounted for as joint ventures where the Group has an equity interest of less than 50%. This typically occurs where the Group’s joint venture partner is providing a greater share of finance into the Company, with the Group contributing a greater share towards the day to day management of the underlying project. In these cases neither party has control over the entity and therefore it is considered appropriate to account for our interest as a joint venture. Under the Barts Square joint venture agreement the Group is entitled to varying returns dependent upon the performance of the development. Whilst the Group holds a 33.35% legal share in the Barts Square group, it has accounted for its share at 43.8% to reflect its expected economic interest in the joint venture. This changed in the year to 31 March 2016 from the 33.35% interest shown at 31 March 2015, and resulted in a gain of £6,341,000 being recognised in the Consolidated Income Statement to reflect the Group’s increased share in the opening net assets of the joint venture. Under the Creechurch joint venture arrangement, whilst the Group holds a legal share of 10% of Creechurch Place Limited, a third party acquired the right to step in to take 20% of the Group’s share of the effective economic interest, ie 2%. Therefore, the Group changed the share of joint venture that it accounted for from 10% to 8%. 19. LAND, DEVELOPMENTS AND TRADING PROPERTIES Group At 1 April Acquisitions and construction costs Interest capitalised Disposals Foreign exchange movements Provision At 31 March Development properties 31.3.17 £000 92,007 32,828 3,500 (35,383) – (6,300) 86,652 Trading stock 31.3.17 £000 28 – – – – – 28 Total 31.3.17 £000 92,035 32,828 3,500 Development properties 31.3.16 £000 92,550 31,465 3,740 (35,383) (29,063) – (6,300) 86,680 (237) (6,448) 92,007 Trading stock 31.3.16 £000 28 – – – – – 28 Total 31.3.16 £000 92,578 31,465 3,740 (29,063) (237) (6,448) 92,035 The Directors’ valuation of trading and development stock shows a surplus of £5,014,000 (2016: £12,412,000) above book value. Total interest to date in respect of the development of sites is included in stock to the extent of £11,178,000 (2016: £11,626,000). Interest capitalised during the year in respect of development sites amounted to £3,500,000. Land, developments and trading properties with carrying values totalling £79,007,000 (2016: £81,870,000) were held as security against borrowings. The Company had £45,000 (2016: £nil) of land, developments or trading properties. 121 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 20. AVAILABLE-FOR-SALE INVESTMENTS Fair value at 1 April Additions Disposals Impairment Fair value 31 March Group 31.3.17 £000 3,114 248 (10) (3,352) – Group 31.3.16 £000 4,342 142 – (1,370) 3,114 The fair value of the Group’s Level 3 available-for-sale investment has been determined by assessing the expected future consideration receivable from this investment, as the value cannot be derived from observable market data. The fair value of the asset is sensitive only to potential sales proceeds. The decline in value of £3,352,000 (2016: £1,370,000) has been recognised in the Consolidated Income Statement. 21. TRADE AND OTHER RECEIVABLES Due within 1 year Trade receivables Amounts owed by joint venture undertakings Amounts owed by subsidiary undertakings Other receivables Prepayments and accrued income Receivables Fully performing Past due < 3 months Past due > 3 months Total receivables being financial assets Total receivables being non-financial assets Total receivables Group 31.3.17 £000 12,836 25,665 – 1,797 33,627 73,925 Group 31.3.17 £000 72,400 756 104 73,260 665 73,925 Group 31.3.16 £000 20,869 32,099 – 283 19,806 73,057 Group 31.3.16 £000 70,855 1,397 61 72,313 744 73,057 Company 31.3.17 £000 117 – Company 31.3.16 £000 117 40 654,181 814,268 508 410 891 405 655,216 815,721 Company 31.3.17 £000 654,806 – – 654,806 410 655,216 Company 31.3.16 £000 815,316 – – 815,316 405 815,721 Past due receivables not impaired relate to a number of independent customers for whom there is no recent history of default. Against trade receivables, Helical held £4,823,000 of rental deposits at 31 March 2017 (2016: £4,562,000). Movements in the provision for impairment of trade receivables are as follows: Gross receivables being financial assets Provisions for receivables impairment Net receivables being financial assets Group 31.3.17 £000 73,291 (31) 73,260 Group 31.3.16 £000 72,385 (72) 72,313 Company 31.3.17 £000 654,806 – Company 31.3.16 £000 815,316 – 654,806 815,316 Receivables written off during the year as uncollectable 3 2 – – 22. CASH AND CASH EQUIVALENTS Rent deposits and cash held at managing agents Restricted cash Cash deposits Group 31.3.17 £000 4,046 12,111 83,105 99,262 Group 31.3.16 £000 4,906 17,063 52,701 74,670 Company 31.3.17 £000 – – 59,098 59,098 Company 31.3.16 £000 – – 36,225 36,225 Restricted cash is made up of cash held by solicitors and cash in blocked/restricted accounts. 122 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 23. TRADE AND OTHER PAYABLES Trade payables Social security costs and other taxation Amounts owed to subsidiary undertakings Other payables Accruals Deferred income 24. BORROWINGS Current borrowings Borrowings repayable within: one to two years two to three years three to four years four to five years five to six years six to ten years Non-current borrowings Total borrowings Group 31.3.17 £000 12,197 2,535 – 487 33,008 8,122 56,349 Group 31.3.17 £000 2,517 4,150 304,641 215,667 1,053 73,353 72,320 671,184 673,701 Group 31.3.16 £000 14,463 5,774 Company 31.3.17 £000 204 – Company 31.3.16 £000 421 – – 434,671 512,090 2,444 39,425 8,894 71,000 Group 31.3.16 £000 885 3,617 3,650 337,098 219,523 95,981 73,309 733,178 734,063 – 4,036 – 438,911 – 4,046 – 516,557 Company 31.3.17 £000 Company 31.3.16 £000 – – 94,196 79,408 – – – 173,604 173,604 – – – 92,088 79,225 – – 171,313 171,313 Bank overdrafts and term loans in creditors falling due within one year and after one year are secured against properties held in the normal course of business by subsidiary undertakings to the book value of £1,057,417,000 (2016: £1,021,211,000). These will be repayable when the underlying properties are sold. Bank overdrafts and term loans exclude the Group’s share of borrowings in joint venture companies of £55,282,000 (2016: £34,626,000). Convertible Bond On 17 June 2014 the Group issued £100m convertible bonds at par with a 4% coupon rate which are due for settlement on 17 June 2019 (the ‘‘Bonds”). The Bonds can be converted from 28 July 2014 up to and including 7 July 2017, if the share price has traded at a level exceeding 130% of the conversion price for a specified period, and from 8 July 2017 to (but excluding) the seventh dealing day before 17 June 2019 at any time. On conversion, the Group can elect to settle the Bonds by any combination of ordinary shares and cash. The Convertible Bond is included at its fair value of £99,774,000 (2016: £102,747,000) in borrowings repayable within two to three years. Retail Bond On 24 June 2013 the Group issued an £80m fixed rate retail bond at 6% pa and with a maturity date of 24 June 2020. Under certain circumstances, the bonds can be repaid early. The Retail Bond is included at its amortised cost of £79,408,000 (2016: £79,225,000) in borrowings repayable within three to four years. 25. FINANCING AND DERIVATIVE FINANCIAL INSTRUMENTS The policies for dealing with liquidity and interest rate risk are noted in the Principal Risks Review on pages 54 to 57. Borrowings maturity Due after more than one year Due within one year Group 31.3.17 £000 671,184 2,517 673,701 Group 31.3.16 £000 733,178 885 734,063 The Group has various undrawn committed borrowing facilities. The facilities available at 31 March 2017 in respect of which all conditions precedent had been met were as follows: Expiring in one year or less Expiring in more than one year but not more than two years Expiring in more than two years but not more than three years Expiring in more than three years but not more than four years Expiring in more than four years but not more than five years Expiring in more than five years Group 31.3.17 £000 10,000 – 86,666 18,622 – 26,630 141,918 Group 31.3.16 £000 10,000 – – 55,697 14,499 3,445 83,641 123 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 25. FINANCING AND DERIVATIVE FINANCIAL INSTRUMENTS CONTINUED Interest rates - Group Fixed rate borrowings: swap rate plus bank margin swap rate plus bank margin fixed rate plus margin fixed rate Retail Bond swap rate plus bank margin swap rate plus bank margin fixed rate Convertible Bond swap rate plus bank margin swap rate plus bank margin swap rate plus bank margin swap rate plus bank margin Weighted average Floating rate borrowings Unamortised finance costs Fair value adjustment of Convertible Bond % Expiry 3.650 5.650 3.480 6.000 3.850 4.070 4.000 4.025 3.770 4.070 3.715 4.222 8.946 Nov 2019 Nov 2019 Dec 2024 Jun 2020 Apr 2022 Jul 2019 Jun 2019 Aug 2020 May 2018 Oct 2017 Aug 2020 Aug 2020 Dec 2020 31.3.17 £000 105,000 44,500 79,120 80,000 75,000 30,000 100,000 72,508 10,800 41,700 13,000 651,628 29,313 (7,014) (226) % Expiry 3.650 5.650 3.480 6.000 3.850 4.070 4.000 4.025 3.770 4.070 3.715 4.226 3.924 – Nov 2019 Nov 2019 Dec 2024 Jun 2020 Jan 2020 Jul 2019 Jun 2019 Aug 2020 May 2018 Oct 2017 Aug 2020 Jul 2020 Sep 2018 – 31.3.16 £000 105,000 44,500 80,005 80,000 75,000 30,000 100,000 74,280 10,800 20,300 13,000 632,885 107,109 (8,678) 2,747 Total borrowings 4.425 Nov 2020 673,701 4.182 Sep 2020 734,063 The year on year changes in fixed borrowing rates are the result of stepped increases/decreases in interest rate swaps rates. Floating rate borrowings bear interest at rates based on LIBOR. At 31 March 2017 the Company had no interest rate swaps (2016: a £30,000,000 and £20,300,000 interest rate swap, both at 4.070% and expiring in July 2019 and October 2017 respectively). During the year two interest rate swaps were novated to a subsidiary company of Helical plc. Interest is fixed on the Retail Bond and Convertible Bond as shown above, with the remaining borrowings being at floating rates. In addition to the above, the Group has a £50,000,000 interest rate swap at 1.865% starting in January 2020 and expiring in June 2026. In addition to the fixed rates, borrowings are also hedged by the following financial instruments: Instrument - Group Current: cap Net Gearing Total borrowings Cash Net borrowings Value £000 Rate % Start Expiry 3,300 0.750 Jun 2016 Nov 2019 Group 31.3.17 £000 673,701 (99,262) 574,439 Group 31.3.16 £000 734,063 (74,670) 659,393 Net borrowings excludes the Group’s share of borrowings in joint ventures of £55,282,000 (2016: £34,626,000) and cash of £9,745,000 (2016: £12,177,000). All borrowings in joint ventures are secured. Group 31.3.17 £000 516,897 111% Group 31.3.16 £000 480,721 137% Net assets Gearing 124 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 26. SHARE CAPITAL Authorised 31.3.17 £000 39,577 31.3.16 £000 39,577 The authorised share capital of the Company is £39,576,626.60 divided into ordinary shares of 1p each and deferred shares of 1/8p each. Allotted, called up and fully paid: 118,196,215 (2016: 118,183,806) ordinary shares of 1p each 212,145,300 deferred shares of 1/8p each Ordinary shares At 31 March Deferred shares At 31 March Capital Management The Group’s capital management objectives are: • to ensure the Group’s ability to continue as a going concern; and, • to provide an adequate return to shareholders. 