KCR RESIDENTIAL REIT plc
(Previously known as K&C REIT plc)
Annual Report
for the year ended 30 June 2018
Registered Number: 09080097 (England and Wales)
CONTENTS
Company Information
Chairman’s Letter
Chief Executive’s Letter
Group Strategic Report
Report of the Directors
Report of the Independent Auditor
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Notes to the Statements of Cash Flows
Notes to the Financial Statements
2
3
5
8
12
16
21
22
23
24
25
26
27
28
30
1
COMPANY INFORMATION
DIRECTORS
SECRETARY
REGISTERED OFFICE
BUSINESS ADDRESS
M D M Davies
D A White
T M James
J A Cane
O J Vaughan
R J Roberts
82 St. John Street
London EC1M 4JN
44/48 Old Brompton Road
South Kensington
London SW7 3DY
REGISTERED NUMBER
09080097 (England and Wales)
WEBSITE
www.kcrreit.com
INDEPENDENT AUDITOR
SOLICITORS
NOMINATED ADVISER
AND BROKER
BANKS
Moore Stephens LLP
150 Aldersgate Street
London EC1A 4AB
Fladgate LLP
16 Great Queen Street
London WC2B 5DG
Arden Partners plc
125 Old Broad Street
London EC2N 1AR
Metro Bank plc
One Southampton Row
Holborn
London WC1A 5HA
FINANCIAL PUBLIC
RELATIONS
Yellow Jersey PR Limited
7th floor, 22 Upper Ground
London SE1 9PD
Chairman
Chief executive
Property director
Finance director
Non-executive director
Blake Morgan LLP
6 New Street Square
London EC4A 3DJ
Barclays Bank plc
Level 25, 1 Churchill Place
Canary Wharf
London E14 5HP
2
CHAIRMAN’S LETTER
for the year ended 30 June 2018
Dear shareholder
I am delighted to introduce the fourth Annual Report that KCR Residential REIT plc (“KCR” or the “Company”) has presented
since its admission to AIM in July 2015.
We have made good strides in building the business, especially with the three transactions completed right at the end of the year.
We have further transactions planned that should give us the size necessary to start generating profits from our rental activity.
Dominic White has written about our achievements and plans in more detail in his letter.
What we do
As I mentioned last year, and it is worth repeating, KCR and its subsidiaries (together the “Group”) operate primarily in the UK
private rented residential investment market. We acquire whole blocks of studio, one-and two-bed apartments in major UK cities,
close to transport links, that are rented to private tenants.
KCR is both an income and capital growth opportunity for its
shareholders. It delivers income return from the collection of rents
from tenants and capital return through investment in under-
valued property assets that are marked to market value at
acquisition.
The team grows income and asset value through building quality
increases, physical extensions and
improvements, rental
repositioning, and, where appropriate, small-scale refurbishments.
In particular, the directors search out residential blocks of
apartments held within UK incorporated companies since these
provide an opportunity for KCR to capitalise on the tax
advantages afforded to UK REITs; in many cases, they generate
immediate boosts to net asset value per share on acquisition.
The market in which we operate
The impact on the UK economy of Brexit, and the potential impact for the housing market, is a topic of much debate. Despite
uncertainty around Brexit compounding the overall market slowdown, analysis of household income available to buy property
indicates that there is further scope for value growth in the most affordable cities. Research from Hometrack reports that, despite
the uncertainty, annual UK city house price inflation to the end of August 2018 is running at 3.9 per cent. Combining this with an
average UK rental yield of 4.0 per cent reported by PropertyData implies a current average annual total return of 7.9 per cent for
rented residential property.
KCR targets a specific segment of residential property. We buy low to mid-price blocks of flats aimed at new entrants and early-stage
professionals. This continues to be a very resilient segment of the residential rental market. In general, house prices and rental values
continue to rise in that segment. Higher price-band homes, particularly in Central London, which attract much of the press comment,
have declined in value – these properties do not fall within KCR’s investment strategy.
3
There continue to be positive economic fundamentals in the
residential sector – strong demand and shortage of supply, in
particular in the targeted low- to mid-price bands. This type of
housing will, in our view, deliver attractive rental and capital value
performance across the UK over the medium term.
Financial result
We have had several successes this year, including a series of
accretive acquisitions, improvements in portfolio valuations and
maintaining high levels of occupancy across the portfolio. To an
extent, we have been held back by our planned November 2017
equity raise and move to the Main Market of the London Stock
Exchange. Our pitch to investors, to take advantage of the huge
residential market opportunity across the major conurbations in the UK, remains the right strategy for the future. Although we
attracted interest from several key institutional investors, we, along with other investment vehicles sponsored by managers such as
Aviva and Aberdeen Management, did not achieve our goals. This had a material but one-off effect on our finances.
KCR relies on raising capital (both equity and debt) to invest in the residential housing market. While equity markets remain volatile,
we have chosen to raise smaller amounts of capital around specific property acquisitions. We have succeeded in this strategy, having
raised capital from well-resourced and enthusiastic providers in March 2018 and July 2018. We continue to present an attractive
equity opportunity to potential investors. We have a strong pipeline, an experienced and energetic management team, access to
transformational deals and a network of enthusiastic supporters.
I look forward to updating you further as we continue to scale up our activities such that KCR generates a profit and can then
deliver on its goal of paying regular dividends to shareholders.
M D M Davies
Chairman
9 November 2018
4
CHIEF EXECUTIVE’S LETTER
for the year ended 30 June 2018
Dear shareholder
I have pleasure in reporting to you on the progress of the Group for the year to 30 June 2018.
KCR’s short-term objective is to grow the size of its rented portfolio to deliver an increase in revenue that, together with value
increases over time, result in profitability and an ability to pay dividends. At the same time, we focus on growing net asset value per
share, another key indicator of a successful property company.
In the period under review, the value of the assets managed has increased by 228 per cent to £27.4 million, the Group reported an
operating profit of £251,079, and net asset value per share increased by three per cent to 88.17p.
Property portfolio
Acquisitions during the year
KCR completed three acquisitions (two company purchases and one investment property), with a total value of £16 million, during
the period, all on 29 June 2018. Two of the acquisitions, sites at Southampton and Leighton Buzzard/West Drayton, were the first
transactions closed after forming a strategic relationship with Inland Homes Plc, which we announced on 31 May 2018. The
acquisitions were:
• The purchase of the Ladbroke Grove portfolio (KCR (Kite) Limited) with a fair value of investment property at acquisition of
£7.3 million. The portfolio consists of 16 one- and two-bedroom apartments in three buildings, and one stand-alone flat in
Harrow Road. Since its acquisition, units have been refurbished as tenants leave and then rented back to the private market.
There have been average increases of 10.1 per cent for both renewals and new tenancies. Four newly refurbished units have
achieved an average increase in rent of 16.2 per cent.
• The purchase of Deanery Court, Chapel Riverside
(Southampton) with a fair value of investment property at
acquisition of £5.8 million. The block consists of 27 new-build
two-bedroom apartments, each with a view over the River
Itchen and a parking space, situated a short walk from the
centre of the city. The property has been well received by the
rental market. Within two weeks of handover of the building
from the developer, nearly two-thirds of the building had been
let at rents above our internal forecasts. We expect the
remainder of the property to be let in the coming months and
for the property value to improve in the short term as the
surrounding area continues to be developed.
• Two supermarkets that form part of significant newly built residential buildings in Leighton Buzzard and West Drayton at a fair
value of investment property at acquisition of £2.8m (KCR (Cygnet) Limited). The properties are let on 15-year leases,
index-linked to inflation, to Sainsbury’s and the Co-op respectively, and will deliver a 4.9 per cent net annual income to KCR.
5
Existing portfolio
In addition, KCR acquired six flats in its freehold Heathside
property in North London. KCR now owns seven flats in the block
and intends to let these out on assured short-hold tenancies
(ASTs) during the year. We benefit from the marriage value in such
transactions and the property itself provides high-quality living
accommodation for those over the age of 60 who need comfort
and convenience but not care. We intend to continue to improve
the building and our offer to tenants and leaseholders.
The existing portfolio continues to perform well.
• The block at Coleherne Road (K&C (Coleherne) Limited) has
small-sized units (studio and one-bed flats), which continue to be exactly what the rental market is looking for. Occupancy has
been maintained at 100 per cent and where there have been renewals, rents have increased at least in line with inflation.
• The Osprey portfolio (K&C (Osprey) Limited) consists of 159 flats and 13 houses / long-leasehold units in seven locations. The
portfolio generated lower income from leaseholders’ sales, management fees and lease-renewal premium income than in the
previous year; however, these income streams are largely outside our control. However, the portfolio continues to grow in value
and be a significant medium-term value-adding opportunity as the terms of the long-leasehold apartments shorten. More than
one-third of the long leases have durations of 67 years or less.
Development opportunities
Following a Government consultation on delivering more homes by increasing densities on brownfield land, the current
administration has expressed an intention to take forward a policy of permitted development for extensions, both upward (adding
new floors) and outward (development onto under-utilised areas of existing sites). The Housing White Paper proposes a package
of measures in support of this policy. If enacted, this policy change would give KCR the potential to add numerous residential units
to its existing buildings and create significant value across its portfolio, particularly on the buildings located in Ladbroke Grove and
on the Osprey portfolio.
Financial
Since most of the acquisition activity completed on the last business day of the financial year, it had no impact on revenue in this
year’s results. Since the year-end, the revenue benefit of these acquisitions is already beginning to be seen.
