McKay Securities Annual Report 2016

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FY2016 Annual Report · McKay Securities

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REPORT AND
FINANCIAL STATEMENTS
2016

mckaysecurities.plc.uk

CONTENTS

02 Financial Highlights

03 Chairman’s Statement

06 Strategic Report

29 Governance

55 Report of the Independent Auditor

57 Financial Statements 2016

84 Glossary

85 Company and Shareholder Information

McKay Securities PLC is the only Real Estate
Investment Trust (REIT) focused entirely on
South East England and London. It specialises
in the development and refurbishment of
quality commercial buildings within established and
proven markets. Completed projects are generally
retained for growth within the Group’s portfolio,
valued at £401 million.

Properties are actively managed to maximise
income and capital returns. As a result, there is
a recurring rental stream underpinning growth
in proﬁts which are further enhanced from time
to time by the sale of investment properties.

Prospero
Redhill

FINANCIAL HIGHLIGHTS

PROFITS AND
EARNINGS

VALUATION

£53.16 million
Proﬁt before tax
(2015: £33.28 million)

£7.94 million
Adjusted proﬁt before tax
(2015: £5.79 million)

7.76 pence
EPRA earnings per share
(2015: 5.22 pence)

SHAREHOLDERS’
FUNDS

£261.20 million
(2015: £215.50 million)

301 pence
EPRA net asset value per share
(2015: 270 pence)

280 pence
Net asset value per share
(2015: 233 pence)

£401.17 million
(2015: £352.76 million)

£35.31 million (9.7%)

Surplus
(2015: £42.71 million (13.8%))

TOTAL
PROPERTY
RETURN

15.9%
(2015: 18.4%)

DEBT TO
PORTFOLIO VALUE (LTV)

28.9%
(2015: 25.9%)

PROPOSED FINAL
DIVIDEND PER SHARE

6.1 pence
Up 1.7%
(2015: 6.0 pence), making the total
dividend per share for the year
8.8 pence (2015: 8.7 pence)

McKay Securities PLC | Report and Financial Statements | 2016

This has been a year of major progress for the
Group towards our objective of being able to
deliver attractive and sustainable returns to
shareholders over the long term, as a result
of expanding the business and focusing
entirely on the ofﬁce and industrial markets
of London and the South East.

DAVID THOMAS
CHAIRMAN

Our major investment in property acquisitions, refurbishments and
development projects over the last few years increased our scale
to coincide with a time of growth in rental and capital values across
our markets. By positioning our assets to take best advantage
of these positive market trends, we have generated signiﬁcant
growth in value and earnings this year from an improved and
more resilient portfolio. In addition, progress with the development
programme has enhanced the prospects of the release of further
gains over the years ahead. Both of these initiatives improve the
chances of crystallising the full rental potential of the portfolio.

The value of the Group’s property portfolio exceeded £400 million,
ending the period up £48.41 million to £401.17 million.
The valuation surplus for those properties retained over the
period was 9.7% (£35.31 million), which was another positive
result after the 13.8% (£42.71 million) portfolio surplus last year.
Our refurbishment projects and active management continued
to generate gains, supporting our business model of investing
in our assets to provide attractive, modern business space.
In a number of cases, these improvement works resulted in
new rental highs being achieved, contributing to like for like
growth in portfolio rental value of 8.5%.

The increase in overall portfolio value was achieved despite
a net reduction in the number of assets from 40 to 36.
We took advantage of strong market demand and special
purchasers to secure a 37.1% (£9.11 million) surplus on the
sale of 5 properties, realising net proceeds of £33.31 million.
This was in line with our strategy of recycling capital from
mature and small assets for reinvestment into both the existing
portfolio and new properties. Continuing our selective approach
to acquisitions, we purchased a warehouse unit (96,850 sq ft)

off-market at Brunel Road, Theale, near Junction 12 of the
M4 motorway, at the beginning of the period. This was at a cost
of £11.33 million, yielding 6.6% on a rent of £0.75 million pa.
This adds to the range of refurbishment and development
options available within the portfolio.

The gains made on valuation and disposal contributed to a
£45.73 million increase in shareholders’ funds, which ended
the period at £261.22 million. NAV per share (EPRA) increased
by 11.5% to 301pps (March 2015: 270pps).

Our recent investment in the portfolio has also generated a
marked increase in earnings and proﬁt for the year. Gross rental
income for the period increased by £2.54 million (14.4%) to
£20.16 million (March 2015: £17.62 million). Recent acquisitions
contributed £1.72 million to this increase, along with £1.53 million
in additional rent secured from our refurbishment programme
and other lettings, offset by disposals and portfolio vacancies.

This higher level of income was the primary contributor to a
37.2% uplift in adjusted proﬁt before tax which increased to
£7.94 million (March 2015: £5.79 million). This is our measure of
recurring proﬁt, excluding unrealised movements in the value
of the property portfolio and hedging instruments, proﬁt on the
sale of investment properties, and non-cash items.

Proﬁt before tax (IFRS) including these movements increased
by 59.7% to £53.16 million (March 2015: £33.28 million). The
increase over last year was due to the higher surplus on disposals
and a positive movement in the value of hedging instruments.

The scale of transformation of the portfolio since our equity raise
in February 2014 is highlighted by the 87.1% increase in the
portfolio’s estimated rental value (ERV) from £16.80 million pa

2016 | Report and Financial Statements | McKay Securities PLC

CHAIRMAN’S STATEMENT
continued

9 Greyfriars Road,
Reading

Acquired for
refurbishment:
May 2014

McKay Securities PLC | Report and Financial Statements | 2016

at 31st March 2013 to £31.44 million pa at the end of the period.
The unrealised proportion of ERV (reversion), which provides an
indication of the future earnings potential of the portfolio, also
increased signiﬁcantly from £0.80 million pa to £10.34 million pa
over the same period.

Of this reversion, our current development programme (covered
in more detail in the Property and Finance Review) accounts for
£5.85 million pa. This programme consists of speculative ofﬁce
schemes at 9 Greyfriars Road, Reading (38,200 sq ft) and
London Road, Redhill (48,050 sq ft), which are both due to
complete shortly, and 30 Lombard Street, EC3 (58,000 sq ft)
due to complete in 2018. Void and higher ﬁnance costs post
completion will have a negative impact on earnings, but, once let,
these assets will crystallise a signiﬁcant proportion of the reversion,
creating a step change in future proﬁts.

The Reading and Redhill schemes are now close to completion and
present well. Marketing campaigns are being progressed and initial
feedback is positive. They are both in prime town centre locations,
close to mainline railways stations with direct access into central
London. We expect these properties and our portfolio generally
to beneﬁt from the ripple effect of higher rents from London
and those occupiers looking for more cost effective solutions.
Constrained supply in both towns and consistent levels of occupier
demand and take up, particularly for new and Grade A buildings
of up to 60,000 sq ft, leave these schemes well placed to secure
future lettings.

During the year, we also completed a restructure of our loan
facilities (May 2015) to provide funding certainty for these and
other portfolio initiatives. This has strengthened our balance sheet
with extended loan expiries, a reduction in the level of historic
interest rate swaps, a lower cost of debt, and an increase in loan
facilities to £175.00 million (March 2015: £150.00 million).

Dividend
The Board is recommending a 1.7% increase in the ﬁnal dividend
to 6.1 pence per share (March 2015: 6.0 pence). This will be paid
as an ordinary dividend on 28th July 2016. It takes the total
dividend for the year to 8.8 pence per share (2015: 8.7 pence),
and dividend cover to 96.9% on recurring earnings.
This recommendation reﬂects the Board’s intention to
maintain a progressive dividend policy whilst re-establishing
dividend cover from recurring earnings.

The Board
On 14th April 2016 we made an announcement regarding
the appointment of a new Chairman and a new independent
non-executive Director. These changes mark an important stage
in our succession planning, and I am pleased that Richard Grainger,
who joined the Board in May 2014, will be succeeding me as
Chairman. This will take place at the conclusion of this year’s
Annual General Meeting, at which point I will also stand down
as a Director.

I am also pleased to welcome Jon Austen to the Board, with effect
from 1st July 2016, as an independent non-executive Director.
Having qualiﬁed as a Chartered Accountant in 1981, Jon has
gained extensive experience in the property sector in a number
of senior ﬁnance roles, most recently as Group Finance Director
of Urban&Civic plc.

We have also announced that Steven Mew will resign from the
Board and leave at the end of September 2016. We wish him
well and are actively recruiting his replacement.

It has been a privilege to serve as Chairman for the last nine years
and as a member of the Board for eleven years. I would like to
convey my thanks to all the team at McKay and to our shareholders
for their continuous support over the years, and wish the Group
well for the future.

Future Prospects
Global and UK economic prospects are less encouraging since
the beginning of 2016, and the forthcoming EU referendum has
created additional uncertainty for both investors and occupiers
within our London and South East markets. We anticipate that this
uncertainty will be prolonged in the event of a vote to leave the EU.

As our markets move from recovery phase, the pace and scale of
further portfolio returns are dependent on stable market conditions
and continued active management of the range of opportunities
available to us. Of particular importance is the letting of our
development projects at Reading and Redhill, as costs during
the letting phase will impact adversely on proﬁts.

In line with our continuing strategy, these development projects
and other portfolio vacancies are in established South East
and London markets and are presented in prime condition.
These strong characteristics enhance the prospects of securing
lettings to crystallise our signiﬁcant portfolio reversion and to
generate future returns.