31.3.17 £000 1,182 265 1,447 31.3.16 £000 1,182 265 1,447 Shares in issue 31.3.17 Number Share capital 31.3.17 £000 Shares in issue 31.3.16 Number Share capital 31.3.16 £000 118,196,215 1,182 118,183,806 212,145,300 265 212,145,300 1,182 265 The Group sets the amount of capital in proportion to its overall financing structure. It manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. Capital is defined as being issued share capital, share premium, retained earnings, revaluation reserve and other reserves (2017: £509,419,000, 2016: £473,243,000). The Group continually monitors its gearing level to ensure that it is appropriate. Gearing decreased from 137% to 111% in the year as the Group took advantage of favourable debt market conditions. The deferred shares were issued on 23 December 2004 to those Shareholders electing to receive a dividend, rather than a capital repayment or further shares in the Company, as part of the Return of Cash approved by Shareholders on 20 December 2004. The deferred shares carry no voting rights and have no right to a dividend or capital payment in the event of a winding up of the Company. The Company’s Articles of Association give the Company irrevocable authority to purchase all or any of the deferred shares for a maximum aggregate total of 1 penny for all deferred shares in issue on the date of such purchase. 27. SHARE OPTIONS At 31 March 2017 and 31 March 2016 there were no unexercised options over new ordinary 1p shares in the Company. No options over purchased ordinary 1p shares held by the ESOP had been granted to Directors and employees under the Company’s share option schemes (31 March 2016: none). 125 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 28. SHARE-BASED PAYMENTS The Group provides share-based payments to employees in the form of performance share plan (PSP) awards and a share incentive plan. The Company uses a combination of the Black-Scholes and stochastic valuation models and the resulting value is amortised through the Consolidated Income Statement over the vesting period of the share-based payments. Performance share plan awards Outstanding at beginning of year Awards vested during year Awards lapsed during the year Awards made during the year Outstanding at end of year Awards 6,557,616 (2,779,914) (396,874) 1,362,856 4,743,684 2017 Weighted average award value 284p 235p 332p 322p 320p Awards 9,127,153 (4,212,534) – 1,642,997 6,557,616 2016 Weighted average award value 221p 153p 153p 353p 284p The PSP awards outstanding at 31 March 2017 had a weighted average remaining contractual life of one year and one month. The fair value of the awards made in the year to 31 March 2017 was £4,391,000 (2016: £5,802,000). The inputs into the Black-Scholes and stochastic models of valuation of the PSP awards made in the year to 31 March 2017 were as follows: Weighted average share price Weighted average exercise price Expected volatility Expected life Risk free rate Expected dividends 2017 391.5p – 21.6% 3 years 0.40% 0.00% 2016 413.5p – 25.7% 3 years 0.79% 0.00% 2015 355.0p – 28.4% 3 years 1.24% 0.00% The Group recognised a charge of £1,672,000 (2016: £6,666,000) during the year in relation to share-based payments. Volatility is measured by calculating the standard deviation of the natural logarithm of share price movements for the period prior to the date of grant which is commensurate with the remaining length of the performance period. At the balance sheet date there were no exercisable awards. 29. OWN SHARES HELD Following approval at the 1997 Annual General Meeting the Company established the Helical Employees’ Share Ownership Plan Trust (the ‘‘ESOP”) to be used as part of the remuneration arrangements for employees. The purpose of the ESOP is to facilitate and encourage the ownership of shares by or for the benefit of employees by the acquisition and distribution of shares in the Company. The ESOP purchases shares in the Company to satisfy the Company’s obligations under its Share Option Scheme and Performance Share Plan. For this purpose, 254,000 shares (2016: 4,488,000) in the Company were purchased during the year at a cost of £944,000 (2016: £18,857,000). At 31 March 2017 the ESOP held 1,262,000 ordinary shares in Helical plc (2016: 3,901,000). At 31 March 2017 options over nil (2016: nil) ordinary shares in Helical plc had been granted through the ESOP. At 31 March 2017 awards over 4,744,000 (2016: 6,558,000) ordinary shares in Helical plc, made under the terms of the Performance Share Plan, were outstanding. 30. CONTINGENT LIABILITIES The Company has entered into cross guarantees in respect of the banking facilities of its subsidiaries. These are not considered to have a material value. There were no other contingent liabilities at 31 March 2017 for the Group or the Company (2016: £nil). 31. CAPITAL COMMITMENTS The Group has a commitment of £69,830,000 (2016: £17,209,000) in relation to construction contracts, which are due to be completed in the period to June 2018. 126 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 32. NET ASSETS PER SHARE Net asset value Less: own shares held by ESOP deferred shares Basic net asset value Add: share settled bonus Add: dilutive effect of the Performance Share Plan Diluted net asset value Adjustment for: fair value of financial instruments fair value movement on Convertible Bond deferred tax Adjusted diluted net asset value Adjustment for: fair value of trading and development properties EPRA net asset value Adjustment for: fair value of financial instruments deferred tax EPRA triple net asset value Number of shares 000’s 118,196 (1,262) 116,934 1,402 1,410 119,746 31.3.17 pence per share 442 431 31.3.17 £000 516,897 (265) 516,632 516,632 13,929 (226) 23,124 553,459 119,746 462 12,514 565,973 (13,929) (23,124) 528,920 119,746 473 119,746 442 The adjustment for the fair value of trading and development properties represents the surplus of fair value over carrying value as at 31 March 2017. Net asset value Less: own shares held by ESOP deferred shares Basic net asset value Add: share settled bonus Add: dilutive effect of the Performance Share Plan Diluted net asset value Adjustment for: fair value of financial instruments fair value movement on Convertible Bond deferred tax Adjusted diluted net asset value Adjustment for: fair value of trading and development properties EPRA net asset value Adjustment for: fair value of financial instruments deferred tax EPRA triple net asset value 31.3.16 £000 480,721 (265) 480,456 480,456 14,955 2,747 23,161 521,319 19,412 540,731 (14,955) (23,161) 502,615 Number of shares 000’s 118,184 (3,901) 114,283 1,197 3,177 118,657 31.3.16 pence per share 420 405 118,657 439 118,657 456 118,657 424 The net asset values per share have been calculated in accordance with guidance issued by the European Public Real Estate Association (“EPRA”). The adjustments to the net asset value comprise the amounts relating to the Group and its share of Joint Ventures. 127 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 33. RELATED PARTY TRANSACTIONS At 31 March 2017 and 31 March 2016 the following amounts were due from/(to) the Group’s joint ventures. King Street Developments (Hammersmith) Limited Shirley Advance LLP Barts Square companies Helical Sosnica Sp. zoo Old Street Holdings LP Creechurch Place Limited 31.3.17 £000 8,162 503 (13) 1,126 3 15,883 31.3.16 £000 6,231 11,347 77 1,099 – 13,345 At 31 March 2017 and 31 March 2016 there were the following balances between the Company and its subsidiaries. Amounts due from subsidiaries Amounts due to subsidiaries 31.3.17 £000 654,181 434,671 31.3.16 £000 814,268 512,090 During the years to 31 March 2017 and 31 March 2016 there were the following transactions between the Company and its subsidiaries: Management charges receivable Interest receivable Interest payable 31.3.17 £000 6,831 2,306 3,904 31.3.16 £000 9,734 2,205 3,881 Management charges relate to the performance of management services for the Company or its subsidiaries. Interest receivable relates to interest on loans made by the Company to its subsidiaries. All of these transactions, and the year-end balance sheet amounts arising from these transactions, were conducted on an arm’s length basis and on normal commercial terms. Amounts owed by subsidiaries to the Company are identified in note 21. Amounts owed to subsidiaries by the Company are identified in note 23. The Group considers that key management personnel are the Directors. The compensation paid or payable to key management is: Salaries and other short-term employee benefits Other long-term benefits Share based payments 31.3.17 £000 5,721 – 2,870 8,591 31.3.16 £000 7,715 – 6,314 14,029 The total dividends paid to Directors of the Group in the year were £466,000 (2016: £1,260,000). A second interim dividend was paid in relation to the year ended 31 March 2016 on 4 April 2016, resulting in a further payment of £907,000 to Directors (note 11). During the year purchases of £20,000 (2016: £60,000) were made from a partnership in which Michael Slade, a Director of the Company, and his wife are partners. All transactions were carried out on an arm’s length basis. 34. FINANCIAL INSTRUMENTS Categories of Financial Instruments Financial assets in the Group include derivative financial assets and available for sale investments which are designated as ‘Fair value through the Profit or Loss’. Financial assets also include trade and other receivables and cash and cash equivalents, all of which are included within loans and receivables. Financial liabilities classed as “Fair value through the Profit or Loss” include derivatives and those liabilities designated as such. Financial liabilities also include secured bank loans and overdrafts, trade and other payables and provisions, all of which are classified as financial liabilities at amortised cost. 128 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 Financial Assets and Liabilities by Category The financial instruments of the Group as classified in the financial statements can be analysed under the following IAS 39 Financial Instruments: Recognition and Measurement, categories: Financial assets Loans and receivables Available-for-sale financial investments Total financial assets Group 31.3.17 £000 172,522 – 172,522 These financial assets are included in the balance sheet within the following headings: Available-for-sale investments Trade and other receivables Cash and cash equivalents Total financial assets Group 31.3.17 £000 – 73,260 99,262 172,522 Group 31.3.16 £000 146,983 3,114 150,097 Group 31.3.16 £000 3,114 72,313 74,670 150,097 Company 31.3.17 £000 715,648 – Company 31.3.16 £000 851,541 – 715,648 851,541 Company 31.3.17 £000 – 656,550 59,098 715,648 Company 31.3.16 £000 – 815,316 36,225 851,541 Financial assets are stated in accordance with IAS 32 Financial Instruments: Presentation. For the fair value of available-for-sale investments see note 20. The carrying value of the trade and other receivables and cash and cash equivalents is deemed not to be materially different from the fair value. Financial liabilities Fair value through the Profit or Loss Designated at Fair value through the Profit or Loss Measured at amortised cost Total financial liabilities Group 31.3.17 £000 14,941 99,774 621,193 735,908 Group 31.3.16 £000 18,562 102,747 689,815 811,124 Company 31.3.17 £000 2,551 – 612,515 615,066 Company 31.3.16 £000 7,134 – 687,870 695,004 The Convertible Bond has been designated at fair value through the profit or loss. The change in fair value of the Convertible Bond is wholly attributable to changes in market conditions. If Bondholders do not exercise their conversion right, the obligation is settled by a cash payment of £100,000,000. The difference between the carrying amount of £99,774,000 and this settlement amount is an additional liability of £226,000. The financial liabilities are included in the balance sheet within the following headings: Trade and other payables Borrowings - current Borrowings - non-current Derivative financial instruments Total financial liabilities Group 31.3.17 £000 48,226 2,517 671,184 13,981 735,908 Group 31.3.16 £000 62,106 885 733,178 14,955 811,124 Company 31.3.17 £000 438,911 – 173,604 2,551 615,066 Company 31.3.16 £000 516,557 – 171,313 7,134 695,004 The carrying value of trade and other payables and borrowings is not deemed to be materially different from the fair value. Financial liabilities are stated in accordance with IAS 32. The Group and Company financial instruments that are measured subsequent to initial recognition