Revenue in this financial period continued to be driven by the Coleherne and Osprey portfolio assets. Revenue decreased to
£265,936 (2017 – £514,746) due to lower income from the Osprey portfolio, as explained above. Run-rate revenue is now
significantly greater and will increase further once Southampton has been fully let and our next pipeline acquisition completes.
The Group reports an improved consolidated operating profit of £251,079 (2017 – loss £1,029,215) and a significantly smaller loss
before taxation of £67,574 (2017 – loss £1,224,571). As the chairman has reported in his letter, the financial impact of the
unsuccessful fundraising damaged our ability to grow in the way that we had anticipated and hoped, but we nevertheless made
valuable acquisitions during the year and are planning more during the current financial year.
6
Total assets at 30 June 2018 increased by 228 per cent to £27.4 million (2017 – £8.4 million). Net assets increased by 92 per cent
to £8.69 million (2017 – £4.52 million) and net asset value per share increased by three per cent from to 88.17p (2017 – 85.7p (as
adjusted for the 10:1 share consolidation announced in October 2017 – see note 16).
Subsequent events
On 13 July 2018, KCR announced that it had raised £3.1 million through a placing of £901,500 in cash, conversion of £650,000 of
convertible loan notes into equity, conversion of a creditor into equity and the payment in shares for a property acquisition from
Inland Homes plc (£1.26 million). KCR issued 4,434,570 shares at 70p. Full details of the transaction are reported in the Investors
section of the Company’s website www.kcrreit.com in the announcement dated 13 July 2018.
On 15 October 2018, the block at Southampton was handed over to KCR. As reported above, we have made rapid strides in letting
these most attractive apartments, with 63 per cent either let or reserved as at the date of this report.
Future prospects
During the year, the Group increased the size of its portfolio significantly and continued to add both rental and capital value to its
properties. The acquisition of £16 million of property on the last day of the financial year will lead to considerable growth in revenue
during the year to 30 June 2019.
The team continues to source investment opportunities that would add significantly to revenue and net asset value per share. KCR
is currently in advanced negotiations on one such investment that could increase the portfolio size by more than 55 per cent.
We hope to be able to report further positive developments to you in the coming months.
Dominic A White
Chief executive
9 November 2018
7
GROUP STRATEGIC REPORT
for the year ended 30 June 2018
The directors present the strategic report of KCR Residential REIT plc (‘KCR’ or the ‘Company’) and its subsidiaries (together, the
‘Group’) for the year ended 30 June 2018.
PRINCIPAL ACTIVITY
The Group carries on the business of acquiring and managing residential property in the UK for letting to third parties on long and
short leases. At the year-end, the Group consisted of the Company, which is a public company limited by shares, and seven
subsidiaries.
1. K&C (Coleherne) Limited owns a freehold residential property in Chelsea, London containing ten studio apartments
2. K&C (Osprey) Limited owns the freehold of several ‘retirement’ properties let on long leases to residents and provides
management services in respect of these properties and to third-party landlords
3. K&C (Newbury) Limited owns no property and is now effectively dormant. The valuation of the company has been written
down to nil via an impairment provision in note 13
4. KCR (Kite) Limited owns three freehold residential properties in Ladbroke Grove, London and a flat on Harrow Road
5. KCR (Southampton) Limited owns a freehold block of 27 one- and two-bedroom apartments In Ocean Village, Southampton
6. KCR (Cygnet) Limited owns long leaseholds on two supermarket sites rented out to the Co-op and Sainsbury’s
7. K&C REIT Limited (dormant).
GROUP STRATEGY
The directors intend to build a significant presence in the residential letting market, primarily through the acquisition of UK-registered
special purpose vehicles that own residential property for letting to third parties.
RESULTS
The Group reports a consolidated operating profit of £251,079 for the year to 30 June 2018 (2017 – loss £1,029,215).
REVIEW OF BUSINESS AND FINANCIAL PERFORMANCE
The Board has reviewed whether the Annual Report, taken as a whole, presents a fair, balanced and understandable summary of the
Group’s position and prospects, and believes that it provides the information necessary for shareholders to assess the Group’s
position, performance, and strategy.
As reported in the Chief Executive’s letter, most of the acquisition activity was completed on the last business day of the financial
year and had no impact on revenue in this year’s results. Since the year-end, run-rate revenue has significantly increased and will
grow further once Southampton has been fully let and our next pipeline acquisition completes.
Revenue in this financial period continued to be driven by the Coleherne and Osprey portfolio assets. Revenue decreased to
£265,936 (2017 – £514,746) due to lower income from the Osprey portfolio.
8
The Group reports an improved consolidated operating profit of £251,079 (2017 – loss £1,029,215) and a significantly smaller loss
before taxation of £67,574 (2017 – loss £1,224,571). The financial impact of the unsuccessful fundraising damaged our ability to
grow but we nevertheless made valuable acquisitions during the year and are planning more during the current financial year.
Total assets at 30 June 2018 increased by 228 per cent to £27.4 million. Net assets increased by 92 per cent to £8.69 million and
net asset value per share increased by three per cent from to 88.17p.
KEY PERFORMANCE INDICATORS
The directors and management team monitor key performance indicators relevant to each of the subsidiaries to improve Group
performance. Management reports to the board if data show significant variances against expected outcomes and proposes mitigation
action as necessary.
Examples of the KPIs used to monitor aspects of performance include:
1. At property level
1.1. Vacancy rate in terms of number of units available and potential rental income
Target occupancy of at least 90 per cent achieved
1.2. Outstanding rents as a percentage of rental income
Target debtor balance of less than 10 per cent of rental revenue achieved.
2. At Group level
2.1. Gross assets under management
Target of £20 million of gross assets by 30 June 2018 achieved.
RISKS AND UNCERTAINTIES
The Board regularly reviews the risks to which the Group is exposed and ensures through its meetings and regular reporting that
these risks are minimised as far as possible.
The principal risks and uncertainties facing the Group at this stage in its development are:
• Financing and liquidity risk
The Company has an ongoing requirement to fund its activities through the equity markets and in future to obtain finance for
property acquisition and management. Although there is no certainty that such funds will be available when needed, the directors
regularly focus on developing the Group’s capital structure.
• Financial instruments
Details of risks associated with the Group’s financial instruments are given in note 20 to the financial statements. The directors
seek to mitigate these risks in manners appropriate to the risk.
9
• Valuations
The valuation of the investment property portfolio is inherently subjective as it is made on the basis of assumptions made by
the valuer that may not prove to be accurate. The outcome of this judgment is significant to the Group in terms of its investment
decisions and results. The directors, who have long experience of property, seek to mitigate this risk by employing independent
valuation experts such as Lambert Smith Hampton and Harding Green to review values of the material assets in the portfolio.
INTERNAL CONTROLS AND RISK MANAGEMENT
The directors are responsible for the Group’s system of internal control. Although no system of internal control can provide
absolute assurance against material misstatement or loss, the Group’s system is designed to provide reasonable assurance that
problems are identified on a timely basis and dealt with appropriately.
In carrying out their responsibilities, the directors have put in place a framework of controls to ensure as far as possible that
(i) ongoing financial performance is monitored in a timely manner, (ii) where required, corrective action is taken and (iii) risk is
identified as early as practically possible. The directors have reviewed the effectiveness of internal controls.
The Board, subject to delegated authority, reviews, among other things, capital investment, property sales and purchases, additional
borrowing facilities, guarantees and insurance arrangements.
BRIBERY RISK
The Group has adopted an anti-corruption policy and whistle-blowing policy under the Bribery Act 2010. Notwithstanding this, the
Group may be held liable for offences under that Act committed by its employees or subcontractors, whether or not the Group
or the directors had knowledge of the commission of such offences.
OTHER MATTERS
i. Environmental
The Group understands the importance of operating its business in a manner that minimises any risks to the environment. Its
policies seek to ensure that it achieves this goal.
ii. Group employees
The Group considers its employees to be its most valuable assets and ensures that it deals with them fairly and constructively
at all times.
iii. Social matters
The Group is aware that it has a responsibility to the communities where it operates and seeks to respect them at all times.
iv. Respect for human rights
The Group always respects the human rights of its stakeholders.
v. Contributions to pension schemes
During the year, the Group made contributions totalling £100,000 to the personal pension scheme of Dominic White. No
pension scheme benefits are being accrued by the directors.
10
FORWARD-LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements that have been made by the directors in good faith based on the
information available at the time of the approval of the annual report and financial statements. By their nature, such forward-looking
statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the
future. Actual results may differ from those expressed in such statements.
OUTLOOK
The Group has continued to purchase high-quality assets that will be able to support an increasing income yield. As last year, the
Group is currently investigating several potential acquisitions. To achieve these, the Group will be required to raise more capital and
it is working closely with funding sources, both equity and debt providers, to achieve this objective.
ON BEHALF OF THE BOARD:
James Cane
Director
9 November 2018
11
REPORT OF THE DIRECTORS
for the year ended 30 June 2018
The directors present their report with the financial statements of the Company and the Group for the year ended 30 June 2018.
A review of the business, risks and uncertainties and future developments is included in the Chairman’s Letter, the Chief Executive’s
Letter, the Group Strategic Report and in note 20 to the financial statements.
DIVIDENDS
The directors do not recommend payment of a dividend for the year (2017 – £nil).
Political donations
The Group made no political donations during the year (2017 – £nil).
Corporate governance statement
The Board is committed to maintaining high standards of corporate governance.
To the extent applicable, and to the extent able (given the current size and structure of KCR and the board of directors), the
Company has adopted the Quoted Companies Alliance Corporate Governance Code. Details of how KCR complies with the Code,
the reasons for any non-compliance, and the principles contained in the Code, are set out in the table included on the Company’s
website, www.kcrreit.com/content/investors/governance.asp.
