Helical Annual Report 2019

Plain-text annual report

HELICAL PLC Annual Report and Accounts 2019 01 STRATEGIC REPORT The Helical Difference Creating Inspiring Spaces Chief Executive’s Statement Our Market Our Strategy Strategy in Action Business Model Key Performance Indicators The London Portfolio The Manchester Portfolio The Property Portfolio in Numbers Financial Review Principal Risks Review Sustainability at Helical 66 GOVERNANCE Chairman’s Review Board of Directors Governance Review Nominations Committee Report Audit and Risk Committee Report Directors’ Remuneration Report Report of the Directors Statement of Directors’ Responsibilities 101 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 141 ADDITIONAL INFORMATION Appendix 1 – See-through Analysis Appendix 2 – Total Accounting Return and Total Property Return Appendix 3 – Five Year Review Appendix 4 – Property Portfolio Appendix 5 – EPRA Performance Measures Shareholder Information Glossary of Terms Financial Calendar and Advisors 1 2 8 12 14 18 26 28 30 38 42 46 52 58 66 68 70 76 78 81 98 100 101 108 108 109 110 111 112 141 143 144 145 146 147 148 149 FINANCIAL HIGHLIGHTS A STRONG YEAR OF PROGRESS The results for the year to 31 March 2019 reflect significant progress for Helical, now an office-led investment and development company focused purely on London and Manchester. NET ASSETS (£M) 567 +6.3% EPRA NET ASSET VALUE PER SHARE1 (P) 482 +3.0% 2018 £534m 2018 468p PROFIT BEFORE TAX (£M) TOTAL DIVIDEND PER SHARE (P) 43.5 +41.2% 10.10 +6.3% 2018 £30.8m 2018 9.50p 1 See Glossary for definition of terms. PORTFOLIO OVERVIEW Helical divides its property activities into two core markets: London and Manchester offices. LONDON MANCHESTER 86% 14% TOTAL PORTFOLIO BY FAIR VALUE1 £876m IFRS EARNINGS PER SHARE 35.8p TOTAL PROPERTY RETURN1 £81.4m 2018 22.3p 2018 £68.8m SEE-THROUGH LOAN TO VALUE1 EPRA TRIPLE NET ASSET VALUE PER SHARE1 30.6% 465p 2018 39.9% 2018 448p TOTAL SHAREHOLDER RETURN EPRA LOSS PER SHARE1 5.2% 8.4p 2018 6.1% 2018 7.0p 1 See Glossary for definition of terms. I S T R A T E G C R E P O R T G O V E R N A N C E I I F N A N C A L S T A T E M E N T S I A D D T O N A L I Our portfolio is a select showcase for London and Manchester. We create buildings for today’s occupiers who demand more inspiring space with distinctive architectural detail, carefully curated public realm, market leading amenities, high quality management and our flexible approach to leasing. Applying this philosophy we seek to maximise Shareholder returns through delivering income growth from creative asset management and capital gains from our development activity. I N F O R M A T O N I HELICAL PLC Annual Report and Accounts 2019 1 CREATING INSPIRING SPACES Helical understands that attracting and retaining the best people is at the heart of our customers’ priorities when choosing their offices. Our buildings are designed to the highest connectivity and sustainability standards, to provide space for creativity and collaboration. This helps our customers in winning the “war for talent”. 2 Photograph Philip Vile HELICAL PLCAnnual Report and Accounts 2019CONNECTIVITY We have achieved either a Gold or Platinum WiredScore on all our completed offices. This benchmark ensures the high quality of the buildings’ digital infrastructure. SUSTAINABILITY We always aim to achieve either an Excellent or Very Good BREEAM score on our developments and refurbishments, demonstrating the environmental, social and economic sustainability performance of our buildings. 33 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCREATING INSPIRING SPACES We endeavour to either improve or introduce new public realm at all of our developments. Whether that is by creating the internal walk through at The Loom, pedestrianising new squares at Barts Square, or adding new landscaped pocket parks at One Creechurch Place. These initiatives improve the locality for not only our tenants but the wider public. THERE IS ALWAYS SOMETHING IN YOUR LINE OF SIGHT THAT IS QUITE CREATIVE AND INSPIRING." FREYA DAVIDSON, SPAREROOM, CHURCHGATE & LEE, MANCHESTER THE BOWER, LONDON EC1 • A new pedestrianised street, featuring nine restaurant units • The Hub communal square, which is open to the public • On-site café Franze & Evans provides a relaxed atmosphere to network • 400 cycle spaces, as well as showers and lockers • Artwork by both local and international artists 4 HELICAL PLCAnnual Report and Accounts 2019At Helical we take a design led approach to both refurbishments and new developments; this is tailored to each building to ensure that it not only integrates with but adds to the local environment. By working closely with leading architects and consultants we provide high quality, innovative and sustainable spaces that meet occupiers’ needs. HELICAL PLC Annual Report and Accounts 2019 55 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCREATING INSPIRING SPACES Helical applies a flexible approach to leasing as we understand the need to accommodate our tenants’ changing business requirements; several occupiers have moved within the portfolio over the last year as their businesses have grown. 66 HELICAL PLC Annual Report and Accounts 2019 HELICAL PLCAnnual Report and Accounts 2019One of the key elements of feedback from our occupier survey was that tenants felt they would benefit from more networking opportunities on-site. As such we have implemented various tenant engagement initiatives including educational talks, charity events, fitness classes and post work drink receptions. We take an active role in the management of all our buildings, meeting regularly with individual tenants. Equally, we understand the importance of measuring our performance and, as such, we have carried out a comprehensive occupier survey across our portfolio. The results were extremely positive and the constructive feedback we received has allowed us to improve the service we offer our tenants. MY HOPE FOR THE FUTURE IS THAT WE CONTINUE TO GROW AND FLOURISH. IT WON’T BE LONG UNTIL WE TAKE ADDITIONAL SPACE HERE.'' JESSICA MAY, ARTSY, THE LOOM, LONDON E1 HELICAL PLC Annual Report and Accounts 2019 77 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCHIEF EXECUTIVE’S STATEMENT I am pleased to present the Company’s 2019 Annual Results. A YEAR OF PROGRESS The results for the year to 31 March 2019 reflect significant progress for Helical, now an office-led investment and development company focused purely on London and Manchester. We have completed three of our four on-site office development schemes, have let 304,073 sq ft at rents 4.3% above ERVs and have sold £167m of investment assets at a 12.0% premium to book value. We now have a collection of newly redeveloped or refurbished assets of premium quality which are attractive to occupiers and situated in desirable locations. We were delighted to announce the acquisition, in a 50:50 joint venture, of a major site for c.192,000 sq ft of offices in Farringdon, London EC1. This scheme supplements our existing assets located in the Tech Belt in EC1 and E1. The London investment portfolio, following the completion of recent office developments and the sale of The Shepherds Building, was 83.8% let (31 March 2018: 91.7%), with contracted rent of £27.5m (2018: £28.4m), and with good interest in the remaining available space. In March we launched our redeveloped office building in Manchester, Trinity, to the market and contracted rents on the Manchester portfolio have grown from £4.7m (87.2% let) to £5.7m (80.2% let). Our schemes at The Tower, London EC1 and One Bartholomew, London EC1 have both received BREEAM “Excellent” ratings from this world-leading sustainability assessment methodology, along with our other schemes at The Warehouse and The Studio, London EC1, 25 Charterhouse Square, London EC1 and One Creechurch Place, London EC3. RESULTS FOR THE YEAR Profit before tax for the year to 31 March 2019 increased by 41.2% from £30.8m to £43.5m. Total Property Return increased to £81.4m (2018: £68.8m) and included net rents of £25.2m (2018: £36.1m), offset by development losses, largely a result of the impact of the collapse of Carillion plc at Barts Square, London EC1, of £4.4m (2018: £8.0m). The gain on sale and revaluation of the investment portfolio contributed £60.6m (2018: £40.7m). OUR PREMIUM QUALITY ASSETS ARE ATTRACTIVE TO OCCUPIERS AND SITUATED IN 8 HELICAL PLCAnnual Report and Accounts 2019NEW LETTINGS ERV OF PORTFOLIO 304,073 sq ft £51.5m TOTAL PROPERTY RETURN TOTAL DIVIDEND FOR YEAR £81.4m 10.10p +6.3% GERALD KAYE CHIEF EXECUTIVE Net finance costs of £18.4m were substantially lower than in 2018 (£35.2m) as a result of the reduction in borrowings achieved in the last two years. However, the Income Statement was adversely affected by the reduction in medium and long-term interest rates over the year which led to a £3.3m charge (2018: credit of £4.0m) arising from the valuation of the Company’s derivative financial instruments. The valuation of the Company’s Convertible Bond provided a credit of £0.9m (2018: charge of £1.6m). Recurring administration costs were marginally lower at £10.9m (2018: £11.0m) whilst performance related awards increased to £5.2m (2018: £1.7m), with National Insurance on these awards of £0.7m (2018: £0.1m). HELICAL PLC Annual Report and Accounts 2019 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCHIEF EXECUTIVE’S STATEMENT CONTINUED The Board is confident of the letting prospects of the remaining vacant space in the investment portfolio and, with net rental income increasing over the next few years, the Board expects the Group’s EPRA earnings to improve significantly in the near future. This expectation has led the Board to recommend to Shareholders an increase in the final dividend of 7.1% to 7.50p (2018: 7.00p) which, together with the interim dividend of 2.60p paid in December 2018, takes the total dividend for the year to 10.10p (2018: 9.50p), an overall increase of 6.3%. 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. IFRS basic earnings per share increased to 35.8p (2018: 22.3p) with EPRA loss per share of 8.4p (2018: 7.0p), reflecting a reduction in net rental income as the direct result of the sales of income producing investment properties in the last 18 months. On a like-for-like basis, the investment portfolio increased in value by 6.8% (7.4% including purchases and gains on sales). However, with the sales in the year of £167m, 12% above book value, the see-through portfolio value adjusted to £876m (31 March 2018: £910m). The unleveraged return of our property portfolio, as measured by MSCI, was 10.1% (2018: 11.1%). We now compare our portfolio performance to two MSCI benchmarks. The March MSCI Annual All Properties Index produced a return of 3.6% (2018: 9.3%) with an upper quartile return of 7.0% (2018: 12.0%). The MSCI Central London Offices Total Return Index produced a return of 4.8% (2018: 7.5%) with an upper quartile return of 6.2% (2018: 9.0%). 10 HELICAL PLCAnnual Report and Accounts 2019WE HAVE A TREMENDOUS TRACK RECORD IN LONDON, BUILT UP OVER THE LAST 25 YEARS, AND WE BELIEVE THIS EXPERIENCE AND OUR LONGSTANDING SECTOR RELATIONSHIPS WILL ENABLE US TO ADD NEW OPPORTUNITIES TO OUR PIPELINE.'' Total Accounting Return, being the growth in the net asset value of the Company plus dividends paid in the year, was 8.4% (2018: 5.3%). EPRA net asset value per share was up 3.0% to 482p (31 March 2018: 468p), with EPRA triple net asset value per share up 3.8% to 465p (31 March 2018: 448p). FINANCE The Company uses gearing on a tactical basis throughout the property cycle, being raised to accentuate performance when property returns are judged to materially outperform the cost of debt and lowered when seeking to reduce exposure to the property market. During the year to 31 March 2019, the Group generated gross proceeds of £167m from the sale of investment properties and £45m from the sale of development stock. These proceeds, net of investment in the portfolio of £124m, were used to reduce net borrowings by £94m, significantly reducing future finance costs. The see-through loan to value ratio (“LTV”) reduced to 30.6% at the year end (31 March 2018: 39.9%) and our see-though net gearing, the ratio of net borrowings to the net asset value of the Group, has fallen to 47.3% (31 March 2018: 68.0%) over the same period. During the year, the average debt maturity on secured loans, on a see- through basis, was 3.4 years (31 March 2018: 3.5 years), increasing to 4.2 years on exercise of options to extend the Group’s £150m RCF. No secured loan is repayable before July 2021. The average cost of debt at 31 March 2019 was 4.0% (31 March 2018: 4.3%). The Group’s remaining unsecured debt instrument, the £100m Convertible Bond, will be repaid in June 2019, reducing the Group’s annual interest payments by £4.0m. The Group has a significant level of liquidity with see-through cash and unutilised bank facilities of £382m (31 March 2018: £277m) to fund the repayment of the Convertible Bond, capital works on its portfolio and future acquisitions. BOARD MATTERS At this year’s Annual General Meeting (“AGM”) our Chairman and former Chief Executive, Mike Slade OBE, will step down from the Board after 35 years’ service. Mike has been an inspiration to everyone at Helical and to many in the property industry during this time and, on behalf of the rest of the Board, I thank him for his considerable contribution to the success of Helical and wish him well for his retirement. He recently received an OBE for services to charity, for his work with LandAid, the sector’s main charity, an award thoroughly deserved. At the AGM, Michael O’Donnell will also step down after eight years serving as a Non-Executive Director. On behalf of the Board, I would like to thank him for his service to the Company. In September 2018, we welcomed Joe Lister, CFO at Unite Group, as a Non-Executive Director. Joe will assume the role of Chairman of the Audit and Risk Committee (“Committee”) on appointment to the Board at the close of the forthcoming AGM. Joe will replace Richard Grant as Chairman of the Committee, with Richard replacing Mike Slade as Chairman of the Board. THE FUTURE Helical is primarily a capital growth stock, albeit one with an increasingly important income stream as our redeveloped and refurbished investment assets become let. We have a tremendous track record in London, built up over the last 25 years, and we believe this experience and our longstanding sector relationships will enable us to add new opportunities to our pipeline. Our increased financial capacity, following the transformation of the portfolio over the last two years, allied to our current operational capacity, enables us to look forward with confidence in our ability to deliver capital profits and increased earnings. GERALD KAYE Chief Executive 23 May 2019 11 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONOUR MARKET CAPTURING THE MARKET TRENDS AND OPPORTUNITIES LONDON In our judgement, the London commercial property market continues to provide the best source of capital profits and we expect this to remain the case for the foreseeable future, notwithstanding the current political chaos over Brexit. In order for Helical to generate capital profits, the Group 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. Equally important, we need to provide inspiring working environments suited to the needs of our customers, the tenants. Using the skills, knowledge and expertise gained over many years, the Helical team aims to deliver attractive and exciting office space in our identified locations. In a low growth environment, stock selection needs to reflect the granular characteristics that will attract our target market of occupiers. Helical’s core business is developing and owning dynamic, well located office space in London and Manchester. With intelligent stock selection, we aim to maximise returns by development and refurbishment as well as through significant asset management initiatives. MATTHEW BONNING-SNOOK PROPERTY DIRECTOR 12 HELICAL PLCAnnual Report and Accounts 2019Helical has based its investment decisions in London on four continuing major developments in the office market. First, the growth of the London population; second, the continuing and rapid expansion of the creative industries (predominantly in technology and media); third, the migration of occupiers across Central London to the City and East London; and fourth, a fast-growing market in flexible leasing. London’s population is forecast to grow to 9.5m by 2026, a 9% increase since mid-2016. This will present challenges, particularly in terms of infrastructure, but will also provide opportunities, particularly in the demand for new and refurbished offices. Whilst the Elizabeth Line has again been delayed, its eventual opening will be a boost to travelling in London. The UK is a global leader in the creative industries, an area we have targeted with our portfolio. Companies involved in media, advertising and marketing, technology and other creative industries comprised 57% of our new lettings in the year (31 March 2018: 59%). The third factor influencing our choice of location for our portfolio is the migration of occupiers from West to East 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 are common themes in discussing requirements with tenants. Most obviously, those hubs are in the Tech Belt from King’s Cross to Whitechapel. Finally, the growth of flexible leasing is having a continuing effect on the commercial office letting market in London and has spread to regional cities. At Helical we seek early and continued engagement with customers and look to develop long-standing relationships with them. By offering flexible leases on our multi-let assets, which allow them to occupy space commensurate with their requirements, we target long-term retention of our customers. In London, Helical has been building up a portfolio of multi-tenanted office buildings in the Tech Belt locations of Farringdon, the Old Street roundabout and Whitechapel. We also own two assets in Chiswick, West London. By owning these “clusters” or “villages” of office buildings, the Company now has a portfolio of assets with multiple lease events leading to ongoing asset management opportunities with the potential to lock in future rental growth. The Company is also seeking to expand its portfolio by taking on additional schemes in Central London either on its own balance sheet, or in the case of larger projects, by co-investment or by forward selling/funding them, to create the opportunity for significant profit shares but with reduced balance sheet exposure. MANCHESTER We continue to believe that Manchester presents an attractive opportunity for us outside of London. The Manchester office market continues to outperform all other regional markets and demonstrates rich and diverse opportunities. 2018 saw a record year of take up with 1.75m sq ft of lettings across 314 transactions. Manchester has also seen the greatest volume of inward investment deals compared to the five other major UK regional cities and the office market demonstrates resilience and growth despite the background of political uncertainty. Manchester benefits from the highest graduate retention rate outside of London and population growth within the city centre continues. Research indicates the city will have 10,000 more office workers by 2021 than it did in 2018, whilst continued strong economic and employment growth forecasts reaffirm our belief that outside of London, Manchester is the best regional city in which to invest. In Manchester we now have four assets, following the disposal of 31 Booth Street in December 2018. Our buildings, located across the city centre, have proven to be attractive to occupiers. Each building is specific in its offering, location, size and rental tone, with the opportunity for Helical to apply the skills, knowledge and property expertise gained over many years in London. The Manchester portfolio, of multi-tenanted office buildings, provides Helical with a resilient income stream outside of London. LOOKING FORWARD Our ambition is to have a balanced portfolio that generates sufficient net rental income to first, exceed all of our recurring costs and secondly, provide a surplus significantly greater than our annual dividend to Shareholders. We have an ERV on the portfolio of £51.5m and expect to generate this surplus once all of our current development and asset management activities are complete. We are also seeking a pipeline of opportunities to grow the balance sheet through the creation of development profits and capital surpluses. HELICAL PLC Annual Report and Accounts 2019 13 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONOUR STRATEGY THE CORNERSTONES OF OUR STRATEGY How we create value for our stakeholders. 14 HELICAL PLCAnnual Report and Accounts 2019Maximise Shareholder return by increasing the net asset value of the Group through capital gains and growing our rental income stream to cover dividends. We create buildings for today’s occupiers who demand more inspiring space with distinctive architectural detail, carefully curated public realm, market leading amenities, high quality management and our flexible approach to leasing. Applying this philosophy we seek to maximise Shareholder returns through delivering income growth from creative asset management and capital gains from our development activity. Manage a balanced portfolio with a clear market focus, combining assets with significant development and asset management potential with a strong rental income stream. 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. Attract and retain the best people encouraging their development and progression to ensure future succession is secured. Maintain our excellent reputation and network of property sector contacts, trusted partners and advisors. 15 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONOUR STRATEGY GROWTH Strategic priorities Deliver long-term sustainable growth. Maximise Shareholder return by increasing the net asset value of the Group through capital gains and growing our rental income stream to cover dividends. Clear focus on Total Shareholder Return, delivering capital growth and income. Purpose and values embedded effectively in the operational policies and practices of the Group. PROPERTY Manage a balanced portfolio with a clear market focus, combining assets with significant development and asset management potential with a strong rental income stream. Incentivise management to outperform the Group’s competitors by setting challenging levels of performance targets, against which rewards are measured. Strategic priorities A focus on London and Manchester, delivering income growth from asset management and capital gains from development activity. 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 and safety. Improve the communities in which we are active and ensure sustainability underpins our approach. FINANCING 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. Strategic priorities Maintain an appropriate risk-adjusted LTV. Use of “equity lite” structures to maximise returns. Strong banking relationships for quick access to finance at competitive pricing. Build cash reserves to cope with market fluctuations and take advantage of opportunities as they arise. 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 property sector contacts, trusted partners and advisors. Strategic priorities Small and empowered core team supported by valued advisors to allow scalability. Clear plan for succession. Strong relationships and a reputation which generates off-market opportunities. A trusted team of external consultants to enable us to deliver quickly and to a very high standard. Work with joint venture partners to increase project scale and to manage risk. 16 HELICAL PLCAnnual Report and Accounts 2019Key Performance Indicators Other Performance Measures TOTAL SHAREHOLDER RETURN (1 YEAR) TOTAL ACCOUNTING RETURN EPRA NAV 5.2% 8.4% 482p EPRA LOSS PER SHARE 8.4p Principal Associated Risks • Poor management of stakeholder relations • Political risk • The Group’s strategy is inconsistent with the market • Non-compliance with prevailing legislation Key Performance Indicators Other Performance Measures PORTFOLIO RETURN – MSCI (1 YEAR) PORTFOLIO RETURN – MSCI (3 YEAR) 10.1% 10.2% Other Performance Measures SEE-THROUGH LOAN TO VALUE SEE-THROUGH NET GEARING AVERAGE COST OF DEBT 30.6% 47.3% 4.0% ERV CONTRACTED VACANCY RATE £51.5m RENTAL INCOME £33.2m 17.7% 7.3yrs £81.4m TOTAL PROPERTY RETURN WAULT AVERAGE MATURITY – SECURED DEBT 3.4 yrs BANK FACILITIES £382m CASH AND UNDRAWN Principal Associated Risks • Property values decline/reduced tenant demand for space • Inability to asset manage, develop and let property assets • Health and safety risk • The Group carries out significant development projects Principal Associated Risks • Availability and cost of bank borrowing and cash resources • Breach of loan covenants Key Performance Indicators Other Performance Measures AVERAGE EMPLOYEE SERVICE AVERAGE STAFF TURNOVER 8.7 yrs 6.3% TRAINING AND DEVELOPMENT 699 hrs Principal Associated Risks • Employment and retention of key personnel • Reliance on key contractors and suppliers • Business disruption and cyber security Key performance indicators — P. 28 Principal risks — P. 52 17 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGY IN ACTION CASE STUDY ERV OF THE TOWER £12.8m ERV OF THE WAREHOUSE AND STUDIO £9.5m THE TOWER WIREDSCORE Platinum THE WAREHOUSE AND THE TOWER BREEAM Excellent 18 HELICAL PLCAnnual Report and Accounts 2019The Bower London EC1 The development of The Bower has seen the transformation of two 1960s office buildings into a landmark destination, which comprises a contemporary mix of retail, restaurants and three large floor plate offices. PURCHASE PRICE £60.8m CAPITAL AND DEVELOPMENT PROFIT TO 31 MARCH 2019 £122.5m Beneath The Tower, with its innovative double height wings, a route has been created, linking Old Street to a vibrant new pedestrian street. The Bower is now the cornerstone of Helical’s portfolio, serving as a benchmark for tenant focused offices and placemaking. The Tower and the Warehouse both achieved a BREEAM rating of “Excellent” and a Platinum and Gold WiredScore rating, respectively. Area sq ft Passing rent £m Contracted rent £m The Warehouse Offices 122,858 Restaurants/retail 5,404 The Studio Offices Restaurants/retail The Tower Offices 18,283 4,894 171,434 Restaurants/retail 10,308 6.8 0.2 0.8 0.2 1.0 – 6.8 0.3 0.8 0.2 8.4 0.5 ERV £m 7.9 0.3 1.1 0.2 12.3 0.5 19 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGY IN ACTION CASE STUDY The Bower continued BACKGROUND This 3.12 acre site was acquired for £60.8m in joint venture with Crosstree Real Estate Partners LLP (Helical share 33%). The site comprised two offices, retail, a hotel and car park. DEVELOPMENT/LETTING PHASE The site was developed in two phases: • Phase 1 comprises The Warehouse, 128,262 sq ft, The Studio, 23,177 sq ft and Empire House, 20,726 sq ft; and • Phase 2 the Tower, 181,742 sq ft. PEOPLE The Warehouse and Studio were fully pre-let to CBS, Farfetch, Pivotal, Allegis and Stripe (The Warehouse) and John Brown Media (The Studio). The retail operators are Bone Daddies, Draft House, Enoteca da Luca, Honest Burger and Franze & Evans. The Tower was 52% pre-let to WeWork and Farfetch. PROPERTY HELICAL BUYOUT In November 2015, Helical bought The Warehouse, The Studio and The Tower from the joint venture company for £248m. Crosstree Real Estate Partners LLP bought the retail parade for £23m. Empire House, let to Z Hotels and Ceviche, was sold to Standard Life Investments Long Lease Fund for £20.65m, a 38% premium to 31 March 2015 book value. FINANCING NOV 2012 Acquired in joint venture with Crosstree Real Estate Partners LLP JAN 2014 Construction of Phase 1 commences HELD IN JOINT VENTURE NOV 2015 Phase 1 achieves practical completion, 100% pre-let Sale of Empire House 100% OWNED NOV 2016 Phase 2 34% pre-let to WeWork DEC 2013 Planning consent obtained to increase the floor space on site by 106,000 sq ft, to refurbish existing areas and significantly upgrade the public realm with the creation of a new pedestrian street SEP 2015 Phase 1 38% pre-let NOV 2015 Helical buyout (see above) Construction of Phase 2 commences 20 HELICAL PLCAnnual Report and Accounts 2019 PORTFOLIO LETTING ACTIVITY NIA (sq ft) of office area The Warehouse and The Studio 141,141 sq ft The Tower 59,035 sq ft 60,576 sq ft 51,823 sq ft Let as at 31 March 2018 Let in the year to 31 March 2019 Vacant as at 31 March 2019 FUTURE POTENTIAL Future growth will be achieved by letting the remaining space in The Tower (51,823 sq ft) and capturing the ERV of The Warehouse and The Studio. Transport for London is planning the peninsularisation of the Old Street roundabout and underground station area, increasing the pedestrianised public realm and complementing what we have created within our development. The innovative design of The Bower has attracted a strong line up of tenants, which we expect to drive resilient rental growth. GROWTH 100% OWNED AUG 2018 Phase 2 achieves practical completion MAR 2019 Phase 2 72% let MAY 2018 Phase 2 A further 18% pre-let to Farfetch LOOKING FORWARD Let the remaining space in Phase 2 Benefit from redevelopment of Old Street roundabout and underground station Capture the ERV on Phase 1 21 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION STRATEGY IN ACTION CASE STUDY The Shepherds Building London W14 AVERAGE PASSING RENT 2001 £25.00 psf AVERAGE PASSING RENT 2019 £43.50 psf 22 HELICAL PLCAnnual Report and Accounts 2019The Shepherds Building is located in the heart of Shepherd’s Bush and White City in West London, close to Westfield Shopping Centre, Notting Hill, Earls Court and Olympia Exhibition Centres and has excellent transport links with both London Overground and four Underground stations within walking distance. The building was sold in October 2018. PURCHASE PRICE £12.8m CAPITAL EXPENDITURE AND FEES £24.6m SALES PRICE £125.2m BACKGROUND The Shepherds Building, a former Inland Revenue tax office, was acquired for £12.8m in 2000. At acquisition, the 138,750 sq ft building was vacant. REFURBISHMENT/LETTING PHASE The building underwent a full refurbishment with the addition of a sixth floor in 2002, increasing its area by 11,250 sq ft. In 2014, a new entrance was added along with the refurbishment of the common parts. As a result it has become an unrivalled hub of creativity in West London, occupied by innovative and creative businesses. CAPITAL PROFIT PROPERTY £87.8m FLEXIBLE LEASING The move towards flexible leasing is not a new concept to Helical. We have been employing this approach to this asset since 2002. Along with customer focused management, this strategy enabled Helical to accommodate occupiers’ expansion and contraction requirements, capture rental growth and minimise voids, whilst maintaining close to 100% occupancy. PEOPLE EXIT In October 2018, we sold The Shepherds Building for £125.2m (£835 psf), crystallising a capital profit of £87.8m and representing a net initial yield of 4.8%, rising to 5.1% on expiry of rent free periods. The sale represented a 12.3% premium to 31 March 2018 book value. The disposal of The Shepherds Building has allowed Helical to recycle equity into new projects, such as Kaleidoscope, London EC1 and Charterhouse Street, London EC1, creating the opportunity for future growth. GROWTH 23 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION STRATEGY IN ACTION CASE STUDY 31 Booth Street Manchester 31 Booth Street is located in the prime city core of Manchester. Helical acquired the vacant 25,349 sq ft office building in January 2016 and, following a major refurbishment, the building was re-launched to the market in March 2017, fully let and sold by December 2018. BACKGROUND Located in the prime city core of Manchester, Helical acquired 31 Booth Street in January 2016 through a competitive tender process for £4.7m. At acquisition, the building was vacant and in need of a wholesale redevelopment. The business plan for the asset was to undertake a full redevelopment and repositioning exercise. PROPERTY REDEVELOPMENT/LETTING PHASE Following acquisition, the scheme was fully designed, with planning and listed building consent obtained. The construction works commenced in March 2016 and were completed by February 2017. The repositioned building comprised 24,902 sq ft of modern office space across seven floors and was formally launched to the market in March 2017. The asset was fully let to nine different tenants by December 2018, at an average of £25.50 psf. PROPERTY 24 PURCHASE PRICE £4.7m CAPITAL EXPENDITURE AND FEES £4.0m SALES PRICE £11.9m CAPITAL PROFIT £3.2m HELICAL PLCAnnual Report and Accounts 2019 EXIT Upon completion of the last letting, the building was sold in December 2018 to the Mayfair Capital- managed Property Income Trust for Charities fund (PITCH), for £11.9m (£479 psf), reflecting a net initial yield of 5.0%. The project and disposal demonstrates Helical’s ability to successfully reposition assets, completing the whole development cycle within two years of acquisition, and enabling capital to be recycled into new opportunities. GROWTH 25 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION BUSINESS MODEL HELICAL’S BUSINESS MODEL RESOURCES CORE ACTIVITIES Assets, skills and knowledge to create our competitive advantage. Performed within the governance and strategic framework set by the Board. 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. LONG TERM Use our own capital combined with external debt where we see value in holding an asset for long-term income and capital growth. SHORT/MEDIUM TERM Identify a joint venture partner, limiting our capital commitment and risk exposure, whilst linking our return to performance. Actively manage our assets throughout their development, working with trusted suppliers and focusing on quality, efficiency and safety. 26 Market — P. 12 Strategy — P. 14 HELICAL PLCAnnual Report and Accounts 2019We aim to deliver market-leading returns by developing customer focused and design led properties, letting them to diverse tenants on flexible terms, then applying a proactive approach to asset management. Look to let our properties on flexible terms to a diverse tenant base who are financially robust. Through proactive asset management we drive the rental value forward whilst maximising occupancy. VALUE CREATION Enhanced value for reinvestment or realisation. PROPERTY £876.4m SEE-THROUGH PORTFOLIO VALUE £81.4m TOTAL PROPERTY RETURN PEOPLE AND CULTURE 699 TRAINING AND DEVELOPMENT HOURS MARKET EXPERTISE RELATIONSHIPS AND REPUTATION FINANCING 95% OF TENANTS SURVEYED WERE PLEASED TO BE IN OUR BUILDINGS 192,000 sq ft NEW OFFICE DEVELOPMENT AT CHARTERHOUSE STREET, LONDON EC1 5.2% TOTAL SHAREHOLDER RETURN 4.0% SEE-THROUGH WEIGHTED AVERAGE INTEREST RATE Principal risks — P. 52 Governance — P. 66 Key performance indicators — P. 28 HELICAL PLC Annual Report and Accounts 2019 27 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONKEY PERFORMANCE INDICATORS We measure our performance using a number of financial and non-financial key performance indicators (“KPIs”). EPRA NET ASSET VALUE PER SHARE DESCRIPTION The Group’s main objective is to maximise growth in net asset value per share, 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 proportion 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 35 to the financial statements. PERFORMANCE The EPRA net asset value per share at 31 March 2019 increased by 3.0% to 482p (31 March 2018: 468p). EPRA triple net asset value per share at 31 March 2019 increased by 3.8% to 465p (31 March 2018: 448p). LINK TO REMUNERATION Performance Share Plan 2014 A third of the maximum Performance Share Plan (“PSP”) award is based on the compound growth in net asset value (“NAV”) over three years. MSCI PROPERTY INDEX DESCRIPTION MSCI (formerly Investment Property Database – IPD) produces a number of independent benchmarks of property returns that are regarded as the main industry indices. MSCI has compared the ungeared performance of Helical’s total property portfolio against that of portfolios within the MSCI Annual March All Properties Universe ("Index") for the last 20 years. The Group’s annual performance target is to exceed the top quartile of the Index, which it has consistently achieved. PERFORMANCE Helical’s ungeared performance for the year to 31 March 2019 was 10.1% (2018: 11.1%) compared to the Index of 3.6% (2018: 9.3%) and upper quartile return of 7.0% (2018: 12.0%). In addition, the Annual Bonus Scheme 2018 performance criteria include the comparison of the Group's performance with the MSCI Central London Offices Total Return Index, with target performance to match this index and outperformance exceeding it by 3.25%. In the year to 31 March 2019, this index showed a return of 4.8% (2018: 7.5%) with an upper quartile return of 6.2% (2018: 9.0%). Helical’s share of the trading and development portfolio (6.8% of gross property assets) is included in the indices at the lower of book cost or fair value and uplifts are only included on the sale of an asset. LINK TO REMUNERATION Annual Bonus Scheme 2018 Half of the maximum bonus is payable based on the Group’s Total Property Return (“TPR”) compared with its peers as measured by MSCI. The Annual Bonus Scheme 2018 performance criteria include the comparison of the Group's performance with the MSCI Central London Offices Total 28 EPRA NET ASSET VALUE PER SHARE pence 2019 2018 2017 2016 2015 482 468 473 456 385 EPRA NET ASSET VALUE COMPOUND ANNUAL GROWTH RATE (5 YEARS) 13.6% 12.5% 12.1% 7.2% 9.0% 2015 2016 2017 2018 2019 EPRA NAV EPRA NNNAV 482p 465p Return Index, with target performance to match the index and outperformance exceeding it by 3.25%. Performance Share Plan 2014 A third of the maximum PSP award is based on the Group’s performance as compared with the performance of the MSCI Annual March All Properties Universe Index over three years. HELICAL’S UNLEVERAGED PORTFOLIO RETURNS TO 31 MARCH 2019 1 YEAR % pa 3 YEARS % pa 5 YEARS % pa 10 YEARS % pa 20 YEARS % pa 10.1% 10.2% 3.6% 4.8% Helical’s Percentile Rank: 5 5.7% 4.8% Helical’s Percentile Rank: 8 14.4% 9.1% 10.6% Helical’s Percentile Rank: 3 11.9% 9.8% 12.9% Helical’s Percentile Rank: 10 12.8% 8.0% 9.6% Helical’s Percentile Rank: 2 Helical MSCI Central London Offices MSCI Annual March All Properties Universe Source: MSCI Property Databank. HELICAL PLCAnnual Report and Accounts 2019We incentivise management to outperform the Group’s peers by setting challenging targets and using these performance indicators to measure success. We design our remuneration packages to align management’s interests with Shareholders’ aspirations. TOTAL SHAREHOLDER RETURN 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. LINK TO REMUNERATION Performance Share Plan 2014 A third of the maximum PSP award is based on the Group’s TSR performance compared with its peers. PERFORMANCE The Total Shareholder Return in the year to 31 March 2019 was 5.2% (2018: 6.1%). Helical plc1 Listed real estate sector index3 UK equity market2 Direct property – monthly data4 Source: Thomson Reuters Datastream. HELICAL’S TOTAL RETURNS TO 31 MARCH 2019 % 2 5 . % 4 6 . % 6 5 . % ) 3 0 ( . 1 YEAR % pa % 5 9 . % 4 2 . % 8 6 . % ) 9 2 ( . 3 YEARS % pa % ) 1 . 0 ( % 1 . 6 % 3 4 . 5 YEARS % pa % 1 . 0 1 % 6 3 . % 1 . 1 1 % 5 2 1 . % 0 0 . 1 % 4 6 . % 8 7. % 7 4 . % 3 7. % 0 9 . % 1 . 5 % 8 5 . % 3 8 . % 3 0 . 1 % 4 7. % 2 6 . % 7 8 . 10 YEARS % pa 15 YEARS % pa 20 YEARS % pa 25 YEARS % pa 1. Growth over all years to 31/03/19. 2. Growth in FTSE All-Share Return Index over all years to 31/03/19. 3. Growth in FTSE 350 Real Estate Super Sector Return 4. Growth in Total Return of MSCI UK Monthly Index Index over all years to 31/03/19. For data prior to 30 September 1999, the FTSE All Share Real Estate Sector Index has been used. (All Property) over all years to 31/03/19. TOTAL ACCOUNTING RETURN DESCRIPTION Total Accounting Return is the growth in the net asset value of the Group plus dividends paid in the reporting year, expressed as a percentage of the net asset value at the beginning of the year. The metric measures the growth in Shareholders’ Funds each year and is expressed as an absolute measure. PERFORMANCE The Total Accounting Return in the year to 31 March 2019 was 8.4% (2018: 5.3%). AVERAGE LENGTH OF EMPLOYEE SERVICE AND STAFF TURNOVER DESCRIPTION A high level of staff retention remains 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 2019 was 8.7 years and the average staff turnover during the year to 31 March 2019 was 6.3%. LINK TO REMUNERATION Annual Bonus Scheme 2018 The deferred shares awarded under the Annual Bonus Scheme 2018 are required to be held for a period of three years. Performance Share Plan 2014 These awards have a three-year vesting period and the participants are required to hold them for a further two years after they vest. LINK TO REMUNERATION Annual Bonus Scheme 2018 A quarter of the maximum bonus is payable based on the Total Accounting Return (growth in NAV plus dividends), adjusted for performance-related awards. TOTAL ACCOUNTING RETURN % 2019 2018 2017 2016 2015 5.3 8.4 8.3 22.5 21.1 8.7 7.9 8.0 7.6 7.6 AVERAGE LENGTH OF SERVICE AT 31 MARCH years 2019 2018 2017 2016 2015 STAFF TURNOVER DURING THE YEAR TO 31 MARCH % 2019 2018 2017 2016 2015 6.3 5.7 15.2 14.3 12.5 29 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION THE LONDON PORTFOLIO 2 3 1 4 5 6 7 8 9 THE LONDON PORTFOLIO 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. Our London portfolio comprises income-producing multi-let offices, office refurbishments and developments and a mixed use commercial/residential scheme. 30 EAST 1 Charterhouse Street EC1 2 25 Charterhouse Square EC1 3 Kaleidoscope EC1 4 The Bower EC1 5 Barts Square EC1 6 One Creechurch Place EC3 7 The Loom E1 WEST 8 Power Road Studios W4 9 The Powerhouse W4 HELICAL PLCAnnual Report and Accounts 2019EC1 The Bower is a landmark estate immediately adjacent to the Old Street roundabout and features 312,575 sq ft of innovative, high quality office space along with 20,606 sq ft of restaurant and retail space. THE WAREHOUSE AND THE STUDIO The Warehouse comprises 122,858 sq ft of offices and The Studio 18,283 sq ft of offices with 10,298 sq ft of retail space at the two buildings. Works on The Warehouse entailed a complete refurbishment of the building whilst retaining its original 1960s characteristics. The Studio was a ground up development on the former car park site. The works were completed in March 2015 and the offices were fully pre-let to CBS, Farfetch, Pivotal, Allegis and Stripe (The Warehouse) and John Brown Media (The Studio). The retail operators are Bone Daddies, Draft House, Enoteca da Luca, Honest Burger, Franze & Evans, Ejder and Good To Go. For more information on The Bower — P. 18 THE TOWER The Tower offers 171,434 sq ft of office space with a contemporary façade and innovatively designed interconnecting floors, along with 10,308 sq ft of retail space across two units. With six floors (34%) let to WeWork when construction started, we let, prior to completion of building works, an additional three floors to Farfetch, an existing tenant in The Warehouse. Since the building completed in August 2018, two floors have been let to Brilliant Basics (Infosys) and one floor to Finablr, taking the office space to 70% let, and there is good interest in the remaining space. In addition, the two retail units have been let, one to Albion & East (trading as Serata Hall) for an urban bar and one to restaurant operator Wagamama. 31 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONTHE LONDON PORTFOLIO CONTINUED EC1 The over-station development at the Farringdon East Elizabeth Line station will comprise a six storey 86,183 sq ft office building, with a 2,497 sq ft restaurant unit on the ground floor. The building will sit immediately east of Smithfield Market with views over Charterhouse Square and towards St Paul’s Cathedral. Following the grant of a 150-year lease, development commenced in August 2018 and completion is due in December 2019. 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. The building is a Grade A office adjacent to the new Farringdon East station on the Elizabeth Line and overlooks the historic Charterhouse Square. Helical 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 5,138 sq ft of retail space. The building achieved practical completion in March 2017 and was fully let to Anomaly, Peakon, Hudson Sandler and Senator International by December 2017, less than two years after it was acquired. 