at fair value are available-for-sale assets, forward exchange contracts and interest rate swaps, caps and floors, and those designated on initial recognition. Interest rate swaps, caps and floors are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. IFRS 13 categorises financial assets and liabilities as being valued in three hierarchical levels: • Level 1: values are unadjusted quoted prices in active markets for identical assets or liabilities; • Level 2: values are derived from observing market data; and • Level 3: values cannot be derived from observable market data. Assets and liabilities measured at fair value are classified as below: Level 1 Level 2 Level 3 Convertible Bond (note 24) Derivative financial instruments (note 34) Available-for-sale investment (note 20) Investment property (note 14) There were no transfers between categories in the current or prior year. 129 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 34. FINANCIAL INSTRUMENTS CONTINUED Derivative financial instruments Interest rate swaps Convertible Bond derivative element Group 31.3.17 £000 Group 31.3.16 £000 (13,981) (14,955) – – (13,981) (14,955) Company 31.3.17 £000 – (2,551) (2,551) Company 31.3.16 £000 – (7,134) (7,134) The Group’s movement in the fair value of the derivative financial instruments in the year was a gain of £789,000 (2016: loss of £6,860,000) due to interest rate caps and swaps. In accordance with IAS 39, the convertible bond is split into a loan and derivative element in the Company Balance Sheet. On initial recognition the derivative element had a value of £8,190,000. At 31 March 2017, the derivative element had a value of £2,551,000 (2016: £7,134,000) with a corresponding gain of £4,583,000 (2016: £2,048,000) recognised in the Income Statement. The Company’s interest rate swaps were novated to a subsidiary company during the year (2016: gain of £1,898,000). Credit Risk Credit risks arise from the possibility that customers may not be able to settle their obligations as agreed. To manage this risk the Group periodically assesses the financial reliability of customers, taking into account their financial position, past experience and other factors. As at 31 March 2017 the Group had total credit risk exposure excluding cash of £73,260,000, all of which is loans and receivables. The cash is held with reputable banking institutions and in client accounts with solicitors and managing agents and therefore credit risk is considered low. All other debtors are deemed to be recoverable. All Company debtors are considered to be fully recoverable. The Group is not reliant on any major customer for its ability to continue as a going concern. For further information on trade and other receivables, see note 21. Liquidity Risk Liquidity risk is defined as the risk that the Group would not be able to settle or meet its obligations on time or at a reasonable price. Liquidity and funding risks, related processes and policies are overseen by management. The Group manages its liquidity risk on a consolidated basis based on business needs, tax, capital or regulatory considerations, if applicable, and through numerous sources of finance in order to maintain flexibility. Management monitors the Group’s net liquidity position through rolling forecasts on the basis of expected cash flows. The Group’s cash and cash equivalents are held with major regulated financial institutions and the Directors regularly monitor the financial institutions that the Group uses to ensure its exposure to liquidity risk is minimised. For further information on debt facilities, see notes 24 and 25. The maturity profile of the Group’s contracted financial liabilities is as follows: Payable within 3 months Payable between 3 months and 1 year Payable between 1 and 3 years Payable after 3 years Total contracted liabilities Group 31.3.17 £000 42,722 31,259 356,708 383,217 813,906 Group 31.3.16 £000 51,204 34,817 65,602 760,795 912,418 Company 31.3.17 £000 441,308 7,220 111,119 86,663 646,310 Company 31.3.16 £000 518,956 7,220 19,032 178,099 723,307 At 31 March 2017 the Group had £141,918,000 (2016: £83,641,000) of undrawn borrowing facilities, £16,847,000 (2016: £105,865,000) of uncharged property assets and cash balances of £99,262,000 (2016: £74,670,000). The above contracted liabilities assume that no loans are extended beyond their current facility expiry date. Management believe that these facilities, together with anticipated sales and the renewal of some of these loan facilities, mean that the Group can meet its contracted liabilities as they fall due. Market Risk The Group is exposed to market risk, primarily related to interest rates, foreign currency exchange movements, the market value of the investments and accrued development profits. The Group actively monitors these exposures. Interest Rate Risk It is the Group’s policy and practice to minimise interest rate cash flow exposures on long-term financing. The Group does this by using a number of derivative financial instruments including interest rate swaps and interest rate caps. The purpose of these derivatives is to manage the interest rate risks arising from the Group’s sources of finance. The Group does not use financial instruments for speculative purposes. Details of financing and financial instruments can be found in note 25. In the year to 31 March 2017, if interest rates had moved by 0.5%, this would have resulted in the following movement to net profits and equity due to movements in interest charges and mark-to-market valuations of derivatives. 130 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 0.5% increase - increase in net results and equity 0.5% decrease - decrease in net results and equity Group impact on results 31.3.17 £000 7,815 (7,848) Group equity impact 31.3.17 £000 7,815 (7,848) Company impact on results 31.3.17 £000 154 (154) Company equity impact 31.3.17 £000 154 (154) Foreign Currency Exchange Risk Due to its operations in Poland and its investment in a non-UK based property developer, the Group has exposure to exchange movements on foreign currencies. Management monitors its exposure to risks associated with foreign currency exchange risk and reviews any requirements to act to minimise these risks. In the year to 31 March 2017 the Group made foreign exchange losses of £3,000 (2016: gains of £100,000) resulting from movements in foreign exchange rates during the year affecting its assets and liabilities related to its overseas operations. The Group’s balance sheet translation exposure is summarised as follows: Gross currency assets Gross currency liabilities Net exposure Euro 31.3.17 £000 1,151 (65) 1,086 Zloty 31.3.17 £000 514 (269) 245 US dollars 31.3.17 £000 – – – Euro 31.3.16 £000 1,447 (66) 1,381 Zloty 31.3.16 £000 538 (788) (250) US dollars 31.3.16 £000 3,103 – 3,103 The Company’s balance sheet translation exposure is almost exclusively due to intra-group loans and is summarised as follows: Gross currency assets Gross currency liabilities Net exposure Euro 31.3.17 £000 1,400 – 1,400 Zloty 31.3.17 £000 1,286 – 1,286 Euro 31.3.16 £000 1,320 – 1,320 Zloty 31.3.16 £000 1,168 – 1,168 The Group and Company have no material exposure to movements in foreign currency rates. 35. INVESTMENT PROPERTY ACCOUNTING RESTATEMENT International Accounting Standard 40 - Investment Property requires that accrued operating lease income assets should be shown separately and deducted from the fair value of the investment properties in the Consolidated Balance Sheet. This accounting treatment had not been applied at 31 March 2016 but has been adopted for the year ended 31 March 2017. A prior year adjustment has been made to ensure consistency of comparative information, clarity and transparency. The effect of the adjustment on the relevant financial statement line items for the year ended 31 March 2016 is as follows: Impact on equity - increase/(decrease) in equity Investment properties Deferred tax liability Equity Impact on the consolidated income statement - increase/(decrease) in profit for the year Net gain on sale and revaluation of investment properties Profit before tax Tax on profit on ordinary activities Profit for the year Impact on basic and diluted earnings per share and EPRA Net Asset Value - increase/(decrease) Basic earnings per share Diluted earnings per share EPRA net asset value per share Original 31.3.16 £000 1,041,100 (6,367) 486,189 Adjustment 31.3.16 £000 Restated 31.3.16 £000 (6,067) 1,035,033 599 (5,768) (5,468) 480,721 Original Year ended 31.3.16 £000 55,893 Adjustment Year ended 31.3.16 £000 Restated Year ended 31.3.16 £000 (6,067) 49,826 120,096 (9,745) 110,351 (6,067) 599 114,029 (9,146) (5,468) 104,883 Original Year ended 31.3.16 pence Adjustment Year ended 31.3.16 pence Restated Year ended 31.3.16 pence 96.1 92.6 461 (4.8) (4.6) (5) 91.3 88.0 456 The adjustment did not have an impact on the Group’s EPRA earnings per share. The adjustment did not impact the Company. No adjustment was made at 31 March 2015 on the grounds of materiality. 36. POST BALANCE SHEET EVENTS In May 2017, the Group sold The Morgan Quarter, Cardiff for £55m and a retail asset in Great Yarmouth for £4.2m, and purchased an office building, Trinity Court, Manchester for £12.9m. 131 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 37. PRINCIPAL ACCOUNTING POLICIES Basis of Consolidation The Group financial statements consolidate those of Helical plc (the “Company”) and all of its subsidiary undertakings (together the “Group”) drawn up to 31 March 2017. Subsidiary undertakings are entities for which the Group is exposed to variable returns and has the ability to control those returns. Subsidiaries are accounted for under the purchase method and are held in the Company balance sheet at cost and reviewed annually for impairment. Joint Ventures are entities whose economic activities are controlled jointly by the Group and by other ventures independent of the Group, where both parties are exposed to variable returns but neither has control over those returns. They are accounted for using the equity method of accounting, whereby the Group’s share of profit after tax in the Joint Venture is recognised in the Consolidated Income Statement and the Group’s share of the Joint Venture’s net assets are incorporated in the Consolidated Balance Sheet. The Company’s cost of investment in Joint Ventures less any provision for permanent impairment loss is shown in the Company Balance Sheet. Associates are those entities over which the Group has significant influence but which are neither subsidiaries nor joint ventures. Intra-group balances and any unrealised gains on transactions between the Company and its subsidiaries and between subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The consolidated financial statements are presented in sterling which is also the functional currency of the parent company. Going Concern The accounts have been prepared on a going concern basis as explained in the Governance Review on page 74. Revenue Recognition Rental income - rental income receivable is recognised in the Income Statement on a straight-line basis over the lease term. Any incentive for lessees to enter into a lease agreement and any costs associated with entering into the lease are spread over the same period. Sale of goods - assets, such as trading properties, development sites and completed developments, are regarded as sold upon the transfer of the significant risks and rewards of ownership to the purchaser, in accordance with IAS 18 Revenue. This occurs on exchange of unconditional contracts for the sale of the site, on satisfaction of any and all conditions on a conditional contract for the sale of the site or on completion of the contract on a conditional sale where those conditions are satisfied at completion. Measurements of revenue arising from the sale of such assets are derived from the fair value of the consideration received in accordance with IAS 18 Revenue. Construction contracts - where an asset is constructed under a specific contract with a