D.O. Thomas
Chairman
24th May 2016

2016 | Report and Financial Statements | McKay Securities PLC

PORTFOLIO PROPERTIES
at 31st March 2016

£15m and over –37.1% of portfolio
Brentford
EC3*
EC3*
SW19
Reading

£10m to £15m - 36.5% of portfolio
Crawley
Croydon
EC2
SW1
Maidenhead
Poyle
Reading
Reading
Redhill
Runnymede
Theale
Woking

£5m to £10m – 22.0% of portfolio
Bracknell
Crawley
Farnborough
Farnborough
Fleet
Leatherhead
SW1*
Staines
Theale
Weybridge
Windsor
Woking

£2m to £5m – 3.9% of portfolio
Banbury
Folkestone
Folkestone
Newbury

£2m and below – 0.5% of portfolio
Chobham
Newbury
Staines

The Mille, 1000 Great West Road (ofﬁce)
Portsoken House, Minories (ofﬁce and retail)
30 Lombard Street (ofﬁce under construction)
Wimbledon Gate, Worple Road (ofﬁce and retail)
Great Brighams Mead, Vastern Road (ofﬁce)

Pegasus Place, Gatwick Road (ofﬁce)
Corinthian House, Dingwall Road (ofﬁce)
66 Wilson Street (ofﬁce)
1 Castle Lane (ofﬁce)
Switchback Ofﬁce Park, Gardner Road (ofﬁce)
McKay Trading Estate, Blackthorne Road (industrial)
9 Greyfriars Road (ofﬁce under construction)
20/30 Greyfriars Road (ofﬁce)
Prospero, London Road (ofﬁce under construction)
Runnymede Focus, Windsor Road (industrial)
Brunel Road (industrial)
The Planets, Crown Square (leisure)

Building 329, Doncastle Road (ofﬁce)
Oakwood Trade Park, Gatwick Road (industrial)
Columbia House, 1 Apollo Rise (industrial)
Pinehurst Park, Farnborough Road (ofﬁce)
One Fleet, Ancells Road (ofﬁce)
Ashcombe House, 5 The Crescent (ofﬁce)
Parkside, Knightsbridge (residential)
Mallard Court, Market Square (ofﬁce and retail)
Station Plaza, Station Road (ofﬁce)
Sopwith Drive, Brooklands (industrial)
Gainsborough House, 59-60 Thames Street (ofﬁce)
1 Crown Square (ofﬁce and retail)

Lower Cherwell Street Industrial Estate (industrial)
3 Acre Estate, Park Farm Road (industrial)
5 Acre Estate, Park Farm Road (industrial)
Strawberry Hill House, Bath Road (medical)

Castle Grove Road (land)
Albion House, Oxford Road (ofﬁce)
2 Clarence Street (ofﬁce)

Notes:
Percentages based on the Group valuation at 31st March 2016.
*Denotes leasehold properties

McKay Securities PLC | Report and Financial Statements | 2016

Area sq. ft

96,950
49,200
58,000
58,690
84,840

50,790
44,445
11,890
14,250
37,450
73,450
38,200
33,345
48,050
91,185
96,850
98,255

33,600
52,600
40,755
50,200
34,580
17,340
2,800
22,150
41,540
63,140
18,660
52,115

40,060
44,290
60,260
12,040

—
6,720
3,435

PORTFOLIO MAP
London and the South East of England

Banbury

06 Portfolio properties
07 Portfolio map
08 Business objective, strategy and model
09 Property and ﬁnancial review
17 Disposals
19 Five year summary
21 Principal risks and uncertainties
24 Sustainability

Maidenhead

Reading

Windsor

London

Newbury

Theale

Bracknell

Poyle

Staines

Woking

Wimbledon

Croydon

Weybridge

Farnborough

Fleet

Leatherhead

Redhill

Crawley

Folkestone

Key

Office

Retail

Industrial

Other

STRATEGIC REPORT
Business Objective, Strategy and Model

ECTIVE
J
E
VE
E
E
E
VE
IV
VE
V
TIV
V
T
TI
CT
T
CT
C
CT
EC
EC
EC
E
E
E
BUSINESS OBJE
B
E
E
JE
JE
NE E ES ES ES S S SS SS S S S S S O O O O O OB OB B B BJ
BJ
BJ
IN
NE
NE
N
SIN
N
SIN
S
SI
US
S
US
U
US
U
BU
BU
B
B
B
B

RATEGY
NE E ES ES ES S S SS STRATEGY
Y
Y
Y
Y
Y
GY
GY
GY
G
EG
G
EG
E
E
TE
TE
T
S S S STRATEGY
AT
S S S S S STRATEGY
AT
AT
AT
A
SS STRATEGY
RA
RA
R RA
BUSINESS STRATEGY
B
T TR TR R R R R
STRATEGY
STRATEGY
IN
NE
NE
N
N
IN
SI
US
SI
S
S
US
U
US
U
BU
BU
B
B
B
B

Station Plaza
Theale

bjective is

business o
Our primary
business o
to deliver attractive and sustainable
to deliver attractive and sustainable
returns to shareholders over the
returns to shareholders over the
long term, with exposure to those
long term, with exposure to those
property markets where the benefit
property markets where the benefit
of our skills and experience will be
of our skills and experience will be
most productive.

ategy is to apply

, our str
To achieve this
, our str
entrepreneurial property initiatives to
entrepreneurial property initiatives to
generate income and capital gains, primarily
generate income and capital gains, primarily
from office and industrial properties in
from office and industrial properties in
London and South East England in order
London and South East England in order
to
maximise total portfolio return. An integral
maximise total portfolio return. An integral
part of the strategy is to provide quality
part of the strategy is to provide quality
business space attractive to occupiers and
business space attractive to occupiers and
to maintain loan facilities to support these
to maintain loan facilities to support these
to maintain loan facilities to support these
initiatives.

BUY

SUSTAINABLE
DEBT AND
GEARING

MANAGE
MANAGE

REFURBISH
REFURBISH
DEVELOP
DEVELOP

MAXIMISE
PORTFOLIO
RETURNS

SELL
SELL

RECYCLE
RECYCLE

DEL
D
L
EL
L
L
L
EL
E
E
DE
DE
D
NE E E ES ES S S SS SS SS S S S S M M M M M M MO MO O O O OD
BUSINESS MOD
B
D
D
D
D
OD
IN
NE
N
SIN
N
N
S
SI
US
SI
S
US
U
U
BU
BU
BU
B
B
B

del proven through recent property cycles. The key
del proven through recent property cycles. The key
del proven through recent property cycles. The key

is based on a clear business
is based on a clear business

Delivery of this strate
mo
elements of the model are:
elements of the model are:

gy
gy

Acquisition of property assets that meet
Acquisition of property assets that meet
identified criteria with the potential to
identified criteria with the potential to
add value.

Implementation of refurbishment,
Implementation of refurbishment,
development and other property
development and other property
initiatives to enhance portfolio returns.
initiatives to enhance portfolio returns.

Flexible financing and
Flexible financing and
strong banking relationships
strong banking relationships

Active in-house management
of assets to maximise property returns.
of assets to maximise property returns.

Disposal of mature assets to
Disposal of mature assets to
recycle capital

McKay Securities PLC | Report and Financial Statements | 2016

STRATEGIC REPORT
Property and Financial Review

Overview
With one acquisition and ﬁve disposals over the period, the
portfolio totalled 36 properties at 31st March 2016, valued at
£401.17 million. The average lot size increased to £11.14 million
(March 2015: £8.82 million). The 33 properties within the
investment portfolio, totalling 1.44 million sq ft with 209 tenants,
were valued at £358.35 million. The three properties within the
development programme, totalling 0.14 million sq ft, were valued
at £42.82 million.

The portfolio consists predominantly of ofﬁce and industrial
properties located entirely within the South East and London,
accounting for 81.9% and 18.1% of the portfolio respectively
(by value). Continued growth in capital and rental values from
the portfolio was achieved over the period through the successful
implementation of our business model, as set out opposite.
Contracted rental income from the portfolio (net of ground rents)
at the year-end increased by 2.9% to £21.10 million pa
(March 2015: £20.50 million pa), and by 5.9% excluding
acquisitions and disposals. 52.1% (March 2015: 54.5%)
of contracted rental income was payable at the year-end
by tenants with a net worth in excess of £7.50 million
(source: Dun & Bradstreet), highlighting the continued
ﬁnancial strength of our tenants.

The rental value of the portfolio (ERV), as estimated by
external valuers at 31st March 2016, increased overall by
4.1% to £31.44 million pa (March 2015: £30.19 million pa).
Excluding acquisitions and disposals the ERV increased by 8.5%.

The reversionary potential of the portfolio, being the difference
between contracted rental income and ERV, increased by
6.7% to £10.34 million pa (March 2015: £9.69 million pa).
Crystallisation of this reversion would increase contracted rents
by 49.0%. This signiﬁcant potential consists of void properties
of £2.27 million pa, development properties of £5.85 million pa,
and potential rental uplifts at lease expiry and rent review of
£2.22 million pa.

The portfolio void (by ERV) reduced over the period to 7.2%
(March 2015: 7.4%). With the inclusion of development properties,
the total portfolio void reduced to 25.8% (March 2015: 26.8%).

The weighted average lease term of the portfolio reduced slightly
to 5.5 years and 4.5 years to expiry and lease break respectively
(March 2015: 5.8 years and 5.0 years).

Market review
Our focus on the ofﬁce and industrial markets of London and
South East England continued and we beneﬁtted from their
out-performance relative to other UK markets. Within our markets,
a constrained supply of modern ﬂoorspace and the delivery of new
buildings commanding higher rents, contributed to higher rental
values. Capital values have also increased over the period,
underpinned by low interest rates and continued demand from a
range of UK and overseas buyers attracted by the prospects of
further growth in rental values. However, erosion of market
conﬁdence by uncertainty over the outcome of the EU referendum
to be held in June 2016 contributed to a slowdown in the pace of
capital growth and the volume of investment transactions during
the second half of the period.