32 HELICAL PLCAnnual Report and Accounts 2019EC1 After the year end, we acquired in a 50:50 joint venture with AshbyCapital the long leasehold interest in a major development site in the heart of Farringdon, further enhancing our presence in this vibrant area. The site is situated on the corner of Charterhouse Street and Farringdon Road, just 100m from Farringdon Station and 350m from our development at Farringdon East, now named Kaleidoscope, at the opposite end of the Farringdon Elizabeth Line platform. The site has an existing planning consent for c.192,000 sq ft of offices and ground floor retail. Demolition has already been undertaken and the site is vacant. Construction will commence later this year with completion anticipated early in 2022. N W Smithfiel d C l o t h F W S a ir m ithﬁeld L o n g L a n e W S m i t h ﬁ e l d Smithﬁeld Market G ra n d A v e n u e E P o ultry A ve n u e e S s u o h r e t r a C h Lin d s e y S tr e e t C harterh o use S q uare t e e r t e S s u o h r e t r a h C n Peter’s L S t J o h n S t r e e t W h it e H y o r s e A ll e S t J o h n ’s L a n e t e e r t d l e S M i d ELIZABETH LINE Barbican Station t e r C h a r e r h o u s e S q u a Museum of London W P o ultry A v e n u e A 2 0 1 F a r r i n g d o n S t r e e t t e e r t s S s r o C o w c Farringdon Station T urn mill Street t e e r t Cowcross Street Britto u rt n Stre et o g l e C a E ELIZABETH LINE t e e r t n j a m i n S B e 33 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION THE LONDON PORTFOLIO CONTINUED 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 Paul’s and Smithfield Market, situated a short walk from Farringdon East Crossrail station. Barts Square provides a new quarter in the City, consisting of 236 residential apartments, three office buildings of 214,434 sq ft, 24,013 sq ft and 10,286 sq ft together with 21,330 sq ft of retail/A3 at ground floor as well as major public realm improvements. PHASE ONE PHASE TWO RESIDENTIAL/RESTAURANT Phase One of Barts Square comprises 144 residential units, 3,101 sq ft of retail space and extensive public realm improvements. By the year end, 134 residential units, with a total value of £171.8m, have been sold at an average price of £1,558 psf, leaving just 10 apartments to sell, one of which has exchanged since the year end. The retail space was let to Stem + Glory and Halfcup during the year. 90 BARTHOLOMEW CLOSE – OFFICE/RESTAURANT The 24,013 sq ft office building, with 6,414 sq ft of restaurant space, completed in March 2018. During the year the first floor was let and the fourth and fifth floors are under offer. The ground and lower ground restaurant, let to Lino, opened in November 2018. ONE BARTHOLOMEW – OFFICE One Bartholomew was sold to clients of AshbyCapital for £102.4m in August 2015. The demolition of the existing building and the construction of a new 12 storey Grade A office block of 214,434 sq ft commenced in January 2016 and completed in December 2018. AshbyCapital’s clients financed 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. During the year, the top three floors (9th-11th) were let to The Trade Desk, who subsequently took an additional floor (8th). Since the year end the ground, first and second floors have been let to The Chicago Booth School of Business and the seventh floor has been let to Infrared Capital Partners, taking the building to 64% let. t e S s u o h r e t r a C h H a y n e S t L i n d s e y S t d l e S t M i d b w e Kin g h N orn St C l o th St u r y S t a l f M o o n Ct H A 1 G r a n d A v e Smithﬁeld Market n g L n o L C l o t h C t a ir Cloth F e l d ﬁ h W S m i t H o s i e r L n t S r u p s t l i G 34 PHASE THREE RESIDENTIAL/RETAIL Construction works on Phase Three of Barts Square are well underway. This phase will comprise 92 apartments and 11,815 sq ft of retail space. Marketing of the units commenced in March 2018 and, during the year, contracts were exchanged on 23 units, taking the total number of units exchanged to 37, at a value of £63.0m and an average price of £1,810 psf. Since the year end contracts have been exchanged on a further seven units, leaving 47 units left to sell and one additional unit that will be released at a later date. Little Britain t e S u g a t n M o Museum of London R otunda 54 BARTHOLOMEW CLOSE – OFFICE The refurbishment of 54 Bartholomew Close is ongoing and will provide 10,286 sq ft of offices, with completion expected in Q4 2019. n i a t i r B t a i n i B r t l e L i t Bartholomew’s Hospital e l t t i L HELICAL PLCAnnual Report and Accounts 2019 Helical will shortly exercise its option to sell its 10% shareholding in the joint venture to HOOPP, with completion of this sale expected in the next few months. EC3 One Creechurch Place is a landmark City office scheme in the heart of the insurance district 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 now receive the final instalment of the promote payment following the successful completion and letting of the scheme. The building, comprising 272,505 sq ft of offices and 786 sq ft of retail, achieved practical completion on 7 November 2016 and, following the letting of 86,311 sq ft during the year, the building is now fully let. E1 This 108,640 sq ft building is one of London’s few remaining former Victorian wool warehouses and was acquired in 2013. Works to transform this asset completed in September 2016 and included a new entrance and reception onto Gowers Walk, a café, showers and a bike store. The Loom has won both a RIBA London and National Award as well as an Architects Journal Retrofit Award. Due to careful asset management, the building remained at an average of 78% let throughout the refurbishment. Since 1 April 2018, we have let 37,080 sq ft at 4.5% above 31 March 2018 ERVs, such that the building is now 97% let. 35 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONTHE LONDON PORTFOLIO CONTINUED W14 In October 2018, after successfully completing new lettings on 12,375 sq ft, this 150,072 sq ft multi-let office building was sold for £125.2m. This price represented a net initial yield of 4.8% and a 12.3% premium to 31 March 2018 book value. The building had been acquired in 2000 for £12.8m and was fully refurbished with an extra floor added. W4 The site comprises 57,585 sq ft of offices across four studio buildings and is multi-let to a wide range of predominantly media tenants. In October 2017 we completed the refurbishment of Studio 1, a project comprising c.16,000 sq ft of Grade A space, refurbished common parts and added two new lift shafts to accommodate a consented future roof extension of 13,000 sq ft. In the year, we have let 6,072 sq ft at average rents of £39.15 psf, with a further 2,007 sq ft let following the year end. Preliminary works have been completed for a new 30,000 sq ft office building which secured planning consent in August 2017. 36 W6 Hammersmith & Fulham Borough Council, who had been opposed to this regeneration project since the Council became Labour controlled, exercised their option to terminate the development agreement. During the year, the sale of the land held by the Group (which is a 50/50 joint venture with Grainger plc) completed, resulting in a profit to Helical of £2.2m. HELICAL PLCAnnual Report and Accounts 2019W4 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. 37 WC2 This is a 0.5 acre office and retail site which sits within the Covent Garden Conservation Area. The Group agreed with Savills Investment Management to act as development manager to obtain a revised office planning consent, which it achieved in February 2019. The Group will receive a fee for this which is dependent on the agreed value of the property with the benefit of the new planning permission. HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONTHE MANCHESTER PORTFOLIO L L W E R I R E R I V 1 PICCADILLY GARDENS 2 A 6 6 5 4 3 MANCHESTER PICCADILLY A57 (M) A 6 THE MANCHESTER PORTFOLIO Manchester is a city with a diverse, thriving and growing economy that is widely regarded as England’s second city and the centre of the “Northern Powerhouse”. Helical has found that the approach it applies to development and asset management in London is equally well received by the tenants in Manchester. 1 Trinity 2 Churchgate & Lee 3 35 Dale Street 4 Fourways House 38 HELICAL PLCAnnual Report and Accounts 2019This asset comprises 244,627 sq ft of multi-let offices. The asset was 64% let when acquired in March 2014. Since its purchase, we have refurbished the reception and 73,374 sq ft of office space. Following the letting of 8,208 sq ft since the year end, all available space is now let. We continue to actively manage the building, with planning permission approved for a full refurbishment of the Lee reception. 39 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONTHE MANCHESTER PORTFOLIO CONTINUED 35 Dale Street is a 54,112 sq ft office building situated in the Northern Quarter of Manchester, acquired in March 2015. The building underwent a comprehensive refurbishment which completed in June 2018. During the year, 10,134 sq ft was let and the building is now fully occupied. 40 Trinity, purchased in May 2017 for £12.9m, underwent a full redevelopment which completed in January 2019. The repositioned building comprises 54,651 sq ft of office space and 4,300 sq ft of retail/restaurant space. HELICAL PLCAnnual Report and Accounts 2019This 24,902 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. During the year, all of the newly refurbished space was let and the building was sold in December 2018 for £11.9m, a premium of 29.6% to March 2018 book value. This 59,067 sq ft brick built Grade 2 listed former packing warehouse was acquired in July 2018 for £16.5m, representing a net initial yield of 5.3%. We have begun to apply our asset management skills and completed three new lettings of 5,057 sq ft at average rents of £24.00 psf, compared to average rents on acquisition of £16.00 psf. RETAIL AND REGIONAL OFFICE INVESTMENTS We sold our three remaining non-core investment assets at Sevenoaks (retail), Reading and Glasgow (both regional offices) during the year, for a total consideration of £28.5m, representing a 6.2% premium to book value and an aggregate net initial yield of 7.6%. RETAIL DEVELOPMENTS We continue to progress our retail schemes at Kingswinford and East Ham. We have assigned our land option in Evesham, with a profit share dependent on the success of the scheme, which is due for completion in August 2019. These schemes require no capital input from Helical beyond fees to design, pre-let and pre-sell the consented development. 41 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONTHE PROPERTY PORTFOLIO IN NUMBERS SEE-THROUGH TOTAL PORTFOLIO BY FAIR VALUE London Offices – Completed, let and available to let – Being redeveloped – Held for redevelopment London Residential Total London Manchester Offices – Completed, let and available to let Total Manchester Investment £m Development £m % 615.2 78.6 – – 693.8 122.7 122.7 75.3 9.7 – – 85.0 15.0 15.0 14.0 – 0.3 42.9 57.2 – – % 23.5 – 0.4 71.7 95.6 – – Total £m 629.2 78.6 0.3 42.9 751.0 122.7 122.7 Total Core Portfolio 816.5 100.0 57.2 95.6 873.7 Other Regional Retail Land Total Non-Core Portfolio 0.1 – – 0.1 0.0 – – 0.0 – 0.8 1.8 2.6 – 1.4 3.0 4.4 0.1 0.8 1.8 2.7 % 71.8 9.0 0.0 4.9 85.7 14.0 14.0 99.7 0.0 0.1 0.2 0.3 Total 816.6 100.0 59.8 100.0 876.4 100.0 SEE-THROUGH TRADING AND DEVELOPMENT PORTFOLIO London Offices London Residential Total Core Portfolio Regional Retail Land Total Non-Core Portfolio Total Book value £m Fair value £m Surplus £m Fair value % 14.3 42.9 57.2 0.8 1.2 2.0 14.3 42.9 57.2 0.8 1.8 2.6 59.2 59.8 – – – – 0.6 0.6 0.6 23.9 71.7 95.6 1.4 3.0 4.4 100.0 CAPITAL EXPENDITURE We have a planned development and refurbishment programme. Property Investment – committed The Tower, London EC1 Kaleidoscope, London EC11 Charterhouse Street, London EC12 54 Bartholomew Close, London EC1 Development – committed Barts Square, London EC1 – Phase One Barts Square, London EC1 – Phase Three Capex budget (Helical share) £m Remaining spend (Helical share) £m Pre- redeveloped space sq ft 108.8 58.7 96.1 2.1 64.6 39.8 10.5 35.2 96.1 1.6 1.0 16.6 114,000 – – 9,000 – – New space sq ft 67,742 88,680 192,000 1,286 127,323 90,427 Total completed space sq ft 181,742 88,680 192,000 10,286 Completion date Completed December 2019 March 2022 October 2019 127,323 Completed 90,427 From September 2019 to January 2020 1 Includes deferred consideration payment due in April 2020. 2 Acquired after 31 March 2019 – see Note 34. 42 HELICAL PLCAnnual Report and Accounts 2019ASSET MANAGEMENT Asset management is a critical component in driving Helical’s performance. Through having well considered business plans and maximising the combined skills of our management team, we are able to create value in our assets without relying on market movements. See-through investment portfolio London Offices – Completed, let and available to let – Being redeveloped Total London Manchester Offices – Completed, let and available to let Total Manchester Other Total Fair value weighting % Passing rent £m Contracted rent £m % ERV change like-for-like % % 75.3 9.7 85.0 15.0 15.0 0.0 100.0 17.3 – 17.3 4.6 4.6 0.0 78.8 – 78.8 21.1 21.1 0.1 27.5 – 27.5 5.7 5.7 0.0 % 82.6 – 82.6 17.3 17.3 0.1 ERV £m 34.8 7.6 42.4 9.0 9.0 0.1 67.7 14.7 82.4 17.4 17.4 0.2 0.9 14.0 3.0 2.6 2.6 0.0 3.0 21.9 100.0 33.2 100.0 51.5 100.0 During the year, total contracted income reduced by £2.3m as a result of the sale of investment properties and losses from breaks and lease expiries, offset by the purchase of one investment property and rent from new lettings and rent reviews. Contracted rent reduced through disposals of London offices Contracted rent reduced through disposals of Manchester offices Contracted rent reduced through disposals of Non-Core assets Contracted rent increased from purchases of investment properties Total contracted rental change from sales and purchases Rent lost at break/expiry Rent reviews and uplifts on lease renewals New lettings – London – Manchester Total increase in the year from asset management activities Net decrease in contracted rents in the year See-through total portfolio contracted rent £m (7.4) (0.1) (2.3) 0.9 (8.9) (1.7) 0.1 7.6 0.6 6.6 (2.3) 43 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONTHE PROPERTY PORTFOLIO IN NUMBERS CONTINUED INVESTMENT PORTFOLIO PORTFOLIO YIELDS London Offices – Completed, let and available to let – Being redeveloped Total London Manchester Offices – Completed, let and available to let – Being redeveloped Total Manchester Total EPRA topped up NIY 31 March 2019 % True equivalent yield 31 March 2019 % Reversionary yield 31 March 2019 % EPRA topped up NIY 31 March 2018 % True equivalent yield 31 March 2018 % Reversionary yield 31 March 2018 % 4.2 n/a 4.2 4.2 n/a 4.2 4.2 5.1 4.9 5.1 6.1 n/a 6.1 5.2 5.2 5.7 5.3 6.3 n/a 6.3 5.4 4.5 n/a 4.5 5.3 n/a 5.3 4.6 5.4 5.2 5.3 6.4 6.2 6.4 5.5 5.3 5.6 5.4 6.5 7.0 6.7 5.6 SEE-THROUGH CAPITAL VALUES, VACANCY RATES AND UNEXPIRED LEASE TERMS London Offices – Completed, let and available to let – Being redeveloped Total London Manchester Offices – Completed, let and available to let Total Manchester Other Total SEE-THROUGH VALUATION MOVEMENTS London Offices – Completed, let and available to let – Being redeveloped Total London Manchester Offices – Completed, let and available to let – Being developed Total Manchester Total Core Regional Offices/ Retail/ Other Total Capital value psf 31 March 2019 £ Vacancy rate 31 March 2019 % WAULT 31 March 2019 Years WAULT 31 March 2018 Years 1,061 805 1,021 295 295 – 753 16.2 n/a 16.2 19.8 19.8 – 17.7 8.0 n/a 8.0 3.9 3.9 – 7.3 5.8 n/a 5.8 4.2 4.2 3.8 5.4 Val change inc purchases & gains on sales % Val change excl purchases & gains on sales % Investment portfolio weighting 31 March 2019 % Investment portfolio weighting 31 March 2018 % 6.8 13.3 7.4 7.3 – 7.3 7.4 6.0 7.4 5.8 13.3 6.6 7.8 – 7.8 6.8 – 6.8 75.3 9.7 85.0 15.0 – 15.0 100.0 – 100.0 59.2 25.6 84.8 10.1 1.8 11.9 96.7 3.3 100.0 SEE-THROUGH LEASE EXPIRIES OR TENANT BREAK OPTIONS % of rent roll Number of leases Average rent per lease (£) Year to 2020 5.9 36 Year to 2021 6.4 19 Year to 2022 11.7 28 Year to 2023 7.9 15 Year to 2024 13.4 25 54,309 111,037 138,860 175,870 178,434 44 HELICAL PLCAnnual Report and Accounts 2019We have a strong rental income stream and a diverse tenant base. The top 10 tenants account for 51.6% of the total rent roll and the tenants come from a variety of industries. Rank Tenant 1 2 3 4 5 6 7 8 9 10 Total Farfetch WeWork Pivotal Infosys Anomaly CBS Allegis Finablr Stripe Payments The Growth Company PRINCIPAL LETTINGS Property The Tower, London EC1 The Tower, London EC1 The Loom, London E1 The Tower, London EC1 Tenant industry Online retail Co-working Technology Technology Marketing Media Recruitment Financial services Technology Community development Tenant Farfetch Infosys Hey Habito Finablr 90 Bartholomew Close, London EC1 The Loom, London E1 The Loom, London E1 The Tower, London EC1 Wright & Bell (trading as Lino) The Fairtrade Foundation G-Star Albion & East (trading as Serata Hall) 90 Bartholomew Close, London EC1 The Loom, London E1 Northridge Law Vidsy Contracted rent £m Rent roll % 3.9 3.8 2.0 1.4 1.4 1.0 1.0 0.9 0.8 0.8 11.8 11.5 6.0 4.2 4.2 3.1 3.0 2.8 2.5 2.5 17.0 51.6 Area sq ft 29,671 19,576 15,907 11,329 6,414 6,400 5,691 5,395 4,642 3,619 Lease term to expiry years 9 10 5 10 25 10 5 25 5 3 LETTING ACTIVITY Investment properties London Offices The Tower, The Bower, EC1 The Loom, E1 The Powerhouse, W4 Power Road Studios, W4 25 Charterhouse Square, EC1 90 Bartholomew Close, EC1 London Retail The Warehouse and Studio, The Bower, EC1 The Tower, The Bower, EC1 Barts Square, EC1 90 Bartholomew Close, EC1 Manchester Offices Churchgate & Lee 35 Dale Street Trinity Fourways House Total Development properties London Offices One Creechurch Place, EC3 One Bartholomew, EC1 Area sq ft Contracted rent (Helical’s share) £ Rent per sq ft £ % above 31 March 2018 ERV 60,576 37,080 – 6,072 – 4,642 277 10,308 3,101 6,414 – 10,134 – 5,057 143,661 4,400,000 1,919,000 – 238,000 – 152,000 15,000 526,000 57,000 88,000 – 241,000 – 121,000 7,757,000 72.63 51.76 – 39.14 – 75.00 55.69 51.03 41.92 40.88 – 23.72 – 23.98 56.65 86,311 74,101 445,000 – 64.43 84.62 1.3 4.5 – 11.8 – 15.4 – 18.3 -16.2 0.0 – 24.2 – 2.0 4.3% 2.1 n/a 45 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFINANCIAL REVIEW OVERVIEW Our development and asset management programme has driven the results for the year, principally through revaluation gains at The Tower, London EC1 and Kaleidoscope, London EC1, and from the sale of The Shepherds Building, London W14, at a significant premium to 31 March 2018 book value. With the sale of the final three non-core assets in the year, the Group has completed its transformation to a London and Manchester investment and development company. Whilst the sales of £477m of investment assets over the last two years have reduced the Group’s net rental income, the cash generated has been used to fund its development programme and repay debt, substantially reducing its LTV and finance costs. Going forward, we expect this income stream to grow as we work to capture the portfolio’s ERV of £51.5m. 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. TIM MURPHY FINANCE DIRECTOR IFRS PERFORMANCE EPRA PERFORMANCE PROFIT BEFORE TAX EPRA EPS £43.5m (2018: £30.8m) Loss 8.4p (2018: loss 7.0p) IFRS EPS 35.8p (2018: 22.3p) EPRA NAV 482p (31 March 2018: 468p) IFRS DILUTED NAV EPRA TRIPLE NAV 469p 465p (31 March 2018: 445p) (31 March 2018: 448p) 46 HELICAL PLCAnnual Report and Accounts 2019RESULTS FOR THE YEAR The year to 31 March 2019 includes net rental income of £25.2m and a net gain on sale and revaluation of the investment portfolio of £60.6m, offset by development losses of £4.4m, leading to a Total Property Return of £81.4m (2018: £68.8m). Total administration costs of £17.2m (2018: £13.2m) and significantly reduced net finance costs of £18.4m (2018: £35.5m) contributed to a pre-tax profit of £43.5m (2018: £30.8m). EPRA net asset value per share increased by 3.0% to 482p (31 March 2018: 468p). The proposed final dividend of 7.50p takes the total dividend for the year to 10.10p, a 6.3% increase on the previous year. With growing rents from our London and Manchester portfolios, the Company aims to continue to increase its annual dividend going forward. The Group’s real estate portfolio, including its share of assets held in joint ventures, reduced to £876.4m (31 March 2018: £909.6m) as gains from its annual revaluation and capital expenditure on the investment portfolio and development programme were offset by the sale of assets with a book value of £194m. One asset was purchased during the year, Fourways House, Manchester for £16.5m. The cash generated from the sale of property assets during the year allowed the repayment of debt and reduced the Group’s see-through loan to value to 30.6% (31 March 2018: 39.9%). The Group’s weighted average cost of debt reduced to 4.0% (31 March 2018: 4.3%) and a weighted average debt maturity, excluding the Convertible Bond, of 3.4 years (2018: 3.5 years). The average maturity of the facilities would increase to 4.2 years following the two one-year extensions of the revolving credit facility. The £100m unsecured Convertible Bond is to be repaid in June 2019. At 31 March 2019, the Group had unutilised bank facilities of £176m and £205m of cash on a see-through basis. The bank facilities are primarily available to fund the development of Kaleidoscope, London EC1, the construction of the last phase of residential at Barts Square, London EC1, future property acquisitions and to repay the £100m Convertible Bond in June 2019. 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. EARNINGS PER SHARE The IFRS earnings per share increased from 22.3p to 35.8p and are 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, losses per share were 8.4p (2018: loss 7.0p), reflecting the Group’s share of net rental income of £25.2m (2018: £36.1m) and development losses of £4.4m (2018: £8.0m), but excluding gains on sale and revaluation of investment properties of £60.6m (2018: £40.7m). TOTAL PROPERTY RETURN £m 155.3 164.6 79.9 68.8 81.4 2015 2016 2017 2018 2019 INCOME STATEMENT £m 70 60 50 40 30 20 10 0 -10 -20 7.1 25.2 (11.5) (17.2) 4.2 0.6 (10.0) (18.4) 60.6 (1.5) (3.4) (2.2) 43.5 N et rents D evelo p m ent Provisio nin g pro ﬁts a g ainst sto ck A d m inistratio n N et ﬁ nance costs costs E P R A E P S tax a djust m ents O ther E P R A loss N et g ain o n sale E x p ense o n D erivative ﬁ nancial cancellatio n of lo ans an d revaluatio n instru m ents IF R S pro ﬁt O ther b efore tax The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). In common with usual and best practice in our sector, alternative performance measures have also been provided to supplement IFRS, some of which are based on the recommendations of the European Public Real Estate Association ("EPRA"), with others designed to give more relevant information about the Group’s share of assets and liabilities, income and expenses in subsidiaries and joint ventures. The terms used are defined in the Glossary of Terms on page 148. HELICAL PLC Annual Report and Accounts 2019 47 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDevelopment Profits In the year under review the Group let the remaining space at One Creechurch Place, London EC3 which, under its role as development manager, allowed it to recognise £4.1m of profit. A further profit of £0.8m was recognised for carrying out a similar role at Barts Square, London EC1. Provisions of £6.5m against our legacy retail development programme, non-core residential land and to satisfy cost indemnities given on the sale of our Retirement Villages in the prior year, combined with other costs of £0.2m, contributed to a net development loss of £1.8m (2018: £4.2m). Share of Results of Joint Ventures The revaluation of our investment assets held in joint ventures generated a surplus of £1.3m (2018: £3.3m). Under our development management agreement for One Bartholomew, Barts Square, London EC1, we recognised a net development fee of £3.9m as a result of achieving practical completion and letting progress, but an assessment of the book value of our land holdings at Barts Square resulted in development provisions of £7.2m. A profit of £2.2m was recognised on the sale of the site at Hammersmith Town Hall. Finance, administration, taxation and other sundry items added a further £4.8m (2018: £1.5m) of losses. Accounting adjustments to our interest in the One Creechurch Place joint venture generated surpluses of £1.4m, leaving a net loss from our joint ventures of £3.2m (2018: profit of £3.2m). FINANCIAL REVIEW CONTINUED NET ASSET VALUE IFRS diluted net asset value per share increased from 445p to 469p and is a measure of Shareholders’ Funds divided by the number of shares in issue at the year end, adjusted to allow for the effect of all dilutive share awards. EPRA net asset value per share increased by 3.0% to 482p per share (31 March 2018: 468p). This movement arose principally from a total comprehensive income (retained profits) of £42.6m (2018: £26.3m), less £11.4m of dividends (31 March 2018: £10.2m) and the crystallisation of a £13.5m tax charge on the capital gain from the sale of The Shepherds Building, London W14. EPRA triple net asset value per share increased by 3.8% to 465p (31 March 2018: 448p). INCOME STATEMENT Rental Income and Property Overheads Gross rental income receivable by the Group in respect of wholly owned properties reduced by 29.9% to £28.2m (2018: £40.2m), reflecting the partial capture of the investment portfolio’s reversionary potential offset by sales of assets during the current and prior years. In the joint ventures, gross rents rose from £0.2m to £1.0m. Property overheads in respect of wholly owned assets and in respect of those assets in joint ventures remained steady at £4.1m (2018: £4.1m). After taking account of net rents receivable from our profit share partners of £0.1m (2018: payable of £0.1m), see-through net rents reduced by 30.2% to £25.2m (2018: £36.1m). EPRA NAV pence 520 500 480 460 440 420 400 468.0p (8.4p) 50.1p (1.4p) (3.2p) (11.7p) 482.0p (9.6p) (1.7p) 31 March 2018 EPRA EPS Investment property gains Development surpluses realised Derivative ﬁnancial instruments Taxation Dividends Other 31 March 2019 IFRS DILUTED NAV PER SHARE pence EPRA NAV PER SHARE pence 431 445 469 456 473 468 482 385 405 332 2015 Growth 2016 +22% 2017 +6% 2018 +3% 2019 +5% 2015 Growth 2016 +18% 2017 +4% 2018 -1% 2019 +3% 48 HELICAL PLCAnnual Report and Accounts 2019NET GAIN ON SALE AND REVALUATION OF INVESTMENT PROPERTIES £m 97 94 93 50 39 37 41 27 61 46 2016 2015 Gain on revaluation Gain on sale 2017 2018 2019 Gain on Sale and Revaluation of Investment Properties During the year, we sold five investment assets for gross proceeds of £167.0m, generating a net overall profit of £15.0m. In London, we sold The Shepherds Building, W14 for £125.2m, a 12.3% premium to its 31 March 2018 book value. 31 Booth Street, Manchester was sold for £11.9m, a 29.6% premium to its 31 March 2018 book value, and we also sold three non-core assets for a combined price of £28.5m at a 6.2% premium to 31 March 2018 book value. The valuation of our investment portfolio, on a see-through basis, continued to reflect the benefit of our refurbishment activities in London where we generated a valuation surplus of 7.4% overall (including purchases and gains on sales) and 6.6% on a like-for-like basis. In Manchester, the portfolio generated a surplus of 7.8% on a like-for-like basis. In total, the see-through investment portfolio showed a valuation surplus of 7.4% (including purchases and gains on sales), or 6.8% 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 £60.6m (2018: £40.7m). Administration Costs Administration costs in the Group, before performance-related awards, reduced slightly from £11.0m to £10.9m. Performance related share awards and bonus payments, before National Insurance costs, were £5.2m (2018: £1.7m). Of this amount, the £2.3m (2018: £1.4m) 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. 2019 £000 2018 £000 Administration costs 10,858 11,023 Share awards Directors’ and senior executives’ bonuses NIC on share awards and bonuses 2,274 2,929 1,388 289 692 65 Group 16,753 12,765 In joint ventures 406 468 Total 17,159 13,233 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, reduced to £12.9m (2018: £18.5m). Interest payable in respect of the unsecured bonds was £4.0m (2018: £8.4m). Bank charges, commitment fees, sundry interest and the amortisation of refinancing costs decreased to £5.8m (2018: £17.8m) due to the prior year’s redemption of the 6% Retail Bond (£8.7m premium) and the repayment of bank debt. Capitalised interest reduced from £5.2m to £3.2m as development schemes progressed and as a result of the sale of the Retirement Village portfolio in the prior year, as well as the completion of The Tower, London EC1 in August 2018. Total finance costs, including joint ventures, decreased to £19.5m (2018: £39.5m). Finance income earned, including in joint ventures, was £1.1m (2018: £4.3m). The movement in medium and long-term interest rate projections during the year contributed to a charge of £3.3m (2018: credit of £4.0m) on their mark-to-market valuation. The mark-to-market valuation of the Convertible Bond resulted in a credit of £0.9m (2018: charge of £1.6m). Taxation Helical pays corporation tax on its UK sourced net rental income, trading and development profits and realised chargeable gains, after offsetting administration and finance costs. The current tax charge for the year of £9.0m (2018: credit of £0.4m) is primarily a result of the tax charge on the capital gain on the sale of The Shepherds Building, London W14. The majority of this tax liability had been recognised as a deferred tax liability in the prior year and this liability was reversed as a deferred tax credit during the year. This deferred tax credit was offset by an increased liability on the investment property revaluation surpluses recognised in the year. Dividends Helical follows a progressive dividend policy of increasing its dividends whilst retaining the majority of funds generated for investment to grow the business. As the Group completes and lets its current development programme, it expects to be able to reflect the growth in earnings in increased dividends paid to Shareholders. The interim dividend paid on 31 December 2018 of 2.60p was an increase of 4.0% on the previous interim dividend of 2.50p. The Company has proposed a final dividend of 7.50p, an increase of 7.1% on the previous year (2018: 7.00p), for approval by Shareholders at the 2019 AGM. In total, the dividend paid or payable in respect of the results for the year to 31 March 2019 will be 10.10p (2018: 9.50p), an increase of 6.3%. Since 2015, the compound annual growth rate of the Company’s dividends has been 7.3%. TOTAL DIVIDENDS pence 8.17 8.60 7.25 9.50 10.1 2015 2016 Growth +12.7% 2017 +5.3% 2018 +10.5% 2019 +6.3% 49 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFINANCIAL REVIEW CONTINUED INVESTMENT PORTFOLIO Valuation at 31 March 2018 802,134 22,623 824,757 2,189 (12,375) 814,571 Wholly owned £000 In joint venture £000 See- through £000 Head leases capitalised £000 Lease incentives £000 Book value £000 Acquisitions Wholly owned Capital expenditure Wholly owned Joint ventures Disposals 29,500 60,820 - - - 1,377 29,500 60,820 1,377 Wholly owned (149,051) - (149,051) Revaluation surplus Wholly owned Joint ventures Profit share partners (250) - 48,097 - 48,097 - 1,382 1,382 (250) - - - - - - - - - - 29,500 60,820 1,377 1,501 (147,550) (3,813) 44,284 (94) - 1,288 (250) Valuation at 31 March 2019 791,250 25,382 816,632 2,189 (14,781) 804,040 SEE-THROUGH DEBT MATURITY PROFILE £m 200 Available Facility Secured Debt Unsecured Debt 252 246 100 93 nil nil nil 40 nil nil <1 year 1–2 years 2–3 years 3–4 years 4–5 years 5–6 years 6–7 years 7–8 years DEBT PROFILE AT 31 MARCH 2019 – EXCLUDING THE EFFECT OF ARRANGEMENT FEES Total facility £000 Total utilised £000 Available facility £000 Weighted average interest rate % Average maturity Years Extended1 average maturity Years Investment facilities 443,000 309,679 133,321 Development facilities 50,400 20,023 30,377 Total wholly owned In joint ventures Total secured debt Convertible Bond Working capital Fair value of Convertible Bond 493,400 329,702 163,698 51,684 48,980 2,704 545,084 378,682 166,402 100,000 100,000 – 10,000 – 10,000 – 468 – Total unsecured debt 110,000 100,468 10,000 Total debt 655,084 479,150 176,402 3.9 6.3 4.1 4.0 4.1 4.0 – – 4.0 4.0 3.5 4.4 3.5 2.8 3.4 0.2 – – 0.2 2.7 4.4 4.4 4.3 2.8 4.2 0.3 1.0 – 0.3 3.6 1 Calculated on a fully utilised basis with the two one-year extensions of the revolving credit facility included. 50 BALANCE SHEET Shareholders’ Funds Shareholders’ Funds at 1 April 2018 were £533.9m. The Group’s results for the year added £42.6m (2018: £26.3m), net of tax, representing the total comprehensive income for the year. Movements in reserves arising from the Group’s share schemes increased funds by £2.3m. The Company paid dividends to Shareholders amounting to £11.4m leaving a net increase in Shareholders’ Funds from Group activities during the year of £33.5m to £567.4m. Investment Portfolio In the year to 31 March 2019, the Group acquired Fourways House, Manchester for £16.5m and paid additional consideration of £13.0m for Kaleidoscope, London EC1. The Group spent £62.2m on capital works on the investment portfolio, mainly at Kaleidoscope, London EC1 (£36.0m), The Tower, London EC1 (£10.5m), Barts Square, London EC1 (£1.4m), Trinity, Manchester (£6.9m) and 35 Dale Street, Manchester (£1.6m). The aggregate book value of the five investment assets sold during the year was £149.1m. Revaluation gains added £49.5m (£0.3m loss for our partners) to increase the see-through value of 3the portfolio, before lease incentives, to £816.6m (2018: £824.8m). The accounting for head leases and lease incentives resulted in a book value of the see- through investment portfolio of £804.0m (31 March 2018: £814.6m). Debt and Financial Risk In total, Helical’s outstanding debt at 31 March 2019 of £479.2m (31 March 2018: £470.7m) had a weighted interest cost of 4.0% (31 March 2018: 4.3%) and a weighted average debt maturity excluding the Convertible Bond, of 3.4 years (31 March 2018: 3.5 years). The average maturity of the facilities would increase to 4.2 years following exercise of the two one-year extensions of the Group’s £150m revolving credit facility. The £100m unsecured Convertible Bond is to be repaid in June 2019. HELICAL PLCAnnual Report and Accounts 2019DEBT PROFILE AT 31 MARCH 2019 – INTEREST RATES Fixed rate debt Secured borrowings Convertible Bond Fair value of Convertible Bond Total Floating rate debt Secured Total In joint ventures Floating rate Total borrowings Effective interest rate % 3.6 4.0 - 3.7 5.71 4.0 4.0 4.0 2019 £m 262.5 100.0 0.5 363.0 67.2 430.2 49.0 479.2 Effective interest rate % 4.1 4.0 - 4.1 7.01 4.4 3.6 4.3 2018 £m 265.3 100.0 1.3 366.6 54.2 420.8 49.9 470.7 ¹ This includes commitment fees on undrawn facilities. Excluding these would reduce the effective rate to 3.7% (31 March 2018: 3.9%). Secured Debt The Group arranges its secured investment and development facilities to suit its business needs as follows: Unsecured Debt The Group’s utilised unsecured debt is £100.5m (31 March 2018: £101.3m), as follows: • Investment Facilities • Convertible Bond We have £150m of revolving credit facilities that enable the Group to acquire, refurbish, reposition and hold significant parts of our investment portfolio. Our London investment assets are primarily held in £293m of term loan secured facilities. The value of the Group’s properties secured in these facilities at 31 March 2019 was £698m (31 March 2018: £706m) with a corresponding loan to value of 44.4% (31 March 2018: 45.3%). The average maturity of the Group’s investment facilities at 31 March 2019 was 3.5 years (31 March 2018: 3.8 years), increasing to 4.4 years following the two one-year extensions of the revolving credit facility with a weighted average interest rate of 3.9% (31 March 2018: 4.5%). • Development Facilities This facility finances the over-station development at Kaleidoscope, London EC1. The maturity of the Group’s development facility at 31 March 2019 was 4.4 years with a weighted average interest rate of 6.3%. Excluding the impact of commitment fees, the weighted average interest rate of this facility is 4.2%. • 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 2019 was 2.8 years (31 March 2018: 1.7 years) with a weighted average interest rate of 4.0% (31 March 2018: 3.6%). 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 2019, as determined by the listed market price, was £100.5m (31 March 2018: £101.3m). The Group expects to repay the £100m Bond in June 2019 from existing cash resources. • Short-term Working Capital Facilities These facilities provide access to additional working capital for the Group. Cash and Cash Flow At 31 March 2019, the Group had £382m (31 March 2018: £277m) of cash and agreed, undrawn, committed bank facilities including its share in joint ventures, as well as £25m (31 March 2018: £105m) of uncharged property on which it could borrow funds. Net Borrowings and Gearing Total gross borrowings of the Group, including in joint ventures, have increased from £470.7m to £479.2m during the year to 31 March 2019. After deducting cash balances of £205.2m (31 March 2018: £103.7m) and unamortised refinancing costs of £5.4m (31 March 2018: £4.1m), net borrowings reduced from £362.9m to £268.6m. The gearing of the Group, including in joint ventures, reduced from 68.0% to 47.3%. See-through gross borrowings See-through cash balances Unamortised refinancing costs See-through net borrowings 31 March 2019 31 March 2018 £479.2m £470.7m £205.2m £103.7m £5.4m £4.1m £268.6m £362.9m Shareholders’ Funds £567.4m £533.9m See-through gearing – IFRS net asset value 47.3% 68.0% Hedging At 31 March 2019, the Group had £363.0m (31 March 2018: £366.6m) of fixed rate debt with an average effective interest rate of 3.7% (31 March 2018: 4.1%) and £67.2m (31 March 2018: £54.2m) of floating rate debt with an average effective interest rate, excluding commitment fees, of 3.7% (31 March 2018: 3.9%). In addition, the Group had £240m of interest rate caps at an average of 1.69% (31 March 2018: £15.0m at 0.75%). In our joint ventures, the Group’s share of fixed rate debt was £nil (31 March 2018: £nil) and £49.0m (31 March 2018: £49.9m) of floating rate debt with an effective rate of 4.0% (31 March 2018: 3.6%) with interest rate caps set at 0.5% plus margin on £11.0m (31 March 2018: £58.0m). HEDGING PROFILE £m 700 600 500 400 300 200 100 0 Mar ’19 £433m £388m £243m £143m £50m Mar ’20 Mar ’21 Mar ’22 Mar ’23 Mar ’24 Mar ’25 Mar ’26 Mar ’27 Fixed Rate Swap Cap TIM MURPHY Finance Director 23 May 2019 51 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONPRINCIPAL 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 it faces is fundamental to its financial stability, current and future 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 APPROACH TOP-DOWN APPROACH OVERSIGHT, IDENTIFICATION, ASSESSMENT AND MITIGATION OF RISKS AT A STRATEGIC LEVEL The Board has ultimate responsibility for risk management within the Group. The Board sets the risk appetite of the Group, establishes a risk management strategy and is responsible for maintaining a robust internal controls system. The Board continually monitors and reviews the risk management strategy to ensure that it remains appropriate and consistent with the Group’s overall strategy and external market conditions. The Audit and Risk Committee supports the Board by evaluating the effectiveness of the risk management procedures and internal controls throughout the year. The Executive Committee is responsible for the day-to-day operational application of the risk management strategy and ensuring that all staff are aware of their responsibilities. Helical’s management team runs the business in line with the risk management strategy established by the Board and reports to the Board on how it operates. The small size of the team and Helical’s flat management structure allow the Executive Committee to have close contact with all aspects of the business and ensure that the identification and management of risks and opportunities are at the forefront of decision makers’ minds. Individual asset managers are responsible for identifying and assessing risks relating to the properties they manage and reporting to the Executive Committee as appropriate. All staff members are responsible for complying with risk management procedures and internal control measures, reporting to the Executive Committee as necessary. BOTTOM-UP APPROACH OVERSIGHT, IDENTIFICATION, ASSESSMENT AND MITIGATION OF RISKS AT AN OPERATIONAL LEVEL 52 HELICAL PLCAnnual Report and Accounts 2019PRINCIPAL RISKS 1 The Group's strategy is inconsistent with the market 2 The Group carries out significant development projects 3 Property values decline/reduced tenant demand for space 4 Political risk 5 Availability and cost of bank borrowing and cash resources 6 Breach of loan covenants 7 Employment and retention of key personnel 8 Reliance on key contractors and suppliers 9 Inability to asset manage, develop and let property assets 10 Health and safety risk 11 Business disruption and cyber security 12 Poor management of stakeholder relations 13 Non-compliance with prevailing legislation d o o h i l e k L i 4 8 9 11 10 13 3 6 2 12 7 5 1 VIABILITY STATEMENT The Directors have assessed the viability of the Group for a period of five years to March 2024, being the period for which the Board regularly reviews forecasts and which encompasses the lifetime of the Group’s major development projects. The Board considers the future performance of the Group beyond five years but less certainty inevitably exists over the forecasting assumptions for any period beyond five years. 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 and Audit and Risk Committee review the principal risks of the Group at least twice a year, reassessing the severity of each risk and determining the Group’s proposed response and planned mitigation; • The five-year forecasts for the Group are updated and reviewed by the Board and Executive Committee on a quarterly basis; and • Management reviews the short-term (three–four months) cash requirements of the Group on a bi-monthly basis and cash balances and movements are monitored daily. In making its assessment, the Board considers the Group’s principal risks and assesses the combined potential impact in severe, but plausible, downside scenarios together with the likely effectiveness of mitigating actions that the Group has at its disposal. The most relevant risks, their potential impact on the Group and the sensitivity analyses performed in order to assess their likelihood and impact are: • A significant reduction in the fair value of the Group’s property portfolio, which could result in the Group breaching loan covenants, requiring the repayment of a proportion of borrowings. The Group’s loan covenants were subjected to sensitivity analysis including severe reductions in property valuations in order to establish the quantum of cash required to cure any resulting breaches. The sensitivity analysis included modelling the impacts of both a disruptive and disorderly Brexit. Impact Management then assessed how such breaches could be cured practically. Finally, management determined the level of valuation fall which would result in an inability to cure the respective covenant breach and assessed the likelihood of such a fall to be remote; and • An inability to maintain sufficient levels of rental income, which could present a short-term liquidity risk for the Group and impact on profitability. Management subjects the Group’s long-term cash flow and profit forecasts to sensitivity analysis including severe reductions in rental income, assessing the impact on the Group’s ability to meet its liabilities as they fall due and its income cover ratios. Based on the outcomes of the procedures outlined above and other matters considered by the Board, the Directors hold 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. 