purchaser (a “pre-sold development”) the initial sale of the site to that purchaser is recognised as a sale of goods in accordance with IAS 18 Revenue, where the sale of the land is not conditional on the construction of the buildings and is not reversible in the event that the building is not constructed. The construction element of the contract is treated, for the purposes of revenue recognition, as a construction contract in accordance with IAS 11 Construction Contracts. Revenue is recognised by reference to the stage of completion which is typically determined by reference to project appraisals, normally supported by independent valuation certificates provided by quantity surveyors. The Company’s principal other responsibility on pre-sold developments is the identification of and agreement of terms with potential tenants of the completed building(s). The revenue recognition of this additional component of the funding agreements is considered separately to reflect the substance of the transaction as the rendering of services, in accordance with IAS 18 Revenue. The amount of revenue recognised is determined by reference to the percentage of the building(s) that are let. Property advisory/development management services - where the Group provides these services to the third party property site owner the Group recognises income over the period these services are provided and in accordance with the specific terms of the contract. If the amount and payment of the consideration for these services are contingent upon a future event (such as sale of the property) and if the fair value of the consideration can be reliably estimated, the Group recognises this income as its services are performed, discounting for time and risk if appropriate. Investment income - revenue in respect of investment and other income represents investment income, fees and commissions earned on an accruals basis and the fair value of the consideration received/receivable on investments held for the short-term. Dividends are 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 the effective interest rate. Deferred income - money received in advance of the provision of goods or services is held in the balance sheet until the income can be recognised in the Income Statement. Share-based Payments The Group provides share-based payments in the form of performance share plan awards and a share incentive plan. These payments are discussed in greater detail in the Directors’ Remuneration Report on pages 80 to 97. The fair value of share-based payments related to employees’ service are determined indirectly by reference to the fair value of the related instrument at the grant date. The Group uses a combination of the Black-Scholes and stochastic valuation models and the resulting value is amortised through the Consolidated Income Statement (“Income Statement”) over the vesting period of the share-based payments. For the performance share plan and share incentive plan awards, where non-market conditions apply, the expense is allocated, over the vesting period, to the Income Statement based on the best available estimate of the number of awards that are expected to vest. Estimates are subsequently revised if there is any indication that the number of awards expected to vest differs from previous estimates. The amount charged to the Income Statement is credited to the Retained Earnings reserve. Depreciation In accordance with IAS 40 Investment Property, depreciation is not provided for on freehold investment properties or on leasehold investment properties. The Group does not own the freehold land and buildings which it occupies. Costs incurred in respect of 132 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 leasehold improvements to the Group’s head office at 5 Hanover Square, London W1S 1HQ are capitalised and held as short-term leasehold improvements. Leasehold improvements, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Residual values are reassessed annually. Depreciation is charged so as to write off the cost of assets less residual value, over their estimated useful lives, using the straight-line method, on the following basis: Short leasehold improvements Plant and equipment - 10% or length of lease, if shorter - 25% Taxation The taxation charge represents the sum of tax currently payable and deferred tax. The charge for current taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using rates that have been enacted or substantively enacted by the balance sheet date. Tax payable upon realisation of revaluation gains recognised in prior periods is recorded as a current tax charge with a release of the associated deferred taxation. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable timing differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible timing differences can be utilised. The measurement of deferred tax assets and liabilities reflects the tax consequences of the manner in which the Group expects, at the balance sheet date, to recover or settle the carrying amount of those assets and liabilities. Such assets and liabilities are not recognised if the timing differences arise from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. The deferred tax asset relating to share based payment awards reflects the estimated value of tax relief available on the vesting of the awards at the balance sheet date. Deferred tax is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. It is recognised in the Income Statement except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. The Group recognises a deferred tax liability for all taxable timing differences associated with investments in subsidiaries, associates and interests in joint ventures, except to the extent that both of the following conditions are satisfied: a) the Group is able to control the timing of the reversal of the timing difference; and, b) it is probable that the timing difference will not reverse in the foreseeable future. Dividends Dividend distributions to the Company’s Shareholders are recognised as a liability in the financial statements in the period in which dividends are approved. Investment Properties Investment properties are properties owned or leased by the Group which are held for long-term rental income and for capital appreciation. Investment properties are initially recognised at cost, including associated transaction costs, and subsequently at fair value adjusted for the carrying value of lease incentive and letting cost receivables. These fair values are based on market values as determined by professionally qualified external valuers or are determined by the Directors of the Group based on their knowledge of the property. In accordance with IAS 40, investment properties held under leases are stated gross of the recognised finance lease liability. Gains or losses arising from changes in the fair value of investment properties are recognised as gains or losses on revaluation in the Income Statement of the period in which they arise. In accordance with IAS 40, as the Group uses the fair value model, no depreciation is provided in respect of investment properties including integral plant. Property that is being constructed or developed for future use as an investment property is treated as investment property in accordance with IAS 40. When the Group redevelops an existing investment property for continued future use as investment property, the property remains an investment property measured at fair value and is not reclassified. Interest is capitalised before tax relief until the date of practical completion. Details of the valuation of investment properties can be found in note 14. Land, Developments and Trading Properties Land, developments and trading properties held for sale are inventory and are included in the Balance Sheet at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less estimated costs to completion and estimated costs necessary to make the sale. Gross borrowing costs associated with expenditure on properties under development or undergoing major refurbishment are capitalised. The interest capitalised is either based on the interest paid (where a project has a specific loan) or calculated using the Group’s weighted average cost of borrowings (where there are no specific borrowings for the project). Interest is capitalised from the date of commencement of the development work until date of practical completion. 133 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 37. PRINCIPAL ACCOUNTING POLICIES CONTINUED Investments Available-for-sale investments are revalued to fair value at the balance sheet date. Gains or losses arising from changes in fair value are recognised in the Statement of Comprehensive Income except to the extent that losses are attributable to impairment below historic cost, in which case they are recognised in the Income Statement. Upon disposal, accumulated fair value adjustments are included in the Income Statement. Held for Sale Investments Investments are defined as held for sale when the Group intends to sell the investment and if sale is highly probable. Such held for sale investments are measured at the lower of their carrying amounts immediately prior to their classification as held for sale and their fair value less costs to sell. Trade Receivables Trade receivables do not carry any interest and are stated initially at fair value and subsequently at amortised cost as reduced by appropriate allowances for estimated irrecoverable amounts. Cash and Cash Equivalents Cash and cash equivalents are carried in the Balance Sheet at amortised cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, deposits with banks, cash held at solicitors, cash in blocked accounts and other short-term, highly liquid investments with original maturities of three months or less. Trade and Other Payables Trade and other payables are not interest bearing and are initially recognised at fair value and subsequently at amortised cost. Borrowing and Borrowing Costs Interest bearing bank loans and overdrafts and the Group’s retail bond are initially recorded at fair value, net of finance and other costs yet to be amortised in accordance with IAS 39. Embedded derivatives contained within the borrowing agreements are treated in accordance with IAS 39, which includes consideration of whether embedded derivatives require bifurcation. The retail bond and bank loans are held at amortised cost. Convertible bonds are designated as fair value through the profit and loss and so are presented on the Balance Sheet at fair value, with all gains and losses, including the write-off of issuance costs, recognised in the Income Statement. The interest charge in respect of the coupon rate on the bonds has been recognised within finance costs on an accruals basis. Borrowing costs directly attributable to the acquisition and construction of new developments and investment properties are added to the costs of such properties until the date of completion of the development or investment. After initial recognition borrowings are carried at amortised cost. Gains or losses on extinguishing debt are recognised in the Income Statement in the period in which they occur. Derivative Financial Instruments Derivative financial assets and financial liabilities are recognised on the Balance Sheet when the Group becomes a party to the contractual provisions of the instrument. The Group enters into derivative transactions such as interest rate swaps, caps and floors, and forward foreign currency contracts in order to manage the risks arising from its activities. Derivatives are initially recorded at fair value and are subsequently remeasured to fair value based on market prices, estimated future cash flows and forward rates as appropriate. Any change in the fair value of such derivatives is recognised immediately in the Income Statement. A derivative property asset is recognised on the Balance Sheet when the Group has contractually assigned an existing purchase contract. A derivative property asset is initially recorded at its fair value and is remeasured at each reporting period date to its fair value, which is based upon the future contracted cash flow discounted for both time and risk. Any change in fair value is recognised in the Income Statement as a development profit. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Further information on the categorisation of financial instruments can be found in note 34. Leases Leases are classified according to the substance of the transaction. A lease that transfers substantially all the risks and rewards of ownership to the lessee is classified as a finance lease. All other leases are classified as operating leases. In accordance with IAS 40, finance leases of investment property are accounted for as finance leases and recognised as an asset and an obligation to pay future minimum lease payments. The investment property asset is included in the Balance Sheet at fair value, gross of the recognised finance lease liability. Lease payments are allocated between the liability and finance charges so as to achieve a constant financing rate. In accordance with IAS 17, operating leases receipts and payments are spread on a straight-line basis over the length of the lease. Foreign Currencies Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Non-monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the Income Statement in the period in which they arise. Exchange differences on non-monetary items are recognised in the Statement of Comprehensive Income to the extent that they relate to a gain or loss on that non-monetary item which is included in the Statement of Comprehensive Income, otherwise such gains and losses are recognised in the Income Statement. 134 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 The assets and liabilities in the financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at the average rate. The exchange differences arising from the retranslation of the opening net investment in subsidiaries are recognised in Other Comprehensive Income. On disposal of a foreign operation the cumulative translation differences (including, if applicable, gains and losses on related hedges) are transferred to the Income Statement as part of the gain or loss on disposal. Net Asset Values Per Share Net asset values per share have been calculated in accordance with the best practice recommendations of the European Public Real Estate Association (“EPRA”). Earnings Per Share Earnings per share have been calculated in accordance with IAS 33 and the best practice recommendations of EPRA. Employee Share Ownership Plan Trust Shares held in the Helical Bar Employee Share Ownership Plan Trust (“ESOP”) are shown as a deduction in arriving at equity funds on consolidation. Assets, liabilities and reserves of the ESOP are included in the statutory headings to which they relate. Purchases and sales of own shares increase or decrease the book value of “Own shares held” in the Balance Sheet. At each period end the Group assesses and recognises the value of “Own shares held” with reference to the expected cash proceeds and accounts for any difference as a reserves transfer. Use of Estimates and Judgements To be able to prepare accounts according to the accounting principles, management must make estimates and assumptions that affect the assets and liabilities and revenue and expense amounts recorded in the financial statements. These estimates are based on historical experience and other assumptions that management and the Board of Directors believe are reasonable under the particular circumstances. The results of these considerations form the basis for making judgements about the carrying value of assets and liabilities that are not readily available from other sources. Areas requiring the use of estimates and critical judgement that may significantly impact the Group’s earnings and financial position are: Estimates • Recognition of share-based payments which is dependent upon the estimated number of performance share plan awards that will vest at the end of the periods based on future forecast performance and employee retention (note 28). The 2014 award is an actual figure therefore the estimation is around 2015 and 2016 vesting percentages. As at March 2017, the estimated vesting percentage for 2015 was 42.57% and for 2016 was 33.33%. These have been sensitised for a range of reasonably possible vesting outcomes. If it was estimated that nil% of the remaining shares were expected to vest it would result in a credit to the Consolidated Income Statement of £1.8m and if it was estimated that 100% were expected to vest it would result in a £2.8m additional charge. A 10% variation in the estimated vesting % would result in a £0.5m charge/credit recognised in the Consolidated Income Statement. • Determination of the most appropriate percentage interest at which to recognise our share of joint ventures, where our economic interest can differ to our ownership interest (see note 18). Under the Barts Square joint venture agreement the Group is entitled to varying returns dependent upon the performance of the development. Whilst the Group holds a 33.35% legal share in the Barts Square group, it has accounted for its share at 43.8% to reflect its expected economic interest in the joint venture. There are several estimates that contribute to this expected economic interest, the most sensitive of which is the estimated sales price of the residential units. If the estimated sales prices were 15% lower, the Group’s economic interest would fall to 42.0% (with a net asset decrease of £0.9m) whilst an increase of 15% would result in a 48.4% economic interest (with a net asset increase of £2.2m). • Valuation of investment properties. The sensitivity of these valuations to changes in the reversionary yield is included in note 14; • The net realisable value of land and development properties contain subjective assumptions including the results of future planning decisions, future construction costs and future sales values and timings (note 19). We do not consider the range of reasonably possible outcomes for changes in estimated cost or sales price would result in a material impact to net realisable value; and • Determination of the stage of completion of development management projects which impact the amount of development management revenue. There are no changes in assumptions for which the reasonably possible outcomes would have a material impact on the revenue recognised in the year. Judgements • Calculation and assessment of the recoverability of deferred tax assets, where it has been assumed that sufficient taxable profits will be available in future periods to allow all of the assets to be recovered (note 10); • An assessment of the most suitable accounting treatment for convertible bonds (note 24); • Consideration of the nature of joint arrangements. In the context of IFRS 10, this involves consideration of where the control lies and whether either party has the power to vary its returns from the arrangements. In particular, significant judgement is exercised where the shareholding of the Group is not 50% (note 18); • Consideration of whether an investment property purchase that has exchanged but not completed should be recognised as investment property under IAS 40. The judgement lies in assessing whether the exchange is unconditional, in which case it is recognised (note 14); and • Recognition of development management project revenue, where payment for these services is triggered by a future event (sale or letting of the property). 135 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS 38. SUBSIDIARY AND RELATED UNDERTAKINGS The Company’s subsidiary and related undertakings are listed below. All undertakings operate in the United Kingdom other than Helical Wroclaw Sp.Z.o.o, EC Property Management Sp.Z.o.o and Helical Asset Management Sp.Z.o.o and, unless otherwise indicated, are incorporated and registered in the United Kingdom at 5 Hanover Square, London W1S 1HQ. The share capital of each of the companies, where applicable, is comprised of ordinary shares unless otherwise stated. Company ACTIVE SUBSIDIARIES 207 OLD STREET UNIT TRUST1 211 OLD STREET UNIT TRUST1 AYCLIFFE & PETERLEE INVESTMENT COMPANY LIMITED BAYLIGHT DEVELOPMENTS LIMITED BRAMSHOTT PLACE MANAGEMENT LIMITED CPP INVESTMENTS LIMITED DENCORA (DOCKLANDS) LIMITED DENCORA (FORDHAM) LIMITED DOWNTOWN SPACE PROPERTIES LLP DURRANTS MANAGEMENT LIMITED EC PROPERTY MANAGEMENT SP. Z O.O.2 EMBANKMENT PLACE (LP) LIMITED11 G2 ESTATES LIMITED HARBOUR DEVELOPMENTS (BRACKNELL) LIMITED HB SAWSTON NO 3 LIMITED HELICAL (ALFRETON) LIMITED HELICAL (ARTILLERY) LIMITED HELICAL (BASILDON RETAIL) LP HELICAL (BASILDON) B.V.3 HELICAL (BATTERSEA) LIMITED HELICAL (BEACON ROAD) LIMITED HELICAL (BOOTH ST) LIMITED HELICAL (BOSS 2) LIMITED HELICAL (BOSS) LIMITED HELICAL (BRAMSHOTT PLACE) LIMITED HELICAL (BROADWAY) LIMITED HELICAL (BROWNHILLS) LIMITED HELICAL (CANNOCK) LIMITED HELICAL (CARDIFF) LIMITED HELICAL (CHART) LIMITED HELICAL (CHESTER) LIMITED HELICAL (CHURCHGATE) LIMITED HELICAL (COBHAM) LIMITED HELICAL (CORBY INVESTMENTS) LIMITED HELICAL (CROWNHILL) LIMITED4 HELICAL (CS HOLDINGS) JERSEY LIMITED4 HELICAL (CS) JERSEY LIMITED4 HELICAL (DALE HOUSE) LIMITED HELICAL (DOXFORD) LIMITED HELICAL (DURRANTS) LIMITED HELICAL (EASTCHEAP) LIMITED4 HELICAL (ELLESMERE PORT) LIMITED HELICAL (ENTERPRISE) LIMITED HELICAL (EXETER) LIMITED HELICAL (FORDHAM) LIMITED HELICAL (FP) HOLDINGS LIMITED HELICAL (FP) JERSEY HOLDINGS LIMITED4 HELICAL (GRACELANDS) LIMITED HELICAL (GREAT YARMOUTH) LIMITED HELICAL (HAILSHAM) LIMITED HELICAL (HALESOWEN) LIMITED HELICAL (HARROGATE) LIMITED HELICAL (HAVANT) LIMITED HELICAL (HEDGE END) LIMITED HELICAL (HINCKLEY) LIMITED HELICAL (HUDDERSFIELD) LIMITED HELICAL (JARROW) LIMITED 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 136 Direct/ Indirect Indirect Indirect Direct Indirect Indirect Indirect Direct Indirect Direct Indirect Indirect Direct Direct Direct Direct Direct Direct Indirect Indirect Direct Direct Direct Direct Direct Indirect Indirect Direct Direct Indirect Direct Direct Direct Direct Direct Indirect Direct Indirect Direct Direct Indirect Indirect Direct Indirect Indirect Direct Indirect Indirect Direct Direct Indirect Direct Direct Direct Direct Direct Direct Direct Ultimate % 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% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 Company HELICAL (LB) LIMITED HELICAL (LIPHOOK) LIMITED5 HELICAL (MINT) LIMITED HELICAL (NEWMARKET) B.V.3 HELICAL (NORTHAMPTON) LIMITED HELICAL (OS HOLDCO) JERSEY LIMITED HELICAL (PETERBOROUGH) LIMITED HELICAL (PORCHESTER) LIMITED HELICAL (PORTBURY) LIMITED HELICAL (POWER ROAD) LIMITED HELICAL (QUARTZ) LIMITED HELICAL (SALFORD) LIMITED HELICAL (SCARBOROUGH) LIMITED HELICAL (SEVENOAKS) LIMITED HELICAL (SHEPHERDS) LIMITED HELICAL (SHOREDITCH) LIMITED HELICAL (SIX) LIMITED HELICAL (SOUTHEND) LIMITED HELICAL (STEVENAGE) LIMITED HELICAL (STOCKPORT) LIMITED HELICAL (STONE) LIMITED HELICAL (SUN) LIMITED HELICAL (SUTTON-IN-ASHFIELD) B.V.3 HELICAL (SUTTON-IN-ASHFIELD) HOLDINGS B.V.3 HELICAL (TELFORD) LIMITED HELICAL (WELLINGBOROUGH) LIMITED HELICAL (WHITECHAPEL) LIMITED HELICAL (WINTERHILL) LIMITED HELICAL (YATE) LIMITED HELICAL ASSET MANAGEMENT SP. Z O.O.6 HELICAL B.V.3 HELICAL BAR (CATHCART) LIMITED HELICAL BAR (DRURY LANE) LIMITED HELICAL BAR (FALKIRK) LIMITED HELICAL BAR (GREAT DOVER STREET) LIMITED HELICAL BAR (JERSEY) LIMITED4 HELICAL BAR (MAPLE) LIMITED HELICAL BAR (MITRE SQUARE) DEVELOPMENTS LIMITED HELICAL BAR (ST VINCENT STREET) LIMITED HELICAL BAR (WALES) LIMITED HELICAL BAR (WHITE CITY) LIMITED HELICAL BAR (YOKER) LIMITED HELICAL BAR DEVELOPMENTS (SOUTH EAST) LIMITED HELICAL BAR DEVELOPMENTS LIMITED HELICAL BAR TRUSTEES LIMITED HELICAL FINANCE (AV) LIMITED HELICAL FINANCE (BAR) LIMITED HELICAL FINANCE (RBS) LIMITED HELICAL FOOD RETAIL LIMITED HELICAL INVESTMENT HOLDINGS LIMITED HELICAL JERSEY HOLDINGS LIMITED4 HELICAL JERSEY INVESTMENT HOLDINGS LIMITED4 HELICAL OLD STREET JERSEY HOLDINGS LIMITED4 HELICAL OLD STREET JERSEY LIMITED4 HELICAL