Audit committee
The audit committee currently comprises Michael Davies, the chairman and James Cane. The committee is responsible for ensuring
the financial performance, position and prospects of the Group are properly monitored and reported on, and for meeting the
auditor and reviewing their reports relating to accounts and internal controls.
DIRECTORS
The following directors served during the year to 30 June 2018 and up to the date of approval of this Annual Report:
Name
Michael Davies
Dominic White
James Cane
Timothy James
Oliver Vaughan
12
The beneficial interests of the directors holding office at 30 June 2018 in the issued share capital of the Company were as follows:
Ordinary
Shares
No.
195,428
–
1,318
475,921
73,065
Restricted
Preference
Shares
No.
–
1,500,000
30,000
960,000
810,000
Name
Michael Davies
Dominic White
James Cane
Timothy James
Oliver Vaughan
Included in the total of Oliver Vaughan’s Ordinary shares above are 66,500 shares held in the name of Grosmont Investments
Limited, a company that he controls.
Included in the total of Dominic White’s holdings above are 1,000,000 Restricted Preference shares held in the name of his pension
fund, White Amba Pension Scheme.
The beneficial interests of the directors holding office at 9 November 2018 in the issued share capital of the Company were
as follows:
Ordinary
Shares
No.
195,428
57,143
1,318
504,492
73,065
Restricted
Preference
Shares
No.
–
1,765,357
40,000
1,225,357
1,075,357
Name
Michael Davies
Dominic White
James Cane
Timothy James
Oliver Vaughan
SUBSTANTIAL SHAREHOLDINGS
As at 9 November 2018, the directors had been notified that the following shareholders own a disclosable interest of three per cent
or more in the Ordinary shares of the Company:
Name Interest
Energiser Investments plc 17.04%
Consumer Refund Service Limited 14.01%
Poole Investments Limited 12.59%
Venaglass Limited 11.08%
Timothy James 3.53%
13
DIRECTORS’ REMUNERATION
The directors received the following remuneration during the year:
2018
2017
Remuneration Benefits-in-kind Remuneration Benefits-in-kind
Name £ £ £ £
Michael Davies – – – –
Dominic White 151,000 – 12,500 –
James Cane 60,000 – 44,500 –
Timothy James 80,000 – 15,000 –
Oliver Vaughan 30,000 – 15,000 –
Timothy Oakley (1) – – 32,500 –
Christopher James (1) – – 9,375 –
Patricia Farley (1) – – 3,500 –
321,000 – 132,375 –
(1) Timothy Oakley, Christopher James and Patricia Farley resigned from the board of directors on 31 March 2017.
During the previous year, fees of £50,000 plus irrecoverable VAT were paid to White Amba Limited, a company controlled by
Dominic White.
During the year, the Group paid DGS Capital Partners LLP, a limited liability partnership of which Michael Davies is a member, fees
of £36,000 (net of irrecoverable VAT) (2017 – £36,000).
DIRECTORS’ INDEMNITIES AND INSURANCE
The Company has made qualifying third-party indemnity provisions for the benefit of its directors during the year and they remain
in force at the date of approval of this Annual Report.
GOING CONCERN
The directors have adopted the going-concern basis in preparing the financial statements. This is further explained in note 2 to the
financial statements.
14
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law
and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors have elected
to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European
Union (“IFRS”). Under company law, the directors must not approve the financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In
preparing these financial statements, the directors are required to:
•
select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
•
•
state that the financial statements comply with IFRS;
prepare the financial statements on the going-concern basis unless it is inappropriate to presume that the Group will continue
in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable the directors to
ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of
the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO THE AUDITOR
So far as the directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies Act 2006) of which
the Group’s auditor is unaware, and each director has taken all the steps that he or she ought to have taken as a director in order to
make himself or herself aware of any relevant audit information and to establish that the Group’s auditor is aware of that information.
AUDITOR
The auditor, Moore Stephens LLP, will be proposed for re-appointment at the forthcoming Annual General Meeting.
ON BEHALF OF THE BOARD
Dominic White
Director
9 November 2018
15
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF KCR RESIDENTIAL REIT plc
for the year ended 30 June 2018
Our opinion
We have audited the financial statements of KCR Residential REIT plc (the “Parent Company”) and its subsidiaries (the “Group”)
for the year ended 30 June 2018, which comprise:
•
•
•
•
•
the consolidated statement of comprehensive income;
the consolidated and company statements of financial position;
the consolidated and company statements of changes in equity;
the consolidated and company cash flow statements; and
the notes to the financial statements, which include a summary of significant accounting policies and other explanatory
information.
The financial reporting framework that has been applied in the preparation of the Group and Parent Company financial statements
is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union.
In our opinion, the Group financial statements (“the financial statements”):
•
•
•
give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 June 2018 and of the Group’s
loss for the year then ended;
have been properly prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European
Union; and
have been prepared in accordance with the requirements 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 in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including 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 believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in which ISAs (UK) require us to report to you where:
•
•
the directors’ use of the going-concern basis of accounting in the preparation of the financial statements is not appropriate, or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
about the Group or the Parent Company’s ability to continue to adopt the going-concern basis of accounting for a period of at
least twelve months from the date when the financial statements are authorised for issue.
16
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) we identified, including 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.
Valuation of investment properties
The Group owns investment properties which comprise properties held for capital appreciation, rental income or both. Investment
properties are valued on acquisition by independent external valuers and then revalued by the directors or independent valuers
annually thereafter. The Group’s investment property portfolio is valued at £26.7m at the year-end. Due to the uncertainty of the
property market, there is a risk that the properties are incorrectly valued.
In this area, our audit procedures included:
•
•
Independent external valuations were carried out for £20.4 million of the total investment property value within four months
of the year end. For these valuations, an assessment of the valuers’ qualifications, expertise and independence was performed
to assess that these were appropriate for the work carried out.
For the directors’ valuations of £6.3 million, we have reviewed the qualifications and expertise of the individual assigned to
undertake the valuations to assess that these are appropriate for the work carried out. We have also reviewed these in relation
to the most recent independent external valuations.
• Where appropriate, investment property values have been compared with those in similar areas, to an external source.
Completeness of revenue
Revenue of the Group was derived mainly from its principal activity, being the letting to third parties, and management, of property
assets owned by the Group. This income includes rental income, management fees and sales commissions. There is a risk that
revenue is received and not recorded and, therefore, a potential risk in terms of the completeness of the revenue being recognised.
Our approach to the audit of revenue was as follows:
• We reviewed rental contracts and compared the total rental income expected per the contract to the rental income received
as per the accounting records to agree that this is in line with expectations.
• Management fee income has been reconciled to expected charges.
•
Sales commission income has been verified to commission rates charged on the sale of properties.
17
Our application of materiality
We set certain thresholds for materiality. These help us to establish transactions and misstatements that are significant to the
financial statements as a whole, to determine the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements, both individually on balances and on the financial statements as a whole.
In establishing the audit strategy, it was determined that the level of uncorrected misstatements judged to be material for the
financial statements and our Group audit overall would be £395,717, approximately 1.5 per cent of gross assets. Our materiality
for each subsidiary was also based on 1.5 per cent of gross assets. This is the threshold above which missing or incorrect information
in financial statements is considered to have an impact on the decision-making of users.
We reported to the Audit and Risk Committee all potential adjustments in excess of £19,786, being five per cent of the materiality
for the financial statements as a whole.
An overview of the scope of our audit
The Group operated through two trading subsidiary undertakings which were considered to be significant components for the
purposes of the Group financial statements. The financial statements consolidate these entities together with a non-trading subsidiary
undertaking, two trading subsidiary undertakings that were purchased at the end of June 2018 and one that was incorporated at
the end of June 2018. In establishing our overall approach to the Group audit, we determined the type of work that needed to be
performed in respect of each subsidiary. This consisted of us carrying out a full audit of the two trading subsidiaries as well as the
Parent Company and carrying out certain procedures on the other companies to a component or Group materiality.
We have designed our audit approach to identify possible fraud in relation to the associated fraud risk of the Group. We consider
the most likely areas where fraud might arise to be within the valuation of investment property and revenue recognition; our
approach to these areas has been addressed within the key audit matters section.
Other 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. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise explicitly stated in this 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 the other
information, we are required to report that fact.
We have nothing to report in this regard.
18
Opinion on other matters prescribed by 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.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Parent Company and its environment obtained in the course of the audit,
we have not identified material misstatements in the strategic report or the report of the directors.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
•
•
•
adequate accounting records have not been kept, 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; or
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities, set out on page 15, 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 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 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 aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
19
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
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.