53 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONPRINCIPAL 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 Link to strategy GROWTH 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 Helical’s 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. Mitigation/action Management constantly monitors the market and makes changes to the Group’s strategy in light of market conditions. The Group conducts an annual strategic review and maintains rolling forecasts with inbuilt sensitivity to model anticipated economic conditions. The Group’s management team is highly experienced and has a strong track record of understanding the property market. Due to the Group’s small management team, strategic change can be implemented quickly. The Group carries out significant development projects Link to strategy PROPERTY Risk description The Group carries out significant development projects over a number of years and is therefore exposed to fluctuations in the market and tenant demand levels over time. Mitigation/action Management carefully reviews the risk profile of individual developments and in some cases builds properties in several phases to minimise the Group’s exposure to reduced demand for particular asset classes or geographical locations over time. The Group carries out developments in partnership with other organisations and pre-lets space to reduce development risk, where considered appropriate. Property values decline/ reduced tenant demand for space Risk description The property portfolio is at risk of valuation falls through changes in market conditions, including underperforming sectors or locations, lack of tenant demand or general economic uncertainty. Mitigation/action The Group’s property portfolio has tenants from diverse industries, reducing the risk of over-exposure to one sector. We carry out occupier financial covenant checks ahead of approving leases in order to limit our exposure to tenant failure. 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 to suit the changing market. Management regularly models different property revaluation scenarios through its forecasting process in order to prepare a considered approach to mitigating the potential impact. 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. There remains uncertainty over the outcome of the United Kingdom’s decision to leave the European Union. The result could adversely affect the case for investment in the UK, depressing the property investment and occupational market, negatively impacting the Group’s performance. Mitigation/action Management seeks advice from experts to ensure it understands the political environment and the impact of emerging regulatory and tax changes on the Group. It maintains good relationships with planning consultants and local authorities. Where appropriate, management joins with industry representatives to contribute to policy and regulatory debate relevant to the industry. Link to strategy PROPERTY Political risk Link to strategy GROWTH 54 HELICAL PLCAnnual Report and Accounts 2019FINANCIAL RISKS Financial risks are those that could prevent the Group from funding its chosen strategy, both in the long and short term. Availability and cost of bank borrowing and cash resources Link to strategy FINANCING Risk description The inability to roll over existing facilities or take out new borrowing could 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. The Group is at risk of increased interest rates on unhedged borrowings. 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 bi-monthly by management, who seek to 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. The Group hedges the interest rates on the majority of its borrowings, effectively fixing or capping the rates over several years. Breach of loan covenants Link to strategy FINANCING 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 analyses to assess the likelihood of future breaches based on significant changes in property values or rental income. 55 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONPRINCIPAL RISKS REVIEW CONTINUED OPERATIONAL RISKS Employment and retention of key personnel Link to strategy PEOPLE Reliance on key contractors and suppliers Link to strategy PEOPLE Operational risks are internal risks that could prevent the Group from delivering its strategy. Risk description The Group’s continued success is reliant on its management and staff and successful relationships with its joint venture partners. Mitigation/action The senior management team is very experienced with a high average length of service. The Nominations Committee and Board regularly review succession planning issues and remuneration is set to attract and retain high calibre staff. Staff are encouraged to undertake personal development and training courses, which the Company supports. The Group has well established relationships with joint venture partners. Risk description The Group is dependent on the performance of its key contractors and suppliers for successful delivery of its development property assets. Mitigation/action The Group actively monitors its development projects and uses external project managers to provide support. Potential contractors are vetted for their quality, health and safety record and financial viability prior to engagement. Their performance is closely monitored throughout the development process, with bi-weekly reporting to management. The Group often works with contractors with whom it has previously worked successfully. 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, architects, project managers, marketing agencies, lawyers and managing agents. Link to strategy PROPERTY Health and safety risk Link to strategy PROPERTY Business disruption and cyber security Link to strategy PEOPLE 56 Mitigation/action The Group has a highly experienced team managing its properties, who regularly conduct on-site reviews and monitor cash flows against budget. The Group 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. Where appropriate, the Group engages parties it has worked with successfully previously. Risk description The nature of the Group’s operations and markets expose it to potential health and safety risks both internally and externally within the supply chain. 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 agreements prior to appointment and ensures they have appropriate policies and procedures in place, then monitors the adherence to such policies and procedures throughout the project’s lifetime. 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. Risk description The Group relies on Information Technology to perform effectively and a cyber-attack could result in IT systems being unavailable, adversely affecting the Group’s operations. Commercially sensitive and personal 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 governed by law (GDPR and Data Protection Act 2018). The Group is at risk of being a victim of social engineering fraud. An external event such as extreme weather, environmental incident, power shortage or terrorist attack could cause significant damage, disruption to the business or reputational damage. Mitigation/action The Group engages and actively manages external Information Technology experts to ensure IT systems operate effectively and that we respond to the evolving IT 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 including bi-annual disaster recovery tests. There is a robust control environment in place for invoice approval and payment authorisations including authorisation limits and a dual sign off requirement for large invoices and bank payments. The Group provides training, and there are procedures in place, to identify emails of a suspicious nature ensuring these are flagged to the IT providers and employees do not open attachments or follow instructions within the email. The Group has a disaster recovery plan, on-site security at its properties and insurance policies in place in order to deal with any external events and mitigate their impact. HELICAL PLCAnnual Report and Accounts 2019REPUTATIONAL RISKS Reputational risks are those that could affect the Group in all aspects of its strategy. Poor management of stakeholder relations Link to strategy GROWTH 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. Management closely monitors day-to-day business operations and 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). Non-compliance with prevailing legislation, regulation and best practice Risk description The nature of the Group’s operations and markets expose it to potential bribery and corruption risks (including money laundering and tax evasion) both internally and externally within the supply chain. Link to strategy GROWTH The Group is exposed to the potential risk of acquiring or disposing of a property where the owner/ purchaser has been involved in criminal conduct or illicit activities. The Group would attract criticism and negative publicity were any instances of modern slavery and human trafficking identified within its supply chain. The Group would attract criticism and negative publicity if instances of non-compliance with GDPR and the Data Protection Act 2018 were identified. Non-compliance may also result in financial penalties. Mitigation/action The Group’s anti-bribery and corruption and whistleblowing policies and procedures 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. The Group has related policies and procedures designed to mitigate bribery and corruption risks including: Know Your Client checks; due diligence processes; capital expenditure controls; contracts risk assessment procedures; and competition and anti-trust guidance. The Group engages legal professionals to support these policies where appropriate. All employees are required to complete anti-bribery and corruption training and to submit details of corporate hospitality and gifts received. All property transactions are reviewed and authorised by the Executive Committee. Our Modern Slavery Act statement, which is prominently displayed on our website, gives details of our policy and our approach. The Group monitors its GDPR and Data Protection Act 2018 compliance to ensure appropriate safeguards, policies, procedures, contractual terms and records are implemented and maintained in accordance with the regulation. 57 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSUSTAINABILITY AT HELICAL Creating a sustainable and responsible business is at the core of our activities. We are committed to managing the balance of the needs of our tenants, investors, employees and the communities in which we work, and this outlook is key to maintaining the long-term value of our business. RESPONSIBLE ENVIRONMENTAL AND SOCIAL PRACTICES We acknowledge that our activities have direct and indirect environmental, social and economic benefits and impact. Through the entire lifecycle of our buildings from design through to asset management we continue to look for innovative ways to reduce our carbon emissions and running costs for the benefit of both Helical and our tenants. Our proactive approach to asset management seeks to maximise our asset performance, deliver resource efficiency and enable our tenants to use their spaces as effectively as possible. We take great pride in developing high quality public realm and we believe creating places where communities can work, meet and socialise is key in creating a sustainable building. To provide transparency when reporting our sustainability performance, we use a number of external benchmark indices and ratings, including; • FTSE4Good; and • Carbon Disclosure Project We also align our reporting with EPRA Best Practice in Sustainability Reporting Guidelines and in 2019/2020 will be participating in GRESB. Maintaining listed status on these benchmark indices remains a key priority for Helical, and informs the evolving approach to Corporate Responsibility and Sustainability. 58 HELICAL PLCAnnual Report and Accounts 2019WE RECOGNISE THAT SUSTAINABILITY IS A PRIORITY, NOT JUST FOR OUR INVESTORS AND TENANTS, BUT ALSO FOR THE COMMUNITIES IN WHICH WE OPERATE. AS A RESPONSIBLE BUSINESS WE HAVE RESPONDED TO THIS BY CREATING A SUSTAINABILITY FRAMEWORK WHICH FOCUSES ON FOUR CORE PILLARS: OUR PEOPLE; OUR ENVIRONMENT; HEALTH AND SAFETY; AND OUR COMMUNITY. WE BELIEVE THAT BY APPLYING THESE PILLARS TO INVESTMENT, DEVELOPMENT AND ASSET MANAGEMENT ACTIVITIES, WE ARE CREATING A SUSTAINABLE BUSINESS WHICH MEETS THE NEEDS OF OUR KEY STAKEHOLDERS.'' GERALD KAYE CHIEF EXECUTIVE U R P E O P L E O O U R E N V I R O N M E N T SUSTAINABILITY O U R C O M M U N I T Y H E A L T H D S A F E T Y N A MANAGING CORPORATE RESPONSIBILITY We recognise that there is a direct link between sustainability and shareholder value through enhancing the long-term value of the business. We continue to review our Environmental Management processes to ensure they continue to effectively monitor legislative requirements, minimise risks of pollution, facilitate the management of key environmental risks, and assist in achieving specific objectives and targets. 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 by the Board and are implemented by the Executive Committee; • 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 we can report in line with investor disclosure requirements; • Checklists to assist in applying minimum sustainability requirements across the Group's development activities. Helical has developed a sustainability project management checklist to ensure that sustainability issues 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 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. 59 As investor scrutiny of sustainability business activities and reporting grows further, we are committed to expanding our benchmarks and availability of data. HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION SUSTAINABILITY AT HELICAL CONTINUED At Helical, our people are intrinsic to delivering the ambitions of the business and driving long-term growth. Our employees Helical has a small core team, working closely with trusted partners in multiple disciplines. Our success is built on the skills of our staff and therefore finding, developing, rewarding, and retaining our people is a key element of our corporate strategy. During the year staff participated in Property Week’s Best Places to Work in Property survey and awards programme. The results of that survey have earned Helical the distinction of being ranked one of the Best Places to Work in Property for 2019. Our culture At Helical we encourage an open and inclusive culture as we believe this creates a collaborative and focused approach to achieving the Group’s aims and aspirations, encouraging individuals to proactively suggest ideas and opportunities for the benefit of the business and the people. Diversity is important in supporting Helical in achieving its strategic aims. By ensuring that Helical is a diverse business, the Group benefits from a variety of experiences and perspectives, stimulating creativity and contributing to our open and cohesive culture. Our approach Not only do we offer our staff a competitive remuneration and benefits package, but we also support part-time, job-sharing and flexible working requests where possible. During the year under review, 19% of the workforce carried out their roles on a part-time basis in order to meet family commitments. We believe this competitive approach to remuneration, alongside an attractive working environment, has continued to keep staff turnover low at 6.25%, with an average length of service of 8.7 years. To ensure a highly skilled and experienced team, Helical continues to evaluate training needs in line with business objectives. Our employees are actively encouraged to attend training that enhances their knowledge and benefits the business. Over the year, our staff undertook 699 hours of training and development, an average of 3.5 days per employee. We promote wellbeing through a number of benefits including a paid-for gym membership, medical insurance, a cycle to work scheme and the availability of fruit and healthy snacks at the office. As Helical operates with a small team, our ability to establish excellent long-term relationships with our advisors, 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 as soon as possible and within the terms established with them. EXECUTIVE DIRECTORS EXECUTIVES ALL EMPLOYEES 3 as at 31 March 2019 TENURE 17 as at 31 March 2019 32 as at 31 March 2019 24.6 YEARS 6.8 YEARS 8.7 YEARS GENDER SPLIT % BOARD MALE 89% FEMALE 11% MALE 59% FEMALE 41% MALE 44% FEMALE 56% 60 Helical has a duty to care for the environment, which leads us to constantly seek innovative ways in which we can reduce any adverse impact. 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, flood risk and sustainable design and construction. Full details of the Group’s performance against the targets during the year are available in the Environment section of the Company’s website. Due to changes in the portfolio over the year, it is difficult to provide meaningful overall like-for-like (LfL) statistics. However, of the properties that can be compared: • Churchgate & Lee, Manchester, has shown reductions in energy consumption, compared with last year, of 25% for electricity and 21% for gas. These are principally attributed to improvements to LED lighting and refurbished heating systems. Churchgate & Lee has seen an increase in water consumption for the reporting year. • The Warehouse, London EC1, has shown a good decrease in both electricity (12%) and gas (29%) usage over the reporting period. This is a considerable improvement on last year’s LfL performance. HELICAL PLCAnnual Report and Accounts 2019The table below highlights that overall GHG emissions have decreased by 9.3% year-on-year. The primary reason for this is the consolidation of Helical’s managed assets to more core buildings, alongside the reduction in conversion factors resulting from the increased inclusion of renewable energy in the UK grid. As noted in the previous section, considerable reductions have been made owing to improvements in energy efficient devices and fittings. Due to the changing portfolio, the like-for-like GHG emissions are only reported for a small number of properties (six properties for electricity and three properties for gas). Both like-for-like consumption and associated GHG emissions have reduced across the portfolio for the reporting period. Like-for-like Scope 1 and 2 emissions have decreased by over 25% which demonstrates that the improvements made through increased awareness and engagement with tenants/personal impact on consumption, and energy efficient design measures such as LED light fittings, have proved effective across the portfolio. Greenhouse gas (GHG) emissions reporting For the reporting year to 31 March 2019 the 2018 UK Government’s Conversion Factors for Company Reporting has been followed as the majority of Helical’s consumption has occurred within 2018 and has followed the UK Government environmental reporting guidance. 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. Greenhouse gas emissions (tonnes CO2e) Total portfolio Tonnes CO2e Like-for-like portfolio Tonnes CO2e Year ended 31.3.19 Year ended 31.3.18 Year ended 31.3.19 Year ended 31.3.18 Scope 1: Direct emissions Scope 2: Indirect emissions Total all scopes 739 1,794 2,533 796 1,997 2,793 362 959 1,321 487 1,459 1,946 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 12% on the 2018 baseline performance achieving the 2% reduced energy consumption target. Emissions intensity based on floor area Reporting year 2017-18 2018-19 Portfolio floor area (NLA) m2 202,785 179,298 Scope 1&2 emissions Tonnes CO2e 2,793 Scope 1 & 2 Tonnes CO2e/m2 0.014 2,533 0.014 61 • The Loom, London E1, has shown a good decrease in electricity consumption (15%) which can be attributed to variations in occupancy rates and completion of commissioning of the mechanical and engineering plant at the property. • 25 Charterhouse Square, London EC1, has seen an decrease in common parts energy consumption across both electricity (25%) and gas (19%) over the year. Due to increasing occupancy rates and a warm summer the water consumption for the site rose by 115%. • The Group continues to offer recycling facilities at the larger of its managed assets and there has been great success in working with tenants to roll out initiatives to avoid single use plastics; including the use of paper straws, biodegradable cutlery and reusable cups. Most properties exceeded the ongoing target of a recycling rate of 50%, including at Shepherds Building, The Warehouse, The Tower, The Loom, 25 Charterhouse Square in London and Fourways House in Manchester. All properties where waste is collected achieved 100% diversion from landfill. Churchgate & Lee, Manchester, 35 Dale Street, Manchester and Power Road Studios, London W4 will look to increase the scope of their site recycling to exceed the Helical target. In line with the mandatory requirement for reporting its greenhouse gas emissions, Helical provides a separate disclosure in this report opposite. This is based on all the data that has been made available to us. HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSUSTAINABILITY AT HELICAL CONTINUED We believe ongoing engagement with the communities where our buildings are located is key to the success of the assets. Helical takes a strong interest in charitable, community and social issues. As a Group, we recognise that the buildings we own and develop have an impact on the local environment and the communities that live and work there. We believe that engagement with those communities is an important part of our activities. Community engagement is an ongoing priority throughout the whole development process. Helical Bursary The Helical Bursary was established in 2017/18 to support Real Estate and Planning students studying at Henley Business School, University of Reading. The Bursary was awarded to Aurora Bennet, an exceptional student, who would not otherwise have had sufficient financial resource to support her study. Helical has paid a total of £10,000 to date, with an additional £5,000 pledged for the next academic year. MONEY PAID £10,000 MONEY PLEDGED FOR THE NEXT ACADEMIC YEAR £5,000 “ I can say, without a doubt, that if it wasn’t for the support of this foundation, for the inspiring individuals and firms in this industry, I wouldn’t be as inspired to work as hard as I do and be as successful as I am.” Aurora Bennet 62 • Helical also entered a hand-decorated rubber duck in the 2019 Manchester Duck Race to help raise funds for Brainwave, a charity that exists to help children with disabilities and additional needs; • 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 an environment that produces a safe, convenient and inspiring destination for all employees, residents and visitors; and • To help encourage young people to enter the property industry, for over 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. Other activities As part of our commitment to the areas in which we operate, we regularly support community initiatives. Some examples from the year to 31 March 2019 include: • At The Bower, London EC1, there has been a focus on wellness over the last 12 months. In January we held “The Wellness Month” which included yoga, talks and laughter workshops for tenants; • At Power Road Studios, London W4, we have held numerous successful events to promote health awareness, sporting events such as table tennis tournaments and food truck pop ups; • At Barts Square, London EC1, the residential scheme has been designed with the goal of creating a new community in the heart of the City. Comprehensive amenities give residents the opportunity to come together, become acquainted and socialise. The lounge, gardens and screening room provide the opportunity to meet residents, friends and family. An informal residents committee has been set up to allow residents to raise concerns, share experiences and plan upcoming scheme-wide events. The online residents’ portal also provides a forum for communication, both to management and between residents; • Dale Street, Manchester, participated in this year’s “Halloween in the City”. This is a city-wide event featuring giant rooftop monster invasions, trick or treat trials, a skeleton parade and family friendly performances. The event attracted an additional 30,000 people to the city centre with Dale Street showcasing its very own monster invasion (above); HELICAL PLCAnnual Report and Accounts 2019On 27 September 2018 a 15 strong team of Helical employees embarked on a four day Charity Trek to the Atlas Mountains, reaching the top of northern Africa’s tallest peak – Jbel Toubkal at 4,167m. This incredibly rewarding challenge stretched the team both physically and mentally, raising over £140,000 for two notable charities, LandAid and The Lord Mayor’s Appeal, with 100% of funds raised split equally between the two charities. LandAid is the property industry charity working to end youth homelessness in the UK. LandAid brings together businesses and individuals from across the industry to support charities delivering life- changing projects for young people who are or have been homeless, or who are at risk of homelessness. The Lord Mayor’s Appeal partners (each year) with three organisations who are leading experts in addressing social issues to deliver ground breaking programmes, which will not only change, but also save, people’s lives. This year’s appeal supports Place2Be, OnSide Youth Zones and Samaritans. “ Having never walked this far before, let alone scaled a mountain in altitude, the trek was both a physical and emotional challenge. However, through the immense support, humour and resilience of the Helical team we all successfully reached the 4,167m summit. Knowing we were raising money for two amazing charities made every creaky knee, blister and altitude headache completely worth it.” Laura Beaumont, Helical employee MONEY RAISED £140,000 63 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSUSTAINABILITY AT HELICAL CONTINUED CASE STUDY THE BOWER London, EC1 The Bower has contributed to making Old Street a new contemporary destination for both business and leisure alike, inviting tenants and local communities to enjoy the facilities on offer. Sustainability is at the heart of The Bower. Through the redevelopment of an existing building we have minimised resource use and where possible kept parts of the original façade. Throughout the development stage 100% of the timber used was sourced sustainably and ongoing management of the site has resulted in 100% of waste being diverted from landfill. The Tower has a BREEAM rating of “Excellent” with many stand out design features created with tenant wellness in mind. A double-height ceiling has been installed which creates exceptional natural light and ceiling mounted fan coil units provide maximum occupier comfort in all areas. The building’s innovative and flexible design facilitates the possibility to easily connect multiple floors via open mezzanines and connecting stairways encouraging collaborative working. As part of our commitment to the Old Street area we are a contributing partner to “The Old Street District”. This is a voluntary business-led partnership who use their collective voice to influence policy in the area, focusing on issues such as public realm and the environment. The partnership aims are to create a district in which tenants and the local community can benefit from improved wayfinding, cleaner streets, lower air pollution and long-term sustainability. In the past year an “Urban Card” was launched, offering discounts at local establishments to those that live and work in the area. At a tenant level we hold a number of events throughout the year such as summer drinks and table tennis tournaments. In January 2019 we held our first “Wellness Month” at The Bower, encouraging tenants to partake in yoga, laughter workshops and talks. As with all our developments, Health and Safety is considered paramount in delivering a successful site. During the redevelopment of The Bower, from its commencement in 2013 to the practical completion of The Tower this year, there have been two “Lost Time Accidents” and one “RIDDOR” reportable incident, significantly outperforming the industry benchmarks. SUSTAINABLY SOURCED TIMBER 100% BREEAM OFFICES EXCELLENT BREEAM RETAIL VERY GOOD CONSTRUCTION WASTE DIVERTED FROM LANDFILL >2,000 t 64 HELICAL PLCAnnual Report and Accounts 2019Our commitment to health and safety is embedded in the culture and all activities at Helical. 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 both planning and day-to-day activities. The Group’s Health & Safety Policy was last reviewed and updated in February 2019 to reflect the latest legislative and regulatory developments. Training of Helical staff in the updated Health & 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 active sites is below. This is based on all the data that has been made available to us. Helical has delivered over two million construction hours during the year with no fatalities or major accidents and only one RIDDOR reportable incident. The majority of Helical projects are managed by principal contractors holding ISO 45001 certification and that maintain 100% Construction Skills Certification Scheme (CSCS) accreditation for all full time and subcontracted staff. CONSTRUCTION SKILLS CERTIFICATION SCHEME ACCREDITATION FOR ALL FULL TIME AND SUBCONTRACTED STAFF 100% 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 situated. As a Group, we keep such matters under review and act as necessary to ensure that we meet our obligations. Number of Lost Time accidents Number of RIDDOR reportable Number of fatalities Number of hours Accident frequency rate for Lost Time accidents Accident frequency rate for RIDDOR reportable The Strategic Report, on pages 1 to 65, was approved by the Board on 23 May 2019. Year ended 31.3.18 Year ended 31.3.19 5 11 5 1 – – 1,959,183 2,038,505 0.41 0.54 0.15 0.05 On behalf of the Board GERALD KAYE CHIEF EXECUTIVE 65 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCHAIRMAN’S REVIEW MICHAEL SLADE CHAIRMAN Helical has continued to grow in strength since last year, having completed a number of development schemes, achieved strong lettings success and secured new opportunities for future development. 66 DEAR SHAREHOLDER, During the year to 31 March 2019 Helical has achieved a strong level of performance despite the uncertainty caused by the current political climate. The Company has continued to create value for investors in addition to growing its portfolio and is now seeking new opportunities to add to the pipeline of schemes. CHANGES TO THE BOARD During the year under review, Richard Gillingwater has stepped down from the Board and Joe Lister appointed in his place. The year to 21 March 2020 will see more changes to the Board, including Michael O’Donnell stepping down at this year’s Annual General Meeting ("AGM") and my retirement from the Board after 35 years. Following Richard Grant’s appointment as Deputy Chairman in 2018 he will be proposed as my successor as Chairman at the 2019 AGM. We have started the process to identify a new Non-Executive Director, in light of my retirement from the Board, and will announce the results of this search in due course. Helical understands the benefits to be gained from diversity on its Board and aims to make further progress in this area in the future, including in relation to the Non-Executive Director recruitment process currently underway. We will continue to monitor best practice and industry standards relating to diversity and inclusion in the workplace and on the Board as part of our governance programme. REFLECTING ON MY TIME AT HELICAL During my 35 years with Helical I have seen its growth and development to a business far removed from the one I arrived at in 1984 and I am immensely proud of its success over the last 35 years. Having spent most of that time as the Company’s Chief Executive, I have been its Chairman for the last three years. Stepping down from the Board is an important milestone in my life and I would like to express my thanks to everyone I have worked with during this time. It has been a privilege to serve as Helical’s Chairman and I have every faith that I leave the Company in safe hands, with Gerald and Richard at the helm, continuing to direct Helical towards future opportunities and further success. HELICAL PLCAnnual Report and Accounts 20191919 Helical Bar and Engineering Company Limited is incorporated 1965 Change of name to Helical Bar Limited 100 YEARS OF HELICAL 1986 Helical transformation from steel manufacturer to property development and investment company 2019 100th anniversary of Helical 1957 Admission to the London Stock Exchange 1982 Re-registration as a Public Company, Helical Bar Limited becomes Helical Bar plc 1984-2019 Growth in market cap. of Helical from c.£0.5m to c.£425m 100 YEARS OF HELICAL 2019 marks the 100th anniversary for Helical. The Company was incorporated as Helical Bar and Engineering Company Limited in July 1919 and its main business was the manufacture and sale of reinforced steel to the construction industry; herein lies the root of the Company’s name: Helical Bar – a steel spiral strengthening rod, used to reinforce concrete blocks. That core strength remains within the spirit of Helical today. I joined Helical in 1984 during a difficult period. At that time, we carried out a strategic shift to preserve the organisation; it quickly changed from its steel roots to become a property development and investment business, which is how the Company now operates. Since its re-birth as a property development and investment company, Helical has been steered through numerous national financial crises and government changes, continuing to grow and create value for investors. It has increased in value since 1984 from c.£0.5m to c.£425m today and is one of the UK’s premier office developer and investment companies. BOARD DECISIONS During the year to 31 March 2019, the Board focused on oversight of the strategic direction of the Company in the light of the economic and political environment and the changes within the real estate sector. In addition, the Board meeting agendas during the year contained a variety of issues including: • a review of the Group’s corporate, property and financial strategy; • consideration and approval of changes required for compliance with the General Data Protection Regulation; • a pre-emptive review of the Company’s compliance with the 2018 UK Corporate Governance Code and The Companies (Miscellaneous Reporting) Regulations 2018 to identify required action for future compliance; • a complete review of the Company’s compliance with the 2016 UK Corporate Governance Code for the year to 31 March 2019; • consideration and approval of significant property transactions; and • approval of changes to the composition The Company’s Directors’ Remuneration Report was also approved at the 2018 AGM with 85.5% in favour. 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. The Chief Executive, Gerald Kaye, and the Finance Director, Tim Murphy, attended the majority of these meetings during the year, with the Property Director, Matthew Bonning-Snook, and Company Secretary, James Moss, also attending as appropriate. Richard Grant, Richard Cotton and I are available to meet Shareholders if they wish to discuss any matters with us. SUMMARY 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. I would also like to thank our stakeholders for their contribution to our success for the year to 31 March 2019. Helical is well positioned to take advantage of opportunities in the forthcoming year and I look forward to following the achievements of the business and the ongoing success of Helical. The following pages describe in greater detail our governance structure and the work of the Board and its Committees. MICHAEL SLADE OBE Chairman 23 May 2019 of the Board. ANNUAL STRATEGY REVIEW In September 2018, the Board carried out its annual strategic review of the business, which included consideration of the economic, geopolitical, societal and environmental risks affecting the business. This review involved an assessment of the Company’s position in the listed sector, its strengths and weaknesses and options for business growth. The strategic review confirmed that the decision taken to focus on development and investment in London and Manchester would maximise the potential future performance of the Group, given the talent, knowledge and experience of the current executive team and was, and continues to be, in the best interests of Shareholders. BOARD EVALUATION In the year to 31 March 2019, an internal Board performance evaluation was undertaken. The overall findings from that appraisal have concluded that Helical’s Board, Committees and individual Directors continue to operate effectively. Active steps have been taken to meet the recommendations arising out of the 2018 Board evaluation and suggested enhancements have been noted following this year’s evaluation process. Further information can be found on pages 73 and 77. It is intended that an external evaluation will be undertaken in the year to 31 March 2020. BOARD COMMITTEES The work of the Nominations, Remuneration and Audit and Risk Committees is discussed in detail in their individual reports on pages 76 to 97. At the 2018 AGM a new Remuneration Policy was proposed and approved with 97% in favour. This policy was designed to simplify the Company’s remuneration schemes, reduce award levels and to reflect continued developments in best practice. No changes are being proposed in relation to the Company’s Remuneration Policy at the 2019 AGM. 67 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBOARD OF DIRECTORS OUR BOARD A AUDIT AND RISK COMMITTEE MEMBER N MICHAEL SLADE CHAIRMAN GERALD KAYE CHIEF EXECUTIVE E V N NOMINATIONS COMMITTEE MEMBER Board meetings attended 6/6 Board meetings attended 6/6 R REMUNERATION COMMITTEE MEMBER Tenure 35 years Tenure 25 years V PROPERTY VALUATIONS COMMITTEE MEMBER E EXECUTIVE COMMITTEE MEMBER COMMITTEE CHAIRMAN S SECRETARY TO THE BOARD AND BOARD COMMITTEES CHANGES TO THE BOARD DURING THE YEAR Richard Gillingwater stepped down from the Board at the 2018 AGM on 12 July 2018. Joe Lister was appointed to the Board and as a member of the Audit and Risk, Nominations and Remuneration Committees with effect from 1 September 2018. Skills and experience Michael Slade OBE, 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 to step down from the Board at the 2019 AGM. 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. Other external appointments Mike 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 £50m global cancer treatment and research centre at The Royal Marsden NHS Foundation Trust. Other external appointments Gerald is a member of the Investment Committee at Guy’s & St Thomas’ Charity, and 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 PROPERTY DIRECTOR E E V Board meetings attended 6/6 Board meetings attended 6/6 Tenure 7 years Tenure 12 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 is responsible for the financial statements 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). 68 HELICAL PLCAnnual Report and Accounts 2019RICHARD GRANT DEPUTY CHAIRMAN, CHAIRMAN OF THE AUDIT AND RISK COMMITTEE AND CHAIRMAN OF THE NOMINATIONS COMMITTEE SUE CLAYTON CHAIRMAN OF THE PROPERTY VALUATIONS COMMITTEE JOE LISTER NON-EXECUTIVE DIRECTOR V A N R A N R A N R Board meetings attended 6/6 Board meetings attended 3/4* Board meetings attended 6/6 Tenure 3 years Tenure 9 months Tenure 7 years Skills and experience Richard Grant, BA (Oxon), ACA, has more than 40 years’ financial experience including as Finance Director of Cadogan Estates Limited and as Corporate Finance Partner at PricewaterhouseCoopers. He is the Chairman of the Audit and Risk Committee and Nominations Committee. Richard is Deputy Chairman of the Company and will become Chairman at the 2019 AGM. Other external appointments Chairman of Stenprop Limited. Skills and experience Sue Clayton, FRICS, was appointed to the Board as a Non-Executive Director in February 2016. Sue is a 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. Skills and experience Joe Lister was appointed to the Board in September 2018. He is Chief Financial Officer at Unite Group plc, a position he has held since January 2008 after joining the company in 2002. Prior to joining Unite Group plc, Joe qualified as a Chartered Accountant at PricewaterhouseCoopers. Other external appointments Executive Director, CBRE (part-time) and Chair of CBRE UK’s Women’s Network, Board Member of the Committee of Management of Hermes Property Unit Trust and a Non-Executive Director of SEGRO plc. Other external appointments Executive Director, Unite Group plc. * At the time of the May and July 2018 Board meetings, Joe Lister was not a Helical Director. Joe was unable to attend the November 2018 Board meeting due to a commitment which predated his appointment date. RICHARD COTTON SENIOR INDEPENDENT DIRECTOR MICHAEL O’DONNELL CHAIRMAN OF THE REMUNERATION COMMITTEE JAMES MOSS COMPANY SECRETARY AND GROUP FINANCIAL CONTROLLER A N R R N S E Board meetings attended 6/6 Board meetings attended 6/6 Board meetings attended 6/6 Tenure 3 years Tenure 8 years Tenure 4 years Skills and experience Richard Cotton was appointed to the Board as a Non-Executive Director in March 2016 and as Senior Independent Director in March 2018. Richard was formerly head of UK Real Estate at J.P. Morgan Cazenove which he left in 2009 and spent the subsequent five years at Forum Partners. He was previously Chairman of Centurion Properties and a Non-Executive Director of Hansteen Holdings plc. Other external appointments Non-Executive Director of Big Yellow Group plc and Ormonde Gate Amsterdam BV. and a member of the Commercial Development Advisory Group of Transport for London. 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. Michael has notified the Company that after eight years on the Board, he does not intend to offer himself for re-election at the 2019 AGM. Other external appointments Through his company, Ebbtide Partners, he acts as a consultant to, and investor in, private companies. 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 and to the Executive Committee in March 2018. He was previously at Grant Thornton, where he was responsible for leading audit and other assurance assignments in their Real Estate sector. 