The increase in occupational costs in central London has also
continued to beneﬁt our holdings in outer London and beyond,
as the ripple effect of higher rents has spread out from the centre.
We anticipate this continuing, particularly with the improved east
to west travel time and accessibility to be delivered by Crossrail,
now named the Elizabeth Line, when it opens in 2018/2019.
Improved access is also likely to encourage an increasing number
of occupiers faced with rising occupational costs to look beyond
central London.

The largest proportion of our portfolio is within the South East
ofﬁce market, which accounts for 58.4% of the portfolio (by value).
Variations remain across the different centres within this market,
but prime rental values generally increased over the period as
occupiers were prepared to pay higher rents to secure modern
business space from a limited choice of new and Grade A buildings.

Despite a pick-up in development completions, the supply of ofﬁce
space in this market reduced by a further 17.4% over the year to
end the period at 9.04 million sq ft. Of this, 6.32 million sq ft was
either new or Grade A ﬂoorspace, representing a low vacancy
rate of 7.4% (2015: 8.1%). Vacant new ﬂoorspace alone was
2.29 million sq ft providing an even lower vacancy rate of 2.7%
(2015: 2.6%). These levels remain historically low and are set

Sector (by value)

Location (by value)

Offices

Industrial

Other

18%

Total
£’million

401

77%

South East Offices

London Offices

South East Industrial

Other

18%

Total
£’million

401

18%

59%

2016 | Report and Financial Statements | McKay Securities PLC

STRATEGIC REPORT
Property and Financial Review - continued

to remain low, as older ﬂoorspace continues to be converted into
residential use and letting transactions erode the development
pipeline which remains limited by risk appetite, debt availability
and viability.

Lettings across this market in 2015 totalled 2.13 million sq ft
which was 39.2% up on 2014. Of this, over 70% was for new and
Grade A quality and for units of up to 60,000 sq ft. This highlights
the continuing importance to ofﬁce occupiers of upgrading to
efﬁcient modern ﬂoor space and supports our ofﬁce development
schemes in Reading and Redhill.

At the end of the period, named demand of 4.21 million sq ft
was 7.4% higher than at this stage last year, and 7.7% ahead of
the ﬁve-year average. A general increase in the number of viewings
was being reported with building obsolescence and consolidation
being the main drivers. While letting volumes are likely to be held
back in the short term by the EU referendum, rental values in these
markets are protected by the limited choice available and the
potential demand from lease breaks and expiries over the next
three years totalling an estimated 16.58 million sq ft. As over
half the South East ofﬁce stock is more than 20 years old,
these lease events are likely to maintain market momentum
(source: Strutt & Parker).

Within the City of London, which includes our development scheme
at 30 Lombard Street, EC3, supply reduced to 4.80 million sq ft
(March 2015: 6.00 million sq ft) and to 1.70 million sq ft for new
and refurbished ﬂoorspace (March 2015: 2.70 million sq ft).
Vacancy rates of 4.8% and 1.7% respectively are signiﬁcantly
below average levels and limit occupier choice.

This level of supply compares with lettings over the last twelve
months of 6.90 million sq ft, of which, 3.40 million sq ft was for
new and refurbished ﬂoorspace. This imbalance between demand
and limited supply contributed to the increase in City rental values
seen over the period. Low vacancy rates have generated a
response from developers and there is now increasing supply,
but accompanied by pre-let activity. Of the 7.01 million sq ft of
ﬂoorspace under construction, 2.88 million sq ft is already
committed. Assuming the ﬁve-year average level of

new/refurbished lettings, the remaining uncommitted
development pipeline combined with current availability,
still results in a shortfall in supply (source: Knight Frank).

Acquisitions and disposals
Throughout the year, we continued to analyse potential acquisition
opportunities that met our geographical and sector requirements,
and to consider the disposal of smaller properties in particular,
with limited potential for further gains.

Having invested £62.51 million in seven acquisitions in
2014/2015 as the market was beginning to recover, this
year we experienced greater competition, and as a result,
higher entry prices. Also, the 1% increase in stamp duty now
takes acquisition costs, and the required return to break even,
to circa 6.8%. As a result of maintaining a selective approach,
one acquisition was made early in the period at a cost of
£11.33 million. This was a warehouse distribution facility
(96,850 sq ft) at Brunel Way, Theale with excellent access to
Junction 12 of the M4 motorway. The property, constructed in
1984, is let at a rent of £0.75 million pa (£7.74 psf) to 2020,
providing a yield of 6.6% with a tenant only break clause in
January 2018, subject to a twelve month rent penalty payable
by the tenant if exercised. If the tenant exercises this break,
it will provide an extended period of rental cover to consider
refurbishment or redevelopment to release value from this
well located asset.

Five disposals were made, realising net proceeds of £33.31 million,
incorporating a £9.11 million (37.1%) surplus over valuation,
secured tax free due to our REIT status. The large surplus
was achieved due to one off situations at Bicester, Hook and
Reading where we were able to negotiate strong off market
prices for these smaller assets, and at Blackfriars Road, SE1
where there was considerable market competition due to
the potential for income growth on rent review in 2017.
The sale price of £21.50 million achieved for the two properties
on Blackfriars Road realised a signiﬁcant uplift over historic cost
of £7.40 million, helped by the upgrading and repositioning through
comprehensive refurbishment in 2012.

Years to expiry (exc breaks)

Tenant Net Worth

Year

0-3

3-5

5-10

10+

£m

3.5

6.9

10.1

0.6

21.1

10+

0–3

Contracted
rent £’million

21.1

5-10

3-5

£’m

>35

15–35

7–15

Source: Dun & Bradstreet

34%

Contracted
rent £’million

21.1

48%

14%

McKay Securities PLC | Report and Financial Statements | 2016

M4 Junction 12

First Great Western
main line

Arlington
Business Park

Brunel Road

London
and M25

Bristol and
South Wales

Brunel Road
Theale

2016 | Report and Financial Statements | McKay Securities PLC

McKay Securities PLC | Report and Financial Statements | 2016

Development programme
Good progress was made with our three speculative ofﬁce
development schemes over the period. The schemes, totalling
144,300 sq ft once completed, represent 9.1% of the portfolio by
area and contribute £5.85 million pa to the total portfolio reversion
of £10.34 million pa.

The comprehensive refurbishment of 9 Greyfriars Road, Reading
(38,200 sq ft) is on programme to complete in late May 2016.
The building has been repositioned to offer top quality modern
ﬂoorspace, enhancing the excellent location less than ﬁve minutes
walk from the recently upgraded railway station.

At Redhill, the construction of a new top quality 48,050 sq ft ofﬁce
building also remains on programme, scheduled for completion in
July 2016.

Both schemes are being actively marketed and quoting rents
will be ﬁxed on scheme completion.

In the City of London, demolition of 30 Lombard Street, EC3
is well underway. The existing 1960s ofﬁce building (35,820 sq ft)
is to be replaced with a striking new ofﬁce building (58,000 sq ft)
programmed for completion in mid-2018. A pre-completion
marketing campaign will commence in the summer once the
existing building has been demolished to improve awareness
of the project and to improve the chances of an early letting of
this prime scheme.

Refurbishment projects
At 329 Bracknell (33,600 sq ft), the success of the units
refurbished in 2014 and rents achieved justiﬁed further upgrading
works to vacant suites on the second ﬂoor. These works have
completed and the building is 83% let at improving rents.
The four remaining void units, with an ERV of £0.20 million,
are attracting encouraging interest.

The refurbishment of Unit 6 (4,520 sq ft), Switchback Ofﬁce Park,
Maidenhead was let prior to completion on a 15-year lease,
without break, at a new benchmark rent of £26.00 psf for
refurbished ﬂoorspace at the Park. The tenant relocated
from Unit 5 (8,641 sq ft) which is now being refurbished
prior to full marketing on completion in the summer.

By committing to these two refurbishment projects, we invested
in the potential to reposition these assets to attract occupiers at
higher rentals, and to appeal to institutional and other active
investors. It was therefore encouraging to achieve these higher
rentals which supported a combined 27.5% increase in ERV to
£1.57 million pa and a valuation surplus of 26.6% over the period.

Works to convert Strawberry Hill House, Newbury from ofﬁce use
to medical centre completed at the end of March 2016, enabling
commencement of the 25-year Government backed pre-let to
two local GP practices. The rent of £0.26 million pa, payable
from commencement, doubles the ofﬁce ERV prior to conversion.
As the portfolio reversion is crystallised, the sale of this non-core
asset will be kept under review now that development gains from
the project have been released.

The rolling refurbishment of Portsoken House, EC3 continued
over the period with completion of works to upgrade the ground
(1,714 sq ft) and 5th (5,066 sq ft) ﬂoors and the ﬁnalising of
proposals for further improvements to the reception and other

2016 | Report and Financial Statements | McKay Securities PLC

30 Lombard Street
London EC3

STRATEGIC REPORT
Property and Financial Review - continued

common areas. Both refurbished ﬂoors attracted good interest
and let well, with the 5th ﬂoor securing a contracted rent of
£0.25 million pa, equivalent to £49.00 psf. This marked a
signiﬁcant increase in rental value and contributed to a
57.0% increase in ERV and a 23.5% valuation surplus
for the period for the building.

At The Mille, Brentford and 1 Crown Square, Woking, good
progress was made with the management of these multi-let
recent additions to the portfolio, and the refurbishment of vacant
ﬂoorspace and common areas is now underway. Both buildings
were under-managed prior to acquisition in 2014 and require
capital investment to release further value.