Paul Fenner, Senior Statutory Auditor
For and on behalf of Moore Stephens LLP,
Chartered Accountants and Statutory Auditor
150 Aldersgate Street
London EC1A 4AB
9 November 2018
20
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2018
30 June 2018 30 June 2017
Notes £ £
CONTINUING OPERATIONS
Revenue 3 265,936 514,746
Cost of sales (191,420) (110,544)
GROSS PROFIT 74,516 404,202
Administrative expenses (1,317,971) (1,157,098)
Revaluation of investment properties 12 1,235,377 116,000
OPERATING LOSS BEFORE SEPARATELY DISCLOSED ITEMS (8,078) (636,896)
Separately disclosed administrative items
Gain on bargain purchase 13 2,201,639 –
Share-based payment charge 19 (950,188) (392,319)
Costs of acquisition of subsidiaries 6 (318,295) –
Costs associated with third-party fundraising 6 (673,999) –
OPERATING PROFIT/(LOSS) 251,079 (1,029,215)
Finance costs 5 (325,688) (195,361)
Finance income 5 7,035 5
LOSS BEFORE TAXATION 6 (67,574) (1,224,571)
Taxation 7 – –
LOSS FOR THE YEAR (67,574) (1,224,571)
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR (67,574) (1,224,571)
Loss attributable to owners of the Parent Company (67,574) (1,224,571)
Loss per share expressed in pence per share 8
Basic (1.02) (24.76)
Diluted (1.02) (24.76)
The notes form part of these financial statements
21
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 June 2018
30 June 2018 30 June 2017
Notes £ £
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 38,993 1,843
Investment properties 12 26,695,000 7,242,000
26,733,993 7,243,843
CURRENT ASSETS
Trade and other receivables 14 703,427 90,777
Cash and cash equivalents 15 6,425 1,023,752
709,852 1,114,529
TOTAL ASSETS 27,443,845 8,358,372
EQUITY
SHAREHOLDERS’ EQUITY
Share capital 16 1,435,721 877,518
Share premium 7,358,244 4,660,322
Capital redemption reserve 67,500 67,500
Other reserves 29,862 –
Retained earnings (200,565) (1,083,179)
TOTAL EQUITY 8,690,762 4,522,161
LIABILITIES
NON-CURRENT LIABILITIES
Financial liabilities – borrowings
Interest-bearing loans and borrowings 18 8,749,702 1,560,756
CURRENT LIABILITIES
Trade and other payables 17 8,332,548 194,147
Financial liabilities – borrowings
Interest-bearing loans and borrowings 18 1,670,833 31,308
Other loans 18 – 2,050,000
10,003,381 2,275,455
TOTAL LIABILITIES 18,753,083 3,836,211
TOTAL EQUITY AND LIABILITIES 27,443,845 8,358,372
Net asset value per share (pence) 88.17 85.73
The financial statements were approved and authorised for issue by the Board of Directors on 9 November 2018 and were signed
on its behalf by:
James Cane
Director
The notes form part of these financial statements
22
COMPANY STATEMENT OF FINANCIAL POSITION
at 30 June 2018
30 June 2018 30 June 2017
Notes £ £
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 3,984 1,676
Investments 13 11,768,563 5,305,000
11,772,547 5,306,676
CURRENT ASSETS
Trade and other receivables 14 919,064 27,496
Cash and cash equivalents 15 77 989,583
919,141 1,017,079
TOTAL ASSETS 12, 691,688 6,323,755
EQUITY
SHAREHOLDERS’ EQUITY
Share capital 16 1,435,721 877,518
Share premium 7,358,244 4,660,322
Capital redemption reserve 67,500 67,500
Other reserves 29,862 –
Retained earnings (5,750,210) (3,292,562)
TOTAL EQUITY 3,141,117 2,312,778
LIABILITIES
NON-CURRENT LIABILITIES
Financial liabilities – borrowings
Interest-bearing loans and borrowings 18 5,558,770 1,560,756
CURRENT LIABILITIES
Trade and other payables 17 2,370,174 368,913
Financial liabilities – borrowings
Interest-bearing loans and borrowings 18 1,621,627 31,308
Other loans 18 – 2,050,000
3,991801 2,450,221
TOTAL LIABILITIES 9,550,571 4,010,977
TOTAL EQUITY AND LIABILITIES 12,691,688 6,323,755
As permitted by Section 408 of the Companies Act 2006, the statement of comprehensive income of the Company is not presented
as part of these financial statements. The Company’s loss for the financial year was £(3,407,836) (2017 – £(1,591,032)).
The financial statements were approved and authorised for issue by the Board of Directors on 9 November 2018 and were signed
on its behalf by:
James Cane
Director
The notes form part of these financial statements
23
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2018
Capital
Share redemption Other Retained Total
Share capital premium reserve reserve earnings equity
£ £ £ £ £ £
Balance at 1 July 2016 467,856 4,120,984 67,500 – (250,927) 4,405,413
Changes in equity
Total comprehensive expense – – – – (1,224,571) (1,224,571)
– – – – (1,224,571) (1,224,571)
Transactions with owners in
their capacity as owners
Issue of share capital 409,662 539,338 – – – 949,000
Share-based payments – – – – 392,319 392,319
409,662 539,338 – – 392,319 1,341,319
Balance at 30 June 2017 877,518 4,660,322 67,500 – (1,083,179) 4,522,161
Changes in equity
Total comprehensive expense – – – – (67,574) (67,574)
– – – – (67,574) (67,574)
Transactions with owners in
their capacity as owners
Issue of share capital 558,203 2,697,922 – – – 3,256,125
Share-based payments – – – – 950,188 950,188
Equity element of loan finance – – – 29,862 – 29,862
558,203 2,697,922 – 29,862 950,188 4,236,175
Balance at 30 June 2018 1,435,721 7,358,244 67,500 29,862 (200,565) 8,690,762
The notes form part of these financial statements
24
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2018
Capital
Share redemption Other Retained Total
Share capital premium reserve reserve earnings equity
£ £ £ £ £ £
Balance at 1 July 2016 467,856 4,120,984 67,500 – (2,093,849) 2,562,491
Changes in equity
Total comprehensive expense – – – – (1,591,032) (1,591,032)
– – – – (1,591,032) (1,591,032)
Transactions with owners in
their capacity as owners
Issue of share capital 409,662 539,338 – – – 949,000
Share-based payments – – – – 392,319 392,319
409,662 539,338 – – 392,319 1,341,319
Balance at 30 June 2017 877,518 4,660,322 67,500 – (3,292,562) 2,312,778
Changes in equity
Total comprehensive expense – – – – (3,407,836) (3,407,836)
– – – – (3,407,836) (3,407,836)
Transactions with owners in
their capacity as owners
Issue of share capital 558,203 2,697,922 – – – 3,256,125
Share-based payments – – – – 950,188 950,188
Equity element of loan finance – – – 29,862 – 29,862
558,203 2,697,922 – 29,862 950,188 4,236,175
Balance at 30 June 2018 1,435,721 7,358,244 67,500 29,862 (5,750,210) 3,141,117
The notes form part of these financial statements
25
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2018
2018 2017
£ £
Cash flows from operating activities
Cash generated used in operations (2,094,859) (902,338)
Interest paid (325,688) (195,361)
Net cash used in operating activities (2,420,547) (1,097,699)
Cash flows from investing activities
Acquisition of subsidiaries (5,278,164) –
Purchase of tangible fixed assets (43,515) –
Purchase of investment properties (2,046,594) –
Interest received 7,035 5
Net cash (used in) / generated from investing activities (7,361,238) 5
Cash flows from financing activities
Loan repayments in year (1,131,525) (28,204)
New loans in year 7,739,858 950,000
Shares issued 2,156,125 949,000
Net cash generated from financing activities 8,764,458 1,870,796
(Decrease)/increase in cash and cash equivalents (1,017,327) 773,102
Cash and cash equivalents at beginning of year 1,023,752 250,650
Cash and cash equivalents at end of year 6,425 1,023,752
The notes form part of these financial statements
26
COMPANY STATEMENT OF CASH FLOWS
for the year ended 30 June 2018
2018 2017
£ £
Cash flows from operating activities
Cash used in operations (2,222,618) (920,558)
Interest paid (316,544) (194,149)
Net cash used in operating activities (2,539,162) (1,114,707)
Cash flows from investing activities
Purchase of tangible fixed assets (3,519) –
Purchase of subsidiary undertakings (5,278,164) –
Interest received 7,019 –
Net cash used in investing activities (5,274,664) –
Cash flows from financing activities
Loan repayments in year (1,131,525) (28,204)
New loans in year 5,799,720 950,000
Shares issued 2,156,125 949,000
Net cash generated from financing activities 6,824,320 1,870,796
(Decrease)/increase in cash and cash equivalents (989,506) 756,089
Cash and cash equivalents at beginning of year 989,583 233,494
Cash and cash equivalents at end of year 77 989,583
The notes form part of these financial statements
27
NOTES TO THE STATEMENTS OF CASH FLOWS
for the year ended 30 June 2018
RECONCILIATION OF LOSS BEFORE TAXATION TO CASH USED IN OPERATIONS
2018 2017
Group £ £
Loss before taxation (67,574) (1,224,571)
Depreciation charges 6,365 887
Revaluation of investment properties (1,235,377) (116,000)
Gain on bargain purchase (2,201,639) –
Share-based payment charge 950,188 392,319
Finance costs 325,688 195,361
Finance income (7,035) (5)
(2,229,384) (752,009)
Increase in trade and other receivables (590,502) (66,516)
Increase/(decrease) in trade and other payables 725,027 (83,813)
Cash generated used in operations (2,094,859) (902,338)
2018 2017
Company £ £
Loss before taxation (3,407,836) (1,591,032)
Depreciation charges 1,211 754
Impairment of investments 75,000 –
Share-based payment charge 950,188 392,319
Finance costs 316,544 194,149
Finance income (7,019) –
(2,071,912) (1,003,810)
Increase in trade and other receivables (891,568) (24,741)
Increase in trade and other payables 740,862 107,993
Cash used in operations (2,222,618) (920,558)
The notes form part of these financial statements
28
RECONCILIATION OF MOVEMENT IN BORROWINGS WITHIN FINANCING ACTIVITIES
Long-term Short-term
borrowing borrowing Total
Group £ £ £
Balance at 1 July 2016 2,690,108 30,160 2,720,268
Cash flow movements
New borrowing – 950,000 950,000
Loan repayments – (28,204) (28,204)
Non-cash changes
Reclassification (1,129,352) 1,129,352 –
Balance at 30 June 2017 1,560,756 2,081,308 3,642,064
Cash flow movements
New borrowing 6,118,014 1,621,844 7,739,858
Loan repayments – (1,131,525) (1,131,525)
Non-cash changes
Acquisitions 1,250,794 49,206 1,300,000
Convertible loan notes converted (179,862) (950,000) (1,129,862)
Balance at 30 June 2018 8,749,702 1,670,833 10,420,535
Long-term Short-term
borrowing borrowing Total
Company £ £ £
Balance at 1 July 2016 2,690,108 30,160 2,720,268
Cash flow movements
New borrowing – 950,000 950,000
Loan repayments – (28,204) (28,204)
Non-cash changes
Reclassification (1,129,352) 1,129,352 –
Balance at 30 June 2017 1,560,756 2,081,308 3,642,064
Cash flow movements
New borrowing 4,177,876 1,621,844 5,799,720
Loan repayments – (1,131,525) (1,131,525)
Non-cash changes
Convertible loan notes converted (179,862) (950,000) (1,129,862)
Balance at 30 June 2018 5,558,770 1,621,627 7,180,397
The notes form part of these financial statements
29
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
1. Presentation of financial statements
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board and as adopted by the European Union.