69 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION GOVERNANCE REVIEW CORPORATE GOVERNANCE CODE COMPLIANCE Throughout the year under review, the Group has applied the Main Principles of UK Corporate Governance Code 2016 (the "Code") and, except where stated below in relation to Michael Slade OBE, has fully complied with the Provisions of the Code. A full version of the Code can be found on the Financial Reporting Council’s website: www.frc.org.uk. This year has seen the introduction of key corporate governance reforms including the UK Corporate Governance Code 2018 (the "2018 Code") and The Companies (Miscellaneous Reporting) Regulations 2018 (SI 2018/860) ("secondary legislation") both of which will apply to the Group’s financial year beginning on 1 April 2019. The FRC is currently consulting on changes to the UK Stewardship Code and a final version of the updated code is expected in July 2019. The Group has taken, and is continuing to take, proactive steps to ensure compliance with the 2018 Code and secondary legislation for the financial year ended 31 March 2020. As part of this exercise, the Group is working to incorporate the best practice recommendations from the FRC Guidance on Board Effectiveness where possible. The Group has updated its schedule of matters reserved for the Board, Committees’ Terms of Reference and corporate policies/practices for compliance with the governance reforms. Our Board and its Committees The Board has a duty, and is committed, to promoting the long-term success of the Company for the benefit of our Shareholders and other stakeholders. Our Board is composed of the Chairman, three Executive Directors (including the Chief Executive) and five Non-Executive Directors, supported by the Company Secretary. Biographies of all Directors and details of their shareholdings in the Company can be found on pages 68 to 69 and 97 respectively. The current Chairman is Michael Slade and the Deputy Chairman is Richard Grant. Michael will be stepping down as Chairman at the 2019 Annual General Meeting ("AGM") after a three-year term in the role and 35 years on the Board. The Board is recommending his successor to be Richard Grant, subject to Shareholder approval at the 2019 AGM. Upon Richard’s successful appointment as the Chairman, Joe Lister will become Chairman of the Audit and Risk Committee with effect from 11 July 2019; Richard will continue his role as Chairman of the Nominations Committee. The Chief Executive is Gerald Kaye and the two remaining Executive Directors are Tim Murphy (Finance Director) and Matthew Bonning-Snook (Property Director). The current Non-Executive Directors are Richard Cotton (Senior Independent Director), Sue Clayton, Joe Lister and Michael O’Donnell. Michael O’Donnell has indicated that, after eight years on the Board, he does not intend to offer himself for re-election at the 2019 AGM. We thank Michael for his valuable contribution to the Group, he has been an asset to the Board. All Directors, with the exception of Michael Slade and Michael O’Donnell, will be offering themselves for election or re-election, as appropriate, at the 2019 AGM. Michael Slade OBE, former Chief Executive of Helical, is the current Chairman following his re-election as such at the 2018 AGM (with 94.17% votes cast in favour). As noted in the 2016, 2017 and 2018 Annual Reports, Michael is not considered to have been independent on appointment as Chairman as required by the Code. During the year the Board has ensured that safeguards remain in place to counter any concerns regarding his independence. In particular, he does not act as Chairman of the Nominations Committee and is not a member of the Audit and Risk or Remuneration Committees. In addition, the Board Evaluation process was led by Richard Grant, the Deputy Chairman, with the annual appraisal of the Chairman led by Richard Cotton, both of whom are considered to be independent. Executive Committee The Executive Committee, led by the Chief Executive, is responsible for ensuring the Group’s strategy is communicated and implemented. It is comprised of the three Executive Directors and two senior managers; and usually meets monthly, or more frequently if required. Change of Chairmanship As referred to above, Michael Slade OBE will be retiring from the Board of Helical after 35 years of service to the Group. In preparation for the change in Chairmanship, Richard Grant was appointed as Deputy Chairman in 2018 to facilitate a smooth transition. Richard has more than 40 years' experience including as Finance Director of Cadogan Estates Limited and as a corporate finance partner at PwC and has served on the Board for seven years. Richard Grant will be considered independent upon appointment, if successfully appointed as Chairman at the close of the 2019 AGM. Since his appointment as Chairman in July 2016, Michael Slade OBE has provided excellent leadership for the Company, continuing to provide a wealth of experience and property related knowledge in his role as Non-Executive Chairman. We owe him a great debt and he has our gratitude for all he has done for Helical and its Shareholders over the last 35 years. 70 Key Roles and Responsibilities on the Board Chairman and Chief Executive The positions of Chairman and Chief Executive are held separately, and their roles and responsibilities are clearly established, set out in writing and agreed by the Board. The Chairman is responsible for the leadership of the Board and ensuring its effectiveness in all aspects of its role. The Chief Executive is responsible for the leadership of the business and managing it within the authorities delegated by the Board. Alongside boardroom discussions, the Chairman maintains contact with the Non-Executive Directors by telephone and, at least annually, will hold meetings with the Non-Executive Directors without the Executive Directors present. Senior Independent Director The Senior Independent Director (SID) has acted, and continues to act, as a sounding board for the Chairman and an intermediary for other Directors and Shareholders. The SID is available to Shareholders for meetings or to discuss any concerns which have not been resolved through, or would be inappropriate to resolve through, the normal channels of the Chairman, Chief Executive or other Directors. Non-Executive Directors The Non-Executive Directors are responsible for constructively challenging and helping to develop proposals on strategy. They are also responsible for applying independent and objective judgement and scrutiny to all matters before the Board and its Committees. During the year to 31 March 2019, the Non-Executive Directors received presentations from JP Morgan Cazenove and Numis Securities Limited to help the Board enhance its understanding of the views of Helical’s major Shareholders. HELICAL PLCAnnual Report and Accounts 2019The Code requires the Board and its Committees to have an appropriate balance of skills, experience, independence and knowledge of the Company to enable the effective discharge of their respective duties and responsibilities. The Nominations Committee is responsible for reviewing whether the composition of the Board is appropriate in accordance with this requirement. During the year the Nominations Committee introduced a skills matrix to support this process and to provide guidance as to appropriate criteria for appointing new Directors. The Board and Committees are considered to possess the required balance of skills, experience, independence and knowledge required by the Code. LEADERSHIP Governance Structure BOARD OF DIRECTORS The Board is responsible for matters including, but not limited to: • providing overall leadership of the Group and for setting its long-term strategic aims; • approving changes to the Group’s capital, corporate and governance structures; • oversight and approval of the Group’s financial reporting; • ensuring the maintenance of a robust system of controls and risk management; • approving major capital projects, investments and contracts above limits of authority delegated by the Board; • approving resolutions and corresponding documentation to be put to Shareholders at general meetings; circulars and listing particulars; • ensuring satisfactory dialogue with shareholders; and • oversight of all corporate governance matters. Board members Michael Slade (Chairman) Gerald Kaye (Chief Executive) Richard Grant (Deputy Chairman) Richard Cotton (Senior Independent Director) Sue Clayton (NED) Joe Lister (NED) Michael O’Donnell (NED) Tim Murphy (Finance Director) Matthew Bonning-Snook (Property Director) Secretary to the Board James Moss EXECUTIVE COMMITTEE Assists the Chief Executive in the performance of his duties and ensures that the Group’s strategy is implemented, subject to the limitations of authority set out in the schedule of matters reserved for the Board. Committee members Gerald Kaye (Chairman and Chief Executive) Tim Murphy (Finance Director) Matthew Bonning-Snook (Property Director) James Moss (Group Financial Controller and Company Secretary) Tom Anderson (Senior Investment Executive) COMMITTEES AUDIT AND RISK COMMITTEE Assists the Board in fulfilling its oversight responsibilities by reviewing and monitoring: • the integrity of 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. Committee members Richard Grant (Chairman) Sue Clayton (NED) Richard Cotton (NED) Joe Lister (NED) REMUNERATION COMMITTEE Assists the Board in fulfilling 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. Committee members Michael O’Donnell (Chairman) Sue Clayton (NED) Richard Cotton (NED) Richard Grant (NED) Joe Lister (NED) NOMINATIONS COMMITTEE Ensures there is a formal, rigorous and transparent procedure for the appointment and induction of new Directors to the Board, leads the process for Board appointments and succession planning (including the development of a diverse succession pipeline), supports the annual Board evaluation process. Committee members Richard Grant (Chairman) Sue Clayton (NED) Richard Cotton (NED) Joe Lister (NED) Michael O’Donnell (NED) Michael Slade (NED) PROPERTY VALUATIONS COMMITTEE Reviews the valuations of the Company’s property portfolio and reports to the Audit and Risk Committee on its findings. Committee members Sue Clayton (Chairman) Gerald Kaye (Chief Executive) Matthew Bonning-Snook (Property Director) Tom Anderson (Senior Investment Executive) See Audit and Risk Committee report on page 78 See Remuneration Committee report on page 81 See Nominations Committee report on page 76 71 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION GOVERNANCE REVIEW CONTINUED positions were held by women, providing a positive balance of gender in our talent pool. In order to maintain a diverse and inclusive business, Helical supports part-time, job-sharing and flexible working requests where possible. During the year under review 19% of the workforce carried out their roles on a part-time basis in order to meet family commitments. The overall gender balance of the workforce can be found on page 60. Helical maintains an Employment Policy which is reviewed on an annual basis. This policy supports our employment practice of equal opportunities, whereby all employment candidates are considered fairly and without prejudice or discrimination. The policy also supports the treatment of individuals, with respect to the enhancement of their development and remuneration, on merit alone. Helical’s Employment Policy can be found on our website: https://www.helical.co.uk/ sustainability/policies-reports/. As described in the Nominations Committee report on page 76, whilst Helical does not set specific targets for diversity on the Board, it gives full regard to the benefits of, and aspires to boost the level of, diversity on the Board. Our consideration of diversity extends beyond gender and the Group considers diversity to also include: social and ethnic backgrounds, religious belief, sexual orientation and disability, cognitive and personal strengths. The benefits of diversity are borne in mind when reviewing the composition of the Board, and ensuring that the Board and its Committees are suitably skilled, experienced and knowledgeable is the ultimate objective when making appointments thereto. As such, no formal objectives are set in relation to diversity on the Board. Helical is a signatory to Real Estate Balance CEO’s Commitments for Diversity and the Group supports the principles on leadership, culture and opportunity contained in the Real Estate Balance Toolkit, designed to support a more diverse workplace. Helical will continue to monitor best practice and industry standards relating to diversity to identify ways to enhance our business during the forthcoming year. EFFECTIVENESS KEY BOARD ACTIVITIES Board matter Activity Strategy • Review of corporate objectives • Review of market trends, opportunities and risks • Annual strategy meeting People • Executive and Non-Executive development and succession planning • Evaluation of the Board’s effectiveness • Review of staff resource and development of the Group’s employees Financial • Approval of half year and annual results • Review of dividend policy • Review of Group’s capital and debt structure Governance • Assessment of viability and going concern, including sensitivity analysis • Assessment of impact of the UK corporate governance reforms – 2018 UK Corporate Governance Code, FRC’s Guidance on Board Effectiveness and The Companies (Miscellaneous Reporting) Regulations 2018 • Implementation of General Data Protection Regulation • Approval of Board policies and procedures, schedule of matters reserved for the Board and Committee terms of reference Risk management • Financial crime risks review and mitigation • Internal controls system review • Review of principal risks Property transactions and operations • Approval of material property transactions and opportunities – including the sale of remaining non-core assets, sale of The Shepherds Building, London W14, sale of 31 Booth Street, Manchester, and the acquisition of Fourways House, Manchester • Review of independent valuations of assets Culture The Board is responsible for defining the culture of Helical and ensuring that this aligns with the Group’s strategy and purpose. As such, the Board encourages an open culture, enabling the strategic direction and the key drivers of the business to be fully understood by all members of the Helical team. This environment creates a collaborative and focused approach to achieving the Group’s aims and aspirations, encouraging individuals to proactively suggest ideas and opportunities for the benefit of the business and the team. To support this culture, the key points arising from strategic discussions held by the Board and Executive Committee are communicated to staff members, ensuring strategic engagement at all levels within the Group. At an operational level, the Executive Committee met with Helical’s Property Executives in January 2019 to seek their views and encourage their input into the strategy for the forthcoming year and beyond. In addition to defining Helical’s culture, the Board is responsible for monitoring and overseeing that culture, including its own internal dynamics. As such, a review of the relationships and the culture within the Board was included in its evaluation process. The results of the Board Evaluation can be found on page 73. A review of the wider organisation’s culture was also undertaken through staff participation in Property Week’s Best Places to Work in Property survey and awards programme. The results of that survey have earned Helical the distinction of being ranked one of the Best Places to Work in Property for 2019. The Board recognises that Helical’s culture is vitally important to the success of the business in the long term and directly influences the Group’s ability to meet the expectations of our Shareholders and wider stakeholders. More detail relating to Helical’s Shareholders and stakeholders, and our engagement therewith, can be found on page 74. Diversity and inclusion Diversity and inclusion are important factors to support the achievement of Helical’s strategic aims. By ensuring that Helical is an inclusive and diverse business, the Group benefits from a variety of experiences and perspectives, stimulating creativity and contributing to our open and cohesive culture. In addition, benefits extend to the development of a diverse succession pipeline, necessary for future sustainability. During the year under review, 41% of the Group’s professional 72 HELICAL PLCAnnual Report and Accounts 2019BOARD ATTENDANCE Regular Board meetings are scheduled each year and the Directors allocate sufficient time to the Company to discharge their responsibilities effectively. During the year ended 31 March 2019, six scheduled Board meetings were held, with an additional three unscheduled meetings held to discuss specific issues and events. The Board also held its annual offsite strategy event during September 2018, which enabled focused discussions relating to the Group’s strategy. The strategy event was structured to facilitate formal discussions during the day followed by informal discussions in the evening. The table below sets out the scheduled Board meeting attendance of each Director: Board Meeting Attendance Director Michael Slade Richard Grant Gerald Kaye Richard Cotton Sue Clayton Joe Lister 1 Michael O’Donnell Tim Murphy Matthew Bonning-Snook Former Director Richard Gillingwater (retired 12 July 2018) 1 At the time of the May and July 2018 Board meetings, Joe Lister was not a Helical Director. Joe was unable to attend the November 2018 Board meeting due to a commitment which predated his appointment date. BOARD EVALUATION As reported on page 67, during the year, an internal evaluation was undertaken to consider the effectiveness of the Board, its Committees and individual Directors led by the Deputy Chairman and Senior Independent Director. The evaluation process was externally facilitated in 2017 and the next external evaluation is scheduled for 2020. The results of the evaluation were presented to the Board for discussion at its meeting held in March 2019. A summary of the key outcomes from the 2019 internal evaluation is set out below, together with a summary of progress made against the recommendations arising out of the 2018 internal evaluation. Key outcomes from 2019 evaluation • The Board and its Committees continue to operate successfully, and each Director contributes effectively and demonstrates commitment to the role; • The Board has increased the amount of time devoted to corporate strategy and will seek to improve its focus on delivering enhanced returns to Shareholders; and • It was acknowledged that enhancements to communication within the Board could be made and that the Board should seek to further maximise the use of the wide-ranging experience and expertise of all its members. PROGRESS ON 2018 RECOMMENDATIONS Recommendation Progress Strategy and progress against the agreed strategy should be discussed at every Board meeting Succession planning for staff below Board level should be reviewed regularly There has been a greater focus on strategy, and progress against the agreed strategy, and it has been discussed at each Board meeting during the year There have been more regular discussions relating to succession planning for staff below Board level Risk should be a key area of focus in the review of Group strategy A significantly enhanced risk assessment and review procedure has been implemented ACCOUNTABILITY Risk management and internal controls The Board recognises that it is responsible for maintaining and monitoring the Company’s system of internal controls. Such a system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives. Oversight of our control system is delegated to the Audit and Risk Committee which identifies, monitors and manages the principal risks faced by the Group (the Group’s principal risks can be found on pages 52 to 57) and reviews the effectiveness of all material controls, including financial, operational and compliance controls in light of the risks. The key features of the Group’s system of internal controls are listed below: • 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; • The Audit and Risk Committee meets with the Auditor and deals with any significant internal control matters – during the year under review the Audit and Risk Committee met with the Auditor on three occasions, including two meetings without management present; 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. Fair, balanced and understandable – the Board’s responsibility The Code requires the Board to ensure that, taken as a whole, the Annual Report and Accounts present a fair, balanced and understandable assessment of the Group’s position and prospects. In reviewing the Annual Report and Accounts, the Audit and Risk Committee considered the points set out in its report on page 78. After such a review, the Audit and Risk Committee reported its findings to the Board. Subsequently, the Directors have included their statement on ‘fair, balanced and understandable’ on page 100. 73 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION GOVERNANCE REVIEW CONTINUED Engagement with Helical’s Stakeholders and Shareholders The Board recognises the importance of effective stakeholder engagement for the long-term success of the business. In addition, the Board directly connects its duty to promote the success of the Company as a whole, under section 172 Companies Act 2006 (‘CA 2006’), with stakeholder engagement. Helical’s key stakeholders are: its Shareholders, customers and tenants, employees, the local communities situated in the areas in which the Group operates, suppliers and contractors and the government and other regulatory bodies such as the Health and Safety Executive, the Financial Reporting Council and the UK Listing Authority. MATERIAL ISSUES AND CONSIDERATIONS FOR OUR STAKEHOLDERS GOVERNMENT AND OTHER REGULATORY BODIES • Corporate responsibility and accountability • Compliance with applicable laws and regulations • Monitoring updates to legal and regulatory environment, and impact of Brexit SUPPLIERS AND CONTRACTORS • Agreement of and compliance with appropriate payment terms • Collectively prevent and mitigate risk of modern slavery, bribery and corruption in our supply chain • Ethical and fair dealings SHAREHOLDERS • Financial performance • Environmental, Social and Governance Practice • Generation of long-term sustainable returns THE BOARD The Board takes into consideration the material issues for each stakeholder group when making decisions, supporting its duty under s.172 CA 2006 – to promote the success of the Company as a whole. LOCAL COMMUNITIES • Ethical and responsible corporate behaviour • Environmental impact of development • Positive impact to local areas, including development of public realm CUSTOMERS AND TENANTS • Quality of service provided • Delivery of quality space to meet needs • Ability to meet needs of changing market • Value for money EMPLOYEES • Opportunities for development • Fulfilling and rewarding work in a safe and comfortable environment • Fair treatment, recognition and remuneration • Diverse and positive culture 74 HELICAL PLCAnnual Report and Accounts 2019During the year, the following investor relations activities took place to ensure that Helical maintained contact with its Shareholders. In addition to this activity, the Directors receive regular reports from sector analysts and investor relations advisors on how the Group is viewed by its Shareholders throughout the year. The Group also communicates with Shareholders and stakeholders through the issue of regular press releases and through its website at www.helical.co.uk. KEY INVESTOR RELATIONS ACTIVITIES 2018 May • Annual results announcement and analysts’ presentation for 2018 May/June • Investor Roadshow presentations July and meetings in London • AGM Trading Update • Annual General Meeting September • US Investor Roadshow – New York and Boston • City and Tech Belt Property Tour • Portfolio and trading update November • Manchester Property Tour • Half year results announcement and analysts’ presentation 2018 • Post half year results investor meetings December • EPRA Corporate Access Day investor meetings 2019 March • Portfolio and trading update Annual General Meeting Our 2018 AGM was held on 12 July 2018 at which all the Directors, with the exception of Michael Slade, were re-elected with over 97% of the votes cast in favour of their re-election. Michael Slade received 94.17% of votes cast in favour of his re-election. The resolution to appoint Deloitte LLP as Auditor of the Company received over 99% of votes cast in favour. The non-binding vote in respect of the Company’s Directors’ Remuneration Report received 85.56% votes in favour and the resolution to approve the Company’s new Remuneration Policy received 97.05% votes in favour. Details of the policy can be found in the Directors’ Remuneration Report on pages 81 to 97. All remaining resolutions were approved with votes cast in favour by between 90% and 100%. The 2019 AGM will be held on 11 July 2019 at The Connaught, Carlos Place, Mayfair, London W1K 2AL and we encourage our Shareholders to attend. The AGM provides Shareholders with the opportunity to ask questions and a number of Directors, including the Chairman, will be available on the day should Shareholders wish to raise any issues. At the 2019 AGM, the Company will be seeking election and re-election of the current members of the Board, as appropriate, with the exception of Michael O’Donnell and Michael Slade. Subject to his re-election, Richard Grant will be appointed as Chairman at the close of the meeting following the retirement of Michael Slade. Section 172 Responsibilities Section 172 Companies Act 2006 requires Directors to act in the way that they consider, in their good faith judgement, would be most likely to promote the success of the Company for the benefit of its Shareholders as a whole. When making decisions, the Board pays due regard to: the likely consequences of its decisions in the long term; the interests of the Company’s employees and wider stakeholders; the need to foster the Company’s business relationships with suppliers, customers and others; the impact of the Company’s operations on the community and the environment; the desirability of the Company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the Company. The Board understands that this duty applies across the full spectrum of each Director’s role, from setting the Group’s strategy and shaping its culture to approving significant business transactions, policies and procedures and any changes to the Group’s governance structure. During the forthcoming year, the Board will continue to fulfil its obligations under section 172 and will look to enhance current practice to further embed the underlying principles of these obligations. By Order of the Board JAMES MOSS Company Secretary 23 May 2019 75 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONNOMINATIONS COMMITTEE REPORT Committee membership and attendance Committee meeting attendance Independent Richard Grant Sue Clayton Richard Cotton Joe Lister Michael O’Donnell1 Michael Slade1 Yes Yes Yes Yes Yes No 3/3 3/3 3/3 3/3 3/3 3/3 1 Michael Slade and Michael O'Donnell will not be standing for re-election at the 2019 AGM. The Company Secretary acts as Secretary to the Committee. The Committee’s role and responsibilities are set out in its terms of reference which are available at: www.helical.co.uk/ investors/corporate-governance/ KEY HIGHLIGHTS FOR 2018/19 • Recruitment and induction of Joe Lister, Non-Executive Director • Full compliance with the 2016 UK Corporate Governance Code, with the exception of Michael Slade’s continued appointment as Board Chairman (see page 70 for details) • Proactive work towards compliance with 2018 UK Corporate Governance Code • One to one meetings between the Committee Chairman and all Directors following 2019 Board Evaluation • Creation of a skills matrix to support succession planning FOCUS AREAS FOR 2019/20 • Continue to focus on succession planning • Oversee the external Board evaluation in early 2020 • Recruit a new Non-Executive Director and support their induction Annual General Meeting. In addition to recruitment activities, the Committee supported the annual evaluation of the Board and its Committees and discussed recommendations arising therefrom, and developed a skills matrix to support its review of the Board’s skill set, knowledge, experience and diversity of backgrounds, cognitive and personal strengths and to aid in succession planning at Board level and below. CHANGES TO THE BOARD Several changes to the composition of the Board were announced in 2018 and will come into effect during 2019. Michael Slade will not be standing for re-election at the Annual General Meeting in July 2019 after 35 years’ service on the Board and after three years as our Chairman. More detail about the change of Chairmanship can be found on page 70. It is intended that I will be appointed as Mike’s successor as the Board Chairman at the close of the 2019 Annual General Meeting, subject to Shareholder approval of my re-election. In line with broader succession planning, as referred to above, it is intended that Joe Lister will be appointed as my successor as the Chairman of the Audit and Risk Committee. In addition, as announced on 22 May 2019, Michael O’Donnell, Chairman of the Remuneration Committee, intends to step down from the Board at the 2019 Annual General Meeting after eight years’ service. Helical is currently seeking to appoint a new Non-Executive Director to replace Michael. DIRECTOR APPOINTMENT PROCESS Role Requirements and Criteria: The Committee, in conjunction with the Chief Executive, agrees objective criteria for appointees – skills, knowledge, experience and personal attributes relevant to the Group’s strategy. Search Process: Under the direction of the Committee, an independent executive search provider (Norman Broadbent and Korn Ferry in 2018/19; and Korn Ferry in 2019/20) is engaged to facilitate the search process. Review: Details of preferred candidates are presented to, and considered by, the Committee. Shortlisted candidates are interviewed by a sub-committee of the Board. Recruitment: Committee considers feedback from interviews and, after careful consideration, recommends appointments to the Board. Induction: Newly appointed Directors undergo an induction schedule bespoke to their needs. BOARD COMPOSITION Director appointments are made against objective criteria and are based on experience and merit. This supports the Group’s strategy to maintain an appropriate combination of skills, experience, independence and knowledge on the Board and its Committees. The Committee keeps the composition of our Board and its Committees under review throughout the year. We have introduced the use of a skills matrix to support this review. RICHARD GRANT CHAIRMAN OF THE NOMINATIONS COMMITTEE DEAR SHAREHOLDER, I am pleased to present this report of the Nominations Committee after my first year as the Committee Chairman. GOVERNANCE We welcome the corporate governance reforms introduced in 2018, including the UK Corporate Governance Code 2018, the FRC’s 2018 Guidance on Board Effectiveness and The Companies (Miscellaneous Reporting) Regulations 2018. Although the changes are effective for financial years beginning on or after 1 January 2019, Helical took steps during the year under review to adopt early compliance where possible. More detail about Helical’s compliance with the UK Corporate Governance Code 2016 and work carried out to adopt early compliance with the 2018 Code can be found on page 70. THE WORK OF THE NOMINATIONS COMMITTEE IN THE YEAR 2019 has been a busy year for the Committee, during which it met three times, and paid particular focus on succession planning, Board composition and the recruitment of a new Non- Executive Director following Richard Gillingwater’s decision to step down from the Board in July. Joe Lister was our preferred candidate to replace Richard Gillingwater following a rigorous recruitment process, as outlined below. We were delighted to welcome Joe to the Board in September. Subject to his election by Shareholders, Joe will replace me as the Chairman of the Audit and Risk Committee with effect from the close of the 2019 76 HELICAL PLCAnnual Report and Accounts 2019DIVERSITY The Board and Nominations Committee pay full regard to the benefits of diversity and inclusion in the widest sense, including in relation to gender, social and ethnic backgrounds, religious belief, sexual orientation and disability, cognitive and personal strengths when recommending to the Board any future Board appointments and in considering succession planning below Board level. When seeking to fill vacant Board positions, the Committee considers both internal and external candidates as appropriate. The executive search firms that we have engaged are signatories to: the UK Voluntary Code for “Women on Boards”, The Hampton- Alexander Review’s Voluntary Code of Conduct and/or the Voluntary Code of Conduct for Executive Search Firms. The Board is a signatory to Real Estate Balance, a cross-industry organisation which has focused on helping companies put more women into senior positions since 2017. In 2019, Helical became a signatory to Real Estate Balance CEO’s Commitments for Diversity. The Board is committed to strengthening the pipeline of senior female executives within the business and will continue to develop the Group’s policies and practices to remove barriers to women succeeding at the highest levels possible at Helical. DIRECTOR INDEPENDENCE AND EFFECTIVENESS Following due consideration of each Director’s tenure, alongside the commitment and effective contribution demonstrated in relation to their respective roles, the Committee has recommended to the Board that resolutions to elect or re-elect, as appropriate, each Non- Executive Director (other than Michael Slade OBE and Michael O’Donnell who do not intend to stand for re-election) be proposed at the AGM alongside resolutions to re-elect the Executive Directors. The Committee ensures that Board 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 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 June 2018, Sue Clayton joined the Board of SEGRO plc as a Non-Executive Director. The Board is satisfied that Sue will continue to have sufficient time to devote to her role (particularly as her Executive role at CBRE is performed on a part time basis) and that the appointment does not give rise to a conflict of interest. NON-EXECUTIVE DIRECTORS’ TENURES (AS AT 31 MARCH 2019) NON-EXECUTIVE RECRUITMENT PROCESS JOE LISTER NON-EXECUTIVE DIRECTOR Under 1 year 1-3 years 3-6 years Over 6 years 17% 0% 33% 50% SUCCESSION PLANNING As Directors, we have a duty to ensure the long-term success of the Company which includes ensuring succession plans for, and a steady supply of, talent at Board level and below. The Committee regularly considers the Group’s succession planning, ensuring a diverse pipeline of talent which supports the Group’s strategy and sustainability. In March 2018 James Moss, Company Secretary and Group Financial Controller, and Tom Anderson, Senior Investment Executive, were appointed to the Executive Committee in recognition of their contribution to Helical and their ability to support the implementation of the Group's strategic aims. The Executive Committee reviews the suitability of the Group’s succession plans below Board level at least once a year, as part of its annual strategic review and planning session, and updates the Committee accordingly. For the coming year, the Committee will continue to review and develop succession planning at Board level, through the search for a new Non-Executive Director to replace Michael O’Donnell. BOARD EVALUATION 2019 Although the Group is not formally required to undertake an external Board evaluation every three years (not being within the FTSE 350), the Board has decided that it will voluntarily follow the provisions of the UK Corporate Governance Code in this respect. An external evaluation was undertaken in the year ended 31 March 2017 and it is intended that a further external evaluation will be undertaken for the year to 31 March 2020. This year the evaluation was conducted internally and in two parts. Firstly, Directors were asked to complete an appraisal questionnaire covering matters such as: the Group’s strategy and risk management; the appropriateness of the Board composition, independence, collective knowledge and skills, communication and relationships; performance relating to Shareholder value; the performance of each of the Board Committees and the performance of The Committee led the process to recruit a new Non-Executive, Joe Lister, during the year. Norman Broadbent was chosen as our executive search provider due to the firm’s specialist knowledge and experience of recruiting at board level. Norman Broadbent has been a signatory to the Voluntary Code of Conduct for Executive Search Firms since its launch in 2013 and has no connection with Helical. A shortlist of candidates provided by Norman Broadbent was judiciously considered and interviews carried out with five individuals; the Committee unanimously agreed to recommend the appointment of Joe based on the quality of knowledge, skill and experience he can contribute to the Board and its Committees. Joe’s biography can be found on page 69. The Committee is actively seeking to appoint a new Non-Executive Director to replace Michael O’Donnell who has communicated his intention to step down from the Board at the 2019 AGM and has appointed an independent executive search provider, Korn Ferry, to support this recruitment process. Helical does not have any connection to Korn Ferry other than in respect of this appointment. individual Directors and the Chairman. Second, one to one discussions were held between myself and each Director to follow up on any issues raised and to ensure a thorough evaluation process was carried out. At the March 2019 meeting, the Committee and Executive Directors discussed feedback collected during the evaluation process and recommendations made as a result. The Senior Independent Director supported the evaluation process by leading the annual appraisal of the Chairman. I am pleased to confirm that the conclusion from this year’s Board evaluation was that the Board and its Committees continue to operate at a high standard and work effectively. Feedback ranged from positive to very positive and there were no specific concerns raised. Key outcomes from the 2019 evaluation can be found on page 73. RICHARD GRANT Chairman of the Nominations Committee 23 May 2019 77 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONAUDIT AND RISK COMMITTEE REPORT Committee membership1 and attendance Committee meeting attendance Independent 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 Auditor; and • The processes for compliance with laws, regulations and ethical codes of practice. Richard Grant* Joe Lister* Sue Clayton Richard Cotton Yes Yes Yes Yes 5/5 4/4 5/5 5/5 1 All of whom are independent Non-Executive Directors and all served throughout the year with the exception of Joe Lister who was appointed to the Committee on 1 September 2018. The Company Secretary acts as secretary to the Committee. * Considered as having recent and relevant financial expertise. The Company Secretary acts as Secretary to the Committee. The Committee’s role and responsibilities are set out in its terms of reference which are available at: www.helical.co.uk/ investors/corporate-governance/ RICHARD GRANT CHAIRMAN OF THE AUDIT AND RISK COMMITTEE DEAR SHAREHOLDER, I am pleased to present this Audit and Risk Committee report which outlines key activities and areas of focus for the year to 31 March 2019. 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 Auditor. 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 risk, financial reporting and internal controls. Appointments to the Committee are made by the Board on the recommendation of the Nominations Committee in consultation with the Audit and Risk Committee Chairman. 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 above. 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 (see page 52 for more detail); • The financial statements of the Group and the announcement of the annual results and the interim statement on the half year results; • A review of the findings of the new external Auditor, Deloitte LLP, following their work on their transition; The Audit and Risk Committee met the external Auditor on three occasions to discuss the results of their transition onto the audit, to discuss their appointment to the annual audit and interim review and matters arising from the annual audit and interim review. Other matters formally reviewed and discussed by the Committee during the year included: • Review of the Company policies, including those relating to anti-bribery and corruption, anti-facilitation of tax evasion and the Modern Slavery Act; • The Company’s Whistleblowing Policy and 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 the Company, to the independent Audit Partner; and • Review of IT risk and business • The Annual Report to ensure it is fair, continuity planning. balanced and understandable; • The performance of the external Auditor and their programme of work; • The external Auditor's independence and the provision of non-audit services by the external Auditor; and • The consideration of the requirement for an internal audit function. SIGNIFICANT AREAS OF REVIEW In discharging its responsibilities in connection with the preparation of the financial statements for the year to 31 March 2019, 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: 78 HELICAL PLCAnnual Report and Accounts 2019• 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 relative simplicity of the business, it does not consider that an internal audit function would be cost effective. The Audit and Risk Committee reviewed Helical's internal control environment and confirmed that the key controls had been implemented for the year. This review did not highlight any material weaknesses in the design and effectiveness of the Group's systems and controls. • 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 determining the net realisable value of the Group’s assets. 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 ("EPRA"), 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 Sue Clayton, FRICS, an independent Non-Executive Director. • Revenue Recognition Revenue recognition is a presumed significant risk under International Standards on Auditing (UK) and where the Group enters into complex transactions, judgement must be applied in determining when, and to what extent, revenue should be recognised, see note 39. For material transactions and development management contracts, technical papers are presented to the Committee by management and the Committee also requests that the Group’s external Auditor reviews and reports on these judgements. The Committee assesses the appropriateness of the proposed revenue recognition for each transaction and these are discussed between the external Auditor and the Committee. In addition to the significant issues discussed, the Committee also considered, and concluded upon, the Group’s ability to continue as a going concern, its viability for the next five-year period, the estimates and judgements discussed in note 39 to these Accounts and the Report of the Directors on page 98. REVIEW OF THE 2019 ANNUAL REPORT The Committee has reviewed and concluded that the Group’s Annual Report and Accounts, taken as a whole, are fair, balanced and understandable. The Committee asked the following questions during its review of the Annual Report and Accounts. Performance • Is it clear how outcomes are measured using key performance indicators? • Is there a good mix of financial and non-financial key performance indicators? • Is there an appropriate balance between statutory and non-statutory performance measures? • Is it clear that the stated key performance indicators measure the achievement of the Company’s strategy and how they are linked to Directors’ remuneration? • Are movements in key performance indicators over time, both favourable and adverse, fair and well-explained? • Are key performance risks explained? Strategy • Is the Company’s purpose clearly articulated? • Does the strategy discuss how the business intends to achieve its objectives in the context of the market outlook? • Are the value drivers explained clearly? • Is there enough information to assess the strategic risks? AUDIT TRANSITION Following approval of the appointment of Deloitte LLP as the Company’s Auditor, led by Georgina Robb, Audit Partner, at the July 2018 AGM, they commenced their work on the transition in August 2018. The transition process was designed by Deloitte to allow them to gain a detailed understanding of the nature of the Company’s business, its key systems and controls, the March 2018 closing balances and to determine a detailed approach to the audit for the year ended 31 March 2019. Their transition work included: • Meeting with management and the wider team; • Property site visits; • Review of the outgoing Auditor’s 31 March 2018 files; and • Review of the Company’s accounting policies, accounting areas subject to judgement and estimation and systems and controls. As a result of this work Deloitte presented the Board with a report of their findings and their proposed approach to their Interim Review and audit for the year ended 31 March 2019. Business model • Are the key elements of the business model clearly explained? • Are business model risks and disruptions adequately disclosed? • Do the business risks disclosed link to sensitivities set out within the financial statements? Updates included in the Annual Report: • updating the Group’s strategy to highlight the importance of growth; • the addition of a heat map to the Principal Risks; • greater information in relation to the impact of Brexit; and • the inclusion of more information on how Helical differentiates itself (pages 1 to 7). 79 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONAUDIT AND RISK COMMITTEE REPORT CONTINUED EFFECTIVENESS OF THE EXTERNAL AUDITOR Following Deloitte’s first year as external Auditor, the Audit and Risk Committee reviewed their fees, effectiveness and whether the agreed audit plan had been fulfilled and the reasons for any variation from the plan. As part of the Committee’s review of the external Auditor’s effectiveness the Committee considered the following: • the audit plan (presented to the Committee in November 2018) with focus on the quality of planning, whether the plan was designed to suit Helical and whether the agreed plan was fulfilled; • the Auditor’s assessment of its independence; • the quality of the Auditor’s reporting during the year; and • the relationship between the Auditor and the Group, ensuring objectivity and independence were maintained. Two meetings were held between the Auditor and the Committee without management present to enable open and objective discussions to be held, enhancing assurance of Auditor effectiveness. 