Letting progress at the above properties and elsewhere in the
portfolio contributed to a total of 44 open market lettings over
the period, with a combined contracted rent of £2.28 million pa;
14.6% ahead of ERV as at 31st March 2015.

At lease break and expiry, 30 out of 58 tenants were retained at
contracted rents totalling £1.20 million pa. Whilst the retention
rate of 50.8% was lower over the period (March 2015: 64.9%),
this has facilitated refurbishment work and the achievement
of higher rents on the open market. Combined rents for those
retained tenants were 1.8% ahead of rents prior to lease
event and 1.1% below ERV.

Valuation
The independent valuation of the Group’s portfolio as at
31st March 2016 totalled £401.17 million (March 2015:
£352.76 million), resulting in a surplus for the period of 9.7%
(£35.31 million) overall and 11.7% excluding the acquisition
of Brunel Road, Theale and the three development properties.
This out-performed capital growth of 5.9% in the IPD Monthly
(All Property) Index.

On a sector basis (excluding acquisitions/developments) the
surplus for South East ofﬁces was 10.3% (IPD: 10.1%),
London ofﬁces 22.1% (IPD: 12.7%), and South East industrials
10.9% (IPD: 10.1%). The total portfolio return was 15.9%
(IPD: 11.7%).

The portfolio initial yield of 4.5% (March 2015: 4.8%), increases
to 5.0% (March 2015: 5.5%) on the expiry of letting incentives.

At ERV, the reversionary yield would be 7.4% (March 2015: 8.1%).
The equivalent yield was 6.3% (March 2015: 6.6%). These
changes partly reﬂected further market yield shift, but also the
effect of the disposal of properties with higher valuation yields.

The surplus reported for the ﬁrst half of the year to
30th September 2015 was 7.1%. This compares with 3.0%
for the second half, with the pace of gain slower as anticipated
due to less yield compression. The enhanced importance of value
generation through successful development, refurbishment and
active management is highlighted by our out-performance and
the strong valuation gains secured where we have invested in
properties to capture and enhance market rental growth and
uplifts at forthcoming rent reviews.

Total shareholder returns
Total Shareholder Return (TSR) for the three years to
31st March 2016 was 91.6%, primarily due to the price
per share increasing over the period from £1.45 to £2.40.
This compares to a FTSE All Share return of 11.4% and a
FTSE 350 Real Estate Index return of 46.5% for the same
period. For the year to 31st March 2016, share prices have
dropped back and the Group delivered a negative TSR of
0.8% which compares to a FTSE All Share negative return
of 3.9% and FTSE 350 Real Estate negative return of 6.4%.

Dividends
The ﬁnal dividend of 6.1 pence per share (31st March 2015:
6.0 pps) will be paid on 28th July 2016 to those on the register
on 3rd June 2016. With the interim dividend of 2.7 pence per
share, this takes the total dividend for the year to 8.8 pence per
share, an increase of 1.2% on the previous year. This will be paid
as an ordinary dividend. This generates a yield of 3.7% on the
share price at the end of the period.

As a REIT, the Group is required to distribute at least 90% of
rental income proﬁts arising each ﬁnancial year by way of a
Property Income Distribution (PID). Subject to exemptions,
this is paid after deduction of withholding tax, at present 20%.
Over the period, the cost of cancelling interest rate hedging
instruments has off-set the proﬁts attributable to the PID.
As a result, the ﬁnal dividend will be paid as an ordinary
dividend rather than a PID.

Yields and occupancy

Contracted rental income1
Reversions
Void properties
Portfolio reversion
Total portfolio

Notes:

1 Contracted rental income at 31st March 2016, less ground rent
2 Yield on portfolio valuation at 31st March 2016 with notional purchasers costs (6.75%) added

£million
pa
21.1
2.2
8.1
10.3
31.4

Yield2
5.0%

Occupancy
by ﬂoor area
85%

Occupancy
by rental value
74%

15%

26%

7.4%

100%

McKay Securities PLC | Report and Financial Statements | 2016

Portsoken House
London EC3

2016 | Report and Financial Statements | McKay Securities PLC

STRATEGIC REPORT
Property and Financial Review - continued

Income statement
The £2.15 million increase (37.2%) in adjusted proﬁt before tax
to £7.94 million (March 2015: £5.79 million) was due primarily
to a signiﬁcant increase in rental income. A small increase in
administration costs was in part compensated for by a reduction
in property outgoings.

Gross rental income, whilst £2.54 million higher than the previous
year, beneﬁted from £1.53 million in new lettings and £1.72 million
from acquisitions in the previous and current year, offset by an
£0.71 million reduction as a result of disposals and portfolio
vacancies.

Proﬁt before tax (IFRS) totalled £53.16 million (March 2015:
£33.28 million) and included the unrealised surplus on valuation
for the period of £34.56 million, the £9.11 million realised proﬁt
on disposal of investment properties and an improvement in
the negative value of the interest rate hedging instruments
of £2.17 million.

Administration costs of £5.88 million (March 2015: £5.44 million)
increased mainly due to additional staff related costs of
£0.28 million after a full year with additional employees.

Interest cost for the year of £6.34 million was an increase
on the prior year (March 2015: £5.26 million) as a result of
expenditure on developments and acquisitions, offset by
disposals. Interest capitalised against projects during the year

increased to £1.88 million (March 2015: £0.67 million) due to
progress with the development programme. As a result, interest
payable totalled £4.46 million (March 2015: £4.59 million).

The Group’s weighted average cost of debt reduced from 5.78%
to 4.35% (prior to amortisation and ﬁnance lease interest),
reﬂecting the new debt structure post the reﬁnancing completed
in May 2015 referred to below.

The Group does not hedge account its interest rate derivatives
and therefore includes the movement in fair value in the
Consolidated Proﬁt or Loss and other Comprehensive Income.

Balance sheet
Shareholders’ funds increased from £215.49 million to
£261.22 million over the period, principally due to the
£34.56 million valuation surplus (£35.31 million excluding
SIC15 adjustment) and the £9.11 million proﬁt on disposals
achieved during the period.

In May 2015 the Group completed a reﬁnancing of debt
facilities. The facilities were increased from £155.00 million
to £175.00 million. Of this, £55.00 million was secured on
a 15 year term at a ﬁxed rate of 4.13% with a new lender,
Aviva Commercial Finance Ltd. The remaining £120.00 million
was provided by three of the Group’s existing clearing banks.
The weighted average length of debt increased from 1.6 years
to 9.1 years at the point of reﬁnancing.

Key performance indicators:

Portfolio Capital Return (capital) (%)1
The annual valuation and realised surpluses from the
Group's investment portfolio expressed as a percentage
return on the valuation at the beginning of the year, adjusted
for acquisitions and capital expenditure.

Total Portfolio Return (capital and income) (%)
The portfolio capital return referred to above and net
rental income from investment properties for the year
expressed as a percentage return on the valuation at
the beginning of the year, adjusted for acquisitions and
capital expenditure.

Net Asset Value Return (%)2
The growth in adjusted net asset value per Ordinary share
plus dividends reinvested per Ordinary share expressed as
a percentage of the adjusted net asset value per share
at the beginning of the year.

Total Shareholder Return (TSR) (%)3
The growth in the value of an Ordinary share plus dividends
reinvested during the year expressed as a percentage of
the share price at the beginning of the year.

Notes:

2016
11.4

2015
13.8

2014
10.2

2013
2.2

2012
(0.1)

15.9

18.4

15.6

8.6

6.5

14.7

22.7

10.1

7.6

6.9

(0.8)

24.8

54.7

21.3

18.0

1 This measures both realised and unrealised movements in portfolio values over the year.
2 This is a common sector measure as movements are heavily inﬂuenced by changes in the value of the portfolio and the extent of borrowings.
3 This indicates movements in the value of a shareholders’ investment, although not directly related to the proﬁtability of the Group.

McKay Securities PLC | Report and Financial Statements | 2016

DISPOSALS
£33.8 million of disposals during the year

Sale price:
£3.8 million

Bartley House
Hook

Date:
March 2016

Sale price:
£7.9 million

McKay Trading Estate
Bicester

Date:
March 2016

25% surplus over March 2015 book value

124% surplus over March 2015 book value

Sale price:
£21.5 million

202 & 203 Blackfriars Road
London

Date:
December 2015

Sale price:
£0.6 million

Hosier Street
Reading

Date:
September 2015

21% surplus over March 2015 book value

9% surplus over March 2015 book value

2016 | Report and Financial Statements | McKay Securities PLC

STRATEGIC REPORT
Property and Financial Review - continued

As part of the reﬁnancing, the notional value of the Group’s
hedging instruments was reduced from £80.00 million to
£45.00 million, at a net cost to the Group of £13.16 million,
equivalent to a reduction in EPRA NAV of 14.3 pence per share.
The full cost of cancellation was offset to a degree by lender
contributions, resulting in an increase in NNNAV of 2.6 pence
per share. Having reduced the notional value of hedging
instruments on a managed basis over the last ﬁve years from
£155.00 million, this now leaves the Group with a competitive
cost of debt, £100.00 million of debt that is either ﬁxed or hedged
and we are conﬁdent that the revised ﬁnancial platform supports
the expenditure plans we have in place.

EPRA NAV per share at the year end of 301 pence increased by
11.5% over the period (March 2015: 270 pence). NNNAV per
share increased by 20.4% to 277 pence (March 2015: 230 pence)
and basic NAV per share increased by 20.2% to 280 pence
(March 2015: 233 pence). These gains were a direct result of
the unrealised valuation gains and the realised proﬁt on disposals
during the year. The EPRA NAV percentage gain was lower than
the EPRA NNNAV and Basic NAV gain due to the 14 pence per
share swap cancellation cost incurred in May 2015.