POLAND SP. Z O.O.2 HELICAL PROPERTIES (HSM) LIMITED HELICAL PROPERTIES INVESTMENT LIMITED HELICAL PROPERTIES RETAIL LIMITED HELICAL RETAIL LIMITED HELICAL RETIREMENT HOMES LIMITED 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 Direct/ Indirect Direct Indirect Direct Indirect Direct Indirect Direct Direct Direct Direct Direct Direct Direct Direct Indirect Direct Direct Direct Direct Indirect Direct Direct Indirect Indirect Direct Direct Direct Direct Direct Indirect Direct Direct Direct Direct Indirect Direct Direct Direct Direct Indirect Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Indirect Indirect Indirect Direct Direct Direct Direct Ultimate % 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% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 137 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS Company HELICAL SERVICES LIMITED HELICAL WROCLAW SP. Z O.O.2 METROPOLIS PROPERTY LIMITED MILLBROOK VILLAGE MANAGEMENT LIMITED NEWMARKET LP OLD STREET UNITHOLDER NO 1 LIMITED4 OLD STREET UNITHOLDER NO 2 LIMITED4 RENAISSANCE VILLAGES LIMITED SUTTON-IN-ASHFIELD LP THE ASSET FACTOR LIMITED JOINT VENTURES AND JOINT OPERATIONS ABBEYGATE HELICAL (C4.1) LLP ABBEYGATE HELICAL (LEISURE PLAZA) LIMITED BARTS CLOSE OFFICE LIMITED4 BARTS ONE LIMITED4 BARTS SQUARE ACTIVE ONE LIMITED4 BARTS SQUARE FIRST LIMITED BARTS SQUARE FIRST OFFICE LIMITED4 BARTS SQUARE FIRST RESIDENTIAL LIMITED4 BARTS SQUARE LAND ONE LIMITED BARTS TWO LIMITED BARTS, L.P.7 CREECHURCH PLACE LIMITED8 EUROPA CENTRALNA SP. Z O.O9 HASLUCKS GREEN LIMITED HELICAL BAR (MITRE SQUARE) LTD KING STREET DEVELOPMENTS (HAMMERSMITH) LIMITED OBC DEVELOPMENT MANAGEMENT LIMITED OLD STREET HOLDINGS GP LIMITED1 OLD STREET HOLDINGS L.P.1 SHIRLEY ADVANCE LLP DORMANT SUBSIDIARIES AND JOINT VENTURES 61 SOUTHWARK STREET LIMITED AYCLIFFE & PETERLEE DEVELOPMENT COMPANY LIMITED ALBION LAND (BUSHEY MILL) LIMITED BANAGATE LIMITED BASILDON GENERAL PARTNER LIMITED BASILDON NOMINEE LIMITED CRANMER INVESTMENTS (WHITSTABLE) LIMITED DENCORA (HARLOW) LIMITED GLENLAKE LIMITED GROOVEMODEL LIMITED HALLCO 850 LIMITED HB CAMBS NO 3 LIMITED HB DALES MANOR NO 3 LIMITED HB SAWSTON NO. 1 LIMITED HB SAWSTON NO. 2 LIMITED HB SAWSTON NO. 4 LIMITED HELICAL (ALDRIDGE) LIMITED HELICAL (ASHFORD) LIMITED HELICAL (BASILDON) LIMITED HELICAL (CG) LIMITED HELICAL (CG2) LIMITED HELICAL (CMV) LIMITED HELICAL (COWLEY) LIMITED HELICAL (CR) LIMITED HELICAL (CRAWLEY) LIMITED HELICAL (EAST KILBRIDE) LIMITED HELICAL (FLEET) LIMITED HELICAL (FLEET) NO 1 LIMITED HELICAL (FLEET) NO 2 LIMITED HELICAL (GLASGOW) LIMITED10 118 119 120 121 122 123 124 125 126 127 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 138 Direct/ Indirect Direct Indirect Indirect Indirect Indirect Indirect Indirect Direct Indirect Direct Direct Direct Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Direct Indirect Indirect Indirect Indirect Indirect Indirect Direct Indirect Indirect Direct Indirect Indirect Indirect Indirect Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Indirect Indirect Direct Direct Direct Indirect Indirect Direct Ultimate % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 50% 33% 33% 33% 33% 33% 33% 33% 33% 33% 10% 50% 50% 10% 50% 33% 33% 33% 50% 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% NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2017 Company HELICAL (HUB) LIMITED HELICAL (KIDLINGTON) LIMITED HELICAL (MERLIN PARK) LIMITED HELICAL (MILL STREET) LIMITED HELICAL (MOTHERWELL) LIMITED HELICAL (NEWMARKET) LIMITED HELICAL (PAIGNTON) LIMITED HELICAL (SA) LIMITED HELICAL (SAWSTON) LIMITED4 HELICAL (SOUTHALL) LIMITED HELICAL (SOUTHAMPTON) LIMITED HELICAL (SUTTON-IN-ASHFIELD) LIMITED HELICAL (WEST LONDON) LIMITED HELICAL (WESTFIELDS) LIMITED HELICAL (WOKING) LIMITED HELICAL BAR (BUNHILL ROW) LIMITED HELICAL BAR (CITY DEVELOPMENTS) LIMITED HELICAL BAR (CITY INVESTMENTS) LIMITED HELICAL BAR (CL) INVESTMENT COMPANY LIMITED HELICAL BAR (EPSOM) LIMITED HELICAL BAR LIMITED HELICAL GROUP LIMITED HELICAL NOMINEES LIMITED HELICAL PROPERTIES LIMITED HELICAL PROPERTIES (RS) LIMITED HELICAL PROPERTIES (WSM) LIMITED HELICAL REGISTRARS LIMITED HELICAL RETAIL (RBS) LIMITED HGCI (HOLDCO) LIMITED HGCI (TRANSCO) LIMITED HGCI (UK) LIMITED HGCI HOLDINGS LIMITED HGCI INTERMEDIATE LIMITED HGCI LIMITED MATCHEARTH LIMITED MAUDSLAY PARK MANAGEMENT LIMITED NEWMARKET GENERAL PARTNER LIMITED NEWMARKET NOMINEE LIMITED PAPERBRICK LIMITED PRESCOT STREET INVESTMENTS LIMITED RATELAWN LIMITED ROPEMAKER PARK MANAGEMENT COMPANY LIMITED SCBP MANAGEMENT COMPANY LIMITED SHOPFILE LIMITED SPRING (EFS) LIMITED SPRING (EM) LIMITED SPRING (HOLDINGS) LIMITED SPRING (ITE) LIMITED SPRING (NO.1) LIMITED SPRING (NO.2) LIMITED SPRING (NO.3) LIMITED SUTTON-IN-ASHFIELD GENERAL PARTNER LIMITED SUTTON-IN-ASHFIELD NOMINEE LIMITED THE MORGAN APARTMENTS MANAGEMENT COMPANY LIMITED 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 13 Castle Street, St Helier, Jersey JE4 5UT. Registered offices: 1 2 Hoża 55/45, 00-681 Warsaw, Poland. 3 Hoogoorddreef 15 1101 BA Amsterdam, The Netherlands. 4 12 Castle Street, St Helier, Jersey JE2 3RT. 5 One The Esplanade, St Helier, Jersey JE2 3QA. 6 B.PRUSA 10 30-109 Krakow Poland. 7 c/o Corporation Service Company 2711 Centerville Road, Suite 400, Wilmington DE 19808, United States. 8 c/o Ocorian Limited, 26 New Street, St Helier, Jersey JE2 3RA. 9 Skaryszewska 7, 03-802 Warsaw, Poland. 10 c/o Shepherd and Wedderburn LLP, 1 Exchange Crescent, Conference Square, Edinburgh EH3 8UL. 11 c/o Maclay Murray & Spens LLP, 1 George Square, Glasgow G2 1AL. + No shares in issue in the Unit Trusts. The registered office address is that of the appropriate trustee. ++ Limited by Guarantee. Direct/ Indirect Direct Indirect Indirect Direct Indirect Direct Direct Direct Indirect Indirect Indirect Indirect Direct Direct Indirect Direct Indirect Indirect Direct Direct Direct Direct Direct Direct Direct Indirect Direct Indirect Indirect Indirect Indirect Indirect Direct Direct Direct Indirect Direct Indirect Direct Direct Indirect Indirect Indirect Direct Indirect Indirect Indirect Indirect Direct Indirect Indirect Indirect Indirect Indirect Ultimate % 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% 75% 100% 100% 100% 100% 100% 100% 100%++ 100% 100% 100% 100% 100% 100% 100% 100% 100%++ 75% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 139 NOTES TO THE FINANCIAL STATEMENTSGOVERNANCEADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017FINANCIAL STATEMENTS ADDITIONAL INFORMATION Appendix 1 - See-through Analysis Appendix 2 - See-through Analysis Ratios Appendix 3 - Five Year Review Appendix 4 - Property Portfolio Appendix 5 - EPRA Performance Measures Shareholder Information Glossary of Terms Financial Calendar and Advisors 141 143 143 144 146 148 149 150 140 THE BOWER London EC1 HELICAL PLC Annual Report and Accounts 2017 APPENDIX 1 SEE-THROUGH ANALYSIS Helical holds a significant proportion of its property assets in joint ventures with partners that provide the majority of the equity required to purchase the assets, whilst relying on the Group to provide asset management or development expertise. Accounting convention requires Helical to account under IFRS for our share of the net results and net assets of joint ventures in limited detail in the income statement and balance sheet. Net asset value per share, a key performance measure used in the real estate industry, as reported in the financial statements under IFRS, does not provide shareholders with the most relevant information on the fair value of assets and liabilities within an ongoing real estate company with a long-term investment strategy. This analysis incorporates the separate components of the results of the consolidated subsidiaries and Helical’s share of its joint ventures’ results into a “see-through” analysis of our property portfolio, debt profile and the associated income streams and financing costs, to assist in providing a comprehensive overview of the Group’s activities. See-through Net Rental Income Helical’s share of the gross rental income, head rents payable and property overheads from property assets held in subsidiaries and in joint ventures are shown in the table below. Gross rental income Total gross rental income Rents payable Property overheads Net rental income attributable to profit share partner See-through net rental income – subsidiaries – joint ventures – subsidiaries – subsidiaries – joint ventures Year ended 31.3.17 £000 Year ended 31.3.16 £000 48,835 931 49,766 (68) (2,283) (100) (322) 45,505 1,828 47,333 (80) (2,728) (558) (533) 46,993 43,434 See-through Net Development Profits Helical’s share of development profits from property assets held in subsidiaries and in joint ventures are shown in the table below. In parent and subsidiaries In joint ventures Total gross development profit Provision against stock See-through development (losses)/profit – subsidiaries – joint ventures Year ended 31.3.17 £000 Year ended 31.3.16 £000 7,143 (35) 7,108 (6,300) (6,524) (5,716) 30,700 3,223 33,923 (6,448) – 27,475 See-through Net Gain on Sale and Revaluation of Investment Properties Helical’s share of the net gain on sale and revaluation of investment properties held in subsidiaries and joint ventures are shown in the table below. Revaluation surplus/(deficit) on investment properties – subsidiaries Total revaluation surplus Net gain/(loss) on sale of investment properties – joint ventures – subsidiaries – joint ventures Total net gain on sale of investment properties See-through net gain on sale and revaluation of investment properties Year ended 31.3.17 £000 Year ended 31.3.16 £000 39,152 (1,875) 37,277 1,391 (54) 1,337 38,614 47,441 2,316 49,757 2,385 41,553 43,938 93,695 141 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 APPENDIX 1 CONTINUED See-through Net Finance Costs Helical’s share of the interest payable, finance charges, capitalised interest and interest receivable on bank borrowings and cash deposits in subsidiaries and in joint ventures are shown in the table below. Interest payable on bank loans and overdrafts Total interest payable on bank loans and overdrafts Other interest payable and similar charges Interest capitalised Total finance costs Interest receivable and similar income See-through net finance costs – subsidiaries – joint ventures – subsidiaries – subsidiaries – subsidiaries – joint ventures Year ended 31.3.17 £000 28,586 2 28,588 4,913 (7,901) 25,600 (3,156) (1,233) 21,211 Year ended 31.3.16 £000 25,353 3,673 29,026 3,700 (4,940) 27,786 (5,128) (21) 22,637 See-through Property Portfolio Helical’s share of the investment, trading and development property portfolio in subsidiaries and joint ventures are shown in the table below. Investment property fair value Total investment property fair value Trading and development stock Total trading and development stock Trading and development stock surplus Total trading and development stock surpluses Total trading and development stock at fair value See-through property portfolio – subsidiaries – joint ventures – subsidiaries – joint ventures – subsidiaries – joint ventures 31.3.17 £000 1,003,000 13,907 31.3.16 £000 1,041,100 11,552 1,016,907 1,052,652 86,680 89,115 175,795 5,014 7,500 12,514 188,309 1,205,216 92,035 75,904 167,939 12,412 7,000 19,412 187,351 1,240,003 See-through Net Borrowings Helical’s share of borrowings and cash deposits in parent and subsidiaries and joint ventures are shown in the table below. In parent and subsidiaries Total gross borrowings in parent and subsidiaries In joint ventures Total gross borrowings in joint ventures In parent and subsidiaries In joint ventures See-through net borrowings – gross borrowings less than one year – gross borrowings more than one year – gross borrowings less than one year – gross borrowings more than one year – Cash and cash equivalents – Cash and cash equivalents 31.3.17 £000 2,517 671,184 673,701 – 55,282 55,282 (99,262) (9,745) 619,976 31.3.16 £000 885 733,178 734,063 – 34,626 34,626 (74,670) (12,177) 681,842 142 HELICAL PLCAnnual Report and Accounts 2017 APPENDIX 