Functional and presentation currency
These consolidated financial statements are presented in Pounds Sterling ('GBP'), which is considered by the directors to be
the functional currency of the Group.
New standards and interpretations not yet adopted
As at 30 June 2018, certain standards and interpretations were in issue by the EU but not yet effective.
The directors do not anticipate that the adoption of these revised standards and interpretations will have a significant impact
on the figures included in the financial statements in the period of initial application other than the following:
IFRS 9 Financial Instruments
The standard makes substantial changes to the measurement of financial assets and financial liabilities. There will only be three
categories of financial assets, whereby financial assets are recognised at either fair value through profit and loss, fair value
through other comprehensive income or measured at amortised cost. On adoption of the standard, the Group will have to
re-determine the classification of its financial assets based on the business model for each category of financial asset. This is
not considered likely to give rise to any significant adjustments other than reclassifications.
The standard is effective for periods beginning on or after 1 January 2018.
IFRS 15 – Revenue from contracts with customers
The standard has been developed to provide a comprehensive set of principles in presenting the nature, amount, timing and
uncertainty of revenue and cash flows arising from a contract with a customer. The standard is based around five steps in
recognising revenue:
1.
2.
Identify the contract with the customer;
Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price; and
5.
Recognise revenue when a performance obligation is satisfied.
On application of the standard, the disclosures are likely to increase. The standard includes principles on disclosing the nature,
amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, by providing qualitative and
quantitative information.
The standard is effective for periods beginning on or after 1 January 2018.
30
1. Presentation of financial statements (continued)
IFRS 16 Leases
The standard has been developed to provide information to the users of the financial statements on the lease transactions
undertaken by the entity, in order for them to assess the amount, timing and uncertainty of cash flows arising from leases.
The standard is effective for periods beginning on or after 1 January 2019.
On application of the standard, the Group will be required to recognise assets and liabilities for all leases with a term of more
than 12 months, unless the underlying asset is of low value. At present, the directors consider that there will only be limited
further disclosure required.
2. Accounting policies
Basis of preparation
The consolidated financial statements have been prepared on the historical cost basis except for investment properties that
are held at fair value.
Going concern
After preparing detailed forecasts including the raising of new funds, the directors have formed a judgment that, as at the date
of approving the financial statements, there is reasonable expectation that the Group has adequate resources to continue in
operational existence in the foreseeable future.
For this reason, the directors have adopted the going-concern basis in preparing the financial statements. The directors believe
that the Company and the Group will be able to meet its liabilities as they fall due.
Basis of consolidation
The financial statements include the financial statements of the Company and its subsidiary undertakings. The subsidiaries
included in the consolidated financial statements, from the effective dates of acquisition, are K&C (Newbury) Limited, K&C
(Coleherne) Limited, K&C (Osprey) Limited, KCR (Kite) Limited, KCR (Cygnet) Limited and KCR (Southampton) Limited.
Both KCR (Kite) Limited and KCR (Cygnet) Limited were acquired in the current financial year. Further details are shown in
note 13. KCR (Southampton) Limited was incorporated on 26 June 2018 and its first accounting reference date will be
30 June 2019.
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which
control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to
obtain benefit from its activities. In assessing control, the Group takes into consideration potential voting rights that currently
are exercisable.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection
with a business combination are expensed as incurred.
31
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
2. Accounting policies (continued)
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are
eliminated in preparing consolidated financial statements.
Investments
Investments in subsidiaries are valued at cost less provision for impairment.
Revenue recognition
Rental income from operating leases is recognised on an accruals basis. Rental income received in advance is recognised in
deferred income.
Revenue of the Group for the year was derived mainly from its principal activity, being the letting to third parties, and
management, of property assets owned by the Group. This income includes rental income (recognised as explained above),
management fees (also recognised on an accruals basis) and sales commissions (recognised on completion of the transaction).
Also included within income is management fee income derived from the management of property assets owned by
third parties.
Separately disclosed administrative items
Separately disclosed exceptional items are those that are deemed to be exceptional by size or nature in relation to the activities
of the Group. In the case of share-based payment charges, these are included as a separately disclosed administrative item as
a significant non-cash item.
Finance costs
Finance costs comprise interest expense on borrowings.
Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are
recognised in profit or loss using the effective interest method.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life.
Fixtures, fittings and IT equipment
–
5% and 25% on cost
Investment properties
Investment properties comprise properties owned by the Group which are held for capital appreciation, rental income or
both. Investment properties are initially measured at cost, including expenditure that is directly attributable to the acquisition
of the asset. Investment properties are revalued on acquisition by independent external valuers and then by the directors or
independent valuers annually thereafter. Acquisitions and disposals are recognised when the risks and rewards of ownership
are transferred. Any gain or loss arising from a change in fair value is recognised in profit or loss.
32
2. Accounting policies (continued)
Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure
will flow to the Group. Ongoing repairs and maintenance are expensed as incurred.
Impairment
i. Financial assets
A financial asset not classified as at fair value through profit or loss is assessed at each reporting date to determine whether
there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the asset, and that event had an impact on the
estimated future cash flows of that asset that can be estimated reliably.
ii. Financial assets measured at amortised cost
The Group considers evidence of impairment for financial assets measured at amortised cost (loans and receivables) at both
a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to
be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets
that are not individually significant are collectively assessed for impairment by grouping together assets with similar
risk characteristics.
In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries and
the amount of loss incurred, adjusted for management's judgment as to whether current economic and credit conditions are
such that the actual losses are likely to be greater or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate.
Losses are recognised in profit or loss and reflected in an allowance against loans and receivables. Interest on the impaired
asset continues to be recognised. When an event occurring after the impairment was recognised that causes the amount of
impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
iii. Non-financial assets
The carrying amounts of the Group's non-financial assets are reviewed at each reporting date to determine whether there is
any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. Goodwill and indefinite-
lived intangible assets are tested annually for impairment or when there is an indication of impairment. An impairment loss is
recognised if the carrying amount of an asset exceeds its recoverable amount.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current
market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, the
assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely
independent of the cash inflows of other assets.
Impairment losses are recognised in profit or loss.
33
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
2. Accounting policies (continued)
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent
that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortisation, if no impairment loss has been recognised.
Financial instruments
i. Non-derivative financial assets
The Group initially recognises loans and receivables on the date that they are originated. All other financial assets are recognised
initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers
the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership
of the financial assets are transferred.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position only when the
Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the
liability simultaneously.
The Group's non-derivative financial assets comprise loans and receivables.
ii. Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such
assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition,
loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.
Loans and receivables comprise trade and other receivables.
iii. Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and cash balances.
iv. Non-derivative financial liabilities
The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other
financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual
provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.
The Group classifies non-derivative financial liabilities into the ‘other financial liabilities’ category. Such financial liabilities are
recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial
liabilities are measured at amortised cost using the effective interest method.
Other financial liabilities comprise trade and other payables.
34
2. Accounting policies (continued)
v. Share capital
Ordinary shares are classified as equity. Costs directly attributable to the issue of ordinary shares are recognised as a deduction
from equity.
Taxation
Tax expense comprises current and deferred tax. Current and deferred tax is recognised in profit or loss except to the extent
that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. As a real
estate investment trust (“REIT"), the Group is generally not liable to corporation tax.
Deferred tax would be recognised in respect of temporary difference between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is recognised for:
•
•
•
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination
and that affects neither the accounting nor taxable profit or loss;
temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable
that they will not reverse in the foreseeable future; and
taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using
tax rates enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and
they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to
settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that
it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed
at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.
35
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
2. Accounting policies (continued)
Share-based payments
The Group allows certain individuals to acquire shares in the parent company via share-based payment schemes. The grant-date
fair value of share-based payment awards granted is recognised as an employee expense, with a corresponding increase in
equity, over the period that the employees become unconditionally entitled to the awards. The fair value of the options granted
is measured using an option pricing model, taking into account the terms and conditions upon which the options were granted.
The fair value will be charged as an expense in the income statement over the vesting period and the charge is adjusted each
year to reflect the expected and actual level of vesting. No adjustment is made to the charge after the vesting date.