Drawn debt at the end of the period was £116.00 million
(March 2015: £91.50 million). The gearing ratio of drawn
debt to portfolio value (LTV) as at 31st March 2016 was 28.9%
(March 2015: 25.9%). The ratio of aggregate net borrowings
to tangible net worth, was 40.9% (March 2015: 36.1%).
Both ratios have increased but remain at low levels relative
to loan covenants. The increases are due in part to capital
expenditure of £25.05 million over the period. With forecast
expenditure of £36.78 million (including capitalised interest)
to complete the three current projects within the development
programme over the next two years, compliance will continue
to be carefully monitored.

Net cash outﬂow from operating activities was £9.90 million
(March 2015: inﬂow £5.00 million) and interest cover based
on adjusted proﬁt plus ﬁnance costs as a ratio to ﬁnance costs
was 1.9x (March 2015: 1.8x).

At the end of the period the negative mark to market valuation
of the remaining £45.00 million hedging instrument at
31st March 2016 was £22.41 million. Gains achieved at
the reﬁnancing in May 2015 and market movements since
then result in a positive movement for the year of £2.17 million.
The Group closely monitors the market for these instruments and
regularly reviews the suitability and strategic options for these
products. Although the mark to market valuation is negative,
this represents a non cash timing difference.

As a REIT, the Group is tax exempt in respect of capital gains
and all qualifying rental income, which covers the majority of
the Group’s activities. Any residual income has been offset by
relevant costs, and there is therefore no tax charge for the
period (March 2015: nil).

Defined Benefit Pension Scheme
Under the application of accounting standard IAS19, the Group’s
pension deﬁcit has reduced from £1.94 million to £1.84 million.
The reduction in the deﬁcit is in the main due to the Group’s
annual contribution to the Scheme of £0.24 million, which
includes part payment towards the deﬁcit over a 7-year
recovery plan. The Scheme was closed to new entrants
in the 1980’s, and now consists of six pensioners and
no active members.

Financial risks
The ﬁnancial risks are documented in the principal risks and
uncertainty section of the Strategic Report on pages 21 to 23.

Signed on behalf of the Board of Directors.

S.C. Perkins
G.P. Salmon

24th May 2016

McKay Securities PLC | Report and Financial Statements | 2016

STRATEGIC REPORT
Five Year Summary

Financial
Gross rental income (£’000)
Net rental income from investment properties (£’000)
Proﬁt/(loss) before taxation (£’000)
Adjusted proﬁt before taxation (£’000)

Investment properties (£’000)
Loans and other borrowings (£’000)
Total equity (£’000)

Ordinary dividends per share (pence)
Earnings per share – basic (pence)
Earnings per share – adjusted (pence)

Net asset value per share (pence)
EPRA net asset value per share (pence)

Interest cover
Gearing to shareholders’ funds (%)
Loan to value

2016

2015

2014

2013

2012

20,159
17,664
53,160
7,943

17,617
14,922
33,282
5,791

14,683
12,787
38,290
3,422

16,097
14,373
1,745
5,418

15,498
13,989
(11,560)
5,003

401,170
(113,701)
261,223

352,760
(91,302)
215,495

254,550
(37,266)
189,235

212,935
(94,209)
71,933

213,227
(100,124)
74,160

8.8
57.2
7.8

280
301

1.9
45
29

8.7
36.1
5.3

233
270

1.8
43
26

8.6
75.0
6.2

206
227

1.5
19
15

8.5
3.8
11.8

157
238

1.9
127
44

8.4
(25.2)
10.8

162
229

1.9
132
47

The above ﬁgures are extracted from previous accounts based on accounting standards effective at those dates.
1Excludes fair value of interest rate derivatives.

2016 | Report and Financial Statements | McKay Securities PLC

McKay Securities PLC | Report and Financial Statements | 2016

PRINCIPAL RISKS AND UNCERTAINTIES

This year sees the introduction of the Viability Statement which
can be found on page 23. The Going Concern statement is
alongside the Viability Statement.

The Board is responsible for determining the nature and extent
of the Group’s principal risks to achieve its strategic objectives
and to safeguard the Group’s assets. The Audit Committee is
responsible for assessing those risks relating to internal control
and risk management systems which are discussed within the
Directors’ Report on page 36.

An ongoing process for identifying, evaluating and managing the
principal risks faced by the Group was in place throughout the
year to 31st March 2016 and up to the date of approval of the
Annual Report and Financial Statements. A robust assessment
of the principal risks facing the Group has been carried out and
the principal risks are listed below along with an explanation of
how these have been managed.

PRINCIPAL RISKS AND
THEIR IMPACT

HOW RISK IS MANAGED

PROPERTY

Portfolio strategy

Strategy at odds with economic
conditions and occupier demand.

The Board continually reviews its strategy against its
objectives, taking into consideration the economic
conditions, the property market cycle and occupier
demand.

The Group focuses entirely on South East England and
London in established and proven markets.

An experienced and proven acquisition team with a wide
network of contacts and advisors ensure the Group is
well placed to view and assess potential investment
opportunities.

All investment opportunities are subject to full due
diligence procedures including physical, legal and
environmental considerations.

RISK EXPOSURE
CHANGE IN THE
YEAR

Greater uncertainty
towards the end of
the period due to
the referendum on
future membership
of the EU.

Market prospects
less clear after
period of recovery.

Development/refurbishment

Delays, overruns or other contractual
disputes leading to increased costs,
delayed delivery and reduced profitability.

Failure of contractor.

Construction cost inflation.

Planning constraints.

Reduction in rental values

The Board is regularly presented with details of capital
expenditure and progress on developments, including
appraisals and sensitivity analysis.

The Group continually monitors planning and regulatory
reform and takes advice from external advisors and
industry specialists.

With three significant
redevelopment /
refurbishment
projects underway
the Group’s risk
exposure continues.

Developing, refurbishing and managing the portfolio in
order to offer new and Grade A space to attract and
retain quality tenants.

Actively managing the portfolio, identifying appropriate
rental values alongside lease length and maintaining an
open dialogue and good relationship with tenants.

Occupier demand
remains stable.
Supply constraints
in the Group’s
markets have
contributed
to improved
rental values.

2016 | Report and Financial Statements | McKay Securities PLC

PRINCIPAL RISKS AND UNCERTAINTIES
continued

PRINCIPAL RISKS AND
THEIR IMPACT

HOW RISK IS MANAGED

FINANCIAL

Interest rate rises

Lack of liquidity

RISK EXPOSURE
CHANGE IN THE
YEAR

The refinancing in
May 2015 increased
the level of fixed
debt to £100m.
The Group was
£116m drawn at
31st March 2016

The Group’s policy is to borrow at both fixed and floating
rates of interest. This, combined with interest rate
hedging instruments, manages the Group’s exposure to
interest rate fluctuations

This is managed through a mixture of short and long
term bank facilities to provide sufficient funds are
available to cover potential liabilities arising against
projected cash flows.

The refinancing in May
2015 increased the
Group’s Facilities
to £175m

Breach of financial covenants
on bank borrowings

Compliance with bank covenants is closely monitored
by the Board which regularly reviews various forecast
models to help its financial planning.

Throughout the
period the Group
complied with all
such covenants.

Major tenant default

Reduction in property values

This is monitored using Dun & Bradstreet checks for
new tenants together with on-going credit checks and
internal credit control. The Board receives regular
information on rental arrears and rent collection activities.

An open market valuation of the Group’s properties is
undertaken at the year end and half year by
independent external Valuers in accordance with RICS
guidelines and analysed by the Group’s Auditors.
Valuations are then reviewed by the Audit Committee
and approved by the Board.

The Group retains headroom should there be an overall
decline in capital values.

The Group perceives Brexit as a risk to property values.

Market uncertainty
regarding future EU
membership

REIT compliance

As a REIT, the Group is required to distribute at least
90% of rental income profits each year. It is tax exempt
in respect of capital gains. Internal monitoring is in place
to monitor compliance with the appropriate rules.

Throughout the
period the Group
complied with
the regulations.

McKay Securities PLC | Report and Financial Statements | 2016

PRINCIPAL RISKS AND
THEIR IMPACT

HOW RISK IS MANAGED

RISK EXPOSURE
CHANGE IN THE
YEAR

CORPORATE

Reputational Risk

– Adverse publicity/inaccurate
media reporting.

– Major incident at a property.

– Actions by directors or staff.

The Group retains an external investor and public
relations consultancy. Press releases are approved by
the Chief Executive Officer prior to release. The Group
produces a staff handbook that sets out an employee
code of conduct and other guidelines.

Retention/Recruitment

Failure to retain or attract key individuals
could impact on major decision making
and the future prosperity of the Group.

Reviews are undertaken with staff on a regular basis
to maintain a positive and encouraging working
environment. The remuneration package is at market
levels to attract and retain individuals with the skills,
knowledge and experience required for the business.

Requirement to
recruit replacement
Property Director.

Health & Safety

Accidents to employees, contractors,
occupiers and visitors to properties
resulting in injury, litigation or the delay of
refurbishment/redevelopment projects.

The Safety Management Group (SMG) meets regularly
to review the Health and Safety risk profile and
implement any new management systems required.
These meetings review the Group’s Fire Risk
Assessments, Safety Inspections, and contractors’
insurance and safe working practices. The SMG is
supported by specialist external advisors.

There were no
significant issues
to report in the
year.

Macro economic environment

Lack of economic growth and a
recessionary environment leading to
reduced tenant demand and higher
voids.

Whilst the Board recognises it has limited control over
many external risks, it monitors economic indicators and
tailors delivery of the Group’s strategy accordingly.