2 SEE-THROUGH ANALYSIS RATIOS Interest cover Net rental income Trading profits/(losses) Development profits (before provisions) Gain/(loss) on sale of investment properties Net operating income Finance costs Interest cover Balance sheet Property portfolio Net borrowings Shareholders’ funds Loan to value Gearing APPENDIX 3 FIVE YEAR REVIEW Income Statements 31.03.17 £000 46,993 – 7,108 1,337 55,438 31.03.16 £000 43,434 – 33,923 43,938 121,295 31.03.15 £000 38,645 2,503 18,028 3,571 62,747 31.03.14 £000 29,839 252 64,472 8,580 103,143 31.03.13 £000 24,459 (1) 7,616 (2,388) 29,686 21,211 22,637 24,799 12,360 10,893 2.6x 5.4x 2.5x 8.3x 2.7x 1,205,216 1,240,003 619,976 516,897 51% 120% 681,842 480,721 55% 142% 1,021,362 531,897 404,363 52% 132% 801,712 365,059 340,527 46% 107% 626,425 283,350 253,768 45% 112% Revenue Net rental income Development profit Provisions against stock Trading profit/(loss) Share of results of joint ventures Other income/(expense) Gross profit before gain/(loss) on investment properties Gain/(loss) on sale of investment properties Revaluation surplus on investment properties Impairment of available-for-sale investments Administrative expenses excluding performance related awards Performance related awards Finance costs Finance income Movement in fair value of derivative financial instruments Convertible Bond adjustment Foreign exchange (losses)/gains Profit before tax Tax Profit after tax 31.3.17 £000 99,934 46,162 7,143 31.3.16 £000 116,500 42,164 30,700 31.3.15 £000 106,341 34,233 16,126 (6,300) (6,448) (452) – – (6,528) 50,469 982 41,459 1,391 39,152 (3,352) (10,800) (7,572) (25,598) 3,156 789 2,973 (3) 41,595 (2,471) 39,124 20 116,905 2,385 47,441 (1,370) (10,716) (15,387) (24,113) 5,128 (6,860) 516 100 114,029 (9,146) 104,883 2,503 27,497 368 80,275 2,480 66,904 (773) (10,156) (16,374) (23,678) 2,480 (8,389) (3,263) (2,061) 87,445 (12,669) 74,776 31.3.14 £000 123,637 24,402 62,273 552 252 16,448 230 104,157 8,611 20,714 (88) (8,816) (17,860) (13,983) 4,135 5,312 – (501) 101,681 (14,126) 87,555 31.3.13 £000 65,439 19,578 7,616 (660) (1) 3,854 (547) 29,840 (2,388) 3,723 – (8,092) (6,828) (9,577) 887 (2,573) – 17 5,009 815 5,824 143 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 APPENDIX 3 CONTINUED Balance Sheets Investment portfolio at fair value Land, developments and trading properties Group’s share of investment properties held by joint ventures Group’s share of land, trading and development properties held by joint ventures 31.3.17 £000 31.3.16 £000 1,003,000 1,041,100 86,680 13,907 89,115 92,035 11,552 75,904 Group’s share of land, trading and development stock surpluses 12,514 19,412 Group’s share of total properties at fair value 1,205,216 1,240,003 Net debt Group’s share of net debt of joint ventures Group’s share of net debt Shareholders’ funds EPRA shareholders’ funds Dividend per ordinary share paid/payable Dividend per ordinary share declared EPRA earnings per ordinary share EPRA net assets per share 574,439 45,537 619,976 516,897 565,973 3.12p 8.60p 0.5p 473p 659,393 22,449 681,842 480,721 540,731 12.60p 8.17p 17.1p 456p 31.3.15 £000 701,521 92,578 88,305 102,715 36,243 1,021,362 477,248 54,649 531,897 404,363 469,128 6.85p 7.25p 2.4p 385p APPENDIX 4 PROPERTY PORTFOLIO London Portfolio Address The Shepherds Building, W14 The Bower (Ph 1), EC1 The Bower (Ph 2), EC1 The Loom, E1 C-Space, EC1 The Powerhouse, W4 Power Road Studios, W4 25 Charterhouse Square, EC1 Barts Square, EC1 Held as Investment Investment Investment Investment Investment Investment Investment Investment Description Multi-let office building. Office and retail buildings Office and retail buildings undergoing refurbishment and extension Multi-let office building Multi-let office building Single let recording studios/office building Multi-let office building with redevelopment potential Office refurbishment scheme completed in March 2017 Investment/ Development 213,000 sq ft offices, 236 residential apartments and 20,400 sq ft retail/leisure development under construction 31.3.14 £000 493,201 98,160 107,504 75,368 27,479 801,712 312,849 52,210 365,059 340,527 370,062 5.70p 6.75p 33.3p 313p Area sq ft (NIA) 150,470 151,439 178,724 110,143 61,973 24,288 58,404 43,493 471,228 One Creechurch Place, EC3 Development New building completed November 2016 277,513 Drury Lane, WC1 Development Planning consent for an alternative office led scheme has been submitted King Street, W6 Development Development site 1,527,675 31.3.13 £000 312,026 92,874 94,962 76,698 49,685 626,425 222,878 60,472 283,350 253,768 313,733 5.25p 5.55p 2.4p 264p Vacancy rate 2% – n/a 18% – – 43% 72% n/a n/a n/a n/a 144 HELICAL PLCAnnual Report and Accounts 2017 APPENDIX 4 CONTINUED Regional Portfolio Address In Town Retail Held as Description The Morgan Quarter, Cardiff Investment Prime retail parade and listed retail arcades Out-of-town Retail Great Yarmouth Sevenoaks, Kent Southend on Sea Logistics Bolton Bristol, Portbury Brownhills, Birmingham Cannock Cannock Cardiff, Heol Billingsley Chester Doncaster, Aspect Way Doncaster, Kirk Sandall Gloucester Quedgeley Halesowen Hinckley Jarrow Leighton Buzzard Newton Aycliffe Northampton, Crow Lane Peterborough Stone, Bibby Stone, Opal Way Sunderland, Doxford Telford Thetford Warrington, Raglan Court Wellingborough Yate Investment Investment Investment Single-let retail park Retail park Retail park Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Investment Single-let cash and carry Single-let industrial centre Single-let distribution centre Single-let distribution centre Single-let distribution centre Single-let distribution centre Single-let distribution centre Single-let distribution centre Single-let distribution centre Multi-let industrial estate Single-let industrial centre Single-let distribution centre Single-let industrial centre Multi-let industrial estate Multi-let industrial estate Multi-let distribution centre Single-let industrial centre Single-let industrial centre Single-let industrial centre Single-let industrial centre Single-let distribution centre Single-let distribution centre Single-let distribution centre Single-let industrial centre Single-let distribution centre Area sq ft (NIA) 289,537 289,537 38,771 42,490 74,954 156,215 73,433 64,003 52,538 153,536 103,050 50,684 182,824 122,591 153,547 43,723 72,120 189,349 101,476 202,674 20,657 146,716 160,791 122,301 130,537 139,130 65,225 127,574 81,342 67,570 255,714 2,883,105 Vacancy rate 6.6% – – – – – – – – – – 100% – – – – – – 7% – – – – – – – – – – 145 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 APPENDIX 4 CONTINUED Address Regional Offices Crawley The Hub, Glasgow Manchester, 31 Booth St Manchester, Churchgate & Lee House Manchester, Dale House Reading Land Telford, Dawley Road Crawley, Tilgate Retail Development Cortonwood Retail Park Four Pools, Evesham Ibstock site, Kingswinford Barking Road, East Ham Treyew Road, Truro Address Retirement Villages Millbrook Village, Exeter Durrants Village, Faygate Maudslay Park, Great Alne Bramshott Place, Liphook Bramshott Place Clubhouse Durrants Village Clubhouse Millbrook Village Clubhouse APPENDIX 5 Held as Description Investment Investment Investment Investment Investment Single-let office building Multi-let office building Fully refurbished multi-let office building which achieved practical completion in March 2017 Multi-let city centre office Multi-let city centre office building with refurbishment and asset management potential Investment Office building Development Residential land Development Commercial development site Development Pre-let retail park Development Retail park Development Retail park Development Retail/leisure Development Retail park Held as Description Development Retirement village development Development Retirement village development Development Retirement village development Development Retirement village development Investment Investment Investment Clubhouse at retirement village Clubhouse at retirement village Clubhouse at retirement village Area sq ft (NIA) Vacancy rate 48,131 57,388 25,441 249,233 53,635 35,847 469,675 n/a n/a 79,750 41,000 80,000 43,000 78,000 321,750 – 2% 100% 2% 53% – n/a n/a – 15% n/a – n/a Units Vacancy rate 164 173 166 191 n/a n/a n/a 694 n/a n/a n/a n/a n/a n/a n/a EPRA PERFORMANCE MEASURES The European Public Real Estate Association Best Practice Recommendations sets out a number of EPRA Performance Measures (“EPMs”) to aid comparability in reporting across property companies. The principal EPMs applicable to the Group are set out below: EPRA performance measure EPRA Earnings EPRA NAV EPRA NNNAV ERPA NIY EPRA Topped Up NIY EPRA Vacancy Rate Definition Earnings from operational activities. Net Asset Value adjusted to include properties and other investment interests at fair value and to exclude certain items not expected to crystallise in a long-term investment property business model. EPRA NAV adjusted to include the fair values of financial instruments, debt and deferred taxes. Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased with (estimated) purchasers’ costs. This measure incorporates an adjustment to the EPRA NIY in respect of the expiration of rent-free periods (or other unexpired lease incentives such as discounted rent periods and step rents). Estimated Market Rental Value (ERV) of vacant space divided by ERV of the whole portfolio. Note 13 32 31.3.17 0.5p 473p 31.3.16 17.1p 456p 32 442p 424p 3.70% 2.95% 5.20% 3.97% 27.26% 26.05% 146 HELICAL PLCAnnual Report and Accounts 2017 APPENDIX 5 CONTINUED The note references provide the calculation of the associated measure. Other measures are calculated as follows: – subsidiaries – joint ventures – subsidiaries – joint ventures EPRA Net Initial Yield and EPRA Topped Up Net Initial Yield Investment property at fair value Investment property at fair value Less: Property under construction Property under construction Undeveloped land Properties not held for rental income Completed property portfolio Allowance for estimated purchaser’s costs Gross up completed property portfolio Passing rent net of head rents EPRA NIY Add: Contracted rent Topped up annualised net rents EPRA Topped up NIY EPRA Vacancy Rate ERV of vacant space ERV of total portfolio EPRA Vacancy rate 31.3.17 1,003,000 13,907 (111,750) (13,907) (100) (19,900) 871,250 6.8% 59,245 930,495 34,386 3.70% 13,981 48,367 5.20% 31.3.17 19,508 71,563 27.26% Below is a table setting out in greater detail the types of capital expenditure made by the Group during the year. Acquisitions Existing portfolio Capitalised interest Additions and transfers at cost Tenant incentives Total capex Note Year ended 31.3.17 14 – 64,376 4,402 68,778 9,373 78,151 There were no new investment property purchases during the year. The majority of the expenditure on the existing portfolio was made on the London portfolio (80%) and the Manchester offices (7%). Similarly, 94% of the capitalised interest is in London and 6% is in Manchester offices. Capitalised interest is calculated in accordance with IAS 23 Borrowing Costs. Tenant lease incentives are calculated in accordance with IAS 17 Leases. The debtor balances recognised by the Group have increased by £9.4m due to developments being completed and let during the year. The majority of the increase relates to The Bower, London EC1 (c. £6m) and C-Space, London EC1 (c. 2.7m). 