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. As a result of their review the Committee concluded that the audit process was effective and efficient and the re-appointment of Deloitte as the Company's Auditor will be proposed at the 2019 AGM. AUDITOR 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. The assignment of non-audit services to the Company's Auditor must be approved by the Committee where the fees for that assignment amount to more than £50,000 or more than 50% of the relevant year's cumulative audit fee. The assignment of non-audit services with fees below this threshold may be approved by the Committee Chairman. 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 all non-audit services is required. During the year, the following non-audit services were undertaken by Deloitte: • review of the Half Year Results (£53,745); and • review of the Performance Share Plan and Directors’ Bonus Scheme (£9,000). The Committee considered all the services to be appropriate, that they were an extension to the role of the external Auditor; and they did not impact Deloitte's independence. The ratio of audit vs non-audit fees during the year was 19%, 16% of which was for the Interim Review. ANNUAL GENERAL MEETING At the Annual General Meeting to be held on 11 July 2019, the following resolutions relating to the Auditor are being proposed: • The re-appointment of Deloitte 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 23 May 2019 80 HELICAL PLCAnnual Report and Accounts 2019DIRECTORS’ REMUNERATION REPORT Committee membership and attendance Committee meeting attendance Independent Michael O’Donnell (Chairman)1 Sue Clayton Richard Cotton Richard Grant Joe Lister 2 Yes Yes Yes Yes Yes 3/3 3/3 3/3 3/3 2/2 1 Michael O’Donnell will not be standing for re-election to the Board at the 2019 AGM. 2 All served throughout the year except Joe Lister, who joined the Board and the Committee on 1 September 2018. The Company Secretary acts as Secretary to the Committee. The terms of reference of the Committee are available on request and are included on the Group’s website at: www.helical.co.uk/investors/ corporate-governance. FOCUS AREAS • Remuneration policies, including basic pay, long and short-term incentives • Remuneration practice and its cost to the Company • Recruitment, service contracts and severance policies • Compliance with the new UK Corporate Governance Code • The engagement and independence of external remuneration advisors ROLE OF THE COMMITTEE 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. MICHAEL O’DONNELL CHAIRMAN OF THE REMUNERATION COMMITTEE ANNUAL STATEMENT DEAR SHAREHOLDER, I am pleased to present the Remuneration Committee’s Directors’ Remuneration Report for the year to 31 March 2019. As this will be my final Report as Chairman of the Remuneration Committee, I would like to take this opportunity to thank my colleagues for all of their support. 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, which summarises the remuneration outcomes in the year to 31 March 2019; • The Remuneration Policy Report, which sets out the Remuneration Policy for Executive and Non-Executive Directors, which was approved by Shareholders at the 2018 AGM. No changes are proposed for the 2019 AGM; and • The Annual Report on Remuneration, which discloses how the Remuneration Policy was implemented in the year to 31 March 2019 and how the policy will be operated in the year to 31 March 2020. WORK OF THE COMMITTEE DURING THE YEAR The Committee considered the following during the year under review: • The Committee consulted with its major investors and the main representative bodies in respect of the revised Remuneration Policy, which was approved by Shareholders at the 2018 AGM; • The impact of the new UK Corporate Governance Code (both in terms of the impact on the Committee’s operation and remit and the current Remuneration Policy); • The bonuses payable under the terms of the Annual Bonus Scheme 2016 for the year to 31 March 2018 were finalised. These were the last bonuses awarded under this scheme; • The three-year performance conditions in respect of Performance Share Plan awards granted in 2015, which vested in 2018, were assessed. The performance conditions were partially satisfied and 45.65% of awards vested; • Performance Share Plan awards were granted in June 2018 which are expected to vest in June 2021, subject to performance conditions; • Changes to the basic salaries of the Executive Directors with effect from 1 April 2019, as noted below, were approved; • The fees paid to the Chairman of the Company were reviewed and it was determined that on his succession to the role of Chairman at the 2019 AGM, the fee payable to Richard Grant should be set at £150,000 pa. This is lower than the remuneration paid to Michael Slade (2019: £223,000 including benefits); and PREPARATION OF THIS REPORT This Report, prepared by the Remuneration Committee on behalf of the Board, takes full account of the prevailing UK Corporate Governance Code and the latest Investment Association (IA) Principles of Remuneration and Institutional Shareholder Services (ISS) UK and Ireland Proxy Voting Guidelines, and has been prepared in accordance with the provisions of the Companies Act 2006 (“the Act”), the Listing Rules of the Financial Conduct Authority and the Large and Medium- Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The Act requires the Auditor to report to the Group’s Shareholders on the audited information within this Report and to state whether in their opinion those parts of the Report have been prepared in accordance with the Act. Those parts of the Report which have been subject to audit are clearly marked. 81 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDIRECTORS’ REMUNERATION REPORT CONTINUED • For completeness, although not a Committee responsibility, the Board, excluding the Non-Executive Directors, set the fee payable to Joe Lister on his appointment as a Non-Executive Director on 1 September 2018 at £45,000 pa. The Executive Directors also reviewed the current fees payable to the Non-Executive Directors and increased the base fee payable to them by 6.7% from £45,000 pa to £48,000 pa with effect from 1 April 2019. This increase does not apply to the Chairman, Deputy Chairman or Senior Independent Director. Further, the additional fee payable to the Chairmen of the Audit and Risk, Remuneration and Property Valuation Committees are to remain at £10,000 pa. PERFORMANCE, DECISIONS AND REWARD OUTCOMES Executive performance measures and pay are closely aligned to Shareholders’ interests with a high proportion of total available remuneration based on variable pay designed to award the achievement of long-term strategic objectives. As noted in the Strategic Report on pages 1 to 65, the EPRA net assets per share of the Group has increased by 3.0% (2018: reduced by 1.1%) in the year under review. The Group’s total portfolio return, as reported by MSCI (formerly IPD) was 10.1% (2018: 11.1%). The Total Accounting Return (growth in net asset value plus dividends paid in the year) was 8.4% (2018: 5.3%). Annual Bonus Scheme 2018 Subsequent to the year end, and in accordance with the rules of the Helical Annual Bonus Scheme 2018, cash and deferred shares have been approved for inclusion in the financial statements for the year to 31 March 2019 for Gerald Kaye, Tim Murphy and Matthew Bonning- Snook. Half of the maximum bonus payable was dependent on the relative Total Property Return of the Group, as calculated by MSCI, compared with the MSCI Central London Offices Total Return Index, one quarter was determined by the Total Accounting Return of the Group and the remaining quarter was payable based on strategic/personal objectives. In accordance with these performance criteria, bonuses were calculated for the Executive Directors as follows: Gerald Kaye will receive £727,156 (£532,000 in cash, £195,156 deferred into shares for three years), Tim Murphy will receive £387,045 (£309,600 in cash, £77,445 in deferred shares) and Matthew Bonning- Snook will receive £524,423 (£413,800 in cash, £110,623 in deferred shares). Full details of the targets and the performance against these targets are set out in the Annual Report on Remuneration. For the year to 31 March 2019, the Remuneration Committee did not consider it appropriate to exercise discretion, reflecting the encouraging performance of the business, particularly in relation to the key Total Property Return and Total Accounting Return KPIs, which form 75% of the bonus targets. In the previous year, the Committee applied negative discretion to reduce the bonus awards by 25% in light of the Shareholder experience during the corresponding bonus year. Performance Share Plan 2014 Share awards granted in 2016 under the terms of the 2014 Performance Share Plan were subject to three performance conditions over the three years to 31 March 2019. One third of the awards was based on absolute net asset value performance, the second third of the awards was based on a comparison of the Group’s portfolio return to the MSCI Total Return Index and the final third of the awards was based on a comparison of the Group’s Total Shareholder Return to that of a basket of companies in the Real Estate Super Sector. The performance criteria were measured at the end of the three-year period and the MSCI conditions were met in full. Neither the net asset value condition, nor the TSR condition, were met. Consequently 33.3% of the awards are expected to vest in June 2019. Full details of the targets and Helical’s performance are set out in the Annual Report on Remuneration. The Committee believes that the provision for annual cash and deferred share bonuses and the expected vesting of the PSP award in respect of the three-year performance period ended 31 March 2019 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. EPRA NET ASSETS PER SHARE pence 456 473 468 482 385 2015 Growth 2016 +18% 2017 +4% 2018 -1% 2019 +3% SHAREHOLDERS’ FUNDS £m 517 534 567 481 404 2015 Growth 2016 +19% 2017 +7% 2018 +3% 2019 +6% PORTFOLIO RETURN % 21.7 13.0 11.4 12.0 11.1 9.4 9.3 6.9 5.3 10.1 7.1 5.5 2016 2017 2018 2019 MSCI Median MSCI Upper Quartile Helical TOTAL ACCOUNTING RETURN % 21.1% 22.5% 8.3% 8.4% 5.3% 2015 2016 2017 2018 2019 82 HELICAL PLCAnnual Report and Accounts 20192019 ANNUAL GENERAL MEETING RESOLUTION The following resolution relating to remuneration will be presented at the 2019 AGM to be held on 11 July 2019: • An advisory resolution in respect of the Annual Statement and Annual Report on Remuneration for the year to 31 March 2019. I trust that Shareholders will support the Committee and vote in favour of this resolution. I will be available at the AGM to respond to any questions Shareholders may have on this report or in relation to any Committee activities. In the meantime, if you would like to discuss any aspect of the Remuneration Policy, please feel free to contact me through James Moss (Company Secretary) at jm@helical.co.uk. MICHAEL O’DONNELL Chair of the Remuneration Committee 23 May 2019 IMPLEMENTATION OF THE POLICY FOR THE YEAR TO 31 MARCH 2020 The Remuneration Policy will be implemented for the year to 31 March 2020 as follows: • Executive Director basic salaries were increased by 2.4%, reflecting the increase in RPI to 31 March 2019. The average salary increase for all other staff was 3.1%. All increases were effective from 1 April 2019 (the normal salary review date). As such, Gerald Kaye’s current salary is £544,750, Matthew Bonning-Snook’s current salary is £423,750 and Tim Murphy’s current salary is £317,050. No changes will be made to the provision of benefits; • The policy of not providing separate pension provision, with Executive Directors expected to provide for their retirement from remuneration provided through the Company’s incentive schemes, continues unchanged; • For the year to 31 March 2020, annual bonuses will continue to be capped at 150% of salary with targets based on Total Property Return (50% of potential), Total Accounting Return (25% of potential) and strategic/personal objectives (25% of potential). To the extent that there is low or no bonus payable on the portfolio/financial measures, the Committee will retain discretion to reduce (including to zero) the payout under the strategic/personal targets. One third of any bonus will continue to be deferred into shares for three years, unless the Executive Director has met the shareholding guideline, in which case the annual bonus will be payable in cash up to 100% of salary and in deferred shares from 100% to 150% of salary; • The Remuneration Committee will review the stretch target for the Total Property Return measure, which accounts for 50% of the total bonus weighting and is currently set at MSCI Central London Offices index +3.25%, to ensure it remains appropriate; • The 2019 award under the PSP will be granted over shares equal to 250% of annual salary. The proposed performance targets, which are set out in detail in the Annual Report on Remuneration, will continue to be linked to net asset value per share growth, Total Property Return versus MSCI and relative Total Shareholder Return. A two-year post vesting holding period will apply to these awards to the extent that they vest; • Shareholding guidelines will remain at 500% of salary; and • Malus and clawback provisions will continue to operate. 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 grow 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 that its policy strikes 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 2020 can be found on page 94. 83 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDIRECTORS’ REMUNERATION REPORT CONTINUED 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. POLICY SCOPE The Remuneration Policy applies to the Chairman, Executive Directors and Non-Executive Directors. POLICY DURATION The Remuneration Policy report was approved by Shareholders at the Annual General Meeting held on 12 July 2018 for a maximum period of three years. No changes are proposed for the 2019 Annual General Meeting. REMUNERATION POLICY Helical’s approach to the remuneration of its Executive Directors is to provide a basic remuneration package 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 relative performance of the Group’s real estate portfolio against an industry benchmark or on the absolute performance of the Group and its Total Shareholder Return against appropriate industry benchmarks. The remaining awards are judged on strategic/personal objectives. 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 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. 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. PEER GROUP The Remuneration Committee has determined a peer group of companies which is used for benchmarking (albeit with some caution, given the variances in size and nature of operations in the sector and more general risk of pay inflation where too great a reliance is placed on published data) and as a reference point in ensuring that performance targets are appropriately stretching and when reviewing the Group’s relative performance. The peer group, which remains unchanged from that disclosed last year, is as follows: Capital & Counties Properties plc; Capital & Regional plc; Derwent London plc; Great Portland Estates plc; Hammerson plc; Hansteen Holdings plc; Intu Properties plc; LondonMetric Property plc; McKay Securities plc; NewRiver REIT plc; RDI REIT plc; Shaftesbury plc; U+I Group plc; Urban&Civic plc; St. Modwen Properties plc; and Workspace Group plc. Directors’ Remuneration Policy Table The table below summarises the Directors’ Remuneration Policy. No changes to the policy approved at the 2018 AGM are being proposed. Purpose and link to strategy Operation Maximum Performance targets • 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 • Normally reviewed annually, effective 1 April • No minimum or maximum salary increase is operated • N/A • Paid in cash on a monthly basis; not pensionable • Takes periodic account against companies with similar characteristics and sector comparators • Reviewed in context of the salary increases across the Group • Salary increases will normally be aligned to 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 Element Salary 84 HELICAL PLCAnnual Report and Accounts 2019Element Purpose and link to strategy Operation Maximum Performance targets Annual bonus • Provides focus on delivering returns from the Group’s property portfolio • Rewards and helps retain key Executive Directors and is aligned with the Group’s risk profile • Maximum bonus only payable for achieving demanding targets • Payable in cash (two thirds) and deferred shares (one third) unless the shareholding guideline has been met, in which case the annual bonus will be payable in cash up to 100% of salary and in deferred shares from 100% to 150% of salary • Non-pensionable • Dividend equivalent payments (in cash or in shares) may be payable on deferred shares Long-term incentive awards • Aligned to main strategic objective of delivering long-term value creation • Discretionary annual grant of conditional share awards under the 2014 PSP Scheme • Aligns Executive Directors’ • Executive Directors are interests with those of Shareholders • Rewards and helps retain key Executives and is aligned with the Group’s risk profile required to retain PSP shares acquired for at least two years after vesting • Dividend equivalent payments (in cash or in shares) may be payable • 150% of salary pa for all Executive Directors • Performance normally measured over one year • The majority of the bonus potential will be based on portfolio and financial targets (50% on Total Property Return, 25% on Total Accounting Return) • Strategic/personal objectives form the remaining 25% of targets • Malus and clawback provisions apply • 250% of salary pa for all Executive Directors • Performance normally measured over three years • 10% of an award vests at threshold performance • Performance targets linked equally to net asset value per share, Total Property Return and Total Shareholder Return • Malus and clawback provisions apply Pensions Other benefits • 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 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 • 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 • Cash fee paid monthly • Fees are reviewed on a • N/A • Aim to hold a shareholding to equal or exceed 500% of basic salary • No minimum or maximum fee increase is operated • N/A regular basis • Fee increases may be guided • Benefits may be provided where appropriate • Fixed three-year contracts with three-month notice periods 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 Executive Directors who participate in the Group’s long-term incentive awards are excluded from the Helical Bar 2010 Approved Share Option Scheme. 85 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDIRECTORS’ 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, taking into account internal comparisons. On initial appointment and depending on experience, 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 2018 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 (i.e. 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. SHAREHOLDER CONSULTATION In proposing the changes to the Remuneration Policy in advance of the 2018 AGM, the Committee consulted with Helical’s top 17 Shareholders representing 65% of issued share capital at 31 March 2018 and the major Shareholder representative bodies. Positive and constructive feedback was received and after considering the feedback, the Committee agreed to remove one of the proposed changes and continue compulsory deferral for all Executive Directors. The policy was subsequently approved with 97.1% of votes cast in favour. No changes to the policy are being proposed for the current year, therefore no further Shareholder consultation was required. HOW EMPLOYEE PAY IS TAKEN INTO ACCOUNT AND COMPARED WITH 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 10.0% or 12.5% 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 the Group’s employees when drawing up its Remuneration Policy. 86 HELICAL PLCAnnual Report and Accounts 2019EXECUTIVE 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 Notice period 6 months 6 months 6 months 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 i.e. 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 of alternative income received to the Group. Instalment payments will be reduced by any alternative income. Under the Annual Bonus Scheme 2018, participants will not normally be entitled to receive any payment under the scheme following cessation of employment 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 (i.e. death; injury; disability; redundancy; retirement; sale or transfer of employing company or business outside the Group; or any other reason permitted by the Committee). For good leavers, individuals would cease to accrue amounts in respect of any period after cessation of employment but would receive any amounts previously deferred into shares under the terms of the Annual Bonus Scheme 2018. Date of 1st employment 6 March 1994 1 March 1994 Board appointment Date of current contract 28 September 1994 25 July 2016 24 July 2012 25 July 2016 25 July 2016 13 March 1995 1 August 2007 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 Executive 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, ongoing participation in awards previously made in bonus and share schemes will be subject to the rules of those schemes and to the discretion of the Committee. NON-EXECUTIVE DIRECTORS’ LETTERS OF APPOINTMENT Non-Executive Director Michael Slade 1 – Chairman Board appointment Commencement date of current term 21 August 1984 25 July 2016 Sue Clayton – Chairman of the Property Valuations Committee 1 February 2016 1 February 2016 Richard Cotton – Senior Independent Director Richard Grant – Deputy Chairman, Chairman of the Audit and Risk Committee and Chairman of the Nominations Committee 1 March 2016 24 July 2012 1 March 2016 1 April 2015 Joe Lister 1 September 2018 1 September 2018 Michael O’Donnell 1 – Chairman of the Remuneration Committee 24 June 2011 1 April 2015 1 Michael Slade and Michael O’Donnell are not standing for re-election at the 2019 AGM. 87 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDIRECTORS’ REMUNERATION REPORT CONTINUED PSP POST VESTING HOLDING PERIOD AND 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 500% of basic salary. A shareholding guideline of 100% of salary operates for other senior management below Board level. REWARD SCENARIOS The charts below show how the composition of the Executive Directors’ remuneration packages varies under four different performance scenarios, namely, at minimum (i.e. fixed pay), target (assumed to be 50% of the maximum incentive levels), maximum levels, all assuming no share price appreciation, and the maximum levels assuming 50% share price appreciation across the performance period of long-term incentive awards. The chart is based on: • Salary levels effective 1 April 2019; • An approximated annual value of benefits (no pension is provided); • A 150% of salary maximum annual bonus (with target assumed to be 50% of the maximum); • A 250% of salary award under the 2014 PSP in line with the normal maximum award (with target assumed to be 50% of the maximum); and • In the final chart only, share appreciation of 50% across the three-year performance period of the awards made under Performance Share Plan 2014. VALUE OF REMUNERATION PACKAGES AT DIFFERENT LEVELS OF PERFORMANCE £’000 3,469 20% 2,788 49% 39% 29% 24% 1,699 40% 24% 609 100% 36% 22% 17% 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2,013 20% 1,616 49% 39% 29% 22% 24% 17% 982 40% 24% 36% 348 100% 2,701 20% 2,171 49% 39% 29% 24% 1,324 40% 24% 476 100% 36% 22% 17% Minimum Target Maximum Maximum Minimum Target Maximum Maximum Minimum Target Maximum Maximum with share price growth with share price growth with share price growth GERALD KAYE TIM MURPHY MATTHEW BONNING-SNOOK Basic salary & beneﬁts Bonus PSP Maximum with 50% share price growth 88 HELICAL PLCAnnual Report and Accounts 2019ANNUAL REPORT ON REMUNERATION This part of the Directors’ Remuneration Report explains how the Group has implemented the Remuneration Policy in the year to 31 March 2019 and how the policy is intended to be implemented in the year to 31 March 2020. APPLICATION OF THE REMUNERATION POLICY IN THE YEAR TO 31 MARCH 2019 This section has been subject to audit unless otherwise stated. BALANCE OF FIXED VERSUS VARIABLE PAY (UNAUDITED) In line with its policy, the Committee seeks to ensure that the balance of remuneration provides a basic salary 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 2019, the balance of fixed versus variable pay on an actual basis for the Executive Directors in office throughout the year compared to the maximum payable was as follows: Basic salaries and benefits-in-kind Annual Bonus Scheme 2018 Performance Share Plan shares vested Deferred bonus dividend shares Actual £000 1,403 1,639 918 56 4,016 Share of total Maximum Share of total % 35 41 23 1 100 £000 1,403 1,884 2,754 56 6,097 % 23 31 45 1 100 Note: Performance Share Plan shares 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 2019 in accordance with the terms of the Performance Share Plan 2014. DIRECTORS’ REMUNERATION Total remuneration in respect of the Directors was as follows: Year to 31 March 2019 Executive Directors Gerald Kaye Tim Murphy Matthew Bonning-Snook Non-Executive Directors Michael Slade Sue Clayton Richard Cotton Richard Gillingwater 4 Richard Grant Michael O’Donnell Joe Lister Total Fixed Variable Basic salary/fees £000 Benefits 1 £000 Share Incentive Plan 2 £000 Sub-total £000 Annual cash bonus £000 Deferred bonus shares £000 Share 3 awards £000 Sub-total £000 Total £000 532 310 414 1,256 57 24 45 126 155 68 55 70 16 70 55 26 – – – – – – 7 7 7 21 – – – – – – – 596 341 466 532 310 414 1,403 1,256 223 55 70 16 70 55 26 – – – – – – – 195 77 111 383 – – – – – – – 380 243 351 974 1,107 630 876 2,613 – – – – – – – – – – – – – – 1,703 971 1,342 4,016 223 55 70 16 70 55 26 1,703 194 21 1,918 1,256 383 974 2,613 4,531 1 Benefits include the provision of a car/car allowance, fuel allowance, private medical cover, life assurance and permanent health insurance. Significant individual benefits included £38,000 and £32,000 car allowance for Gerald Kaye and Michael Slade respectively. 2 The Share Incentive Plan figure relates to the free and matching shares awarded under the Helical Bar 2002 Approved Share Incentive Plan, details of which are on page 93. 3 Value of share awards based on average share price over three months to 31 March 2019 of 335.02p. Dividend shares awarded to Directors on 26 July 2018 under the term of the Annual Bonus Scheme 2012 are included at their vesting price of 334.0p. 4 Richard Gillingwater stepped down from the Board on 12 July 2018. 89 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDIRECTORS’ REMUNERATION REPORT CONTINUED Year to 31 March 2018 Executive Directors Gerald Kaye Tim Murphy Matthew Bonning-Snook Former Executive Director Duncan Walker 1 Non-Executive Directors Michael Slade Sue Clayton Richard Cotton Richard Gillingwater Richard Grant Michael O’Donnell Total Sub-total £000 Total £000 Fixed Variable Basic salary/fees £000 Benefits 2 £000 Share Incentive Plan 3 £000 Sub-total £000 Annual cash bonus £000 Deferred bonus shares £000 515 300 401 1,216 112 155 55 48 55 57 55 57 25 60 142 8 69 – – – – – 7 7 7 21 4 – – – – – – 579 332 468 773 – 601 1,379 1,374 124 224 55 48 55 57 55 – – – – – – – 386 – 300 686 – – – – – – – Share 4 awards £000 471 305 435 1,211 1,630 305 1,336 3,271 20 20 251 251 – – – – – – – – – – 2,209 637 1,804 4,650 144 475 55 48 55 57 55 1,753 219 25 1,997 1,374 686 1,482 3,542 5,539 1 Duncan Walker stepped down from the Board on 11 July 2017 and ceased employment on 11 January 2018. 2 Benefits include the provision of a car/car allowance, fuel allowance, private medical cover, life assurance and permanent health insurance. Significant individual benefits included £38,000, £32,000 and £38,000 car allowance for Gerald Kaye, Michael Slade and Matthew Bonning-Snook respectively. 3 The Share incentive Plan figure relates to the free and matching shares awarded under the Helical Bar 2002 Approved Share Incentive Plan, details of which are on page 93. 4 Share awards are included at their actual vesting values in July 2018 of 334.00p. The table included in the 2018 financial statements included share awards at the average share price over three months to 31 March 2018 of 335.07p. Dividend shares awarded to Directors on 22 June 2017 under the terms of the Annual Bonus Scheme 2012 are included at their actual vesting price of 299.50p. The information in this section has been audited. HELICAL ANNUAL BONUS SCHEME 2018 Gerald Kaye, Tim Murphy and Matthew Bonning-Snook participate in the Annual Bonus Scheme 2018, which was approved by Shareholders at the 2018 AGM. This scheme provides annual bonuses based on the performance of the property portfolio, the Group and the individual Directors and is aligned with Shareholders’ interests with appropriate hurdles and Shareholder protections. The main features of the Annual Bonus Scheme 2018 are as follows: • 50% of the maximum annual bonus will be payable if the Total Property Return (“TPR”) of the Group’s property portfolio matches or exceeds the performance of the MSCI Central London Offices Total Return Index (“Index”) plus 3.25%, with 20% of this part of the award paid out if the performance matches the performance of the Index; • 25% of the maximum annual bonus will be payable if the Total Accounting Return (“TAR”) of the Group (Growth in IFRS NAV plus dividends), calculated annually, is or exceeds 10.0%, with 20% of this part of the award paid out if the TAR is 5.0%; and • 25% of the maximum annual bonus will be payable if strategic/ personal objectives, to be determined by the Committee and reported on retrospectively each year, are met. The Committee will regularly review the threshold and maximum TPR and TAR targets to ensure they remain appropriate to the Group’s strategy and market conditions. Shareholder Protections • Annual bonus payments to individual Directors will be restricted in any financial year to 150% of salary; • Until the minimum shareholding guideline of 500% of salary is met, two thirds of any payment is made in cash after the relevant year end and one third is deferred for three years into Helical plc shares. Once the minimum shareholding guideline is met, any bonus payment is made in cash up to 100% of salary and in deferred shares from 100% to 150% of salary; • The Committee will have a general negative discretion surrounding bonus payments and, to the extent there is a low or no bonus payable on the financial measures, it will retain the discretion to reduce (including to zero) the payment under the strategic/personal targets; • The scheme will operate malus and clawback provisions, whereby amounts deferred, or the net of tax amounts paid, may be recovered or withheld in the event of a misstatement of results, an error being made in assessing the calculation or in the event of gross misconduct; and • The Committee will have discretion to award annual bonuses in deferred shares (in full or in part) irrespective of an Executive Director’s shareholding guidelines, although it is expected that this discretion would only be used in exceptional circumstances. 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. 90 HELICAL PLCAnnual Report and Accounts 2019Determination of annual bonus outcome The first table below sets out the financial measures and their respective outcomes under the terms of the Annual Bonus Scheme 2018. These measures apply to all Executive Directors equally. The second table sets out the strategic/personal objectives for each Executive Director, which account for 25% of the maximum bonus payable. The sum of these provides each Director with a percentage payout of their maximum bonus, capped at 150% of basic salary. This is set out in the third table below. Metric Performance condition TPR TAR Total Property Return v MSCI property 20% of the maximum bonus available pays out if the Group’s TPR matches the performance of the Index increasing pro-rata to 50% for matching or exceeding the Index plus 3.25%. Total Accounting Return 20% of the maximum bonus available pays out if the Group’s TAR, adjusted for performance related awards and calculated annually, exceeds 5.0% increasing pro-rata to 25% for a TAR of 10.0% or greater. Subtotal from financial measures Weighting Threshold target 50% 4.80% Stretch target 8.05% Outcome 10.12% % of bonus payable 50.0% 25% 5.0% 10.0% 8.83% 20.3% 70.3% Executive Director Weighting Target Committee’s assessment of the extent to which the performance targets have been met % of bonus payable Gerald Kaye 6.7% 3.3% Seek to acquire at least one high quality project in the year which complements the existing portfolio and which is consistent with Helical’s strategy and long-term plans. Achieve a BREEAM benchmark of between “Very Good” (threshold target) and “Excellent” (stretch target) on any new developments or major refurbishment completed in the year. 15.0% Threshold and stretch targets across recently completed properties. Subtotal for Gerald Kaye Tim Murphy 6.7% 10.0% 3.3% 5.0% Seek appropriate financing solutions (i.e. debt, equity, JVs) to enable Helical to increase its deal capacity. Extend average debt maturity and reduce average cost of debt. Ensure satisfactory progress in respect of refinancing or repayment (as appropriate) of the Convertible Bond maturing in June 2019. Threshold and stretch targets to reduce recurring administration costs. Subtotal for Tim Murphy Matthew Bonning-Snook 6.7% 3.3% 10.0% 5.0% Seek to acquire at least one high quality project in the year which complements the existing portfolio and which is consistent with Helical’s strategy and long-term plans. Complete an occupier satisfaction survey in 2018/19 and demonstrate an improvement in respect of both the process and results versus the prior year survey. Threshold and stretch targets for developmental milestones on selected properties. Threshold and stretch targets for recently completed property. Subtotal for Matthew Bonning-Snook 50% 100% 94% 50% 50% 75% 44% 50% 100% 75% – 3.3% 3.3% 14.1% 20.7% 3.3% 5.0% 2.5% 2.2% 13.0% 3.3% 3.3% 7.5% – 14.1% 91 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDIRECTORS’ REMUNERATION REPORT CONTINUED The total annual bonus for the year ended 31 March 2019 is set out below: Executive Director Gerald Kaye Tim Murphy Matthew Bonning-Snook Basic salary £000 532 310 414 Maximum bonus payable (150% basic salary) £000 798 464 621 Actual % of bonus payable % 91.0 83.3 84.4 Bonus payable £000 727 387 525 Cash £000 532 310 414 Deferred shares £000 195 77 111 All Executive Directors satisfy the minimum shareholding guideline of 500% of salary, therefore the bonus payment is made in cash up to 100% of salary with the remainder in deferred shares. HELICAL ANNUAL BONUS SCHEME – DEFERRED SHARES Under the terms of the Annual Bonus Scheme 2012 and Annual Bonus Scheme 2016, one third of annual bonuses awarded to scheme participants each year were deferred for three years into Helical plc shares. Under the Annual Bonus Scheme 2018, the same applies unless an Executive Director satisfies the minimum shareholding guideline, in which case up to 100% of any bonus is payable in cash with the remainder in deferred shares. Deferred shares awarded under the terms of these schemes, and which vested during the year to 31 March 2019, are as noted in the table below: Executive Director Gerald Kaye Tim Murphy Matthew Bonning-Snook Deferred shares 1 April 2018 358,025 42,434 314,374 2015 award vesting 26 July 2018 2018 bonus award 26 July 2018 (96,619) 115,643 – (89,285) – 89,955 Deferred shares 31 March 2019 Expected 1 2019 award Dividend shares awarded on 2015 vesting 377,049 42,434 315,044 58,252 23,117 33,020 8,660 – 8,002 1 The expected 2019 deferred share award represents the deferred share element of the annual bonus awarded in respect of the year to 31 March 2019 at 335.02p per share, the average share price over the three months to 31 March 2019. PSP AWARDS VESTING IN 2019 The PSP award granted on 1 June 2016 will vest after 2 June 2019. The expected vesting percentage is as follows: Metric Performance condition NAV (fully diluted triple net) Net Asset Value Growth 10% of this part of an award vests for pre-dividend compound NAV growth of 7.5% pa increasing pro-rata to 100% of this part of an award vesting for pre-dividend compound NAV growth of 15% pa Weighting 33.33% Threshold target 7.5% Stretch target 15.0% Actual % vesting 5.8% 0.00% TPR TSR Total Total Property Return v MSCI 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 33.33% Median 7.2% 33.33% Median 15.2% Upper quartile 8.3% Upper quartile 29.4% 10.1% 33.33% -9.3% 0.00% 33.33% Based on the above and given that net asset 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: Executive Director Gerald Kaye Tim Murphy Matthew Bonning-Snook Number of shares at grant Number of shares expected to lapse Number of shares expected to vest Estimated value at vesting1 £’000 314,354 217,291 290,506 209,569 144,861 193,671 104,785 72,430 96,835 351 243 324 1 The share price used to calculate the expected value at vesting was 335.02p, based on the average share price over the three months to 31 March 2019. The share awards presented for the comparatives in the remuneration table on page 90 are based on the 2014 PSP scheme awards granted on 8 June 2015. The three-year performance period to 31 March 2018 showed that the net asset value per share, calculated in accordance with the terms of the 2014 PSP, had increased by 12.32% pa. During this three-year period the total return of Helical’s property portfolio, as determined by IPD (now MSCI), was 13.9% compared to the upper quartile of the IPD Benchmark which showed a return of 10.1%. The TSR of the Company during the period was minus 7.1% compared to the median of plus 9.8% and upper quartile of 35.5%. Therefore, 45.65% of the shares vested. The share price used to calculate the expected value at vesting for the 2015 PSP awards was 335.07p (based on the average share price over the three months to 31 March 2018). The actual share price at vesting on 26 July 2018 was 334.00p and the comparative figures reflect these actual vesting share prices. 92 HELICAL PLCAnnual Report and Accounts 2019PSP AWARDS GRANTED IN THE YEAR The following conditional awards were granted on 1 June 2018 under the 2014 PSP: Executive Director Gerald Kaye Tim Murphy Matthew Bonning-Snook Basis of award (as a % of salary) Face value £000 Vesting at threshold Vesting at maximum 250% 250% 250% 1,288 749 1,002 10% 10% 10% 100% 100% 100% Performance period 3 years to 31 March 2021 3 years to 31 March 2021 3 years to 31 March 2021 Details of the performance targets attached to the awards are set out on pages 94 to 95. The total number of awards made to Directors under the terms of the 2014 PSP which have not yet vested are as follows: Executive Director Gerald Kaye Tim Murphy Matthew Bonning-Snook Shares awarded Shares awarded Shares awarded 01.06.16 at 395.00p 06.06.17 at 320.00p 01.06.18 at 375.00p 314,354 217,291 290,506 445,312 272,531 364,312 343,333 199,800 267,066 Total shares awarded 1,102,999 689,622 921,884 It is currently expected that 33.3% of the shares awarded on 1 June 2016, 28.0% of the shares awarded on 6 June 2017 and 43.6% of the shares awarded on 1 June 2018 will vest. VESTING OF PSP AWARDS OVER THE LAST TEN YEARS (UNAUDITED) 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 ten years are as follows: 2004 PSP Scheme 2014 PSP Scheme 100% 80% 60% 40% 20% 0% 67% 67% 29% 33% 12% Nil 2010 Nil 2011 Nil Nil 33% 33% 33% 33% 33% 33% 2012 2013 2014 2015 2016 2017 2018 2019 MSCI NAV TSR The 2004 PSP Scheme operated with two vesting conditions. The TSR condition was an addition brought into the 2014 PSP Scheme. To date, this condition has not vested. 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: Executive Director Gerald Kaye Tim Murphy Matthew Bonning-Snook 1 June 2018 at 375.00p 26 July 2018 at 334.00p 19 September 2018 7 December 2018 at 334.50p at 317.00p 9 January 2019 at 317.00p 7 March 2019 at 335.0p 1,326 1,326 1,326 1,087 637 1,078 402 405 402 426 426 426 437 258 433 405 402 402 Shares held by the Trustees of the Plan at 31 March 2019 were 517,996 (2018: 462,996).The information in this section has been audited. 93 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDIRECTORS’ REMUNERATION REPORT CONTINUED IMPLEMENTATION OF THE REMUNERATION POLICY FOR THE YEAR TO 31 MARCH 2020 This section has not been subject to audit unless otherwise stated. FIXED REMUNERATION PERFORMANCE RELATED REMUNERATION EXECUTIVE DIRECTORS’ BASIC ANNUAL SALARY 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 2019 and increases from 1 April 2019 are as follows: Executive Director Gerald Kaye Tim Murphy Matthew Bonning-Snook At 31 March 2019 Increases wef 1 April 2019 At 1 April 2019 £ 532,000 309,600 413,800 £ 12,750 7,450 9,950 £ 544,750 317,050 423,750 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. The Committee has determined that the basic salaries for the Executive Directors should increase from 1 April 2019 by 2.4%, being the increase in RPI to 31 March 2019, compared to an average 3.1% awarded to other employees. BENEFITS-IN-KIND AND PENSION PROVISION Benefits-in-kind provided to Executive Directors comprise the provision of a company car or car allowance, fuel allowance, 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. HELICAL ANNUAL BONUS SCHEME 2018 Gerald Kaye, Tim Murphy and Matthew Bonning-Snook will participate in the Annual Bonus Scheme 2018 which was approved by Shareholders at the 2018 AGM. This scheme provides annual bonuses based on the performance of the property portfolio, the Group and the individual Directors and is aligned with Shareholders’ interests with appropriate hurdles and Shareholder protections. The main features and Shareholder protections of this scheme are set out on page 90. The Scheme will operate the same way in the year to 31 March 2020 as it did in the year to 31 March 2019. The strategic/ personal objectives for each Executive Director are set by the Remuneration Committee and will be reported on retrospectively in the Annual Report for the year ended 31 March 2020. PERFORMANCE SHARE PLAN 2014 It is anticipated that long-term incentives will be granted to all Executive Directors and senior management in June 2019 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 250% of basic salary as at 31 March 2019. 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. Directors are required to hold vested shares for a further two years after vesting. Performance conditions for the awards to be granted in 2019 will be equally weighted and measured over the three years to 31 March 2022 as follows: 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 12.5% pa or more % of award vesting 33.3 Between 5.0% pa and 12.5% pa Pro-rata between 3.3 and 33.3 5.0% pa Below 5.0% 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. 94 HELICAL PLCAnnual Report and Accounts 2019Total Property Return Versus MSCI Property Funds The Total Property Return of the Group’s property portfolio will be compared to the MSCI Central London Offices Total Return Index. 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 Median Less than median 3.3 nil Relative Total Shareholder Return The comparator group for the awards to be granted in 2019 will be the companies noted under Peer Group on page 84. 