Potential disruption
from EU referendum.

Current macro economic issues such as Brexit, China’s
growth and elections are perceived by the Board to
increase risk

Key
Risk exposure in the last year has:

Increased Unchanged Reduced

Viability statement
In accordance with provision C.2.2 of the UK Corporate
Governance Code (September 2014), the Directors have
assessed the viability of the Group beyond the 12 month period
required by the Going Concern provision.

Based upon the robust risk assessment described above, the
Directors have a reasonable expectation that the Group will be able
to continue operations and meet its foreseeable liabilities as they
fall due over the period to March 2020, subject to any signiﬁcant
events beyond its control.

The principal risks to the continued operation of the Group have
been reviewed and subjected to qualitative and quantitative
analysis. Scenario testing, based on current economic
circumstances, has been undertaken, including consideration of
the implications of a decline in income, a decline in capital values
and increasing interest costs.

A ﬁve year period has been used for this assessment, with
particular focus on years one to three. This time frame is
considered appropriate as it complies with the Group’s internal
modelling and is a reasonable period for matters including
the assessment of income generation and the availability
of debt funding.

Going concern
The Group prepared cash ﬂow forecasts which show that the
Group has sufﬁcient facilities to meet forecast outgoings and
expects to comply with all covenants for the forseeable future.

After making appropriate enquiries, the Directors have a
reasonable expectation that the Group has adequate resources
to continue in operation for the foreseeable future. For this reason,
they continue to adopt the going concern basis in preparing the
ﬁnancial statements.

2016 | Report and Financial Statements | McKay Securities PLC

STRATEGIC REPORT
Sustainability

Our approach to sustainability
Operating in a responsible and sustainable manner is central
to protecting and adding long term value to the business.
Sustainability is a core element of the Group’s strategy to
deliver quality business space that is attractive to both owners
and occupiers, ensuring it maintains compliance with legislation
and meets best practice asset management and development
standards.

During the ﬁnancial year ending 31st March 2016, the Group
continued to progress its ambitious sustainability strategy focused
on delivering across three areas: managing sustainable buildings,
creating sustainable buildings and engaging stakeholders.
This strategy aims to address the most material risks and
opportunities associated with its core business activities.
Targets are set at the beginning of the ﬁnancial year for each
of the three areas to drive improvement in the Group’s overall
sustainability performance.

The Group’s sustainability advisor, JLL, has provided ongoing
support to implement the strategy and review progress made
against the sixteen targeted actions for the year under review.

The Group’s sustainability objectives

MANAGING
SUSTAINABLE
BUILDINGS
To add value to the Group’s
portfolio by improving the
efficiency of the buildings and
reducing their environmental
impact

CREATING
SUSTAINABLE
BUILDINGS
To achieve best practice
green building standards
in order to deliver
quality buildings

ENGAGING
OUR
STAKEHOLDERS
To maintain an active dialogue
with key stakeholders
about sustainability
performance

Since the launch of its sustainability strategy in 2013, the Group
has made signiﬁcant progress in implementing sustainable
practices across its entire business. Notable achievements include:

(cid:2) Establishing a baseline for energy use, carbon emissions,

water use and waste generation and using this information
as a starting point for setting improvement goals and targets.

(cid:2) Implementing resource reduction strategies at the Group’s

six most resource-intensive assets.

(cid:2) Developing sustainable clauses for its lease precedent and
a ﬁt-out guide to encourage occupiers to adopt sustainable
practices as part of any works during occupation of the
property.

(cid:2) Developing sustainability requirements for contractors,

in line with BREEAM requirements, in order to reduce the
environmental impacts arising from construction sites, and
integrating these within the Group’s development requirements.

McKay Securities PLC | Report and Financial Statements | 2016

(cid:2) Incorporating information about sustainable building features
within marketing material, drawing attention to potential
beneﬁts for corporate image as well as ﬁnancial advantages.

(cid:2) Adopting sustainable principles and practices within all
business activities, from pre-acquisition to ongoing
management and development operations.

(cid:2) Raising stakeholder awareness of the Group’s sustainability
position, by participating in key industry initiatives such as
GRESB and externally communicating yearly progress.

The Group has successfully met 93% of its 2016 targets in the
year under review, whilst a further 7% are currently in progress.
There is one further existing target with a revised end date of 2017.

The Group is committed to continually improve its sustainability
performance and has outlined 20 more targets as a focus of
activity for each of its three sustainability objectives in the year
to 31st March 2017 (see page 28).

Managing sustainable buildings
Objective: To add value to the Group’s portfolio by improving
the efﬁciency of the buildings and reducing their environmental
impact.

The Group’s business strategy is focused on maintaining and
enhancing its portfolio of properties to maximise income and capital
return. This approach to active asset management forms the core
of its day-to-day activities and is the area in which the Group has
the most signiﬁcant ongoing environmental and social impacts.

Sustainable asset management is synonymous with best practice
asset management and the Group is continually looking to improve
the environmental performance of its portfolio in the strong belief
that this will contribute to its short, medium and long term value.
For the year to 31st March 2016, the Group set nine targets
relating to this objective:

Energy and Water Targets

Status

Continue to deliver an energy and water Achieved
reduction programme at its major energy
and water consuming properties

Achieve a 6% reduction in like-for-like
landlord controlled electricity
consumption by the end of March 2016
against a 2013/14 baseline

Achieve a 6% reduction in like-for-like
landlord controlled gas consumption
(adjusted for heating degree days)
by the end of March 2016 against a
2013/14 baseline

Achieve a 6% reduction in like-for-like
landlord controlled carbon emissions
by the end of March 2016 against a
2013/14 baseline

Achieve a 5% reduction in like-for-like
landlord controlled water consumption
by the end of March 2016 against a
2013/14 baseline

Achieved

During 2015, the Group continued to develop and implement
resource reduction strategies for its six most resource-intensive
assets (which together account for approximately two-thirds of
total energy use). The six assets enrolled on the programme are:
The Mille, Brentford; Bartley House, Hook; Corinthian House,
Croydon; Mallard Court, Staines-upon-Thames; One Crown Square,
Woking and Portsoken House, EC3. A table illustrating their
performance is shown below.

Asset

kWh consumption
(Jan-Dec, 2014)

% change
in energy
consumption

Bartley House

592,961

594,140

0.2%

Corinthian House

801,081

781,699

-2.4%

One Crown Square1

1,693,840

1,470,402

-13.2%

The Group’s CRC liabilities are

Year to March

2013
2014
2015
2016

CRC Liabilities

£60,660
£34,344
£68,449
£61,837 (estimated)

The fall in the Group’s CRC liabilities during the year to
31st March 2014 and the rise seen thereafter, is mainly
due to changes in the nature of the Group’s portfolio; in particular,
the sale of one major property in 2013 and the subsequent
purchase of eight new properties during 2014/15.

Absolute water consumption decreased by 1.8% in the 2015/16
ﬁnancial year, whilst on a like-for-like basis there was a 7%
reduction, with corresponding cost savings of £1,290.

Mallard Court

438,324

391,147

-10.8%

Waste Target

Portsoken House

795,954

790,704

-0.7%

The Mille

2,834,998

2,883,542

1.7%

Maintain 100% waste diverted
from landﬁll

Status

Achieved

1Data for this asset is only available from April 2014. The % change ﬁgure is therefore
provided on a like for like basis (April-December 2014 vs April-December 2015) .

For each asset, practical and actionable energy-saving measures
have been identiﬁed. Where appropriate these have been
implemented and the Group is already seeing positive results.
Energy use has declined at two thirds of the assets in the
programme, and in some cases there have been substantial
reductions. For example, at One Crown Square, Woking, energy
use dropped by over 13% when compared to the same period the
previous year, following the upgrading of the existing light ﬁttings
to LEDs with PIR (Passive Infrared) controls and a review of the
HVAC building control system. At The Mille, Brentford lighting to
the internal common areas has been upgraded to LED together
with the installation of PIR’s on the staircases during the year under
review and the Group has seen electricity use drop by 13% in the
ﬁrst three months of 2016, compared to the same period in 2015.

Over the last two years, energy consumption has reduced across
the whole portfolio in both absolute terms and like for like terms
against the targets set. Absolute energy use has fallen by 9.2%
to 10,327,802 kWh; this is in part due to changes in the nature
of the portfolio since the baseline year of 2013/14, with some of
the largest consuming assets no longer in the calculations, but also
achieving efﬁciency savings across a large proportion of assets
under the Group’s operational control. However, on a like-for-like
basis (and taking account of heating degree days in the gas
consumption trend calculations), energy consumption was reduced
even further – by 10.5% from 5,819,251 kWh to 5,208,231 kWh,
equivalent to a £26,399 reduction in running costs.

With further energy saving projects across the portfolio being
progressed, the Group expects to see further reductions in energy
use over the coming years.

Energy data collected has been used to produce the Group’s
mandatory carbon reporting and CRC liability calculations.

Total waste generation in the 2015/16 ﬁnancial year was
297.9 tonnes2, 100% of which was diverted from landﬁll,
which was a positive outcome for the Group’s second
full year of data collection.

2For 6 assets, March 2016 data was estimated in the absence of that month’s data.
For a further 2 assets, January-March 2016 data was estimated.

Occupier Engagement Targets

Develop green lease clauses for
incorporation into all new leases from
1st January 2016 onwards (including a
provision to prevent tenants negatively
impacting the EPC rating)

Develop occupier ﬁt-out guidance to
encourage retention of sustainability
beneﬁts of the base build in operation

Status

Achieved

One of the Group’s key objectives has been to work with occupiers
to improve sustainability across the portfolio. Sustainability clauses
have been included within the Group’s lease precedent. Through
these provisions the Group aims to work with occupiers to develop
joint plans to improve the sustainability of its assets. These clauses
help ensure that any sustainability features incorporated into the
buildings’ base build are not impacted by an occupier’s activity,
which may in turn have an adverse impact on the buildings’ Energy
Performance Certiﬁcate (EPC) rating.