Employee benefit costs
The Group operates a defined-contribution pension plan for certain employees. A defined-contribution plan is a post-
employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or
constructive obligation to pay further amounts. Obligations for contributions payable to the defined-contribution pension
plan are recognised as an employee benefit expense in the statement of comprehensive income in the periods during which
services are rendered by employees.
Critical accounting estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities,
income, and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimates are revised and in any future years affected.
Information about critical estimates and assumptions that have the most significant effect on the amounts recognised in the
consolidated financial statements and/or have a significant risk of resulting in a material adjustment within the next financial
year is as follows:
Investment properties and the determination of their value
The Group's investment properties are valued at £26,695,000.
Several of the Group's accounting policies and disclosures require the determination of fair value, for both financial and
non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based
on the following methods. When applicable, further information about the assumptions made in determining fair values
is disclosed in the notes specific to that asset or liability.
The fair value of investment properties is based either on independent professional valuations in accordance with the
Royal Institution of Chartered Surveyors’ Appraisal and Valuation Standards 2014 as amended or by the directors, based
on market prices for similar items. The Group's investment properties are valued on acquisition by independent external
valuers and then by the directors or independent valuers annually thereafter.
36
2. Accounting policies (continued)
The directors are of the opinion that the estimates and assumptions that they have used in the valuation of investment
properties are appropriate.
Share-based payments
The total amount to be expensed is determined by reference to the fair value of the options granted. In arriving at the
charge for the period, assumptions are made on the number of option likely to be exercised, the current market value of
the shares and the volatility of the market value of the shares.
3. Revenue
The Group is involved in UK property ownership, management and letting. The directors consider that the Group operates
in a single geographical and business segment.
The total revenue of the Group for the year was derived from its principal activities, being the letting to third parties, and
management, of property assets owned by the Group, and, in certain cases, the management of property assets owned by
third parties.
4. Employees and directors
The loss before taxation is stated after charging:
2018 2017
£ £
Wages and salaries 455,118 276,538
Social security costs 45,681 17,431
Pension costs 106,157 599
606,956 294,568
The average monthly number of employees during the year was as follows
Directors and management 7 7
Administration 2 2
9 9
37
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
4. Employees and directors (continued)
£ £
Directors' remuneration 321,000 132,375
Remuneration of the highest-paid director 151,000 44,500
Amount paid into a pension scheme of the highest-paid director 100,000 –
Number of directors accruing benefits under money-purchase schemes – –
The directors are considered to be key management personnel.
Certain directors and others have also subscribed for Restricted Preference shares in the Company, further details of which
are contained in note 19 of the financial statements.
5. Finance income and costs
2018 2017
£ £
Finance costs
Loan interest 325,688 195,361
Finance income
Bank interest 7,035 5
6. Loss before taxation
The loss before taxation is stated after charging:
2018 2017
£ £
Hire of plant and machinery 2,034 2,018
Other operating leases 13,140 12,840
Depreciation – owned assets 6,365 887
Auditors' remuneration for the Group – audit services for Parent Company 44,100 24,000
(inclusive of irrecoverable VAT) – audit services for subsidiaries 15,000 18,000
– taxation advisory services 13,560 14,200
– abortive corporate finance services 150,106 –
Separately disclosed items
During the year, the Group incurred significant costs relating to third-party fundraising, which totalled £673,999. It is considered
that the size and nature of these costs are such that they should be disclosed on the face of the Consolidated Statement of
Comprehensive Income.
38
6. Loss before taxation (continued)
On 29 June 2018, the Group acquired KCR (Kite) Limited and KCR (Cygnet) Limited. The costs to the Group of acquiring
these entities totalled £318,295. It is considered that the size and nature of these costs are such that they should be disclosed
on the face of the Consolidated Statement of Comprehensive Income.
Further information on the gain on bargain purchase and the share-based payments, which are shown on the face of the
Consolidated Statement of Comprehensive Income, can be found in note 13 and note 19 respectively.
7. Taxation
Analysis of tax
2018 2017
Current tax £ £
UK corporation tax – –
Deferred tax – –
Total tax – –
Factors affecting the tax expense
The tax assessed for the year is higher than the standard rate of corporation tax in the UK. The difference is explained below:
2018 2017
£ £
Loss on ordinary activities before taxation (67,574) (1,224,571)
Loss on ordinary activities multiplied by the standard rate of
corporation tax in the UK of 19% (2017 – 19.75%) (12,839) (241,853)
Effects of
Losses not subject to taxation due to REIT status 12,839 241,853
Tax credit – –
8. Loss per share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the year.
Fully diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion
of all dilutive potential ordinary shares.
In the opinion of the directors, all the outstanding share options are anti-dilutive and, hence, basic and fully diluted loss per
share are the same.
39
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
8. Loss per share (continued)
2018
Weighted
average number Per share
Loss of shares amount
£ No Pence
Loss attributable to ordinary shareholders (67,574) 6,598,018 (1.02)
2017
Weighted
average number Per share
Loss of shares amount
£ No Pence
Loss attributable to ordinary shareholders (1,224,571) 49,455,237 (2.48)
During the year, the Ordinary Shares each of nominal value 1p were consolidated into Ordinary Shares each of nominal value
10p. If the share consolidation had taken place at 30 June 2017, the loss per share would have been £0.25.
2017
(as if the share consolidation had taken place at 30 June 2017)
Weighted
average number Per share
Loss of shares amount
£ No Pence
Loss attributable to ordinary shareholders (1,224,571) 4,945,523 (24.76)
The net asset value per share of 88.17 pence (2017 – 85.73 pence) is calculated based on the number of Ordinary shares in
issue at the year-end. At the year-end, there were 9,857,207 Ordinary shares in issue (2017 – 5,275,181 (52,751,813
pre-consolidation)).
40
9. Future minimum lease payments receivable
The Group leases residential units within certain of its investment properties under operating leases. The future minimum
lease payments receivable under non-cancellable leases are as follows:
30 June 30 June
2018 2017
£ £
Within one year 253,551 13,367
Between one and five years 572,386 84,125
More than five years 1,193,517 –
Total 2,019,454 97,492
Lease revenue is generated from properties owned by K&C (Coleherne) Limited and KCR (Kite) Limited that are let on
short-term tenancy agreements and KCR (Cygnet) Limited, which owns properties let on longer-terms leases.
10. Leasing agreements
Minimum lease payments, under non-cancellable operating leases, fall due as follows:
30 June 30 June
2018 2017
£ £
Within one year 21,758 10,740
41
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
11. Property, plant and equipment
Fixtures,
fittings &
computer
equipment
Group £
COST
At 1 July 2017 5,596
Additions 43,515
At 30 June 2018 49,111
DEPRECIATION
At 1 July 2017 3,753
Charge for year 6,365
At 30 June 2018 10,118
NET BOOK VALUE
At 30 June 2018 38,993
At 30 June 2017 1,843
Fixtures,
fittings &
computer
equipment
Company £
COST
At 1 July 2017 3,017
Additions 3,519
At 30 June 2018 6,536
DEPRECIATION
At 1 July 2017 1,341
Charge for year 1,211
At 30 June 2018 2,552
NET BOOK VALUE
At 30 June 2018 3,984
At 30 June 2017 1,676
42
12. Investment properties
Total
Group £
COST
At 1 July 2017 7,242,000
Additions 18,217,623
Revaluations 1,235,377
At 30 June 2018 26,695,000
NET BOOK VALUE
At 30 June 2018 26,695,000
At 30 June 2017 7,242,000
The investment properties acquired in the year that are owned by KCR (Kite) Limited and KCR (Cygnet) Limited were
procured upon acquisition of subsidiaries. These properties were valued by professionally qualified independent external
valuers (Lambert Smith Hampton) at the date of acquisition and were recorded at the values that were attributed to the
properties at acquisition date. These properties are included in the financial statements at amounts based upon these valuations.
In July 2018, certain properties were valued again by professionally qualified independent external valuers (Lambert Smith
Hampton and Harding Green) in accordance with the Royal Institution of Chartered Surveyors’ Appraisal and Valuation
Standards 2014 as amended.
In total, 77 per cent by value of the investment properties were independently valued at, or within, three months of the year-
end. The remaining properties were valued by the directors at the same valuations as at 30 June 2017. The total valuation of
the Group’s portfolio was £26,695,000. The fair values used are considered to be level 3 inputs under IFRS13.
The revenue earned by the Group from its investment properties and all direct operating expenses incurred on its investment
properties are recorded in the Consolidated Statement of Comprehensive Income.
The total rental income in relation to investment properties for the Group equated to £133,001 (2017 – £154,903). The total
rental expenses in relation to investment properties for the Group equated to £50,122 (2017 – £53,101).
43
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
13. Investments
Shares in group
undertakings
Company £
COST
At 1 July 2017 5,305,000
Additions 6,538,563
Impairment (75,000)
At 30 June 2018 11,768,563
NET BOOK VALUE
At 30 June 2018 11, 768,563
At 30 June 2017 5,305,000
44
13. Investments (continued)
The Company's investments comprise the following:
Holding
Subsidiaries %
K&C (Coleherne) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
K&C (Osprey) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting and property management Ordinary
K&C (Newbury) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting (the company currently owns no property assets), Ordinary
dormant (the valuation of the company was reduced to nil
during the year)
K&C REIT Limited, previously known as Newton Horner Registered office: UK
Property Limited and then KCR Residential REIT Limited 100.00
(subsidiary of K&C (Osprey) Limited)
Nature of business Class of shares
Dormant Ordinary
KCR (Kite) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
KCR (Cygnet) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
KCR (Southampton) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
45
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
13. Investments (continued)
Acquisition of KCR (Kite) Limited
On 29 June 2018, the Company acquired the entire issued share capital of KCR (Kite) Limited for £5,276,964, satisfied by cash.