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 Median Less than median 3.3 nil OTHER REMUNERATION MATTERS SHARE PRICE PERFORMANCE AND TOTAL SHAREHOLDER RETURN The market price of the ordinary shares of Helical plc at 31 March 2019 was 330.50p (2018: 323.00p). This market price varied between 301.50p and 398.00p and at an average of 339.23p during the year. The Total Shareholder Returns for a holding in the Group’s shares in the three, ten and 12 years to 31 March 2019 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 2019 The graph showing the relative performance of Helical during the three years to 31 March 2019 matches the performance period for the 2016 PSP award granted on 1 June 2016 and which will be assessed against its performance criteria after 2 June 2019. Share awards will lapse in full where: TOTAL SHAREHOLDER RETURN • Net asset value per share (having added back dividends and changes in issued share capital) does not increase over the three-year performance period; or • The gross return falls below the MSCI median, the growth in triple net asset value is below 5.0% pa and relative TSR is below median over the three-year period. NON-EXECUTIVE DIRECTORS’ FEES Michael Slade and Michael O’Donnell are not standing for re-election at the 2019 AGM. The base fee payable to Non- Executive Directors, excluding the Chairman, Deputy Chairman and Senior Independent Director, was increased by 6.7% from £45,000 pa to £48,000 pa with effect from 1 April 2019. The additional fees payable to the Chairman of the Audit and Risk, Remuneration and Property Valuations Committees remains at £10,000 pa. The changes to fees payable to Non-Executive Directors are shown in the table below: 150 125 100 75 50 25 0 Mar 2016 Mar 2017 Mar 2018 Mar 2019 Helical FTSE 350 Supersector Real Estate Index Source: Datastream (Thomson Reuters). This graph shows the value, by 31 March 2019, of £100 invested in Helical on 31 March 2016, compared with the value of £100 invested in the FTSE 350 Super-Sector Real Estate Index. Director Michael Slade 1 Sue Clayton Richard Cotton Richard Grant Michael O’Donnell Joe Lister2 31 March 2019 £ 155,000 55,000 70,000 70,000 55,000 45,000 Change wef 1 April 2019 £ Change wef 11 July 2019 £ – (155,000) 11 July 2019 £ – 58,000 70,000 – – 80,000 150,000 (58,000) – 10,000 58,000 3,000 – – 3,000 3,000 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. 2 Joe Lister will receive an increased fee of £10,000 pa subject to his appointment as Chairman of the Audit and Risk Committee at the AGM. PAYMENTS FOR LOSS OF OFFICE No payments were made to Directors in the year for loss of office or to past Directors. 95 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDIRECTORS’ REMUNERATION REPORT CONTINUED REMUNERATION OF THE CHIEF EXECUTIVE Comparing the ten-year TSR of the Company, set out opposite, 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 Name 31 March 2019 Gerald Kaye 31 March 2018 Gerald Kaye 31 March 2017 Gerald Kaye 31 March 2016 Michael Slade 31 March 2015 Michael Slade 31 March 2014 Michael Slade 31 March 2013 Michael Slade 31 March 2012 Michael Slade 31 March 2011 Michael Slade Total remuneration £000 Annual bonus (% of max payout) LTIP (% of max vesting) 1,703 2,209 2,6351 3,867 5,534 3,343 1,523 541 538 91 75 100 100 100 100 65 – – – 33 46 66 100 100 62 – – – – 31 March 2010 Michael Slade 1,5002 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. CHIEF EXECUTIVE’S REMUNERATION COMPARED TO REMUNERATION OF HELICAL EMPLOYEES Percentage increases in Chief Executive remuneration: 2019 £000 2018 £000 Change % Average change for Helical employee % 532 64 727 515 64 +3.3 +0.5 7.8% +6.6% 1,159 -37.3% +8.1% Chief Executive Salary Benefits and share incentive plan Annual bonus CEO PAY RATIO As Helical has fewer than 250 employees, there is no requirement to disclose the CEO pay ratio. Given the very low number of employees and the pay data required to be disclosed, voluntary disclosure is not considered appropriate at this time but this will be kept under review. RELATIVE IMPORTANCE OF THE SPEND ON PAY Staff costs Distributions to Shareholders1 2019 £000 9,289 12,055 2018 £000 6,294 11,236 Net asset value of the Group 567,425 533,894 1 In respect of the financial year to which they relate. Change % 47.6% 7.3% +6.3 TEN YEARS TO 31 MARCH 2019 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 287.50p 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. TOTAL SHAREHOLDER RETURN 350 300 250 200 150 100 50 0 Mar ’09 Mar ’10 Mar ’11 Mar ’12 Mar ’13 Mar ’14 Mar ’15 Mar ’16 Mar ’17 Mar ’18 Mar ’19 Helical FTSE 350 Supersector Real Estate Index Source: Datastream (Thomson Reuters). This graph shows the value, by 31 March 2019, 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. 12 YEARS TO 31 MARCH 2019 The 12 years to 31 March 2019 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. 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 330.50p at 31 March 2019. TOTAL SHAREHOLDER RETURN 150 125 100 75 50 25 0 Mar ’07 Mar ’08 Mar ’09 Mar ’10 Mar ’11 Mar ’12 Mar ’13 Mar ’14 Mar ’15 Mar ’16 Mar ’17 Mar ’18 Mar ’19 Helical FTSE 350 Supersector Real Estate Index Source: Datastream (Thomson Reuters). This graph shows the value, by 31 March 2019, 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. 96 HELICAL PLCAnnual Report and Accounts 2019DIRECTORS’ SHARE INTERESTS AND SHAREHOLDING GUIDELINES (AUDITED) Executive Director Gerald Kaye Tim Murphy Matthew Bonning-Snook 1 Salaries as at 31 March 2019. 2 Shareholding requirement is 500% of salary. 3 Value as per the weighted average share price for the three months to 31 March 2019 of 335.02p. DIRECTORS’ SHAREHOLDINGS (AUDITED) Salary1 £ 532,000 309,600 413,800 Shareholding requirement2 £ 2,660,000 1,548,000 2,069,000 Value of beneficially held shares3 £ 5,818,000 2,264,000 3,353,000 Ratio of shares held to salary % 1,094 731 810 Executive Directors Gerald Kaye Tim Murphy Matthew Bonning-Snook Non-Executive Directors Michael Slade Sue Clayton Richard Cotton Richard Grant Michael O’Donnell Joe Lister Past Directors Legally owned 31.3.18 Legally owned 31.3.19 Share Incentive Plan unrestricted 31.3.19 Beneficially held total 31.3.19 Deferred shares 31.3.19 Share Incentive Plan restricted 31.3.19 PSP awards unvested 31.3.19 1,574,326 1,700,252 636,120 848,522 659,594 964,890 36,269 16,310 35,862 1,736,521 675,904 1,000,752 377,049 42,434 315,044 18,347 16,227 18,297 1,102,999 689,622 921,884 12,164,203 11,996,777 – 25,000 15,000 67,000 – – 25,000 15,000 67,000 – – – – – – – – 11,996,777 – 25,000 15,000 67,000 – – – – – – – – – – – – – – – – – – – – – – – Richard Gillingwater1 11,500 11,500 1 Richard Gillingwater retired from the Board on 12 July 2018. The three Executive Directors of Helical have an average length of service of over 24 years and have built up a shareholding during that time of circa 3.4m shares with a market value at 31 March 2019 of circa £11.3m. ADVISORS TO THE COMMITTEE The Committee consults the Chief Executive and Finance Director about its proposals and has access to professional advice from FIT Remuneration Consultants LLP, who are members of the Remuneration Consultants Group, which is responsible for developing and maintaining the Code of Conduct for Consultants to Remuneration Committees of UK listed companies. FIT Remuneration Consultants are independent of both the Group and its Directors and as such, the Committee is satisfied that the advice received was objective and independent. 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 in the year to 31 March 2019 amounted to £45,561 (2018: £39,777). Fees are charged on a time plus disbursements basis. SHAREHOLDER VOTING AT THE LAST AGM Details of the 2018 binding Remuneration Policy vote, binding Annual Bonus Scheme 2018 vote and advisory Annual Remuneration Report vote were as follows: Remuneration Policy Annual Bonus Scheme 2018 Issued For 118,610,741 89,918,397 118,610,741 91,055,513 Annual Remuneration Report 118,610,741 77,566,882 % 97.0 98.3 85.6 Against 2,736,254 1,611,998 % 3.0 1.7 Withheld Total 12,860 92,667,511 – 92,667,511 13,088,693 14.4 2,011,935 92,667,510 The Committee was pleased to note the level of Shareholder support for the Remuneration Policy, Annual Bonus Scheme 2018 and the Annual Report on Remuneration. The majority of the 14.4% votes against the Annual Remuneration Report resolution were in respect of the operation of the Annual Bonus Scheme 2016 under the previous Remuneration Policy. Noting that the policy and bonus plan were both replaced in 2018, the Committee was comfortable that no further actions were required in respect of these votes. Approved by the Board on 23 May 2019 and signed on its behalf. MICHAEL O’DONNELL Chairman of the Remuneration Committee 97 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONREPORT OF THE DIRECTORS STRATEGIC REPORT A review of the Company’s business during the year, the principal risks and uncertainties it faces as well as future prospects and developments are included in the Strategic Report on pages 1 to 65 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 108 and Consolidated Statement of Comprehensive Income on page 108. An interim dividend of 2.60p (2018: 2.50p) was paid on 31 December 2018 to Shareholders on the Shareholder register on 30 November 2018. A final dividend of 7.50p (2018: 7.00p) per share is recommended for approval at the Annual General Meeting (“AGM”) to be held on 11 July 2019 and, if approved, will be paid on 19 July 2019 to Shareholders on the register on 14 June 2019. The total ordinary dividend declared and paid in the year of 9.60p (2018: 8.70p) per share amounts to £11,406,000 (2018: £10,195,000). CORPORATE GOVERNANCE During the year ended 31 March 2019 the Group has applied the main principles of the UK Corporate Governance Code 2016 and has fully complied with the provisions of the Code apart from in relation to Michael Slade’s continued appointment as Chairman. See page 70 for more detail. DIRECTORS The Directors who held office during the year and up to the date of this report are listed alongside their biographical details on pages 68 and 69. All the Directors currently serving, except for Michael Slade and Michael O'Donnell, will offer themselves for election or re-election, as appropriate, at the AGM to be held on 11 July 2019. Details of Directors’ remuneration and their interests in share awards are set out in the Directors’ Remuneration Report on pages 81 to 97. Details of the Directors’ interests in the ordinary shares of the Company are shown on page 97. GOING CONCERN Under provision C.1.3 of the UK Corporate Governance Code 2016, the Board is required to report whether the business is a going concern. In considering this requirement the Directors took into account the matters set out in the Group’s viability statement on page 53. Having due regard to these matters, the Directors consider it appropriate to continue to adopt the going concern basis in preparing the financial statements. 98 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. 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. 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 2019. Substantial shareholdings Michael E Slade Baillie Gifford Janus Henderson Investors Merian Global Investors BlackRock M&G Investment Management Dimensional Fund Advisors Aviva Investors NBIM Schroder Investment Management Aberdeen Standard Investments Artemis Investment Management Vanguard Group 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 37. Interest capitalised on the Group property portfolio is shown in notes 15 and 20. Long-term incentive schemes are explained in the Directors’ Remuneration Report on pages 81 to 97. 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. 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. CONVERTIBLE BOND Further to the issue on 17 June 2014 of a £100m 4.00% Convertible Bond due for redemption in June 2019 (the “Convertible Bond”), upon a change of control event as defined by the terms and conditions of the Convertible Bond, the Bondholders will have the right to require the issuer to redeem the Convertible Bond at their principal amount together with their accrued interest. Number of ordinary shares 11,996,777 Percentage 10.05% 9,003,170 8,967,073 7,777,234 7,402,052 5,189,738 5,128,229 4,762,617 4,573,316 4,560,300 4,076,266 3,789,519 3,595,104 7.54% 7.51% 6.52% 6.20% 4.35% 4.30% 3.99% 3.83% 3.82% 3.42% 3.17% 3.01% SUBSTANTIAL SHAREHOLDINGS As at 14 May 2019, the Shareholders listed above had notified the Company of a disclosable interest of 3% or more in the nominal value of the ordinary share capital of the Group. HELICAL PLCAnnual Report and Accounts 2019EMPLOYMENT AND ENVIRONMENTAL MATTERS Information in respect of the Group’s employment and environmental matters as well as greenhouse gas reporting is contained in the Sustainability Report on pages 58 to 65. 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. POST BALANCE SHEET EVENTS Details of post balance sheet events are set out in note 34 to the Financial Statements. GROUP STRUCTURE Details of the Group’s subsidiary undertakings are disclosed in note 40 to the Financial Statements. SHARE CAPITAL Details of the Company’s issued share capital are shown in note 28 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 2019 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 2018 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 2019 AGM, at which a resolution will be proposed to renew this authority. ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held on 11 July 2019 at 11:30 am at The Connaught, Carlos Place, Mayfair, London W1K 2AL. The special business at the 2019 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 AUDITORS The Company's Auditor, Deloitte LLP, appointed at the 2018 AGM, 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 2019 AGM. 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 Auditor is aware of that information. By Order of the Board JAMES MOSS FCA Company Secretary 23 May 2019 99 HELICAL PLCAnnual Report and Accounts 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing the Strategic Report, Governance and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation. 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 of the profit or loss of the Company and Group for that period. In preparing these financial statements, International Accounting Standard 1 requires the Directors to: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements of IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance; and • make an assessment of the Company’s ability to continue as a going concern. 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 Annual Report complies with the Companies Act 2006 and, as regards the financial statements, 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. DIRECTORS’ RESPONSIBILITY STATEMENT UNDER THE DISCLOSURE AND TRANSPARENCY RULES Each of the Directors, whose names and roles appear on page 68 to page 69, confirm that to the best of their knowledge: • the Group financial statements, which have been 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 Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Directors’ statement under the UK Corporate Governance Code Each of the Directors confirm that to the best of their knowledge the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group’s and Company’s performance, business model and strategy. A copy of the financial statements is placed on the Group’s website and the Directors are responsible for the maintenance and integrity of the corporate and financial information on that website (www.helical.co.uk). Information published on the internet is accessible in multiple countries with differing legal requirements. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. This statement of Directors’ Responsibilities was approved by the Board of Directors on 23 May 2019 and is signed on its behalf by: GERALD KAYE Chief Executive TIM MURPHY Finance Director 23 May 2019 23 May 2019 100 HELICAL PLCAnnual Report and Accounts 2019INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HELICAL PLC OPINION In our opinion: • the financial statements of Helical plc (the “Parent Company”) and its subsidiaries (together the “Group”) give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March 2019 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. We have audited the financial statements which comprise: • the Consolidated Income Statement; • the Consolidated Statement of Comprehensive Income; • the Consolidated and Company Balance Sheets; Materiality • the Consolidated and Company Cash Flow Statements; • the Consolidated and Company Statements of Changes in Equity; and • the related notes 1 to 40. 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. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the “FRC’s”) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. SUMMARY OF OUR AUDIT APPROACH Key audit matters The key audit matters that we identified in the current year were: • Investment property valuation • Revenue recognition for promote fee The materiality that we used for the Group financial statements was £10,650,000 which was determined on the basis of 1% of total assets. In addition to total assets, we tested all items impacting the income statement, except for the revaluation of investment properties, at a lower measure for the Group and we applied a lower threshold of £2,484,000, being 5% of profit before tax. Scoping We performed a full scope audit of the financial statements of the Parent Company and the Group. CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL RISKS AND VIABILITY STATEMENT Going concern We have reviewed the Directors’ statement within the financial statements about whether they 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 and Company’s ability to continue to do so over a period of at least 12 months from the date of approval of the financial statements. We considered as part of our risk assessment the nature of the Group, its business model and related risks including where relevant the impact of Brexit, the requirements of the applicable financial reporting framework and the system of internal control. We evaluated the Directors’ assessment of the Group’s ability to continue as a going concern, including challenging the underlying data and key assumptions used to make the assessment, and evaluated the Directors’ plans for future actions in relation to their going concern assessment. We are required to state whether we have anything material to add or draw attention to in relation to that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our knowledge obtained in the audit. We confirm that we have nothing material to report, add or draw attention to in respect of these matters. 101 HELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HELICAL PLC CONTINUED We confirm that we have nothing material to report, add or draw attention to in respect of these matters. CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL RISKS AND VIABILITY STATEMENT Principal risks and viability statement Based solely on reading the Directors’ statements and considering whether they were consistent with the knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of the Directors’ assessment of the Group’s and the Company’s ability to continue as a going concern, we are required to state whether we have anything material to add or draw attention to in relation to: • the disclosures on pages 52 to 57 that describe the principal risks and explain how they are being managed or mitigated; • the Directors' confirmation on page 53 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; or • the Directors’ explanation on page 53 as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We are also required to report whether the Directors’ statement relating to the prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. INVESTMENT PROPERTY VALUATION Key audit matter description At 31 March 2019, the Group held wholly owned investment property valued at £778.75m (31 March 2018: £791.95m). Investment properties are held at fair value on the Group balance sheet. During the year, a net valuation gain of £44.3m (31 March 2018: £23.8m) was recorded (excluding acquisitions and disposals). Investment property valuation represents the most significant area of estimation and judgement within the Group financial statements, which is why we consider this to be a significant risk of material misstatement as well as a potential fraud risk. The fair values are calculated by third party valuation experts using factual information, such as lease agreements and tenancy data, and their professional judgement concerning market conditions and factors impacting individual properties. The key estimates associated with this balance which can lead to significant valuation movements relate to property yields, estimated rental values and the level of expenditure required to maintain a property. See also key sources of estimation uncertainty in note 39, the investment property in note 15 of the financial statements and the Audit and Risk Committee report on page 78. 102 HELICAL PLCAnnual Report and Accounts 2019INVESTMENT PROPERTY VALUATION How the scope of our audit responded to the key audit matter We evaluated the appropriateness of the design and implementation of the Group’s key controls to address the risk over property valuations. Management’s process for challenging the appropriateness of property valuations has been assessed. We met with the third party valuers appointed by management to value the property portfolio. With the assistance of our internal real estate valuation specialists we challenged the significant judgements and assumptions applied in their valuation model, verified the movements in the key judgements and benchmarked the inputs against market data. We assessed the state of local markets from publicly available market commentaries. We analysed the individual property valuations to understand significant movements against prior year and comparative market evidence considered by the valuers. We tested the integrity of data and information pertaining to rental income, purchasers’ costs and occupancy provided by management to external valuers and utilised in the valuation. We have assessed the competence and objectivity of the external valuers. Key observations Based on our audit work, we are satisfied that the judgements and assumptions used in the investment property valuation are supported by the evidence obtained during the audit. REVENUE RECOGNITION FOR PROMOTE FEE Key audit matter description How the scope of our audit responded to the key audit matter The Group has individual joint venture arrangements in relation to the Creechurch Place and Barts Square developments. Within these agreements, the Group is engaged by the joint venture to manage the development and letting for One Creechurch Place, whilst the Barts joint venture is engaged to develop and let One Bartholomew. The Group is remunerated in respect of these services through a promote fee, calculated based upon the contractual agreement and the overall profit of the development. The Group recognises the Creechurch Place promote fee within revenue with the Barts Square promote fee recognised within share of results of joint ventures. The calculation of promote fees includes both a fixed and variable consideration, within the context of IFRS 15. There are two underlying performance obligations in relation to the development and letting of the building, these being the fixed and variable considerations respectively. The promote fee is therefore allocated proportionally to their standalone fair value. The key judgements associated with the promote fee calculations are based on the following key areas: • the allocation of the promote fee between each performance obligation; • the expected rent to be contracted in each development; and • the magnitude of constraint, if any, to apply to the promote fee. As at 31 March 2019, the Group has recognised £7.1m (2018: £10.1m) in respect of the One Creechurch Place promote fee and £6.0m (2018: £nil) in respect of One Bartholomew (Helical share). See also key sources of estimation uncertainty in note 39, revenue from contracts with customers in note 2 of the financial statements and the Audit and Risk Committee report on page 78. We evaluated the appropriateness of the design and implementation of the Group’s key controls to address the risk over the income arising from promote fees. We have critically assessed the assumptions made by management in the calculation and recognition of the promote fee by agreeing to underlying contractual and recent market data in relation to lettings contracted. We have assessed the allocation of the promote fee to each performance obligation, considering this allocation against standalone selling prices for equivalent services. We have agreed the overall accounting treatment and disclosure to the requirements of the newly implemented IFRS 15 revenue standard. Key observations Based on our audit work, we are satisfied that the judgements and assumptions used in revenue recognition for promote fee were supported by the evidence obtained during the audit. 103 HELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HELICAL PLC CONTINUED OUR APPLICATION OF MATERIALITY We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: GROUP FINANCIAL STATEMENTS Materiality £10,650,000 £2,484,000 for balances affecting the income statement PARENT COMPANY FINANCIAL STATEMENTS £6,243,000 Basis for determining materiality 1% of total assets. 1% of total assets. The lower materiality used for balances impacting the income statement, excluding revaluation of investment property, was determined using 5% of profit before tax. Rationale for the benchmark applied Total assets is the most appropriate benchmark because it appropriately reflects the valuation of investment property which is of key interest to the users of the financial statements. Total assets is the most appropriate benchmark as this Company is a holding company. Profit before tax (“PBT”) is deemed an appropriate benchmark for items impacting the income statement as these are more sensitive to the users of the financial statements. TOTAL SHAREHOLDER RETURN Total assets £1,065m Group materiality £10.65m Component materiality range £6.2m to £3.50m Audit and Risk Committee reporting threshold £0.53m Total assets Group materiality We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of £0.53m, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit and Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. AN OVERVIEW OF THE SCOPE OF OUR AUDIT We performed a full scope audit of the financial statements of the Parent Company and Group, which includes the audits of joint ventures which are treated as components. A Group materiality is adopted for all subsidiary entities within the Group, unless a subsidiary is partially owned by a third party. There are three Group components that are subject to audit. The materiality range for the joint ventures is £3.5m to £6.2m. Audit work to respond to the risks of material misstatement was performed directly by the Group audit engagement team. Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement at the Group level. We have audited the material balances which support the Group’s Annual Report, which includes auditing the consolidation and performing a desktop review over the non-significant components. 104 HELICAL PLCAnnual Report and Accounts 2019OTHER INFORMATION The Directors are responsible for the other information. The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report thereon. We have nothing to report in respect of these matters. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that: • Fair, balanced and understandable – the statement given by the Directors that they consider the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group’s position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; • Audit and Risk Committee reporting – the section describing the work of the Audit and Risk Committee does not appropriately address matters communicated by us to the Audit and Risk Committee; or • Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the Directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code. RESPONSIBILITIES OF DIRECTORS As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Details of the extent to which the audit was considered capable of detecting irregularities, including fraud, are set out below. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. 105 HELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HELICAL PLC CONTINUED EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. Identifying and assessing potential risks related to irregularities In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following: • enquiring of management and the Audit and Risk Committee, including obtaining and reviewing supporting documentation, concerning the Group’s policies and procedures relating to: – identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance; – detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and – the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations; • discussing among the engagement team and involving relevant internal specialists, including tax, valuations, IT and industry specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As part of this discussion, we identified potential for fraud in the following areas: Investment property valuation and Revenue recognition of the promote fee; and • obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the Group. The key laws and regulations we considered in this context included the Companies Act 2006. In addition, compliance with terms of the Group’s operating licence and the Landlord and Tenant Act 1985 were fundamental to the Group’s ability to continue as a going concern. Audit response to risks identified As a result of performing the above, we identified “Investment property valuation” and “Revenue recognition for promote fee” as key audit matters. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters. In addition to the above, our procedures to respond to risks identified included the following: • reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and regulations discussed above; • enquiring of management, the Audit and Risk Committee and external legal counsel concerning actual and potential litigation and claims; • performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; • reading minutes of meetings of those charged with governance and reviewing correspondence with HMRC; and • in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS Opinions on other matters prescribed by the Companies Act 2006 In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and the 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. In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Report of the Directors. 106 HELICAL PLCAnnual Report and Accounts 2019MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: We have nothing to report in respect of these matters. • we have not received all the information and explanations we require for our audit; • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company financial statements are not in agreement with the accounting records and returns. Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. OTHER MATTERS Auditor tenure Following the recommendation of the Audit and Risk Committee, we were appointed by Helical plc on 12 June 2018 to audit the financial statements for the year ending 31 March 2019 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is one year, covering the year ending 31 March 2019. Consistency of the audit report with the additional report to the Audit and Risk Committee Our audit opinion is consistent with the additional report to the Audit and Risk Committee we are required to provide in accordance with ISAs (UK). USE OF OUR REPORT 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. GEORGINA ROBB (SENIOR STATUTORY AUDITOR) For and on behalf of Deloitte LLP Statutory Auditor London, United Kingdom 23 May 2019 107 HELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTCONSOLIDATED INCOME STATEMENT For the year ended 31 March 2019 Revenue Net rental income Development property loss Share of results of joint ventures Other operating income Gross profit before net gain on sale and revaluation of investment properties Gain on sale of investment properties Revaluation of investment properties Fair value movement of available-for-sale assets 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 gain/(loss) Profit before tax Tax on profit on ordinary activities Profit for the year Earnings per share Basic Diluted All the activities of the Group are from continuing operations. Year ended 31.3.19 £000 Year ended 31.3.18 £000 Notes 3 4 5 19 6 15 21 7 9 9 37 10 14 44,175 24,599 (1,781) (3,217) – 19,601 15,008 44,284 144 79,037 (16,753) 62,284 (17,407) 983 (3,322) 865 53 43,456 (836) 42,620 175,596 36,329 (4,174) 3,196 111 35,462 13,567 23,848 1,385 74,262 (12,765) 61,497 (37,438) 4,303 4,029 (1,559) (10) 30,822 (4,537) 26,285 35.8p 35.3p 22.3p 22.1p CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 March 2019 Profit for the year Exchange difference on retranslation of net investments in foreign operations Total comprehensive income for the year Year ended 31.3.19 £000 Year ended 31.3.18 £000 42,620 (51) 42,569 26,285 (15) 26,270 The exchange differences on retranslation of net investments in foreign operations will be reclassified to the Income Statement on disposal. 108 HELICAL PLCAnnual Report and Accounts 2019CONSOLIDATED AND COMPANY BALANCE SHEETS At 31 March 2019 Non-current assets Investment properties Owner occupied property, plant and equipment Investment in subsidiaries Investment in joint ventures Derivative financial instruments Deferred tax asset Current assets Land, developments and trading properties Corporation 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 Long leasehold liability Trade and other payables Deferred tax liability Total liabilities Net assets Equity Called-up share capital Share premium account Revaluation reserve Capital redemption reserve Other reserves Retained earnings Total equity Notes 15 17 18 19 37 11 20 22 23 24 25 25 37 27 24 11 28 Group 31.3.19 £000 778,752 1,747 – 24,676 915 – Group 31.3.18 £000 791,948 1,825 – 27,809 123 – Company 31.3.19 £000 – 1,747 157,621 – 270 – Company 31.3.18 Restated £000 – 1,820 156,173 15 – 564 806,090 821,705 159,638 158,572 2,311 – 58,726 197,570 258,607 6,042 3,736 100,757 91,871 202,406 1,064,697 1,024,111 – – 299,814 164,885 464,699 624,337 – – 360,407 63,350 423,757 582,329 (43,159) (2,561) (100,468) (146,188) (51,378) (190,723) (297,056) – – – (98,767) – – (51,378) (289,490) (297,056) (324,814) (416,992) (4,158) (2,189) (11,405) (8,518) (351,084) (497,272) (2,874) (2,189) – (16,784) (438,839) (490,217) – – – – (159) (159) (289,649) (98,694) (2,404) – – – (101,098) (398,154) 567,425 533,894 334,688 184,175 1,459 101,304 131,050 7,478 291 325,843 567,425 1,451 98,798 162,753 7,478 291 263,123 533,894 1,459 101,304 – 7,478 1,987 222,460 334,688 1,451 98,798 – 7,478 1,987 74,461 184,175 The profit in the year for the Company was £159,405,000 (2018: restated loss of £35,228,000). The financial statements were approved by the Board and authorised for issue on 23 May 2019. TIM MURPHY Finance Director Company number 156663 109 HELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTCONSOLIDATED AND COMPANY CASH FLOW STATEMENTS For the year ended 31 March 2019 Cash flows from operating activities Profit/(loss) before tax Depreciation Revaluation surplus on investment properties Gain on sales of investment properties Profit on sale of subsidiaries (Profit)/loss 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 Fair value movement of available-for-sale assets Impairment of investments Dividends received from subsidiaries Foreign exchange movement Cash inflows/(outflows) from operations before changes in working capital Change in trade and other receivables Change in land, developments and trading properties Change in trade and other payables Cash inflows generated from operations Finance costs Finance income Tax (paid)/received Cash flows from operating activities Cash flows from investing activities Additions to investment property Sale of investment property Investment in joint ventures and subsidiaries Proceeds from sale of subsidiaries Dividends from joint ventures Receipts in respect of available-for-sale assets Sale of plant and equipment Purchase of owner occupied property, plant and equipment Net cash generated from/(used by) investing activities Cash flows from financing activities Borrowings drawn down Borrowings repaid Shares issued Sale of own shares Equity dividends paid Net cash used by financing activities Net increase/(decrease) in cash and cash equivalents Exchange gains on cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year Group 31.3.19 £000 43,456 296 (44,284) (15,008) – (52) 16,424 3,322 (865) 2,274 3,217 (144) – – (52) 8,584 40,561 3,731 (3,176) 49,700 (25,358) 461 (2,200) (27,097) 22,603 (79,742) 164,058 – – 416 144 155 (320) 84,711 Group 31.3.18 £000 Company 31.3.19 £000 Company 31.3.18 Restated £000 30,822 291 (23,848) (13,567) – 81 33,135 (4,029) 1,559 1,185 (3,196) (1,385) – – (19) 21,029 (25,126) 82,801 (6,917) 71,787 (45,537) 162 6 (45,369) 26,418 (95,821) 337,570 (5,403) – 671 1,385 – (73) 160,524 (34,728) 296 – – 291 – – (14,435) (2,847) (52) 4,695 – (2,674) – – – – 17,248 – (146) – – – 5,459 37,041 (157,591) – (3,778) 58,560 – 63,546 118,328 (2,719) 438 (2,200) (4,481) 113,847 – – (3,249) – – – 149 (320) – – 16,859 240,390 45 (119,118) 138,176 (9,935) 106 – (9,829) 128,347 – – (56,365) 22,538 – – – (73) 238,329 (3,420) (33,900) 64,089 94,196 (54,306) (356,670) – – – (80,000) 8 – (11,406) (1,615) 105,699 – 91,871 197,570 4 521 (10,195) (272,144) (7,397) 6 99,262 91,871 2,514 – (11,406) (8,892) 101,535 – 63,350 164,885 – – (10,195) (90,195) 4,252 – 59,098 63,350 110 HELICAL PLCAnnual Report and Accounts 2019CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY At 31 March 2019 Group At 31 March 2017 Total comprehensive income Revaluation surplus Realised on disposals Issued share capital Performance Share Plan Performance Share Plan – deferred tax Share settled bonus Dividends paid Sale of own shares Own shares held reserve transfer At 31 March 2018 Total comprehensive income Revaluation surplus Realised on disposals Issued share capital Performance Share Plan Performance Share Plan – deferred tax Share settled bonus Share settled Performance Share Plan Dividends paid At 31 March 2019 Share capital £000 1,447 – – – 4 – – – – – – Share premium £000 Revaluation reserve £000 Capital redemption reserve £000 Other reserves £000 Retained earnings £000 Own shares held £000 98,798 164,190 7,478 291 244,693 – – – – – – – – – – – 23,848 (25,285) – – – – – – – – – – – – – – – – – – – – – – – – – – – 26,270 (23,848) 25,285 – 1,185 (55) (733) (10,195) – 521 1,451 98.798 162,753 7,478 291 263,123 – – – 8 – – – – – – – – 2,506 – – – – – – 44,284 (75,987) – – – – – – – – – – – – – – – – – – – – – – – – 42,569 (44,284) 75,987 2,274 94 (1,837) (677) (11,406) 1,459 101,304 131,050 7,478 291 325,843 – (2,514) Total £000 516,897 26,270 – – 4 1,185 (55) (733) (10,195) 521 – 533,894 42,569 – – – 2,274 94 – – – – – – – – – – – 521 (521) – – – – – – 1,837 677 – – (11,406) 567,425 For a breakdown of total comprehensive income see the Consolidated Statement of Comprehensive Income. The adjustment against retained earnings of £2,274,000 (2018: £1,185,000) adds back the share-based payments charge in accordance with IFRS 2 Share Based Payments. There were net transactions with owners of £9,038,000 (2018: £9,273,000) made up of the Performance Share Plan credit of £2,274,000 (2018: £1,185,000) and related deferred tax credit of £94,000 (2018: charge of £55,000), dividends paid of £11,406,000 (2018: £10,195,000), issued share capital of £8,000 (2018: £4,000) and corresponding share premium of £2,506,000 (2018: £nil), the sale of own shares of £nil (2018: £521,000), share settled PSP awards charge of £1,837,000 (2018: £nil) and the share settled bonus charge of £677,000 (2018: £733,000). Company At 31 March 2017 Total comprehensive income Issued share capital Dividends paid At 31 March 2018 Total comprehensive income Issued share capital Dividends paid At 31 March 2019 Share capital £000 1,447 Share premium £000 98,798 Capital redemption reserve £000 Other reserves £000 Retained earnings restated £000 Total restated £000 7,478 1,987 119,884 229,594 – 4 – – – – – – – – – – 1,451 98,798 7,478 1,987 – 8 – – 2,506 – – – – – – – (35,228) (35,228) – 4 (10,195) (10,195) 74,461 159,405 – 184,175 159,405 2,514 (11,406) (11,406) 1,459 101,304 7,478 1,987 222,460 334,688 Total comprehensive income is made up of the profit after tax of £159,405,000 (2018: restated loss of £35,228,000). Refer to Note 38 for information regarding the prior year restatement. Included within changes in equity are net transactions with owners of £8,892,000 (2018: £10,191,000) being dividends paid of £11,406,000 (2018: £10,195,000) and issued share capital of £2,514,000 (2018: £4,000). 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/Company. 111 HELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT1. BASIS OF PREPARATION Helical plc (the Company) is a public company limited by shares incorporated in the United Kingdom under the Companies Act and registered in England. The address of the Company’s registered office is shown on page 147. The principal activities of the Company and its subsidiaries (the Group) and the nature of the Group’s operations are set out in the Strategic Report on pages 1 to 65. 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 assets, Convertible Bonds and derivative financial instruments. The measurement bases and principal accounting policies of the Group are set out in Note 39. These accounting policies are consistent with those applied in the year to 31 March 2018, as amended to reflect any new standards. Amendments to standards and interpretations which are mandatory for the year ended 31 March 2019 are detailed below: • 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); • Annual Improvements to IFRS Standards 2014–2016 Cycle – amendments to IFRS 1 and IAS 28 (effective for accounting periods beginning on or after 1 January 2018); • Amendments to IFRS 2 Share Based Payments – amendments to clarify the classification and measurement of share-based payment transactions (effective for accounting periods beginning on or after 1 January 2018); • Amendments to IAS 40 Investment Property – transfer of investment property (effective for accounting periods beginning on or after 1 January 2018); and • IFRIC 22 Foreign Currency Transactions and Advance Consideration (effective for accounting periods beginning on or after 1 January 2018). 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 16 Leases (effective for periods beginning on or after 1 January 2019); • Amendments to IFRS 9 Financial Instruments – prepayment features with negative compensation (effective for periods beginning on or after 1 January 2019); • Amendments to IAS 28 Investments in Associates and Joint Ventures – long-term interest in associates and joint ventures (effective for periods beginning on or after 1 January 2019); • Annual Improvements to IFRS Standard 2015-2017 Cycle – amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (effective for periods beginning on or after 1 January 2019); and • IFRIC 23 Uncertainty over Income Tax Treatments (effective for periods beginning on or after 1 January 2019). The most significant of these, and their impact on the Group’s reporting, are set out below: IFRS 9 Financial instruments This standard applies to the classification, measurement and recognition of financial assets and financial liabilities, impairment provisioning and hedge accounting and replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement. The adoption of IFRS 9 has led to changes in neither the carrying amount of financial instruments nor their classification. The standard introduces an expected credit loss model, which replaces the incurred loss impairment model. However, the Group concluded that this has no material impact on its financial statements. The table below reflects the classification categories under IAS 39 and IFRS 9. Financial Instrument Cash and cash equivalents IAS 39 classification and measurement Loans and receivables at amortised cost IFRS 9 classification and measurement Financial assets held at amortised cost Trade and other receivables Loans and receivables at amortised cost Financial assets held at amortised cost Trade and other payables Financial liabilities at amortised cost Financial liabilities at amortised cost Profit share partner accruals Designated as at fair value through profit and loss Designated as at fair value through profit and loss Derivative financial instruments Fair value through profit and loss Fair value through profit and loss Borrowings Convertible Bond Financial liabilities at amortised cost Financial liabilities at amortised cost Designated as at fair value through profit and loss Designated as at fair value through profit and loss IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of IFRS 15 is that the Group should recognise revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The standard sets out a five–step model: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations within a contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations within the contract. Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation. 112 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019The standard is applicable to investment property disposals, development property disposals, property development management/ advisory services and service charge income, but excludes rental income, which is within the scope of IAS 17 (until the adoption of IFRS 16 for accounting periods beginning on 1 January 2019). There has been no change to the measurement of revenue as a result of the adoption of IFRS 15. Additional disclosures have been made in Notes 2, 22 and 39 in accordance with IFRS 15. Prior year adjustment An adjustment to the revenue reported for the year to 31 March 2018 has been made to reflect the gross up of service charges in rental income and costs, where the net amount had previously been recognised in rental costs. This adjustment is due to the adoption of IFRS 15 Revenue from Contracts with Customers and has no net impact on the profit for the year or on the Group’s Net asset position. IFRS 16 Leases This standard does not affect the accounting for rental income earned by the Group as a lessor, but from the Group’s initial assessment of its head office lease, it believes adoption will result in the recognition on the Consolidated and Company Balance Sheets of: a right of use asset of £5,600,000; a lease liability of £7,300,000; the reversal of lease incentive accrual of £1,300,000; and a net asset decrease of £400,000. 2. REVENUE FROM CONTRACTS WITH CUSTOMERS Development management services Development property sales Corporate sale – retirement village portfolio Development property income Service charge income Other income Total revenue from contracts with customers Year ended 31.3.19 £000 7,963 – – 7,963 8,058 – Year ended 31.3.18 £000 17,309 21,660 86,709 125,678 9,623 138 16,021 135,439 The total revenue from contracts with customers is the revenue recognised in accordance with IFRS 15 Revenue from Contracts with Customers. This reflects the development property income, Service charge income and other revenue in Note 3 Segmental Information. No impairment of contract assets was recognised in the year to 31 March 2019 (2018: £nil). 3. SEGMENTAL INFORMATION IFRS 8 Operating Segments 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 • development properties, which include sites, developments in the course of construction, completed developments available for sale, and pre-sold developments. Revenue Rental income Development property income Service charge income Other revenue Revenue Investment and trading Year ended 31.03.19 £000 28,154 – 8,058 – 36,212 Developments Year ended 31.03.19 £000 Total Year ended 31.03.19 £000 – 7,963 – – 7,963 28,154 7,963 8,058 – 44,175 Investment and trading Year ended 31.03.18 £000 40,157 Developments Year ended 31.03.18 £000 – – 125,678 9,623 138 49,918 – – Total Year ended 31.03.18 £000 40,157 125,678 9,623 138 125,678 175,596 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 £nil (2018: £108,369,000), revenue from other income £nil (2018: £138,000), revenue from services of £7,963,000 (2018: £17,309,000), service charge income of £8,058,000 (2018: £9,623,000) and rental income of £28,154,000 (2018: £40,157,000). 113 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTInvestment and trading Year ended 31.03.19 £000 24,599 – 5,203 59,292 Developments Year ended 31.03.19 £000 Total Year ended 31.03.19 £000 – (1,781) (8,420) – 24,599 (1,781) (3,217) 59,292 Investment and trading Year ended 31.03.18 £000 36,329 – 5,135 37,415 Developments Year ended 31.03.18 £000 Total Year ended 31.03.18 £000 – (4,174) (1,939) – 89,094 (10,201) 78,893 78,879 (6,113) 3. SEGMENTAL INFORMATION CONTINUED Profit before tax Net rental income Development property loss Share of results of joint ventures Gain on sale and revaluation of investment properties Fair value movement 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 gain/(loss) Profit before tax Investment and trading 31.03.19 £000 778,752 – 17,556 796,308 Developments 31.03.19 £000 – 2,311 7,120 9,431 Net assets Investment properties Land, development and trading properties Investment in joint ventures Owner occupied property, plant and equipment Derivative financial instruments Trade and other receivables Corporation tax receivable Cash and cash equivalents Total assets Liabilities Net assets 36,329 (4,174) 3,196 37,415 72,766 1,385 111 74,262 (12,765) (37,438) 4,303 4,029 (1,559) (10) 30,822 Total 31.03.18 £000 791,948 6,042 27,809 825,799 1,825 123 100,757 3,736 91,871 1,024,111 (490,217) 533,894 144 – 79,037 (16,753) (17,407) 983 (3,322) 865 53 43,456 Total 31.03.19 £000 778,752 2,311 24,676 805,739 1,747 915 58,726 – 197,570 1,064,697 (497,272) 567,425 Investment and trading 31.03.18 £000 791,948 28 12,352 804,328 Developments 31.03.18 £000 – 6,014 15,457 21,471 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 £nil (31 March 2018: £5,000). 4. NET RENTAL INCOME Gross rental income Rents payable Property overheads Net rental income Net rental costs/(income) attributable to profit share partner Net rental income Year ended 31.3.19 £000 Year ended 31.3.18 £000 28,154 (285) (3,410) 24,459 140 24,599 40,157 (144) (3,549) 36,464 (135) 36,329 Property overheads include lettings costs, vacancy costs and bad debt provisions. The amounts above include gross rental income from investment properties of £28,154,000 (2018: £40,157,000) and net rental income from investment properties of £24,599,000 (2018: £36,329,000). 114 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 20195. DEVELOPMENT PROPERTY LOSS Development property income Cost of sales Sales expenses Provision against book values Development property loss 6. GAIN ON SALE OF INVESTMENT PROPERTIES Net proceeds from the sale of investment properties Book value (Note 15) Tenants incentives on sold investment properties Gain on sale of investment properties 7. 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 Audit related assurance services Other non-audit services Operating lease costs 8. STAFF COSTS Staff costs during the year: Wages and salaries Social security costs Other pension costs Year ended 31.3.19 £000 7,963 (5,399) – (4,345) (1,781) Year ended 31.3.18 £000 125,678 (125,085) (2,554) (2,213) (4,174) Year ended 31.3.19 £000 164,058 Year ended 31.3.18 £000 341,911 (147,550) (324,002) (1,500) 15,008 (4,342) 13,567 Year ended 31.3.19 £000 16,753 Year ended 31.3.18 £000 12,765 296 2,274 291 1,388 171 99 54 9 170 84 58 19 1,214 1,201 Year ended 31.3.19 £000 Year ended 31.3.18 £000 7,654 1,379 256 9,289 5,214 882 198 6,294 Details of the remuneration of Directors amounting to £4,531,000 are included in the Directors’ Remuneration Report on pages 81 to 97. The amount of the share-based payments charge relating to share awards made to Directors is £1,687,000 (2018: £921,000). Included within wages and salaries are Directors’ bonuses of £1,639,000 (2018: £2,060,000) as discussed in the Directors’ Remuneration Report on pages 81 to 97. Other pension costs relate to payments to individual pension plans. The average monthly number of employees of the Group during the year was 32 (2018: 36) all of whom are UK head office staff. There were an average of five (2018: six) management, seven (2018: seven) property executives and 20 (2018: 23) administrative staff. Of the staff costs of £9,289,000 (2018: £6,294,000), £9,289,000 is included within administrative expenses (2018: £6,124,000) and £nil is included within development costs (2018: £170,000). Within administrative costs is the share-based payment charge for the year of £2,274,000 (2018: £1,388,000) which is not included in the staff costs above. 115 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT9. FINANCE COSTS AND FINANCE INCOME Interest payable on bank loans, bonds and overdrafts Retail Bond redemption premium Other interest payable and similar charges Interest capitalised Finance costs Interest receivable and similar income Finance income Year ended 31.3.19 £000 Year ended 31.3.18 £000 (16,414) (26,873) – (4,208) 3,215 (17,407) 983 983 (8,708) (7,053) 5,196 (37,438) 4,303 4,303 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 4.35% (2018: 3.19%). 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 3.79% (2018: 4.19%). 10. TAX ON PROFIT ON ORDINARY ACTIVITIES The tax charge is based on the profit for the year and represents: United Kingdom corporation tax at 19% (2018: 19%) Group corporation tax Adjustment in respect of prior periods Use of tax losses Current tax (charge)/credit Deferred tax Capital allowances Tax losses Unrealised chargeable gains Other temporary differences Deferred tax credit/(charge) Total tax charge for the year Year ended 31.3.19 £000 Year ended 31.3.18 £000 (8,813) 315 (509) (9,007) (1,003) (677) 10,647 (796) 8,171 (836) (831) 1,253 – 422 709 (5,478) 2,525 (2,715) (4,959) (4,537) Factors Affecting the Tax Charge for the Year The tax assessed for the year is lower than (2018: 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 19% (2018: 19%) Effect of: Net expenses not deductible for tax purposes Adjustment to capital allowances – disposals Tax movements on share awards Movement on tax losses not previously recognised in deferred tax Operating (loss)/profit of joint ventures Current tax charge adjustment in respect of prior periods Movement on sale and revaluation not recognised through deferred tax Chargeable gain in excess of profit or loss on investment property Deferred tax adjustment in respect of prior periods Loss on disposal of retirement villages Change of rate of corporation tax Total tax charge for the year Year ended 31.3.19 £000 Year ended 31.3.18 £000 43,456 (8,257) (542) 623 48 205 (737) 315 8,073 (775) (791) – 1,002 (836) 30,822 (5,856) (650) 1,544 8 – 607 – 5,732 (568) – (5,354) – (4,537) 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. In addition, following changes to the legislation governing the taxation of Non-Resident Landlords, chargeable gains on disposals of investment property held by these companies will become subject to UK corporation tax with effect from 1 April 2019 and their income profits will become subject to corporation tax with effect from April 2020. Neither change has an impact in the current year. 116 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 201911. DEFERRED TAX Deferred tax provided for in the financial statements is set out below: Capital allowances Tax losses Unrealised chargeable (gains)/losses Other temporary differences Deferred tax (liability)/asset Group 31.3.19 £000 (3,263) 2,019 (9,159) 1,885 (8,518) Group 31.3.18 £000 (2,260) 2,696 (19,806) 2,586 (16,784) Company 31.3.19 £000 Company 31.3.18 £000 (159) (137) – – – (159) 420 281 – 564 Note: all deferred tax balances have been calculated at an effective rate of corporation tax of 17% (2018: 19%) which is the substantively enacted future rate for the period in which the deferred tax is expected to be realised. Under IAS 12 Income Taxes, 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 temporary 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 £94,000 (2018: £55,000) in respect of future tax relief for share awards has been recognised in reserves in accordance with IAS 12 Income Taxes. Together with the charge through the Consolidated Income Statement, this movement explains the change in the deferred tax liability for the year. The Group contains entities with tax losses for which no deferred tax asset is recognised. The total unrecognised losses amount to approximately £6,430,000 (31 March 2018: £6,597,000). 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 £3,263,000 (31 March 2018: £2,260,000) would be released and further capital allowances of £65,906,000 (31 March 2018: £40,921,000) would be available to reduce future tax liabilities. 12. DIVIDENDS PAID AND PAYABLE Attributable to equity share capital Ordinary Interim paid 2.60p per share (2018: 2.50p) Prior year final paid 7.00p per share (2017: 6.20p) Year ended 31.3.19 £000 Year ended 31.3.18 £000 3,103 8,303 11,406 2,934 7,261 10,195 A final dividend of 7.50p, if approved at the AGM on 11 July 2019, will be paid on 19 July 2019 to Shareholders on the register on 14 June 2019. This final dividend, amounting to £8,952,000, has not been included as a liability as at 31 March 2019, in accordance with IFRS. 13. 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 £159,405,000 (2018: restated loss of £35,228,000). 117 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT14. 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. 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 Earnings per Share 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 Year ended 31.3.19 000 119,363 Year ended 31.3.18 000 118,611 (307) (997) 119,056 117,614 862 778 920 478 Weighted average ordinary shares in issue for calculation of diluted earnings per share 120,696 119,012 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 £000 42,620 35.8p 35.3p £000 42,620 £000 26,285 22.3p 22.1p £000 26,285 Net gain on sale and revaluation of investment properties – subsidiaries (59,292) (37,415) Tax on profit on disposal of investment properties Gain on movement in share of joint ventures Fair value movement on derivative financial instruments – subsidiaries – joint ventures – joint ventures Fair value movement on Convertible Bond Profit on cancellation of derivative financial instruments Expense on cancellation of loans Retail Bond redemption premium Fair value movement of available-for-sale assets Deferred tax on adjusting items Loss used for calculation of EPRA loss per share (1,288) 14,130 – 3,322 35 (865) (72) 1,458 – (144) (9,935) (10,031) (3,317) 3,931 (1,693) (4,029) (7) 1,559 (1,756) 2,296 8,708 (1,385) (1,431) (8,254) EPRA loss per share (8.4)p (7.0)p The loss used for the calculation of EPRA earnings per share includes net rental income and development property profits/losses but excludes trading property gains. 15. INVESTMENT PROPERTIES Group Book value at 1 April Additions and transfers at cost Disposals Revaluation surplus Revaluation (deficit)/ surplus attributable to profit share partners Freehold 31.3.19 £000 714,817 40,894 (137,864) 34,403 – Leasehold 31.3.19 £000 77,131 49,426 (9,686) 9,881 (250) Total 31.3.19 £000 791,948 90,320 Freehold 31.3.18 £000 873,595 85,476 Leasehold 31.3.18 £000 113,965 15,566 Total 31.3.18 £000 987,560 101,042 (147,550) (264,172) (59,830) (324,002) 44,284 (250) 19,918 – 3,930 3,500 23,848 3,500 Book value at 31 March 652,250 126,502 778,752 714,817 77,131 791,948 Investment properties are stated at fair value as at 31 March 2019 as follows: Group Book value at 31 March Lease incentives and costs included in trade and other receivables Head leases capitalised Fair value at 31 March Freehold 31.3.19 £000 652,250 13,050 – 665,300 Leasehold 31.3.19 £000 126,502 1,637 Total 31.3.19 £000 778,752 14,687 (2,189) 125,950 (2,189) 791,250 Freehold 31.3.18 £000 714,817 11,183 – 726,000 Leasehold 31.3.18 £000 77,131 1,192 Total 31.3.18 £000 791,948 12,375 (2,189) 76,134 (2,189) 802,134 118 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019 Interest capitalised during the year in respect of the refurbishment of investment properties amounted to £3,215,000 (2018: £3,661,000). Interest capitalised in respect of the refurbishment of investment properties is included in investment properties to the extent of £11,357,000 (31 March 2018: £9,057,000). Investment properties with a total fair value of £767,800,000 (31 March 2018: £705,500,000) 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 2019 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 2019 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 44. A sensitivity analysis was performed to ascertain the impact of a 25 basis point shift in the equivalent yield and a £2.50 psf shift in London ERVs and a £1.00 psf shift in Manchester ERVs for the wholly owned investment portfolio: Equivalent yield + 25 bps - 25 bps ERV + £2.50 (London) & £1.00 (Manchester) - £2.50 (London) & £1.00 (Manchester) The investment properties have been valued at 31 March 2019 as follows: Cushman & Wakefield LLP Directors’ valuation The historical cost of investment property is £645,521,000 (31 March 2018: £622,226,000). Percentage change in portfolio value London % Manchester % (5.4) 6.0 3.7 (3.8) (4.8) 5.2 4.6 (4.7) Total % (5.3) 5.8 3.9 (4.0) Group 31.3.19 £000 791,100 150 791,250 Group 31.3.18 £000 790,550 11,584 802,134 119 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT16. 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 31.3.19 £000 28,539 91,839 103,489 223,867 Group 31.3.18 £000 27,827 79,698 52,032 159,557 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 17. OWNER OCCUPIED PROPERTY, PLANT AND EQUIPMENT 31.3.19 £000 818 3,273 3,682 7,773 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 31.3.19 £000 Plant and equipment 31.3.19 £000 2,065 9 – 2,074 538 147 – 685 1,389 1,154 311 (649) 816 856 149 (547) 458 358 Short leasehold improvements 31.3.18 £000 Plant and equipment 31.3.18 £000 2,073 – (8) 2,065 404 144 (10) 538 1,527 1,203 73 (122) 1,154 748 147 (39) 856 298 Total 31.3.19 £000 3,219 320 (649) 2,890 1,394 296 (547) 1,143 1,747 31.3.18 £000 818 3,273 4,500 8,591 Total 31.3.18 £000 3,276 73 (130) 3,219 1,152 291 (49) 1,394 1,825 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 £nil as at 31 March 2019 (31 March 2018: £5,000). 18. INVESTMENT IN SUBSIDIARIES Cost at 1 April Additions Disposals Cost at 31 March Impairment at 1 April Impaired during the year Disposals Impairment at 31 March Net book amount at 31 March Group 31.3.19 £000 Group 31.3.18 £000 – – – – – – – – – – – – – – – – – – Company 31.3.19 £000 195,425 3,249 (6) 198,668 39,252 1,795 – 41,047 157,621 Company 31.3.18 £000 138,516 125,764 (68,855) 195,425 13,117 29,685 (3,550) 39,252 156,173 A list of all the Company’s subsidiary undertakings, all of which have been consolidated, are shown in Note 40 to the financial statements. 120 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 201919. INVESTMENT IN JOINT VENTURES Summarised consolidated income statements Revenue Gross rental income Property overheads Net rental (costs)/income Development profit/(loss) Provision against book value of development stock Gain on revaluation of investment properties Other operating income/(expense) Gross profit/(loss) Administrative expenses Operating profit/(loss) Interest payable on bank loans and overdrafts Other interest payable and similar charges Finance income Change in fair value movement of derivative financial instruments Profit/(loss) before tax Tax Profit/(loss) after tax Reversal of Creechurch loss 1 Uplift for Barts Square economic interest 2 Share of results of joint ventures Summarised consolidated balance sheets Non-current assets Investment properties Owner occupied property, plant and equipment Derivative financial instruments Deferred tax 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 pre-adjustments Reversal of Creechurch net liability position 1 Net assets 4,284 94 (246) (152) – – 1,636 – 1,484 (183) 1,301 (504) – 11 – 808 205 1,013 – – Investment and trading 31.3.19 £000 Development 31.3.19 £000 Total 31.3.19 £000 52,402 971 (411) 560 4,570 (7,198) 1,288 9 (771) (406) Investment and trading 31.3.18 £000 – – (53) (53) 3 – 3,439 10 3,399 (43) Development 31.3.18 £000 37,667 189 (359) (170) (1,942) (1,880) (122) (41) (4,155) (425) Total 31.3.18 £000 37,667 189 (412) (223) (1,939) (1,880) 3,317 (31) (756) (468) 48,118 877 (165) 712 4,570 (7,198) (348) 9 (2,255) (223) (2,478) (1,177) 3,356 (4,580) (1,224) (7) (511) (1,576) (1,576) 81 (35) (4,015) (1,604) (5,619) 1,389 – 92 (35) (3,207) (1,399) (4,606) 1,389 – (21) – 12 (1) 3,346 95 3,441 – 1,693 5,134 1,013 (4,230) (3,217) (3) (24) (2,012) (2,012) 4 8 16 7 (6,583) (3,237) 1,160 1,255 (5,423) (1,982) 3,485 – (1,938) 3,485 1,693 3,196 Total 31.3.18 £000 Investment and trading 31.3.19 £000 Development 31.3.19 £000 Total 31.3.19 £000 Investment and trading 31.3.18 £000 Development 31.3.18 £000 24,106 1,183 25,289 21,133 1,490 22,623 – – 514 24,620 106 23 1,260 2,572 – 56,935 4,726 570 5,296 5,828 7,042 69,805 106 23 1,774 27,192 56,935 10,554 7,612 75,101 – – 309 21,442 – 384 4,074 4,458 39 59 2,762 4,350 76,474 5,725 7,716 89,915 39 59 3,071 25,792 76,474 6,109 11,790 94,373 (952) (952) (12,647) (13,599) (12,647) (13,599) (933) (933) (17,733) (18,666) (17,733) (18,666) – (20,419) (20,419) (2,231) (25,421) (27,652) (12,181) (36,292) (48,473) (10,384) (39,139) (49,523) (12,181) (56,711) (68,892) (12,615) (64,560) (77,175) 16,783 – 16,783 3,019 4,874 7,893 19,802 4,874 24,676 12,352 – 12,352 11,972 3,485 15,457 24,324 3,485 27,809 1 This is an adjustment that has been made to add back the Group’s share of the loss incurred in one of its joint ventures, arising from finance and other costs in the year, to ensure the Group’s interest is shown at its recoverable amount. 2 This is an adjustment to reflect the impact of the consolidation of a joint venture at its economic interest of 43.8% rather than its actual ownership interest of 33.3%. The Directors’ valuation of land, development and trading properties shows a surplus of £nil (31 March 2018: £1,700,000) above book value. Dividends of £416,000 were received from joint venture companies during the year (2018: £672,000). The joint venture companies are private companies, therefore no quoted market prices are available for their shares. The cost of the Company’s investment in joint ventures was £nil (31 March 2018: £15,000). The Group has one material joint venture (31 March 2018: one). The full results and position of this joint venture are set out overleaf, of which we have included our share in the above table. 121 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT19. INVESTMENT IN JOINT VENTURES CONTINUED Summarised income statement Revenue Gross rental income Property overheads Net rental costs Development gain/(loss) Gain on revaluation of investment properties Provision against book values Other operating expense Administrative expenses Finance costs Finance income Change in fair value movement of derivative financial instruments Loss before tax Tax Loss after tax Summarised balance sheet 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 Borrowings Net assets Barts LP Group 31.03.19 £000 Barts LP Group 31.03.18 £000 44,040 37,493 247 (806) (559) 6,946 2,941 (16,434) (2) (716) (1,167) 172 (79) (8,898) 627 (8,271) 34 (622) (588) (3,193) 7,573 (4,292) (45) (348) (54) 33 16 (898) 754 (144) Barts LP Group 31.03.19 £000 Barts LP Group 31.03.18 £000 57,736 241 4,023 56 62,056 97,943 20,240 13,021 131,204 51,650 90 3,397 135 55,272 130,849 11,502 21,206 163,557 (26,624) (26,624) (41,524) (41,524) (110,670) (110,670) 55,966 (113,065) (113,065) 64,240 At 31 March 2019 the Group and the Company had legal interests in the following joint venture companies: Barts, L.P. Barts Close Office Limited Barts Square First Office Limited Barts Square Active One Limited Barts Square First Limited Barts Square Land One Limited Country of incorporation United States Jersey Jersey Jersey Class of share capital held n/a Ordinary Ordinary Ordinary United Kingdom Ordinary United Kingdom Ordinary OBC Development Management Limited United Kingdom Ordinary Old Street Holdings LP Jersey n/a Abbeygate Helical (Leisure Plaza) Limited United Kingdom Ordinary Abbeygate Helical (C4.1) LLP Shirley Advance LLP United Kingdom n/a United Kingdom n/a King Street Developments (Hammersmith) Limited United Kingdom Ordinary Helical Grainger Limited Helical Grainger Holdings Limited Creechurch Place Limited United Kingdom Ordinary United Kingdom Ordinary Jersey Ordinary Proportion held Group 33% Proportion held Company – 33% 33% 33% 33% 33% 33% 33% 50% 50% 50% 50% 50% 50% 10% – – – – – – – 50% 50% – – – – – Nature of business Investment Investment Investment Investment Development Development Development Investment Development Development Development Development Development Development Development 122 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019Significant 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. Key business decisions require unanimous agreement from the Group and its partner, therefore management judges that both parties control the entity equally and it is therefore 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 33.3% 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. Under the Creechurch Place 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 reflects this in the share of joint venture that it accounts for at 8%. In addition, the joint venture agreement for Creechurch Place Limited provides for a put and call option, whereby the Group can put its 10% share or the joint venture partner can call the Group’s 10% share. Under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the Group’s investment in Creechurch Place Limited is a non-current asset held for sale. It is carried at the lower of its carrying amount and fair value less costs to sell of £nil at the balance sheet date. The sale is expected to complete within 12 months of the balance sheet date. 20. LAND, DEVELOPMENTS AND TRADING PROPERTIES Group At 1 April Acquisitions and construction costs Interest capitalised Disposals Provision At 31 March Development properties 31.3.19 £000 6,014 1,444 – (1,567) (3,608) 2,283 Trading stock 31.3.19 £000 28 – – – – 28 Total 31.3.19 £000 6,042 1,444 – (1,567) (3,608) 2,311 Development properties 31.3.18 £000 86,652 36,640 2,188 (118,426) (1,040) 6,014 Trading stock 31.3.18 £000 28 – – – – 28 Total 31.3.18 £000 86,680 36,640 2,188 (118,426) (1,040) 6,042 The Directors’ valuation of land, developments and trading properties shows a surplus of £578,000 (31 March 2018: £628,000) above book value. Total interest in respect of the development of sites is included in stock to the extent of £nil (31 March 2018: £nil). Interest capitalised during the year in respect of development sites amounted to £nil (2018: £2,188,000 relating to assets which were sold during the year). Land, developments and trading properties with carrying values totalling £nil (31 March 2018: £nil) were held as security against borrowings. The Company had £nil (31 March 2018: £nil) of land, developments or trading properties. 21. AVAILABLE-FOR-SALE ASSETS The gain of £144,000 (2018: 1,385,000) recognised in the year is the result of cash received in relation to a previously fully impaired asset. 123 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT22. TRADE AND OTHER RECEIVABLES Due within 1 year Trade receivables Amounts owed by joint venture undertakings Amounts owed by subsidiary undertakings Other receivables Prepayments 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 31.3.19 £000 9,680 22,511 – 345 4,173 22,017 58,726 Group 31.3.19 £000 55,358 1,884 434 57,676 1,050 58,726 Group 31.3.18 £000 35,883 28,193 – 1,890 3,841 30,950 100,757 Group 31.3.18 £000 98,132 1,408 255 99,795 962 Company 31.3.19 £000 – 22,340 276,147 400 927 – Company 31.3.18 £000 – 20,096 312,383 27,078 850 – 299,814 360,407 Company 31.3.19 £000 298,887 – – Company 31.3.18 £000 359,557 – – 298,887 359,557 927 850 100,757 299,814 360,407 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 £7,211,000 of rental deposits at 31 March 2019 (31 March 2018: £5,167,000). Movements in the loss allowance of trade receivables are as follows: Gross receivables being financial assets Provisions for receivables impairment Net receivables being financial assets Group 31.3.19 £000 57,751 (75) 57,676 Group 31.3.18 £000 99,818 (23) 99,795 Company 31.3.19 £000 305,413 (6,526) 298,887 Company 31.3.18 £000 366,630 (7,073) 359,557 Receivables written off during the year as uncollectable 24 22 4,191 24,780 The Group has assessed that the loss allowance under IFRS 9 Financial Instruments is not materially different to the impairment allowance under IAS 39 Financial Instruments: Recognition and Measurement. The Group has considered the likelihood of default for each tenant and for each contract balance, either on a 12-month basis, if there has been no significant change in credit risk, or on a lifetime basis, where credit risk has changed. This requires a forward looking assessment based on past performance and the Group’s knowledge of its debtor profile. Included in Total receivables being financial assets above are contract balances and receivables from contracts with customers, as defined by IFRS 15 Revenue from Contracts with Customers, as follows: Contract assets from contracts with customers At 1 April Additions Received during the year Change in loss allowance At 31 March Receivables from contracts with customers At 1 April Additions Received during the year Change in loss allowance At 31 March Company 31.3.19 £000 Company 31.3.18 £000 Group 31.3.19 £000 16,275 – (10,042) – 6,233 Group 31.3.19 £000 27,809 – Group 31.3.18 £000 622 15,658 (5) – 16,275 Group 31.3.18 £000 12,763 27,800 – – – – – Company 31.3.19 £000 25,837 – (27,809) (12,754) (25,837) – – – 27,809 – – – – – – – Company 31.3.18 £000 – 25,387 – – 25,387 Contract assets are typically recognised when the Group recognises revenue on partial completion of performance obligations, ordinarily the construction and letting of buildings in its role as development manager. Receivables are recognised when the Group has an unconditional right to consideration. Cash is typically received once a building is practically complete and a large proportion of the lettable area is subject to leases. This may be done in tranches. 124 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 201923. CASH AND CASH EQUIVALENTS Cash held at managing agents Restricted cash Cash deposits Group 31.3.19 £000 2,599 2,678 192,293 197,570 Group 31.3.18 £000 5,371 2,713 83,787 91,871 Company 31.3.19 £000 – – 164,885 164,885 Company 31.3.18 £000 – – 63,350 63,350 Restricted cash is made up of cash held by solicitors and cash in blocked/restricted bank accounts. 24. TRADE AND OTHER PAYABLES Trade payables Social security costs and other taxation Amounts owed to subsidiary undertakings Other payables Accruals Deferred income Current trade and other payables Accruals Non-current trade and other payables Group 31.3.19 £000 13,009 1,333 – 536 23,368 4,913 43,159 11,405 11,405 Group 31.3.18 £000 11,175 1,321 – 311 32,735 5,836 51,378 – – Company 31.3.19 £000 734 – Company 31.3.18 £000 849 – 183,689 292,294 589 5,711 – – 3,913 – 190,723 297,056 – – – – Total trade and other payables 54,564 51,378 190,723 297,056 25. 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 31.3.19 £000 100,468 Group 31.3.18 £000 – Company 31.3.19 £000 98,767 – 272,501 195,410 – 37,399 92,005 – 324,814 425,282 – – 21,878 – 122,613 416,992 416,992 – – – – – – – 98,767 Company 31.3.18 £000 – 98,694 – – – – – 98,694 98,694 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 fair value of £767,800,000 (31 March 2018: £705,500,000). 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 £48,473,000 (31 March 2018: £49,523,000). Convertible Bond On 17 June 2014 the Group issued £100m of Convertible Bonds at par with a 4% coupon rate which are due for settlement on 17 June 2019 (the ‘‘Bonds”). The Bond 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 Bonds is included at its fair value of £100,468,000 (31 March 2018: £101,333,000) within Current borrowings (31 March 2018: Borrowings repayable within one to two years). 125 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT26. FINANCING AND DERIVATIVE FINANCIAL INSTRUMENTS The policies for dealing with liquidity and interest rate risk are noted in the Principal Risks Review on pages 52 to 57. Borrowings maturity Due after more than one year Due within one year Group 31.3.19 £000 324,814 100,468 425,282 Group 31.3.18 £000 416,992 – 416,992 The Group has various undrawn committed borrowing facilities. The facilities available at 31 March 2019 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 31.3.19 £000 10,000 – 3,321 – 160,377 – Group 31.3.18 £000 10,000 77,285 – – 77,326 – 173,698 164,611 Interest rates – Group Fixed rate borrowings: fixed rate Convertible Bond swap rate plus bank margin swap rate plus bank margin swap rate plus bank margin swap rate in excess of loan balance fixed rate plus margin fixed rate plus margin Weighted average Floating rate borrowings Unamortised finance costs Fair value adjustment of Convertible Bond % Expiry 4.000 3.650 4.150 2.880 2.382 3.480 3.210 3.745 5.650 Jun 2019 Nov 2019 Nov 2019 Apr 2024 Apr 2024 Dec 2024 Dec 2024 Apr 2021 Feb 2022 31.3.19 £000 100,000 105,000 44,500 50,000 (30,000) 71,000 22,000 362,500 67,202 (4,888) 468 % Expiry 4.000 3.650 5.650 3.850 2.372 3.480 3.210 4.052 6.991 Jun 2019 Nov 2019 Nov 2019 Apr 2022 Apr 2022 Dec 2024 Dec 2024 Mar 2021 Sep 2022 31.3.18 £000 100,000 105,000 44,500 50,000 (27,227) 71,000 22,000 365,274 54,115 (3,730) 1,333 Total borrowings 4.056 Dec 2021 425,282 4.432 Jun 2021 416,992 Floating rate borrowings bear interest at rates based on LIBOR. During the year, one interest rate swap was terminated and in February 2019 a £50,000,000 interest rate swap was entered into at 1.230% expiring in April 2024. Interest is fixed on the 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 cap cap cap cap floor Future: cap cap cap Value £000 15,000 20,000 35,000 35,000 50,000 50,000 22,500 22,500 40,000 Rate % 0.750 1.750 1.750 1.750 1.750 0.830 1.750 1.750 1.750 Start Expiry Jun 2016 Aug 2018 Jul 2018 Aug 2018 Feb 2019 Feb 2019 Nov 2019 Nov 2019 Jan 2020 Nov 2019 Jul 2023 Jul 2023 Jul 2023 Apr 2024 Apr 2024 Jul 2021 Jul 2021 Jul 2023 At 31 March 2019 the Company had no interest rate swaps, caps or floors (31 March 2018: nil). 126 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019Net gearing Total borrowings Cash Net borrowings Group 31.3.19 £000 425,282 (197,570) 227,712 Group 31.3.18 £000 416,992 (91,871) 325,121 Net borrowings excludes the Group’s share of borrowings in joint ventures of £48,473,000 (31 March 2018: £49,523,000) and cash of £7,612,000 (31 March 2018: £11,790,000). All borrowings in joint ventures are secured. Net assets Gearing Group 31.3.19 £000 Group 31.3.18 £000 567,425 533,894 40% 61% 27. LONG LEASEHOLD LIABILITY Finance lease obligations in respect of the Group’s leasehold properties are payable as follows: Not later than one year Later than one year but not more than five years More than five years Minimum lease payments 31.3.19 £000 104 416 15,600 16,120 Present value of minimum lease payments 31.3.19 £000 99 354 1,736 2,189 Minimum lease payments 31.3.18 £000 104 416 15,600 16,120 Interest 31.3.19 £000 (5) (62) (13,864) (13,931) Present value of minimum lease payments 31.3.18 £000 99 354 1,736 2,189 Interest 31.3.18 £000 (5) (62) (13,864) (13,931) The long leasehold liability relates to ground rents payable in respect of the head lease at 25 Charterhouse Square, London EC1. The lease term is 155 years. The associated asset of £2,189,000 (31 March 2018: £2,189,000) is shown in Note 15. 28. SHARE CAPITAL Authorised 31.3.19 £000 39,577 31.3.18 £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: 119,363,349 (31 March 2018: 118,610,741) ordinary shares of 1p each 212,145,300 deferred shares of 1/8p each Ordinary shares At 1 April Issued share capital At 31 March Deferred shares At 1 April and 31 March 31.3.19 £000 1,194 265 1,459 31.3.18 £000 1,186 265 1,451 Shares in issue 31.3.19 Number Share capital 31.3.19 £000 Shares in issue 31.3.18 Number Share capital 31.3.18 £000 118,610,741 1,186 118,196,215 752,608 8 414,526 119,363,349 1,194 118,610,741 1,182 4 1,186 212,145,300 265 212,145,300 265 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. 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 (2019: £559,947,000, 2018: £526,416,000). The Group continually monitors its gearing level to ensure that it is appropriate. Gearing decreased from 61% to 40% in the year as the Group repaid debt from the proceeds of sale of property. 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. 127 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT29. SHARE OPTIONS At 31 March 2019 and 31 March 2018 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 2018: none). 30. 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 Group 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. Details of the performance criteria are set out on page 94 to 95. 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 3,734,498 (750,029) (454,897) 1,133,530 3,663,102 2019 Weighted average award value 313p 353p 353p 375p 319p Awards 4,743,684 (1,235,491) (1,186,942) 1,413,247 3,734,498 2018 Weighted average award value 320p 295p 315p 271p 313p All awards have an exercise price of £nil (2018: £nil). The weighted average share price at the date of exercise for the share options exercised during the year was 334p (2018: 300p). The PSP awards outstanding at 31 March 2019 had a weighted average remaining contractual life of one year and two months. The fair value of the awards made in the year to 31 March 2019 was £3,676,000 (2018: £3,835,000). These were granted on 1 June 2018. The inputs into the Black-Scholes and stochastic models of valuation of the PSP awards made in the year to 31 March 2019 were as follows: Weighted average share price Weighted average exercise price Expected volatility Expected life Risk free rate Expected dividends 2019 375.0p – 30% 3 years 0.65% 0.00% 2018 320.0p – 28% 3 years 0.08% 0.00% 2017 391.5p – 22% 3 years 0.40% 0.00% The Group recognised a charge of £2,274,000 (2018: £1,388,000) 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. There is a two-year holding period for vested awards. 31. CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES The table below details changes in the Group’s liabilities from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those whose cash flows were, or future cash flows will be, classified in the Consolidated and Company Cash Flow Statements as cash flows from financing activities. Borrowings At 31 March 2017 Financing cash flows Fair value moment of Convertible Bond Other changes At 31 March 2018 Financing cash flows Fair value moment of Convertible Bond Other changes At 31 March 2019 Group £000 673,701 (262,474) 1,559 4,206 416,992 9,783 (865) (628) Company £000 173,604 (80,000) – 5,090 98,694 – – 73 425,282 98,767 Financing cash flows comprise borrowings drawn down and repaid in the Consolidated and Company Cash Flow Statements. Other changes include the rolling up of interest and the change in unamortised refinancing costs. 32. 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 2019 for the Group or the Company (31 March 2018: £nil). 128 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 201933. CAPITAL COMMITMENTS The Group has a commitment of £64,900,000 (31 March 2018: £63,143,000) in relation to construction contracts, which are due to be completed in the year to March 2020, of which £19,200,000 (31 March 2018: £520,000) relates to the Group’s share of commitments in joint ventures. 34. POST BALANCE SHEET EVENTS In May 2019 the Group completed its acquisition of the site at Charterhouse Street, London EC1, in joint venture with AshbyCapital, for £75,000,000 (Helical’s share: £37,500,000). 35. NET ASSETS PER SHARE Net asset value Less: 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 fixed rate loans fair value of financial instruments deferred tax EPRA triple net asset value 31.3.19 £000 567,425 (265) Number of shares 000 119,363 31.3.19 pence per share 567,160 119,363 475 862 734 567,160 120,959 469 3,218 468 11,687 582,533 578 120,959 482 583,111 120,959 482 (5,449) (3,218) (11,687) 562,757 120,959 465 The adjustment for the fair value of land, development and trading properties represents the surplus of fair value over carrying value as at 31 March 2019. Net asset value Less: 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 31.3.18 £000 533,894 (265) Number of shares 000 118,611 31.3.18 pence per share 533,629 118,611 450 920 478 533,629 120,009 445 2,692 1,333 21,662 559,316 2,328 561,644 (2,692) (21,662) 537,290 120,009 466 120,009 468 120,009 448 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. The calculation of EPRA triple net asset value per share reflects the fair value of all the assets and liabilities of the Group at 31 March 2019. One of the loans held by the Group is at a fixed rate and therefore not at fair value, the adjustment of £5,449,000 is the increase from book to fair value. 129 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT36. RELATED PARTY TRANSACTIONS At 31 March 2019 and 31 March 2018 the following amounts were due from the Group’s joint ventures: King Street Developments (Hammersmith) Limited Shirley Advance LLP Barts Square companies Old Street Holdings LP Creechurch Place Limited 31.3.19 £000 71 330 34 3 22,073 31.3.18 £000 9,916 249 2,205 3 32,096 In the year, interest on bonds of £451,000 (2018: £1,590,000) was charged by the Group to Creechurch Place Limited. In addition, a development management fee £7,142,000 (2018: £14,008,000) was charged to Creechurch Place Limited and £821,000 (2018: £1,924,000) to the Barts Square companies. An amount of £237,000 (2018: £nil) was written off the balance owed from King Street Developments (Hammersmith) Limited. All balances are repayable on demand, other than the amount owed from Creechurch Place Limited, which is due for repayment on the sale of the Group’s share of that company (Note 19). No provisions have been recognised in respect of amounts owed from joint ventures. At 31 March 2019 and 31 March 2018 there were the following balances between the Company and its subsidiaries: Amounts due from subsidiaries Amounts due to subsidiaries 31.3.19 £000 276,147 183,689 31.3.18 £000 312,383 292,294 During the years to 31 March 2019 and 31 March 2018 there were the following transactions between the Company and its subsidiaries: Management charges receivable Interest receivable Interest payable 31.3.19 £000 3,307 1,611 3,998 31.3.18 £000 6,721 2,887 3,986 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 balance sheet date 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 22. Amounts owed to subsidiaries by the Company are identified in Note 24. 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 Share-based payments 31.3.19 £000 3,612 1,481 5,093 31.3.18 £000 3,808 2,386 6,194 The total dividends paid to Directors of the Group in the year were £1,480,124 (2018: £1,381,737). 37. FINANCIAL INSTRUMENTS Categories of Financial Instruments Financial assets in the Group include derivative financial assets and available-for-sale assets 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 financial assets measured at amortised cost. 