This year the Group has also produced a ﬁt-out guide, including
guidance on sustainability for occupiers undertaking works.
The aim is to ensure that an occupier’s ﬁt-out complements
the base build and minimises conﬂict with the building’s operational
performance. The guide also highlights further sustainability
improvements and the aspects of a ﬁt-out which can have a
positive inﬂuence on occupier health and wellbeing.

EPC Risk Targets

Review EPC risk associated with new
purchases and plan out improvement
works as necessary

Status

Achieved

2016 | Report and Financial Statements | McKay Securities PLC

STRATEGIC REPORT
Sustainability - continued

Over the last few years the Group has put signiﬁcant effort into
understanding and mitigating its portfolio EPC risk. The Energy Act
2011 will make it illegal to let any properties with an EPC rating of
F or G from 2018. Whilst this will represent a signiﬁcant challenge
for many property owners, the Group has put itself in a very strong
position, having taken a proactive approach to managing this risk;
only 1% by ERV of the assets within the portfolio are currently
rated F or G. The Group will continue to manage EPC risk through
the implementation of ongoing improvement plans at all higher
risk properties, including for the coming period E rated assets,
to ensure this does not adversely impact on its business activities
post 2018.

Portfolio EPC ratings by % ERV

No EPC held

5.4

0.0

7.0

14.8

44.9

26.9

0.4

0.6

0.4% 0.6%
5.4%

26.9%

7.0%

14.8%

44.9%

Data Note: The above chart and table excludes 11 buildings or part buildings
comprising 23% of the total portfolio ERV as they form part of the Group’s current
refurbishment and development programme and will achieve EPC ratings above
the minimum threshold post the works.

Creating Sustainable Buildings
Objective: To achieve best practice green building standards in
order to deliver quality buildings.

The refurbishment and development of buildings are key
intervention points for incorporating sustainability requirements
and standards. For the year to 31st March 2016, the Group set
four targets relating to this objective:

Green Building Targets

A minimum requirement for BREEAM
Very Good and an EPC rating of C will
be set on all new developments and
major refurbishments

Status

Ongoing

Investigate the opportunities and costs
(feasibility) of achieving zero carbon for
a new development

Achieved

Monitor the compliance of contractors
with development sustainability
requirements and trial the collection of
environmental performance data from
one construction site

Pilot a post-occupancy assessment of
the performance of a completed
development which includes a review
of sustainability performance

In progress

2017 deadline

The Group’s development activities have been focused on three
major projects for the year ending 31st March 2016. These are
all targeting BREEAM Very Good or better.

The comprehensive refurbishment of 9 Greyfriars Road, Reading
(39,925 sq ft) is targeting BREEAM Excellent and an EPC rating
of A; if achieved the building will be the ﬁrst in Reading to hold
both of these green building credentials. This highly sustainable
ofﬁce building will not only have much lower operating costs when
compared to an average ofﬁce building, it has also been carefully
designed to incorporate features that positively enhance occupier
wellbeing and productivity such as a roof terrace, secure bike
storage, showers and lockers.

A similar approach to design has been taken at the Group’s
48,000 sq ft new ofﬁce development in central Redhill, being
marketed as Prospero. The Group has again targeted BREEAM
Excellent and an EPC A rating.

Following occupation of these buildings, post-occupancy
monitoring will be carried out to gather data and insights on the
buildings’ performance in use. A comprehensive set of indicators
has been developed by the Group to ensure that the ofﬁce space
it creates is not only environmentally efﬁcient but also enhances
occupier wellbeing and business efﬁciency. For this reason, the
target relating to post-occupancy assessments has been extended
to 31st March 2017.

Meanwhile, demolition work is underway at 30 Lombard Street,
EC3. The existing 1960’s building is to be replaced with a new
high quality ofﬁce building in keeping with this prime City location
and is programmed for completion in mid-2018. A ‘SmartWaste’
system is to be piloted to track performance against a range of
environmental indicators including the amount of construction
waste reused or recycled.

During the year under review, the Group investigated the potential
for introducing photovoltaic (PV) systems at Corinthian House,
Croydon and Mallard Court, Staines-upon-Thames to reduce
running costs to the common building areas, as well as its three
major developments. Consultants were commissioned to estimate
how much energy could be generated by installing PV on all
suitable roof areas as well as potential carbon and cost savings.
Following this review a decision has been taken to install
1,400 sq ft of solar PV at Prospero.

Engaging stakeholders
Objective: To maintain an active dialogue with key
stakeholders about sustainability performance.

The Group’s ability to deliver on its business and sustainability
endeavours is, in part, dependent on its ability to communicate,
support and gather feedback from its stakeholders. The Group’s
key stakeholders are its employees, occupiers, shareholders,
ﬁnancial providers, suppliers and communities. For the year
under review, three targets were set in relation to engaging
with these stakeholders.

The Group remains committed to providing stakeholders with
a clear, transparent and balanced account of its sustainability
journey, and it recognises the beneﬁts that this offers customers,
stakeholders and the Group itself.

McKay Securities PLC | Report and Financial Statements | 2016

Occupier Engagement Target

Develop and roll out a customer
satisfaction survey which includes
sustainability questions

Status

Achieved

Openness and transparency is helping to transform the way in
which the Group operates, by strengthening its relationships
with customers and stakeholders, and supporting the improvement
of its product and service. This year the Group launched its
ﬁrst independent customer satisfaction study to gain insight into
the issues that are important to its occupiers. Whilst the survey
revealed moderately high levels of overall satisfaction have been
achieved, it also identiﬁed scope to raise satisfaction levels across
a range of services and the Group is drawing up an action plan.

The study also revealed that the majority of occupiers (65%) think
it important or very important that the building meets sustainability
requirements and would welcome further initiatives to encourage
more sustainable business practices, such as recycling.

Investor Engagement Target

Improve our GRESB score relative
to 2014/15

Status

Achieved

The Group seeks to maintain an open dialogue with investors
and has participated in the key investor-led sustainability survey
for the real estate sector, the Global Real Estate Sustainability
Benchmark (GRESB), to enable its performance to be compared
with that of its peers. Having trialled participation in 2014, the
Group participated fully in 2015, with its score improving
materially in just 12 months, achieving a score just short
of the coveted Green Star status. An action plan has been
put in place to work towards securing this status for 2016.
The Group also communicates its sustainability efforts to
investors through its annual reporting and investor presentations.

Employee Engagement Target

Organise green building tours for
employees which build sustainability
awareness

Status

Achieved

To help develop the Group’s property team’s understanding of
current sustainability issues, tours of some of London's most
sustainable buildings were undertaken during the period.
Employees have been able to hear more about lessons learned,
and how these lessons can be applied to help achieve sustainable
outcomes on the Group’s own projects.

While not covered speciﬁcally through its sustainability targets,
Health and Safety (H&S) is a critical element of the Group’s
engagement programme. The Group engages with occupiers,
employees and suppliers on H&S. Implementation of its policy
and procedures continues on the basis of statutory compliance
as an absolute minimum and where considered beneﬁcial to the
business, enhanced by best practice.

The Group’s H&S Policy and Procedures were updated during
the period under review to reﬂect legislation and latest best
practice; a copy of the General Statement is available on the
Group’s website and is being shared with suppliers and
employees. Implementation of the Group’s H&S is managed
by the Safety Management Group (SMG), which is chaired by
Steven Mew. The SMG meets monthly where it reviews any
legislative changes that may affect the Group and its portfolio
and takes appropriate action on any risks highlighted to actively
reduce the Group’s risk proﬁle. A programme of health and safety
training has been implemented for employees, alongside a
programme of training with the Group’s contractors and
consultants to ensure they are working to the same standard.
For the period to 31st March 2016, there has been one accident
of a nature reportable to HSE.

The Group’s main community engagement takes place through
the planning process and its community investment activities.
These community investment activities are co-ordinated by its
Charity Committee, and focus on supporting local, children’s
charities. For the year ending 31st March 2016, the Group
made a total of £28,915 in charitable donations. This represents
0.4% of adjusted proﬁt before tax (0.5% in 2015).

A report on the Group’s Mandatory Greenhouse Gas Emissions
and diversity disclosure can be found on pages 34 and 35
respectively.

2016 | Report and Financial Statements | McKay Securities PLC

STRATEGIC REPORT
Sustainability - continued

2016/17 Sustainability Targets
Building upon results achieved this year, the Group has established
20 new sustainability targets for the year to March 2017.

Managing Sustainable Buildings

Target

Deadline

Target

Deadline

Electricity consumption: 1 Year Target – achieve a 4% annual
reduction in like-for-like landlord controlled consumption by the
end of March 2017, relative to a 2015/16 baseline.

March
2017

Waste: 1 year Target – increase recycling rate to 41% for
managed waste by March 2017, across all properties for which
the Group has management control.

March
2017

Electricity consumption: 4 Year Target – achieve a 16%
reduction in like-for-like landlord controlled consumption by the
end of March 2020, relative to a 2015/16 baseline.

March
2020

Waste: 4 Year Target – improve recycling rate to 52% for
managed waste by March 2020, in line with the Real Estate
Environmental Good Practice Benchmark (REEB).

March
2020

Gas consumption: 1 Year Target – achieve a 4% annual
reduction in like-for-like landlord controlled consumption
(adjusted for heating degree days) by the end of March 2017,
relative to a 2015/16 baseline.