In the director’s opinion, reinforced by an independent valuation of the properties acquired by Lambert Smith Hampton, the
net assets of KCR (Kite) Limited were worth in excess of the amount paid and hence gave rise to gain on bargain purchase.
As the company was acquired on the last business day of the financial year, the Group earned no revenue from it during the
financial year to 30 June 2018.
Net assets acquired were as follows: £
Investment property 7,300,000
Trade and other receivables 22,148
Trade and other payables (33,686)
Taxation payable (48,360)
Net assets 7,240,102
Gain on bargain purchase – taken to Statement of Comprehensive Income (1,963,138)
Total Consideration 5,276,964
Satisfied by cash 5,276,964
Net cash outflow arising on acquisition:
Cash consideration (5,276,964)
(5,276,964)
Acquisition of KCR (Cygnet) Limited
On 29 June 2018, the Company acquired the entire issued share capital of KCR (Cygnet) Limited for total consideration of
£1,261,499, satisfied by cash of £1,200 and the issuance of ordinary shares to the value of £1,260,299 on 30 July 2018. In the
director's opinion, reinforced by an independent valuation of the properties acquired by Lambert Smith Hampton, the net
assets of KCR (Cygnet) Limited were worth in excess of the amount paid and hence gave rise to gain on bargain purchase.
Net assets acquired were as follows: £
Investment property 2,800,000
Bank loans (1,300,000)
Net assets 1,500,000
Gain on bargain purchase – taken to Statement of Comprehensive Income (238,501)
Total consideration 1,261,499
Satisfied by cash 1,200
Net cash outflow arising on acquisition:
Cash consideration (1,200)
(1,200)
46
13. Investments (continued)
As the company was acquired on the last business day of the financial year, the Group earned no revenue from it during the
financial year to 30 June 2018.
Full-year impact of acquisitions
If these two companies had been acquired by the Group on 1 July 2017 (as opposed to 29 June 2018), the directors estimate,
using several assumptions, that the revenue of the Group would have increased to £596,201 (actual – £265,936) and the
operating profit to £398,350 (actual – £181,353).
14. Trade and other receivables
Group Company
2018 2017 2018 2017
£ £ £ £
Trade receivables 70 960 – –
Amounts owed by group undertakings – – 263,980 –
Other receivables 634,045 63,334 594,293 5,918
VAT 1,336 427 – –
Prepayments 67,976 26,056 60,791 21,578
703,427 90,777 919,064 27,496
The Group and Company's exposure to credit risk is disclosed in note 20.
There is no material difference between the fair value of trade and other receivables and their book value.
Amounts owed by group undertakings are repayable on demand.
Other receivables include a loan to a third party of £494,100 carrying interest at 7.5 per cent, which was repaid on
12 September 2018.
15. Cash and cash equivalents
Group Company
2018 2017 2018 2017
£ £ £ £
Cash in hand 40 40 – –
Bank accounts 6,385 1,023,712 77 989,583
6,425 1,023,752 77 989,583
47
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
16. Share capital
30 June 30 June
Allotted, issued and fully paid 2018 2017
Number Class Nominal value £ £
9,857,207 Ordinary £0.10 985,721
52,751,813 Ordinary £0.01 527,518
4,500,000 Restricted Preference £0.10 450,000
35,000,000 Restricted Preference £0.01 350,000
1,435,721 877,518
At 1 July 2017, the Company had 52,751,813 Ordinary shares of £0.01 in issue and 35,000,000 Restricted preference shares
of £0.01 in issue. On 24 October 2017, the Company consolidated the shares into 5,275,182 Ordinary shares of £0.10 each
and 3,500,000 Restricted Preference shares of £0.10 each.
On 23 February 2018, the Company issued 74,889 Ordinary shares of £0.10 each. The shares were issued at par.
On 18 March 2018, the Company issued
1)
4,507,136 Ordinary shares of £0.10 each. The shares were issued at a premium of £0.60 per share.
2)
1,000,000 Restricted Preference shares of £0.10 each. The shares were issued at par.
The Restricted Preference shares carry no voting or dividend rights (see note 19).
1,571,427 of the Ordinary shares issued on 18 March 2018 were issued upon the conversion of convertible loan notes. The
effect of the conversion was to increase share capital by £157,143 and increase share premium by £942,856. No loan notes
were converted in the prior year.
On a winding up or a return of capital, the holders of the Restricted Preference shares shall rank pari passu with the holders
of the Ordinary shares save that, on a distribution of assets, the amount to be paid to the holder shall be limited to the nominal
capital paid up or credited as paid up.
48
17. Trade and other payables
Group Company
2018 2017 2018 2017
£ £ £ £
Trade creditors 618,321 76,006 618,321 74,770
Amounts owed to group undertakings – – 197,330 224,640
Corporation tax 48,360 – – –
Other taxes and social security 47,901 10,138 45,231 9,898
Other creditors 6,126,929 16,756 52,588 –
Unissued share capital 1,260,299 – 1,260,299 –
Accruals and deferred income 230,738 91,247 196,405 59,605
8,332,548 194,147 2,370,174 368,913
The Group's and Company's exposure to liquidity risk related to trade and other payables is disclosed in note 20.
There is no material difference between the fair value of trade and other payables and their book value.
Amounts owed to group undertakings are repayable on demand.
Other creditors include £6,038,317 owed on the purchase of the investment property within KCR (Southampton) Limited.
49
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
18. Financial liabilities – Borrowings
Group Company
2018 2017 2018 2017
£ £ £ £
Current
Bank overdraft 55,259 – 55,259 –
Bank loans 140,574 31,308 91,368 31,308
Other loans 1,475,000 2,050,000 1,475,000 2,050,000
1,670,833 2,081,308 1,621,627 2,081,308
Non-current
Bank loans 6,089,426 1,560,756 4,838,632 1,560,756
Other loans 2,660,276 – 720,138 –
8,749,702 1,560,756 5,558,770 1,560,756
.
Terms and debt repayment schedule
More than
30 June 2018 1 year or less 1-2 years 2-5 years 5 years Totals
Group £ £ £ £ £
Bank overdraft 55,259 – – – 55,259
Bank loans 140,574 145,469 1,505,150 4,438,807 6,230,000
Other loans 1,475,000 720,138 1,940,138 – 4,135,276
1,670,833 865,607 3,445,288 4,438,807 10,420,535
Company
Bank overdraft 55,259 – – – 55,259
Bank loans 91,368 94,681 305,144 4,438,807 4,930,000
Other loans 1,475,000 720,138 – – 2,195,138
1,621,627 814,819 305,144 4,438,807 7,180,397
50
18. Financial liabilities – Borrowings (continued)
More than
30 June 2017 1 year or less 1-2 years 2-5 years 5 years Totals
Group £ £ £ £ £
Bank loans 90,336 90,336 271,008 2,052,387 2,504,067
Other loans 2,050,000 – – – 2,050,000
2,140,336 90,336 271,008 2,052,387 4,554,067
Company
Bank loans 90,336 90,336 271,008 2,052,387 2,504,067
Other loans 2,050,000 – – – 2,050,000
2,140,336 90,336 271,008 2,052,387 4,554,067
Details of the principal loans are as follows:
1) At the start of the year, the Company had a 25-year bank loan of £1,592,064 repayable by 300 monthly instalments of
£7,528 and a final instalment of £418,811. The loan was secured by a first debenture over all assets and undertakings of
the Company, a cross-guarantee from K&C (Coleherne) Limited over the freehold property known as 25 Coleherne Road
and a debenture over the assets and undertakings of K&C (Coleherne) Limited. The loan was also secured by a pledge
of shares of K&C (Coleherne) Limited. On 29 June 2018, the Company carried out a refinancing and this loan was repaid.
2) On 29 June 2018, the Company took out a new 25-year bank loan of £4,930,000, repayable by 300 monthly instalments
of £22,145 and a final instalment of £1,239,328. The loan was secured by a first debenture over all assets and undertakings
of the Company, a first legal charge over the freehold properties known as 272 Ladbroke Grove, 282 Ladbroke Grove
and 284 Ladbroke Grove and the leasehold premises known as Flat 9 Lomond Court, and a cross-guarantee over the
aforementioned properties. The loan was also secured by a cross-guarantee from K&C (Coleherne) Limited over the
freehold property known as 25 Coleherne Road and a debenture over the assets and undertakings of K&C (Coleherne)
Limited. The loan was also secured by a pledge of shares of K&C (Coleherne) Limited and KCR (Kite) Limited. The rate
of interest applicable to the loan is three percentage points above the bank’s base rate.
3) A three-year loan of £1,995,000 was entered into during the year. £54,862 of the loan was retained by the lender. The
loan is repayable by 36 monthly instalments of £9,144 and a final instalment of £1,940,138. The monthly instalments are
interest payments and do not include any capital repayments. Interest is charged at 5.50 per cent. The loan is secured by
a fixed and floating charge over all the property and assets of K&C (Osprey) Limited, including the property known as
Heathside, 562 Finchley Road.
51
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
18. Financial liabilities – Borrowings (continued)
4) On 29 June 2018, the Group acquired KCR (Cygnet) Limited. On acquisition, the Group took over various assets and
liabilities of the subsidiary, which included a loan of £1,300,000 from Metro Bank plc. The loan is repayable in 59 monthly
instalments of £7,591 and a final instalment of £1,095,126. The loan is subject to an interest rate of 2.9 per cent above
the base lending rate of Metro Bank plc. The loan is secured by a first debenture over the assets and undertakings of
KCR (Cygnet) Limited and a first legal charge over the properties known as 400 Stanbridge Road, Leighton Buzzard and
Sainsbury’s, Drayton Garden Village.