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. Financial Assets and Liabilities by Category The financial instruments of the Group as classified in the financial statements can be analysed under the following categories. IFRS 9 Financial Instruments is applicable for the year to 31 March 2019 and IAS 39 Financial Instruments: Recognition and Measurement for the year to 31 March 2018. In accordance with IFRS 7: 42Q, disclosure is not made of the line item amounts that would have been reported in accordance with the classification and measurement requirements under IFRS 9 for prior year and IAS 39 for the current year. Financial assets Measured at amortised cost (2018: Loans and receivables) Fair value through the Profit or Loss Total financial assets Group 31.3.19 £000 Group 31.3.18 £000 255,246 191,666 915 123 Company 31.3.19 £000 463,772 270 Company 31.3.18 £000 422,907 – 256,161 191,789 464,042 422,907 130 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019These financial assets are included in the Balance Sheet within the following headings: Trade and other receivables Cash and cash equivalents Derivative financial asset Total financial assets Group 31.3.19 £000 57,676 197,570 915 Group 31.3.18 £000 99,795 91,871 123 Company 31.3.19 £000 298,887 164,885 270 Company 31.3.18 £000 359,557 63,350 – 256,161 191,789 464,042 422,907 Financial assets are stated in accordance with IAS 32 Financial Instruments: Presentation. The carrying value of the trade and other receivables and cash and cash equivalents is not deemed 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 31.3.19 £000 4,158 100,468 375,320 479,946 Group 31.3.18 £000 3,721 101,333 361,223 466,277 Company 31.3.19 £000 – – 289,490 289,490 Company 31.3.18 £000 2,404 – 395,750 398,154 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 £100,468,000 (31 March 2018: £101,333,000) and this settlement amount is an additional liability of £468,000 (31 March 2018: £1,333,000). The financial liabilities are included in the Balance Sheet within the following headings: Trade and other payables Borrowings – current Borrowings – non-current Long leasehold liability Derivative financial instruments Total financial liabilities Group 31.3.19 £000 48,317 100,468 324,814 2,189 4,158 Group 31.3.18 £000 44,222 – 416,992 2,189 2,874 Company 31.3.19 £000 190,723 98,767 – – – 479,946 466,277 289,490 Company 31.3.18 £000 297,056 – 98,694 – 2,404 398,154 The carrying value of trade and other payables and borrowings is not deemed to be materially different from the fair value, other than for one fixed rate loan, whose fair value is £5,449,000 greater than its carrying value. Financial liabilities are stated in accordance with IAS 32 Financial Instruments: Presentation. The Group and Company financial instruments that are measured subsequent to initial recognition at fair value are 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 Convertible Bond (Note 25) Level 2 Derivative financial instruments (Note 37) Investment property (Note 15) Level 3 There were no transfers between categories in the current or prior year. Derivative financial instruments Interest rate caps Interest rate floors Interest rate swaps Convertible Bond derivative element Group 31.3.19 £000 915 (579) (3,579) – Group 31.3.18 £000 123 – (2,874) – (3,243) (2,751) Company 31.3.19 £000 Company 31.3.18 £000 – – – 270 270 – – – (2,404) (2,404) The Group’s movement in the fair value of the derivative financial instruments in the year was a loss of £3,322,000 (2018: gain of £4,029,000) due to interest rate caps, floors and swaps. In accordance with IFRS 9 Financial Instruments, the Convertible Bond is split into a loan and derivative element in the Company Balance Sheet. On initial recognition the derivative element had a liability value of £8,190,000. At 31 March 2019, the derivative element had an asset value of £270,000 (2018: liability value of £2,404,000) with a corresponding gain of £2,674,000 (2018: £146,000) recognised in the Company Income Statement. 131 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT37. FINANCIAL INSTRUMENTS CONTINUED 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. It is Group policy to assess the financial viability of potential tenants where their rent roll is individually significant before entering into lease agreements. This review involves the latest available set of financial statements, other publicly available financial information and management accounts where appropriate. The covenant strength of each tenant is determined based on this information and a deposit or guarantee is sought if necessary. The Group’s tenants are spread across a wide variety of industries, reducing the Group’s risk to any individual industry. The Group works closely with its agents, who advise where a loss allowance is required for individual tenants, based on their credit control procedures. Credit risk also exists due to cash and cash equivalents and deposits with banks and other financial institutions. The cash is held with reputable banking institutions and in client accounts with solicitors and managing agents and therefore credit risk is considered low. As at 31 March 2019 the Group had total credit risk exposure excluding cash of £57,677,000, all of which is loans and receivables. The quantitative disclosures of trade and other receivables credit risk is shown in Note 22. The Group has a small number of other debtors that are financial assets. Therefore, each is considered on an individual basis and involves the Group’s detailed knowledge of the counterparties involved in order to assess the likelihood of non-recoverability. All these debtors are deemed to be recoverable. The amounts owed to the Company are considered on an individual basis by assessing the subsidiaries’ and joint ventures’ ability to repay the debt at the point at which it is repayable. The Group considers the net assets of the debtor, taking into account any potential uplifts to fair value of investments, land, development and trading properties in making its assessment. The Group is not reliant on any major customer for its ability to continue as a going concern. 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 25 and 26. 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 31.3.19 £000 137,825 10,864 219,240 144,015 511,944 Group 31.3.18 £000 31,373 30,048 294,609 164,700 520,730 Company 31.3.19 £000 290,549 614 1,637 6,955 Company 31.3.18 £000 298,257 3,412 21,982 86,363 299,755 410,014 At 31 March 2019 the Group had £173,698,000 (31 March 2018: £164,611,000) of undrawn borrowing facilities, £25,230,000 (31 March 2018: £104,564,000) of uncharged property assets and cash balances of £197,570,000 (31 March 2018: £91,871,000). The above contracted liabilities assume that no loans are extended beyond their current facility expiry date. Management believes 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. 132 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019Market 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 and floors. 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 26. In the year to 31 March 2019, 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. 0.5% increase – increase in net results and equity 0.5% decrease – decrease in net results and equity Group impact on results 31.3.19 £000 5,620 (3,187) Group impact on equity 31.3.19 £000 5,620 (3,187) Company impact on results 31.3.19 £000 340 (340) Company impact on equity 31.3.19 £000 340 (340) Foreign Currency Exchange Risk The Group and Company have no material exposure to movements in foreign currency rates. 38. PRIOR YEAR COMPANY RESTATEMENT As part of a Group reorganisation during the year ended 31 March 2018, a number of transactions within the Company accounts were not identified. These were in relation to the transfer of intercompany investments and associated impairments. These have been corrected as a prior year adjustment and the net impact is set out in the table below. The impact of these adjustments results in an increase in Parent Company profit before tax of £7,749,000. These adjustments do not have a tax impact. These adjustments have no impact on the Group results. The effect of the adjustment on the relevant financial statement line items for the year ended 31 March 2018 is as follows: Company Impact on equity – increase/(decrease) in equity Investment in subsidiaries Trade and other receivables Total assets Trade and other payables Total liabilities Net assets Retained earnings Equity Original 31.3.18 £000 165,928 369,072 600,749 Adjustment 31.3.18 £000 (9,755) (8,665) (18,420) Restated 31.3.18 £000 156,173 360,407 582,329 (323,225) (424,323) 26,169 26,169 (297,056) (398,154) 176,426 7,749 184,175 66,712 176,426 7,749 7,749 74,461 184,175 133 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTOrdinarily, the Group return includes both fixed and variable consideration. These constitute the transaction price. Variable consideration is estimated as the amount of consideration to which the Group would be entitled in exchange for transferring goods or services. This is done on an expected value basis. This estimate is constrained to the extent that it is highly probable that a significant reversal of the amount of revenue recognised will not occur when the uncertainty is removed. The fixed and variable consideration are allocated to the relevant performance obligations in proportion to their estimated stand- alone selling prices. Revenue is recognised either over time or at a point in time, depending on the terms of the contract. The proportion of the transaction price allocated to construction is recognised at any given reporting date in proportion to the costs certified to date as a percentage of the total expected construction costs. The proportion of the transaction price allocated to the letting of the property is recognised at any given reporting date in proportion to the area subject to leases as a percentage of the total lettable space. 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 81 to 97. The fair values 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 Income Statement over the vesting period of the share-based payments. For the Performance Share Plan and Share Incentive Plan awards, where market conditions apply, the expense is allocated to the Income Statement evenly over the vesting period. 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. 39. 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 2019. Subsidiary undertakings are entities for which the Group has power over the investee, is exposed to or has the rights 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 contractually 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. This exists where unanimous agreement of the investee’s relevant activities is required. 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 (“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. 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 Report of the Directors on page 98. 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 at the point at which the customer has control of the goods. This occurs on completion of the contract for sale. Measurements of revenue arising from the sale of such assets are derived from the transaction price as determined by IFRS 15 Revenue from Contracts with Customers. Construction contracts and development management services The Group has contracts to develop and let properties for third parties. Where two or more contracts are entered into at or near the same time with the same customer, the contracts are combined and accounted for as a single contract. An arrangement may involve the construction and letting of a third party property or the sale and subsequent construction and letting of a property. The construction and letting of a property are considered to be separate performance obligations. Where an arrangement also involves the sale of an asset, this is an additional distinct performance obligation. The initial sale of a site to a customer is recognised as a sale of goods in accordance with IFRS 15, where the sale of land is not conditional on the construction of the buildings and is not reversible in the event that the building is not constructed. 134 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019Depreciation 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 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 - 10% or length of lease, if shorter Plant and equipment - 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. 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 Property, 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. 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. 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 15. Investment properties are derecognised on completion of sale. 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. 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. 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. 135 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT 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 37. 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 Investment Property, 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 Leases, operating leases receipts and payments are spread on a straight-line basis over the length of the lease. 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 Earnings per Share and the best practice recommendations of EPRA. Use of Judgements and Estimates 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. 39. PRINCIPAL ACCOUNTING POLICIES CONTINUED Financial Assets Financial assets do not carry any interest and are stated initially at fair value and subsequently at amortised cost as reduced by appropriate loss allowances. The loss allowance is based on the lifetime expected credit losses, if the credit risk of a receivable has increased significantly since initial recognition. This is reduced to 12 months where the credit risk has not increased significantly. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire or on transfer of the fixed asset and of the associated risks and rewards to another party. 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. The Group derecognises trade and other payable liabilities when they are extinguished, which occurs when the obligation associated with the liability is discharged, cancelled or expires. Borrowing and Borrowing Costs Interest bearing bank loans and overdrafts are initially recorded at fair value, net of finance and other costs yet to be amortised, in accordance with IFRS 9, and subsequently at amortised cost. Embedded derivatives contained within the borrowing agreements are treated in accordance with IFRS 9, which includes consideration of whether embedded derivatives require bifurcation. 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 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. 136 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019Areas requiring the use of critical judgement and estimates that may significantly impact the Group’s earnings and financial position are: Significant judgements The adoption of IFRS 15 Revenue from Contracts with Customers requires management to make judgements in relation to the performance obligations of its contracts, the constraints of variable consideration, the allocation of the transaction price to the performance obligations and an assessment of satisfaction of the performance obligations. The four judgements are explained below: • The Group has entered into contracts to develop and let property on behalf of third parties. These are judged to be separate performance obligations under IFRS 15, satisfied at practical completion and once a minimum level of space is subject to lease, respectively; • Where a contract involves both fixed and variable consideration, judgement is exercised in determining the level of variable consideration. IFRS 15 requires that variable consideration is constrained to the extent that it is highly probable that a significant reversal will not occur. Management must make a judgement at each reporting period end based on both the progress of the construction and letting of the property, and its knowledge of the current rental market; • Judgement is exercised in determining the stand–alone sales price of each performance obligation. For construction, the market price for build-only contracts forms the basis for this judgement. For lettings, the Group considers the fee chargeable by letting agents and adds a risk premium. The stand–alone sales price is used to allocate the total consideration, on a pro–rata basis, to determine the allocated transaction price of each obligation; and • At each reporting period end, the stage of completion of a performance obligation must be assessed, which determines the proportion of the allocated transaction price to be recognised in any given reporting period. The stage of completion of construction is based on an assessment of the costs certified to date as a percentage of the total expected construction costs, reflecting the transfer of the property to the customer over time. The letting progress is measured as the area subject to lease, as a proportion of the total lettable space. This reflects the transfer of value to the customer. Consideration of the nature of joint arrangements. In the context of IFRS 10 Consolidated Financial Statements, 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 19). Key sources of estimation uncertainty The key areas are discussed below: • Estimates must be made as to the expected variable consideration under IFRS 15 Revenue from Contracts with Customers, which is dependent upon the rental values achieved and the quantum of construction costs incurred. At each reporting date the expected value approach is used to estimate the total variable consideration. One contract was subject to estimation in the year to 31 March 2019, with associated revenue of £6.0m. The building is completed, so construction costs were not subject to estimation. Rental values were the key area for estimation and if assumed rental values on vacant floors were 5% higher, revenue for the year to 31 March 2019 would be £0.7m higher. If values were 5% lower, revenue would be £0.7m lower; • Recognition of share-based payments where non-market conditions apply, is dependent upon the estimated number of Performance Share Plan awards that will vest at the end of the period based on future forecast performance and employee retention (Note 30). The 2016 award is based on the 31 March 2019 results, so does not require estimation, but the 2017 and 2018 vesting percentages do require estimation. As at March 2019, the estimated vesting percentage for 2017 was 28% and for 2018 was 44%. 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 Income Statement of £0.7m and if it was estimated that 100% were expected to vest it would result in a £1.8m additional charge. A 10% variation in the estimated vesting percentage would result in a £0.4m charge/credit recognised in the Income Statement; • Determination of the most appropriate percentage interest level at which to recognise our share of joint ventures, where our economic interest can differ to our ownership interest (see Note 19). 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 33.3% 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 10% lower, the Group’s economic interest would fall by 1.1% (with a net asset decrease of £0.2m), whilst an increase of 10% would result in a rise of in economic interest of 0.7% (with a net asset increase of £0.1m); • Valuation of investment properties. The sensitivity of these valuations to changes in the equivalent yields and rental values is included in Note 15; and • 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. One project in the year to 31 March 2019 required significant estimates of future sales prices resulting in a £7.2m provision being made during the year to reduce the value of the property to its net realisable value. If the estimated sales prices were 10% lower, an increased provision of £2.7m would have been recognised, whilst an increase of 10% would have resulted in a reduced provision of £2.6m. 137 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT40. SUBSIDIARY AND RELATED UNDERTAKINGS The Company’s subsidiary and related undertakings are listed below. Except where otherwise indicated all undertakings are incorporated, registered and operate 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 TRUST 1 211 OLD STREET UNIT TRUST 1 AYCLIFFE & PETERLEE INVESTMENT COMPANY LIMITED BAYLIGHT DEVELOPMENTS LIMITED CPP INVESTMENTS LIMITED DOWNTOWN SPACE PROPERTIES LLP EMBANKMENT PLACE (LP) LIMITED 8 FARRINGDON EAST (JERSEY) LIMITED 4 G2 ESTATES LIMITED HB SAWSTON NO 3 LIMITED HELICAL (BEACON ROAD) LIMITED HELICAL (BOOTH ST) LIMITED HELICAL (BOSS) LIMITED HELICAL (BROWNHILLS) LIMITED HELICAL (CANNOCK) LIMITED HELICAL (CARDIFF) LIMITED HELICAL (CHART) LIMITED HELICAL (CHESTER) LIMITED HELICAL (CHURCHGATE) LIMITED HELICAL (CS HOLDINGS) JERSEY LIMITED 4 HELICAL (CS) JERSEY LIMITED 4 HELICAL (DALE HOUSE) LIMITED HELICAL (DOXFORD) LIMITED HELICAL (FP) HOLDINGS LIMITED HELICAL (HALESOWEN) LIMITED HELICAL (HINCKLEY) LIMITED HELICAL (HUDDERSFIELD) LIMITED HELICAL (JARROW) LIMITED HELICAL (LB) LIMITED HELICAL (NORTHAMPTON) LIMITED HELICAL (NQ) LIMITED HELICAL (OS HOLDCO) JERSEY LIMITED4 HELICAL (PETERBOROUGH) LIMITED HELICAL (PORCHESTER) LIMITED HELICAL (PORTBURY) LIMITED HELICAL (POWER ROAD) LIMITED HELICAL (QUARTZ) LIMITED HELICAL (SEVENOAKS) LIMITED HELICAL (SHEPHERDS) LIMITED HELICAL (SIX) LIMITED HELICAL (SOUTHEND) LIMITED HELICAL (STONE) LIMITED HELICAL (SUN) LIMITED HELICAL (TELFORD) LIMITED HELICAL (WELLINGBOROUGH) LIMITED HELICAL (WHITECHAPEL) LIMITED HELICAL (YATE) LIMITED HELICAL ASSET MANAGEMENT SP. Z O.O. 5 HELICAL B.V. 3 HELICAL BAR (CATHCART) LIMITED HELICAL BAR (DRURY LANE) LIMITED HELICAL BAR (GREAT DOVER STREET) LIMITED HELICAL BAR (JERSEY) LIMITED 4 HELICAL BAR (MAPLE) LIMITED HELICAL BAR (MITRE SQUARE) DEVELOPMENTS LIMITED HELICAL BAR (ST VINCENT STREET) LIMITED HELICAL BAR (WALES) LIMITED HELICAL BAR DEVELOPMENTS (SOUTH EAST) 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 58 138 Direct/ Indirect Indirect Indirect Direct Indirect Indirect Indirect Direct Indirect Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Indirect Indirect Indirect Direct Direct Indirect Direct Direct Direct Direct Direct Direct Direct Indirect Direct Direct Direct Direct Direct Direct Indirect Direct Direct Direct Direct Direct Direct Indirect Direct Indirect Direct Direct Direct Indirect Direct Direct Direct Direct Indirect 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% NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019Company HELICAL BAR DEVELOPMENTS LIMITED HELICAL FARRINGDON EAST (JERSEY) LIMITED 4 HELICAL FINANCE (AV) LIMITED HELICAL FINANCE (BAR) LIMITED HELICAL FINANCE (RBS) LIMITED HELICAL INVESTMENT HOLDINGS LIMITED HELICAL JERSEY HOLDINGS LIMITED 4 HELICAL JERSEY INVESTMENT HOLDINGS LIMITED 4 HELICAL OLD STREET JERSEY HOLDINGS LIMITED 4 HELICAL OLD STREET JERSEY LIMITED 4 HELICAL POLAND SP. Z O.O. 2 HELICAL PROPERTIES (HSM) LIMITED HELICAL PROPERTIES INVESTMENT LIMITED HELICAL RETAIL LIMITED HELICAL SERVICES LIMITED HELICAL WROCLAW SP. Z O.O. 2 METROPOLIS PROPERTY LIMITED OLD STREET UNITHOLDER NO 1 LIMITED 4 OLD STREET UNITHOLDER NO 2 LIMITED 4 JOINT VENTURES AND JOINT OPERATIONS ABBEYGATE HELICAL (C4.1) LLP ABBEYGATE HELICAL (LEISURE PLAZA) LIMITED BARTS CLOSE OFFICE LIMITED 4 BARTS ONE LIMITED 4 BARTS SQUARE ACTIVE ONE LIMITED 4 BARTS SQUARE FIRST LIMITED BARTS SQUARE FIRST OFFICE LIMITED 4 BARTS SQUARE FIRST RESIDENTIAL LIMITED 4 BARTS SQUARE LAND ONE LIMITED BARTS TWO LIMITED4 BARTS, L.P. 6 CREECHURCH PLACE LIMITED 7 HASLUCKS GREEN LIMITED HELICAL GRAINGER LIMITED HELICAL GRAINGER (HOLDINGS) LIMITED KING STREET DEVELOPMENTS (HAMMERSMITH) LIMITED OBC DEVELOPMENT MANAGEMENT LIMITED SHIRLEY ADVANCE LLP DORMANT SUBSIDIARIES AND JOINT VENTURES AYCLIFFE & PETERLEE DEVELOPMENT COMPANY LIMITED DENCORA (FORDHAM) LIMITED FARRINGDON EAST LIMITED GLENLAKE LIMITED HB SAWSTON NO. 1 LIMITED HB SAWSTON NO. 2 LIMITED HB SAWSTON NO. 4 LIMITED HELICAL (ALFRETON) LIMITED HELICAL (ARTILLERY) LIMITED HELICAL (BATTERSEA) LIMITED HELICAL (BOSS 2) LIMITED HELICAL (BROADWAY) LIMITED HELICAL (CG) LIMITED HELICAL (COBHAM) LIMITED HELICAL (CORBY INVESTMENTS) LIMITED HELICAL (ELLESMERE PORT) LIMITED HELICAL (ENTERPRISE) LIMITED HELICAL (FORDHAM) LIMITED HELICAL (GRACELANDS) LIMITED 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Direct/ Indirect Direct Direct Direct Direct Direct Direct Direct Direct Direct Indirect Indirect Indirect Direct Direct Direct Indirect Indirect Indirect Indirect Direct Direct Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Direct Indirect Indirect Indirect Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Indirect Direct Direct Ultimate % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 50% 33% 33% 33% 33% 33% 33% 33% 33% 33% 10% 50% 50% 50% 50% 33% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 139 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT40. SUBSIDIARY AND RELATED UNDERTAKINGS CONTINUED Company HELICAL (GREAT YARMOUTH) LIMITED HELICAL (HAILSHAM) LIMITED HELICAL (HARROGATE) LIMITED HELICAL (HAVANT) LIMITED HELICAL (HEDGE END) LIMITED HELICAL (HUB) LIMITED HELICAL (JERSEY) LIMITED4 HELICAL (MINT) LIMITED HELICAL (SA) LIMITED HELICAL (SALFORD) LIMITED HELICAL (SCARBOROUGH) LIMITED HELICAL (SHOREDITCH) LIMITED HELICAL (STEVENAGE) LIMITED HELICAL (WEST LONDON) LIMITED HELICAL (WINTERHILL) LIMITED HELICAL BAR (CITY INVESTMENTS) LIMITED HELICAL BAR (MITRE SQUARE) LIMITED HELICAL BAR (WHITE CITY) LIMITED HELICAL BAR LIMITED HELICAL BAR TRUSTEES LIMITED HELICAL FOOD RETAIL LIMITED HELICAL GROUP LIMITED HELICAL PROPERTIES LIMITED HELICAL PROPERTIES (RS) LIMITED HELICAL REGISTRARS LIMITED HGCI (HOLDCO) LIMITED HGCI (TRANSCO) LIMITED HGCI (UK) LIMITED HGCI HOLDINGS LIMITED HGCI INTERMEDIATE LIMITED HGCI LIMITED OLD STREET HOLDINGS GP LIMITED 1 OLD STREET HOLDINGS L.P.1 OLD STREET UNITHOLDER LIMITED ROPEMAKER PARK MANAGEMENT COMPANY LIMITED SCBP MANAGEMENT COMPANY LIMITED SPRING (HOLDINGS) LIMITED SPRING (NO.1) LIMITED SPRING (NO.2) LIMITED SPRING (NO.3) LIMITED THE ASSET FACTOR LIMITED 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 58 59 60 Direct/ Indirect Direct Indirect Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Indirect Indirect Direct Direct Direct Direct Direct Direct Direct Direct Indirect Indirect Indirect Indirect Direct Direct Indirect Indirect Indirect Indirect Indirect Indirect Direct Indirect Indirect Direct Ultimate % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 10% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%** 100% 33% 33% 33% 100%** 75% 100% 100% 100% 100% 100% 12 Castle Street, St Helier, Jersey JE2 3RT. 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 5 B.PRUSA 10 30-109 Krakow Poland. 6 c/o Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington DE 19808, United States. 7 c/o Ocorian Limited, 26 New Street, St Helier, Jersey JE2 3RA. 8 c/o Dentons, 1 George Square, Glasgow G2 1AL. Notes: * ** Limited by Guarantee. No shares in issue in the Unit Trusts. The registered office address is that of the appropriate trustee. 140 NOTES TO THE FINANCIAL STATEMENTSHELICAL PLCAnnual Report and Accounts 2019 APPENDIX 1 – SEE-THROUGH ANALYSIS All appendices are unaudited. 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 Consolidated Income Statement and Consolidated 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 is shown in the table below: Gross rental income Total gross rental income Rents payable Property overheads – subsidiaries – joint ventures – subsidiaries – subsidiaries – joint ventures Net rental costs/(income) attributable to profit share partner See-through net rental income Year ended 31.3.19 £000 Year ended 31.3.18 £000 28,154 971 29,125 (285) (3,410) (411) 140 40,157 189 40,346 (144) (3,549) (412) (135) 25,159 36,106 SEE-THROUGH NET DEVELOPMENT (LOSSES)/PROFITS Helical’s share of development profits from property assets held in subsidiaries and in joint ventures is shown in the table below: In parent and subsidiaries In joint ventures Total gross development profit/(loss) Provision against stock See-through development losses – subsidiaries – joint ventures Year ended 31.3.19 £000 Year ended 31.3.18 £000 4,740 4,570 9,310 (6,521) (7,198) (4,409) (1,961) (1,939) (3,900) (2,213) (1,880) (7,993) 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 in joint ventures is shown in the table below: Revaluation surplus on investment properties – subsidiaries – joint ventures Total revaluation surplus Net gain on sale of investment properties – subsidiaries – joint ventures Total net gain on sale of investment properties See-through net gain on sale and revaluation of investment properties Year ended 31.3.19 £000 Year ended 31.3.18 £000 44,284 1,288 45,572 15,008 – 15,008 60,580 23,848 3,317 27,165 13,567 – 13,567 40,732 141 HELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT APPENDIX 1 – SEE-THROUGH ANALYSIS CONTINUED SEE-THROUGH NET FINANCE COSTS Helical’s share of the interest payable, finance charges, capitalised interest and interest receivable on bank borrowings, bonds and cash deposits in subsidiaries and in joint ventures is shown in the table below: Interest payable on bank loans, bonds and overdrafts – subsidiaries – joint ventures Total interest payable on bank loans, bonds 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 – joint ventures Year ended 31.3.19 £000 Year ended 31.3.18 £000 16,414 511 16,925 4,208 1,576 (3,215) 19,494 (983) (92) 18,419 26,873 24 26,897 15,761 2,012 (5,196) 39,474 (4,303) (16) 35,155 SEE-THROUGH PROPERTY PORTFOLIO Helical’s share of the investment, trading and development property portfolio in subsidiaries and joint ventures is 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 31.3.19 £000 791,250 25,382 816,632 2,311 56,935 59,246 578 - 578 59,824 876,456 SEE-THROUGH NET BORROWINGS Helical’s share of borrowings and cash deposits in parent and subsidiaries and joint ventures is shown in the table below: 31.3.19 £000 100,468 324,814 425,282 - 48,473 48,473 (197,570) (7,612) 268,573 31.3.19 £000 876,456 268,573 567,425 30.6% 47.3% Gross borrowings less than one year Gross borrowings more than one year Total gross borrowings in parent and subsidiaries Gross borrowings less than one year Gross borrowings more than one year Total gross borrowings in joint ventures Cash and cash equivalents – subsidiaries – subsidiaries – joint ventures – joint ventures – subsidiaries – joint ventures See-through net borrowings SEE-THROUGH ANALYSIS RATIOS Property portfolio Net borrowings Net assets Loan to value Gearing 142 31.3.18 £000 802,134 22,623 824,757 6,042 76,474 82,516 628 1,700 2,328 84,844 909,601 31.3.18 £000 - 416,992 416,992 - 49,523 49,523 (91,871) (11,790) 362,854 31.3.18 £000 909,601 362,854 533,894 39.9% 68.0% HELICAL PLCAnnual Report and Accounts 2019 APPENDIX 2 – TOTAL ACCOUNTING RETURN AND TOTAL PROPERTY RETURN Total Accounting Return Brought forward net assets Carried forward net assets Increase in net assets Dividends paid Total Accounting Return Total Accounting Return Percentage Total Property Return See-through net rental income See-through development losses See-through revaluation surplus See-through net gain on sale of investment properties Total Property Return Year ended 31.3.19 £m Year ended 31.3.18 £m 533.9 567.4 33.5 11.4 44.9 516.9 533.9 17.0 10.2 27.2 8.4% 5.3% Year ended 31.3.19 £m Year ended 31.3.18 £m 25.2 (4.4) 45.6 15.0 81.4 36.1 (8.0) 27.2 13.5 68.8 143 HELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTAPPENDIX 3 – FIVE YEAR REVIEW INCOME STATEMENTS Year ended 31.3.19 £000 Year ended 31.3.18 £000 Year ended 31.3.17 £000 Revenue Net rental income Development property profit/(loss) Provisions against stock Trading profit Share of results of joint ventures Other operating income Gross profit before gain on investment properties Gain on sale of investment properties Revaluation surplus on investment properties Fair value movement of available-for-sale assets 44,175 24,599 2,564 (4,345) - (3,217) - 19,601 15,008 44,284 144 Administrative expenses excluding performance related awards (10,858) Performance related awards Finance costs Finance income Movement in fair value of derivative financial instruments Change in fair value of Convertible Bond Foreign exchange gains/(losses) Profit before tax Tax on profit on ordinary activities Profit after tax 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 (5,895) (17,407) 983 (3,322) 865 53 43,456 (836) 42,620 31.3.19 £000 791,250 2,311 25,382 56,935 175,596 36,329 (1,961) (2,213) - 3,196 111 35,462 13,567 23,848 1,385 (11,023) (1,742) (37,438) 4,303 4,029 (1,559) (10) 30,822 (4,537) 26,285 99,934 46,162 7,143 (6,300) - (6,528) 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 Year ended 31.3.16 £000 116,500 42,164 30,700 (6,448) - 50,469 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 31.3.18 £000 31.3.17 £000 31.3.16 £000 802,134 1,003,000 1,041,100 6,042 22,623 76,474 86,680 13,907 89,115 92,035 11,552 75,904 Year ended 31.3.15 £000 106,341 34,233 16,126 (452) 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 31.3.15 £000 701,521 92,578 88,305 102,715 Group’s share of land, trading and development stock surpluses 578 2,328 12,514 19,412 36,243 Group’s share of total properties at fair value 876,456 909,601 1,205,216 1,240,003 1,021,362 Net debt Group’s share of net debt of joint ventures Group’s share of net debt Net assets EPRA net assets Dividend per ordinary share paid/payable Dividend per ordinary share declared EPRA (loss)/earnings per ordinary share EPRA net assets per share 227,712 40,861 268,573 567,425 583,111 9.60p 10.10p (8.4)p 482p 325,121 37,733 362,854 533,894 561,644 8.70p 9.50p (7.0)p 468p 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 477,248 54,649 531,897 404,363 469,128 6.85p 7.25p 2.4p 385p 144 HELICAL PLCAnnual Report and Accounts 2019APPENDIX 4 – PROPERTY PORTFOLIO LONDON PORTFOLIO – INVESTMENT PROPERTIES Address Description Completed, let and available to let The Warehouse & Studio, The Bower, EC1 Multi-let office building The Tower, The Bower, EC1 The Loom, E1 The Powerhouse, W4 Power Road Studios, W4 25 Charterhouse Square, EC1 90 Bartholomew Close, EC1 Being redeveloped Kaleidoscope, EC1 Multi-let office building Multi-let office building Single-let recording studios/office building Multi-let office building with redevelopment potential Multi-let office building Multi-let office building Over-station office development 54 Bartholomew Close, EC1 Office redevelopment 1 Estimated space once developed. LONDON PORTFOLIO – DEVELOPMENT PROPERTIES Address Description Completed, let and available to let Area sq ft (NIA) Vacancy rate at 31 March 2019 Vacancy rate at 31 March 2018 151,439 181,742 108,640 24,288 57,585 43,493 30,427 597,614 88,6801 10,2861 696,580 0.0% 28.5% 2.9% 0.0% 40.3% 0.0% 63.7% 16.2% n/a n/a n/a 0.0% n/a 17.0% 0.0% 29.0% 0.0% n/a 8.3% n/a n/a n/a Area sq ft (NIA) Vacancy rate at 31 March 2019 Vacancy rate at 31 March 2018 One Creechurch Place, EC3 Multi-let office building 273,291 0.0% 31.0% Being redeveloped Barts Square, EC1 MANCHESTER OFFICES Address Churchgate & Lee 35 Dale Street Fourways House Trinity REGIONAL PORTFOLIO Address Land Dawley Road, Telford Retail Development Ibstock site, Kingswinford Barking Road, East Ham 1 Estimated space once developed. 236 residential apartments and 14,916 sq ft retail/ leisure development under construction 217,750 n/a n/a 491,041 Description Multi-let office building Multi-let office building Multi-let office building Newly completed office building Area sq ft (NIA) Vacancy rate at 31 March 2019 Vacancy rate at 31 March 2018 244,627 54,112 59,067 58,951 416,757 3.4% 0.0% 25.7% 100.0% 19.8% 0.0% 38.0% n/a n/a 12.8% Held as Description Area sq ft (NIA) Vacancy rate at 31 March 2019 Vacancy rate at 31 March 2018 Development Residential land n/a Development Development Retail park Retail/leisure 70,0001 43,0001 113,000 n/a n/a n/a n/a n/a n/a 145 HELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT APPENDIX 5 – EPRA PERFORMANCE MEASURES The European Public Real Estate Association (“EPRA”) Best Practice Recommendations set 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 Losses per share Definition Losses per share from operational activities. EPRA NAV EPRA NNNAV EPRA NIY EPRA Topped Up NIY 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). Note 14 35 35 31.3.19 (8.4)p 482p 31.3.18 (7.0)p 468p 465p 2.74% 448p 4.20% 4.18% 4.78% EPRA Vacancy Rate Estimated Market Rental Value (ERV) of vacant space divided by ERV of the whole portfolio. 16.16% 8.63% The note references provide the calculation of the associated measure. Other measures are calculated as follows: EPRA Net Initial Yield and EPRA Topped Up Net Initial Yield Investment property at fair value Less: Property under construction Undeveloped land Properties not held for rental income Completed property portfolio Allowance for estimated purchaser’s costs of 6.8% Gross up completed property portfolio – subsidiaries – joint ventures – subsidiaries – joint ventures 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 31.3.19 £000 791,250 25,382 (70,250) (8,408) (100) – 31.3.18 £000 802,134 22,623 (203,334) (22,623) (100) – 737,874 598,700 50,175 788,049 40,712 639,412 21,620 2.74% 11,305 32,925 4.18% 31.3.19 £000 8,324 51,497 26,875 4.20% 3,668 30,563 4.78% 31.3.18 £000 3,210 37,190 16.16% 8.63% 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 Total capital expenditure Year ended 31.3.19 £000 Year ended 31.3.18 £000 30,573 56,532 3,215 90,320 24,967 72,414 3,661 101,042 Note 15 There was one (2018: two) new investment property purchased during the year, Fourways House, Manchester (£17.6m including purchase costs) and deferred consideration on the purchase of Kaleidoscope, London EC1 (£13.0m). The majority of the expenditure on the existing portfolio was made on the London portfolio (83%) and the Manchester offices (17%). Similarly, 85% of the capitalised interest is in London and 15% is in Manchester offices. Capitalised interest is calculated in accordance with IAS 23 Borrowing Costs. 146 HELICAL PLCAnnual Report and Accounts 2019SHAREHOLDER 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: Link Asset Services The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU Telephone: 0871 664 0300* From outside the UK +44 371 664 0300 Website: www.linkassetservices.com Email: enquiries@linkgroup.co.uk For further information on this service or to buy and sell shares online, please visit www.linksharedeal.com or 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, which are uneconomical to sell, may wish to consider donating them to a charity, free of charge through ShareGift (registered charity 1052686). For further information please visit www.sharegift.org, call 020 7930 3737 or write to ShareGift, PO Box 72253, London, SW1P 9LQ / help@sharegift.org DIVIDENDS Dividends declared and/or paid during the year to 31 March 2019 were as follows: * 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. Dividend 2017-18 Final Record date 2018 15 June Payment date 2018 20 July 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 letters of deemed consent sent to Shareholders on 5 April 2017 and 2 May 2019, 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 (on 0371 664 0381* or email shares@linkgroup.co.uk) or complete an application form online at: www.signalshares.com * Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00 – 17:30, Monday to Friday excluding public holidays in England and Wales. For participants in the DRIP, key dates of forthcoming dividends can be found on the Financial Calendar page in the “Investors” section of the website at www.helical.co.uk SHARE DEALING SERVICE An online and telephone share dealing service is available to our Shareholders through Link Share Deal. Amount 7.00p 2.60p Amount 7.50p TBC 1 2018-19 Interim 30 November 31 December Dividend payment dates in 2019 will be as follows: Dividend 2018-19 Final Record date 2019 14 June Payment date 2019 19 July 2019-20 Interim December December 1 The amount of the 2019–20 Interim Dividend will be announced in November 2019. 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 investment advice, offers to buy shares at a discount or offers of free reports into Helical. If you receive unsolicited investment advice: • Exercise caution and never disclose personal details; • Obtain the correct name of the person and organisation and make a record of any other information they give you, such as a telephone number, address or website address; • Check that they are properly authorised by the FCA (Financial Conduct Authority) before getting involved. This can be checked at fca.org.uk/consumers. If you deal with an unauthorised firm you will not be eligible to receive payment under the Financial Services Compensation Scheme; • Get impartial advice before handing over any money; • If the caller persists, hang up; • Inform us on 020 7629 0113 (email: reception@helical.co.uk) or our Registrars, Link Asset Services, on 0871 664 0300 (email: enquiries@ linkgroup.co.uk). Whilst we are not able to investigate such incidents ourselves we will record the details and will liaise with the FCA; and • Report the suspected fraud 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 147 HELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTGLOSSARY OF TERMS Capital value (psf) The open market value of the property divided by the area of the property in square feet. Net gearing Total borrowings less short-term deposits and cash as a percentage of net assets. Company or Helical or Group Helical plc and its subsidiary undertakings. 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/Group share The consolidated Group and the Group’s share in its joint ventures (see Appendix 1). See-through net gearing The see-through net borrowings expressed as a percentage of net assets (see Appendix 1). Total Accounting Return The growth in the net asset value of the Company plus dividends paid in the year, expressed as a percentage of net asset value at the start of the year (see Appendix 2). 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 (see Appendix 2). 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 period. 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 first break, or lease expiry date, divided by the contracted annual rent. 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. (see Note 14). EPRA European Public Real Estate Association. EPRA earnings per share Earnings per share adjusted to exclude gains/losses on sale and revaluation of investment properties and their deferred tax adjustments, the tax on profit/loss on disposal of investment properties, trading property profits/losses, movement in fair value of available-for-sale assets and fair value movements on derivative financial instruments, on an undiluted basis. Details of the method of calculation of the EPRA earnings per share are available from EPRA (see Note 14). EPRA net assets per share Diluted net asset value per share adjusted to exclude fair value surplus 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 35). 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. 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 35). Estimated rental value (ERV) The market rental value of lettable space as estimated by the Group’s valuers at each balance sheet date. Gearing Group borrowings expressed as a percentage of net assets. Initial yield Annualised net passing rents on investment properties as a percentage of their open market value. Like-for-like valuation change The valuation gain/loss, net of capital expenditure, on those properties held at both the previous and current reporting period end, as a proportion of the fair value of those properties at the beginning of the reporting period plus net capital expenditure. MCSI Inc. (MSCI) MSCI Inc. is a company that produces independent benchmarks of property returns. Net asset value per share (NAV) Net assets divided by the number of ordinary shares at the balance sheet date (see Note 35). 148 HELICAL PLCAnnual Report and Accounts 2019FINANCIAL CALENDAR AND ADVISORS CALENDAR 2019-2020 2019 13 June 2019 14 June 2019 28 June 2019 11 July 2019 19 July 2019 November 2019 1 December 2019 2 December 2019 2 2020 May 2020 Ex-dividend date for final ordinary dividend Record date for final ordinary dividend Last day for DRIP elections 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 2020 Notes 1 The announcement date of the Half Year Results will be confirmed in October 2019. 2 Dates for the potential interim dividend will be confirmed in the Half Year Results Announcement. – Link Asset Services – Aviva Commercial Finance Limited – Barclays Bank PLC – HSBC Bank PLC – Lloyds Bank PLC – National Westminster Bank PLC – Santander UK PLC – The Royal Bank of Scotland PLC – Wells Fargo – J.P. Morgan Cazenove – Numis Securities Limited – Deloitte LLP – Clifford Chance LLP – Mishcon de Reya LLP ADVISORS Registrars Bankers Joint stockbrokers Auditors 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 149 HELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTNOTES 150 HELICAL PLCAnnual Report and Accounts 2019NOTES 151 HELICAL PLCAnnual Report and Accounts 2019GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORTNOTES 152 HELICAL PLCAnnual Report and Accounts 2019Printed by Park Communications 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 Munken Polar and Novatech Matt, papers containing 100% virgin fibre sourced from well managed, responsible, FSC® certified forests and other controlled sources. The pulp used in this product 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 helical.co.uk Helical plc @helicalplc 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 9

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