147 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 SHAREHOLDER INFORMATION WEBSITE The report and financial statements, a list of properties held by the Group, Company presentations, press releases, the financial calendar and other information on the Group are available on our website at www.helical.co.uk REGISTRAR All general enquiries concerning holdings of ordinary shares in Helical plc should be addressed to the Company’s Registrar: Capita Asset Services The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU Telephone: 0871 664 0300* Fax: 020 8639 2220 From outside the UK +44 371 664 0300 Website: www.capitaassetservices.com Email: shareholderenquiries@capita.co.uk * Calls cost 12p per minute plus your phone company’s access charge. Calls outside the United Kingdom will be charged at the applicable international rate. We are open between 9.00am and 5:30pm, Monday to Friday excluding public holidays in England and Wales. E-COMMUNICATION Shareholders and all interested parties may choose to be alerted about press releases, regulatory news updates and financial calendar updates by subscribing to the alert service in the “Regulatory News” area of our website. Shareholders may inform us how they wish to receive statutory communications from the Company, including annual reports and notices of general meetings, via the Shareholder portal. Further to a letter of deemed consent sent to Shareholders on 5 April 2017, shareholders are notified by post by default when notices, documents and information from the Company are available on the website at www.helical.co.uk. If you wish to be notified by email each time the Company places a statutory document on its website or if you would like to receive printed copies of statutory documents in the post, please go to www.signalshares.com. Once you have registered, click on the “Manage your Account” link and follow the on-screen instructions. PAYMENT OF DIVIDENDS UK Shareholders whose dividends are not currently paid to mandated accounts may wish to consider having their dividends paid directly into their bank or building society account. This has a number of advantages, including the crediting of cleared funds into the nominated account on the dividend payment date. Shareholders, who would like their future dividends to be paid in this way should complete a mandate instruction available from the Registrar or register their mandate at: www.signalshares.com. Under this arrangement dividend confirmations are sent to the Shareholder’s registered address. DIVIDENDS FOR SHAREHOLDERS RESIDENT OUTSIDE THE UK Instead of waiting for a sterling cheque to arrive by mail, you can ask us to send your dividends direct to your bank account. For information, please contact the Company’s Registrar. DIVIDEND REINVESTMENT PLAN (DRIP) The Company offers shareholders the option to participate in a DRIP. This enables shareholders to reinvest their cash dividends in Helical plc shares. For further details, contact the Company’s Registrar or complete an application form online at: www.signalshares.com SHARE DEALING SERVICE An online and telephone share dealing service is available to our shareholders through Capita Deal. For further information on this service or to buy and sell shares online, please visit www.capitadeal.com For telephone dealing, please call 0371 664 0445* * Calls cost 12p per minute plus your phone company’s access charge. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 8.00am - 4.30pm Monday to Friday excluding public holidays in England and Wales. SHAREGIFT Shareholders with a small number of shares, the value of which makes it uneconomic to sell them, may wish to consider donating them to a charity, ShareGift, (registered charity 1052686), which specialises in using such holdings for charitable benefit. Further information about ShareGift is available at www.sharegift.org or by writing to: ShareGift, PO Box 72253, London, SW1P 9LQ. Email: help@sharegift.org Telephone: 020 7930 3737 DIVIDENDS Dividends declared and/or paid during the year to 31 March 2017 were as follows: Dividend 2015-16 2nd Interim Record date 2016 11 March Payment date 2016 4 April 2015-16 Final 1 July 29 July 2016-17 Interim 2 December 30 December Amount 5.15p 0.72p 2.40p Dividend payment dates in 2017 will be as follows: Dividend 2016-17 Final 2017-18 Interim Record date 2017 23 June December Payment date 2017 21 July December Amount 6.20p TBC UNSOLICITED INVESTMENT ADVICE - WARNING TO SHAREHOLDERS Many companies have become aware that their Shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from overseas-based “brokers” who target UK shareholders offering to sell them what often turn out to be worthless or high risk shares in US or UK investments. They can be very persistent and extremely persuasive. It is not just the novice investor who has been duped in this way; many of the victims had been successfully investing for several years. Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free reports into the Company. If you receive any unsolicited investment advice: • Make sure you get the correct name of the person and organisation; • Check that they are properly authorised by the FCA (Financial Conduct Authority) before getting involved. You can check at www.fca.org.uk/consumers; and For participants in the DRIP, key dates of forthcoming dividends can be found in Financial Calendar page in the “Investors” section of the website at www.helical.co.uk • Report the matter to the FCA either by calling: 0800 111 6768 or by completing an online form at: www.fca.org.uk/consumers/report-scam-unauthorised-firm SHARE PRICE INFORMATION The latest information on the Helical plc share price is available on our website www.helical.co.uk REGISTERED OFFICE 5 Hanover Square, London, W1S 1HQ Registered in England and Wales No. 156663 148 HELICAL PLCAnnual Report and Accounts 2017 GLOSSARY OF TERMS Average unexpired lease term The average unexpired lease term expressed in years. Capital value (psf) The open market value of the property divided by the area of the property in square feet. Company or Helical or Group Helical plc and its subsidiary undertakings. EPRA earnings per share Earnings per share adjusted to exclude losses/gains on sale and revaluation of investment properties and their deferred tax adjustments, the tax on loss/profit on disposal of investment properties, trading property losses/profits, impairment of available-for-sale investments and fair value movements on derivative financial instruments, on an undiluted basis. Details of the method of the calculation of the EPRA earnings per share are available from EPRA (see note 13). EPRA net assets per share Diluted net asset value per share adjusted to exclude fair value of financial instruments and the convertible bond and deferred tax on capital allowances and on investment properties revaluation, but including the fair value of trading and development properties in accordance with the best practice recommendations of EPRA (see note 32). EPRA Topped-up NIY The current annualised rent, net of costs, topped-up for contracted uplifts, expressed as a percentage of the fair value of the relevant property (see Appendix 5). EPRA triple net asset value per share EPRA net asset value per share adjusted to include fair value of financial instruments and deferred tax on capital allowances and on investment properties revaluation (see note 32). Diluted figures Reported amounts adjusted to include the effects of potential shares issuable under the Director and employee remuneration schemes. Earnings per share (EPS) Profit after tax divided by the weighted average number of ordinary shares in issue. EPRA European Public Real Estate Association. Equivalent yield The constant capitalisation rate which, if applied to all cash flows from an investment property, including current rent, reversions to current market rent and such items as voids and expenditures, equates to the market value. Assumes rent is received in arrears. Estimated rental value (ERV) The market rental value of lettable space as estimated by the Group’s valuers at each balance sheet date. Gearing The normal value of Group borrowings expressed as a percentage of net assets Initial yield Annualised net rents on investment properties as a percentage of the investment property valuation. IPD The Investment Property Databank Limited (IPD) is a company that produces a number of independent benchmarks of unleveraged commercial property returns. Net assets value per share (NAV) Equity Shareholders’ Funds divided by the number of ordinary shares at the balance sheet date. Net gearing Total borrowings less short-term deposits and cash as a percentage of equity shareholders’ funds. Passing rent The annual gross rental income being paid by the tenant. Reversionary yield The income/yield from the full estimated rental value of the property on the market value of the property grossed up to include purchaser’s costs, capital expenditure and capitalised revenue expenditure. See-through The consolidated Group and the Group’s share in its joint ventures (see Appendix 1). See-through gearing The see-through net borrowings as expressed as a percentage of equity Shareholders’ Funds (see Appendix 2). Total accounting return The growth in the net asset value if the Company plus dividends paid in the year, expressed as a percentage of net asset value. Total property return The total of net rental income, trading and development profits and net gain on sale and revaluation of investment properties on a see-through basis. Total shareholder return (TSR) The growth in the ordinary share price as quoted on the London Stock Exchange plus dividends per share received for the period expressed as a percentage of the share price at the beginning of the year. True equivalent yield The constant capitalisation rate which, if applied to all cash flows from an investment property, including current rent, reversions to current market rent and such items as voids and expenditures, equates to the market value. Assumes rent is received quarterly in advance. Unleveraged returns Total property gains and losses (both realised and unrealised) plus net rental income expressed as a percentage of the total value of the properties. WAULT The total contracted rent up to the lease expiry date dividend by the contracted annual rent. 149 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 FINANCIAL CALENDAR AND ADVISORS CALENDAR 2017-2018 2017 22 June 2017 23 June 2017 13 July 2017 21 July 2017 November 20171 December 20172 December 20172 2018 May 2018 Ex-dividend date for final ordinary dividend Record date for final ordinary dividend Annual General Meeting Final ordinary dividend payable Half Year Results and interim ordinary dividend announced Ex-dividend date for interim ordinary dividend Registration qualifying date for interim ordinary dividend Announcement of Full Year Results to 31 March 2018 Notes 1 2 Dates for the potential interim dividend will be confirmed in the Half Year Results Announcement. The announcement date of the Half Year Results will be confirmed in October 2017. – Capita Asset Services – Aviva Commercial Finance Limited – Barclays Bank PLC – Deutsche Pfandbriefbank AG – HSBC Bank PLC – Lloyds Bank PLC – Santander UK PLC – The Royal Bank of Scotland PLC – J.P. Morgan Cazenove – Numis Securities Limited – Grant Thornton UK LLP – Lazard & Co Limited – Ashurst LLP – Mishcon de Reya LLP ADVISORS Registrars Bankers Joint stockbrokers Auditors Merchant bankers Corporate solicitors CONTACT DETAILS Helical plc Registered in England and Wales No.156663 Registered Office 5 Hanover Square London W1S 1HQ T: 020 7629 0113 F: 020 7408 1666 E: reception@helical.co.uk www.helical.co.uk 150 HELICAL PLCAnnual Report and Accounts 2017 NOTES 151 GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTHELICAL PLCAnnual Report and Accounts 2017 NOTES 152 HELICAL PLCAnnual Report and Accounts 2017 Printed by Park Communication on FSC® certified paper. Park is an EMAS certified company and its Environmental Management System is certified to ISO 14001. 100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and, on average, 99% of any waste associated with this production will be recycled. This document is printed on Novatech Matt; which contains 100% virgin fibre sourced from well-managed, responsible, FSC® certified forests. The pulp is bleached using both elemental chlorine free (ECF) and totally chlorine free (TCF) processes. Designed and produced by SampsonMay Telephone: 020 7403 4099 www.sampsonmay.com Registered in England and Wales No.156663 Registered Office 5 Hanover Square London W1S 1HQ T: 020 7629 0113 F: 020 7408 1666 E: reception@helical.co.uk www.helical.co.uk Helical plc @helicalplc