5) On 24 June 2018, the Company entered into a new loan agreement with DGS Capital Partners LLP and others. The loan
was for £1,475,000 and is subject to an interest rate of 12 per cent per annum. The loan is to be repaid within 300 days
of the initial drawdown date of 29 June 2018, namely on or before 24 April 2019.
6) At the year-end, the Company had issued several six per cent convertible loan notes, the debt element of which totalled
£720,138. The convertible loan notes have a redemption date of 30 June 2020. As reported in note 22, £650,000 (at
nominal value) of the convertible loan notes were converted to Ordinary Shares at £0.70 per share on 30 July 2018.
19. Share-based payment transactions
During the year ended 30 June 2018, the Company had several share-based payment arrangements in place, which are
described below:
White
Non- executive Restricted Amba
share Preference share Founder Allenby
options shares options warrants warrants Warrants
Outstanding at 1 July 2017 460,000 35,000,000 10,000,000 750,000 437,856 1,500,000
Effect of consolidation of shares (414,000) (31,500,000) (9,000,000) (675,000) (394,070) (1,350,000)
(Exercised) and granted during the year – 1,000,000 (1,000,000) – – –
Cancelled during the year (46,000) – – (75,000) (43,786) (150,000)
Outstanding at 30 June 2018 – 4,500,000 – – – –
Non-executive share options:
Non-executive share options were granted to certain non-executive directors and others on admission to trading on AIM, or
subsequently, at £0.10 per share. During the year, the Company made the decision to simplify its share-incentive structure.
On 22 February 2018, the Company cancelled the Non-executive share options. The holders of the options were compensated
via the issue of 16,652 Ordinary shares.
52
19. Share-based payment transactions (continued)
Restricted Preference shares:
Restricted Preference shares have been granted to certain directors and other senior managers. Upon the achievement by
the Group of certain milestones, the Restricted Preference shares may be converted into Ordinary shares at £0.10 each. The
milestones and certain terms were amended after the year subsequent to the passing of a resolution at a general meeting held
on 30 July 2018. The changes, which are described in full in the circular dated 13 July 2018 on the Company’s website, include:
i.
ii.
An extension of the expiry date from 30 June 2022 to 30 June 2027;
Restricted Preference shares unvested at 30 June 2027 will automatically vest and convert on 1 July 2027 into
Ordinary shares;
iii. The ‘NAV per share’ milestone became an ‘NAV per share plus distributions paid’ milestone
iv. The achievement of any milestone will result in one-sixth of the total number of Restricted Preference shares held by the
individual, and
v.
The NAV per share element of each of the six milestones will be rebased to £0.77, £0.85, £0.93, £1.01, £1.09 and
£1.17 respectively.
White Amba share options:
Share options had been granted to a company owned by a director of KCR, to acquire 10,000,000 Restricted Preference
shares at £0.01 per share (post-share consolidation, 1,000,000 Restricted Preference shares at £0.10 per share). The share
options did not have any performance criteria attached to them and were available to be exercised at any time from the date
of grant to 30 June 2018. The options were exercised during the year.
Founder warrants
On 8 September 2014, warrants were issued to shareholders to subscribe for one Ordinary share at £0.10 per share at any
time before 31 December 2018. During the year, the Company made the decision to simplify its share incentive structure.
On 22 February 2018, the Company cancelled the Founder warrants. The holders of the warrants were compensated via the
issue of 23,850 Ordinary shares.
Allenby warrants
On admission to trading on AIM, the Company granted to Allenby Capital Limited a warrant to acquire Ordinary shares at
£0.10 per share, within five years of admission, namely by 3 July 2020. During the year, the Company made the decision to
simplify its share incentive structure. On 22 February 2018, the Company cancelled the Allenby warrants. The holders of the
warrants were compensated via the issue of 14,887 Ordinary shares.
53
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
19. Share-based payment transactions (continued)
Warrants
On 24 May 2016, warrants were issued to several potential lenders to the Company to subscribe for one Ordinary share at
£0.10 per share at any time before 24 May 2021. During the year, the Company made the decision to simplify its share incentive
structure. On 22 February 2018, the Company cancelled the warrants. The holders of the warrants were compensated via
the issue of 19,500 Ordinary shares.
The estimated fair value of each share option in issue at 1 July 2017 is as follows:
Non- White
executive Restricted Amba
share Preference share Founder Allenby
options shares options warrants warrant Warrants
Fair value of share option/ 0.0340 – 0.0691-
warrant(£) 0.0385 0.0787 0.0767 0.0318 0.0340 0.013
The fair values were estimated using the Black-Scholes valuation model. The Non-executive share options, Founder warrants,
Allenby warrant and Warrants were cancelled in the year. During the year, the White Amba share options were exercised and
the holder received 1,000,000 Restricted Preference shares.
The following table lists the inputs to the Black-Scholes model that was used to value the Restricted Preference shares, both
those in issue at 1 July 2017 and those issued in the year:
Restricted
Preference
shares
Share price at grant date (£) 0.08-0.09
Exercise price (£) 0.01
Dividend yield (%) 0.00
Expected volatility (%) 61.75 - 63.79
Risk-free interest rate (%) 0.88
Expected life of share options/warrants (years) 1.33 - 5.30
The expected lives of the share options and warrants are based on historical data and current expectations and are not
indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility of
comparator companies over the period similar to the life of the share options is indicative of future trends, which may not
necessarily be the actual outcome.
54
19. Share-based payment transactions (continued)
The expense recognised during the year is shown in the following table:
30 June 30 June
2018 2017
£ £
Expense arising from share options 10,325 198,482
Expenses arising from restricted preference shares 903,756 193,837
Expense arising from warrants 36,107 –
Total expense from share-based payments 950,188 392,319
The interests of directors and past directors in Non-Executive share options are as follows:
Balance at Consolidation Cancelled Balance at
30 June 2017 of shares in the year 30 June 2018
No. No. No. No.
George Rolls 460,000 (414,000) (46,000) –
The directors’ interests in Restricted Preference shares at the year-end can be seen in note 21 to the financial statements.
20. Financial risk management
The Company's directors have overall responsibility for the establishment and oversight of the Group's risk
management framework.
The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate
risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed
regularly to reflect the changes in market conditions and the Group's activities. The Group, through its training and management
standards and procedures, aims to develop a disciplined and constructive control environment in which all employees
understand their roles and obligations.
The Group has exposure to the following risks arising from financial instruments:
credit risk
liquidity risk
market risk
Capital risk management
The Group and Company's objective when managing capital is to safeguard its accumulated capital in order to provide an
adequate return to shareholders by maintaining a sufficient level of funds, in order to support continued operations.
The Group considers its capital to comprise equity capital less accumulated losses.
55
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
20. Financial risk management
The share premium reserve includes premiums received on the issue of share capital during the year.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations.
The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties
and customers.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk is as
reported in the statement of financial position.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as
possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Group's reputation.
The contractual maturities of financial liabilities are disclosed in note 18.
Market risk
Market risk is the risk that changes in market prices, such as interest rate and equity prices will affect the Group and the
Company's income or the value of its holdings of financial instruments. The objective of market risk management is to manage
and control market risk exposure within acceptable parameters, while optimising the return.
Sensitivity
Interest rate sensitivity:
At 30 June 2018, if interest rates had been 0.5 percentage points higher and all other variables were held constant, it is estimated
that the Group's loss before tax would increase to £157,775 (2017 - £1,238,246). This is attributable to the Groups exposure
on its borrowings and is based on the change taking place at the beginning of the financial year and held constant throughout
the reporting period.
56
21. Related parties
During the previous year, fees of £50,000 plus VAT were paid to White Amba Limited, a company controlled by the director,
Dominic White.
At 30 June 2017, current liabilities included £100,000 received from a director, Timothy James, and his wife. These monies were
reclassified into convertible loan notes and then into Ordinary shares during the year.
During the year, the Group paid DGS Capital Partners LLP, a limited liability partnership in which Michael Davies is a member,
fees of £36,000 excluding irrecoverable VAT (2017 - £36,000).
At the date of the statement of financial position, the following directors held Restricted Preference shares:
Restricted
Preference
shares
Name No.
Dominic White 1,500,000
Timothy James 960,000
James Cane 30,000
Oliver Vaughan 810,000
Included in the total of Mr White’s holdings above are 1,000,000 Restricted Preference shares held in the name of his pension
fund, White Amba Pension Scheme.
At 9 November 2018, the following directors held Restricted Preference shares:
Restricted
Preference
shares
Name No.
Dominic White 1,765,357
Timothy James 1,225,357
James Cane 40,000
Oliver Vaughan 1,075,357
57
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
22. Subsequent events
On 30 July 2018, the Group raised £3.1 million through a placing of £901,500 in cash, conversion of £650,000 of convertible
loan notes into equity, conversion of a creditor into equity and the payment in shares for a property acquisition from Inland
Homes plc (£1.26 million). KCR issued 4,434,570 shares at 70p. Full details of the transaction are reported in the ‘Investors’
section of the Company’s website www.kcrreit.com in the announcement dated 13 July 2018.
On 15 October 2018, the block at Southampton was handed over to KCR. As reported above, the Company has made rapid
strides in letting these most attractive apartments, with 63 per cent either let or reserved as at the date of this report.
58
Perivan Financial Print 252367