Gas consumption: 4 Year Target – achieve a 16% reduction in
like-for-like landlord controlled consumption (adjusted for
heating degree days) by the end of March 2020, against a
2015/16 baseline.

Carbon emissions: 1 Year Target – achieve a 4% annual
reduction in like-for-like landlord controlled emissions by the
end of March 2017, relative to a 2015/16 baseline.

March
2017

March
2020

March
2017

Carbon emissions: 4 Year Target – achieve a 16% reduction in
like-for-like landlord controlled emissions by the end of March
2020, against a 2015/16 baseline.

March
2020

Water consumption: 1 Year Target – achieve a 3% reduction in
like-for-like landlord controlled consumption by the end of
March 2017 against a 2015/16 baseline.

March
2017

Water consumption: 4 Year Target – achieve a 12% reduction
in like-for-like landlord controlled consumption by the end of
March 2020, against a 2015/16 baseline.

March
2020

Waste: Maintain 100% of operational waste diverted from
landfill for landlord managed portfolio.

March
2017

Waste: Engage with occupiers to facilitate improved resource
recycling rates.

March
2017

Continue to implement energy and water efficiency measures at
the Group’s major energy and water consuming assets.

March
2017

For landlord procured energy, investigate the cost of switching
100% to a low carbon energy tariff.

March
2017

Where there is landlord access to energy, water and waste data
(either through landlord-controlled utility purchase, smart meters
or occupier willingness to share data), monitor environmental
performance of new developments and major refurbishments
once in operation.

March
2017

Implement occupier fit-out guidance to encourage retention of
sustainability benefits of the base build in operation.

March
2017

Engage with occupiers who have green lease clauses to ensure
their effectiveness.

March
2017

Continue to review EPC risk associated with new purchases and
identify improvement works for any assets with an E rating or
lower.

March
2017

Creating Sustainable Buildings

Engaging Stakeholders

Target

Deadline

Target

Install smart meters at all new developments and major
refurbishments starting on site from April 2016.

Continue to monitor the compliance of contractors with
development sustainability requirements, and continue
to trial the collection of construction-related environmental
data from at least one development project in 2016/17.

Ensure all new developments and major refurbishments
achieve minimum BREEAM Very Good and an EPC rating
of at least C.

Pilot a post-occupancy assessment of the performance of
one building which includes a review of sustainability
performance.

March
2017

Maintain or enhance GRESB performance relative
to 2015.

Provide sustainability training for employees,
including annual sustainable building tours.

Develop and implement an action plan based on
outcome of recent customer satisfaction survey.

Deadline

March
2017

McKay Securities PLC | Report and Financial Statements | 2016

30 Board of Directors
32 Corporate Governance Report
33 Directors’ Report
38 Audit Committee Report
40 Nomination Committee Report
42 Remuneration

43 Directors’ Remuneration Policy Report
47 Directors’ Annual Remuneration Report

54 Statement of the Directors’ Responsibilities
55 Report of the Independent Auditor

Station Plaza
Theale

BOARD OF DIRECTORS

David Thomas FCA
Non-executive Chairman

Aged 71. Appointed Chairman in July 2007, having been
appointed a non-executive Director in September 2005.
Chartered Accountant. Chairman of Exterity Ltd. A member
of the Audit, Nomination and Remuneration Committees.

Steven Mew DipPropInv, MRICS
Property Director

Aged 48. Joined the Company in September 2001 having
spent 12 years with property consultants, Gooch Webster.
Appointed a Director in August 2002.

Richard Grainger BA, ACA
Non-executive

Aged 55. Appointed a non-executive Director in May 2014.
Chairman of Close Brothers Corporate Finance Limited
until 2009 and Chairman of Safestore Plc until December
2013. Chairman of Harrington Brooks and a non-executive
Director of Palmer & Harvey. Chairman of the Audit
Committee and a member of the Nomination and
Remuneration Committees.

McKay Securities PLC | Report and Financial Statements | 2016

Simon Perkins BSc(Hons), MRICS
Chief Executive Officer

Giles Salmon BCom, FCA
Chief Finance Officer

Aged 51. Joined the Company in August 2000
after ten years with business park developer,
Arlington Securities PLC. Appointed a Director
in April 2001 and Chief Executive Ofﬁcer in
January 2003. Member of the Nomination Committee.

Aged 50. Joined the Company in May 2011 and appointed
as Chief Finance Ofﬁcer in August 2011. Previously at
BAA Lynton managing the Airport Property Partnership.

Viscount Lifford
Senior Independent Director

Nigel Aslin FRICS
Non-executive

Aged 67. Appointed a non-executive Director in September
2006. Director of Rathbones Brothers PLC until October
2006. Trustee of the Portman Estates. Chairman of the
Remuneration Committee and a member of the Audit and
Nomination Committees.

Aged 67. Appointed a non-executive Director in May 2006.
Chartered Surveyor and former Partner responsible for
Strutt & Parker’s Thames Valley ofﬁce. Chairman of the
Nomination Committee and a member of the Audit and
Remuneration Committees.

Nick Shepherd FRICS
Non-executive

Aged 57. Appointed a non-executive Director in January
2015. Chartered Surveyor and former Senior Partner of
Drivers Jonas until 2010 when the business was sold to
Deloitte. Vice Chairman of Deloitte UK until the end of
2014. Chairman of the Property Income Trust for Charities.
Non-executive Chairman of Riverside Capital Group.
A member of the Remuneration, Audit and Nomination
Committees.

2016 | Report and Financial Statements | McKay Securities PLC

CORPORATE GOVERNANCE REPORT

There will also be a change in Chairmanship of the Audit and
Remuneration Committees, also effective as at the conclusion
of the 2016 Annual General Meeting. Nick Shepherd, an
independent non-executive Director since January 2015,
will become Chairman of the Remuneration Committee, and
Jon Austen will become Chairman of the Audit Committee.

Further details of the work of the Nomination Committee is
set out on pages 40 and 41.

In addition, in accordance with the Code we have introduced a
Viability Statement on page 23; this sets out the Board’s approach
to the long term viability of the Group.

Our Annual General Meeting will be held on 14th July 2016
which is always a welcome opportunity for the Board to meet
with shareholders.

D.O. Thomas
Chairman

24th May 2016

DAVID THOMAS
NON-EXECUTIVE CHAIRMAN

Dear Shareholder

I am pleased to present our 2015 Corporate Governance
and to be able to conﬁrm that we have complied with the
requirements of the 2014 UK Corporate Code (the ‘Code’),
effective for the ﬁrst time this year.

Sound corporate governance remains an essential part of the
Board’s stewardship and the delivery of our business strategy
over the long-term, and we continue to strive for high standards
throughout the business. We aim to work in the best interest
of our shareholders and all our stakeholders in a responsible
and ethical manner.

Those who have served over nine years on the Board
are not considered to be independent by the Code.
As part of continued succession planning, we are working
to refresh the composition of the Board on a managed basis.
This will enable compliance with the Code and allow the Board
and its Committees to maintain an appropriate balance of skills
and experience to discharge their duties and responsibilities
effectively.

As announced on 14th April 2016 and referred to earlier in the
Chairman’s Statement on page 5 I will be standing down as
non-executive Chairman and Director at the conclusion of
this year’s Annual General Meeting. I will be succeeded by
Mr Richard Grainger who joined the Board as an independent
non-executive Director in May 2014 and his biography can
be seen on page 30.

I am delighted to welcome Jon Austen, who will be joining
the Board and the Audit, Remuneration and Nomination
Committees as an independent non-executive Director
on 1st July 2016. Jon has extensive experience in
the property sector with senior ﬁnance roles at
London and Edinburgh Trust PLC, Pricoa Property Plc
and Goodman Ltd. He was Group Finance Director of
Terrace Hill plc from 2008 to 2014 and, having
implemented the reverse takeover of Urban&Civic
and associated capital raising in 2014, he has since
been Group Finance Director of Urban&Civic plc.

McKay Securities PLC | Report and Financial Statements | 2016

DIRECTORS’ REPORT

Introduction
The Directors have pleasure in submitting their report and audited
ﬁnancial statements for the year ended 31st March 2016.

Details of the Chairmen and members of the Nomination
Committee, Audit Committee and Remuneration Committee are
provided in each of the Committee Reports.

Profit and distribution
The proﬁt for the year is set out in the Consolidated Proﬁt or
Loss and other Comprehensive Income. Proﬁt before tax was
£53,160,000 (2015: £33,282,000).

On 1st April 2007 the Group converted to Real Estate Investment
Trust (REIT) status. Under the REIT regime the Company will, in the
normal course of business, be required to pay at least 90% of its
income proﬁts arising in each accounting period, by way of a
Property Income Distribution (PID) but in addition may also make
distributions to shareholders by way of non PID dividend payments.

The Directors have recommended a ﬁnal dividend of 6.1p per
share, all of which will be paid as an ordinary dividend, making a
total for the year of 8.8p per share (2015: 8.7 pence). If approved
at the Annual General Meeting on 14th July 2016 the dividend
will be paid on 28th July 2016 to shareholders recorded on the
register at the close of business on 3rd June 2016.

The Government has announced changes to dividend taxation
from 6th April 2016. Further details can be found on the
Company’s website www.mckaysecurities.plc.uk.

Activity and assets
The business of the Group is that of property investment and
development in the United Kingdom. The subsidiary undertakings
principally affecting the proﬁts or net assets of the Group in
the year are listed in note 13 of the Annual Report and
Financial Statements.

Strategic Report
A review of the business and likely future developments including
key performance indicators and principal risks and uncertainties
affecting the Group are given in the Strategic Report on pages 8
to 23.

Property valuations
The Group’s properties were valued by an external professional
valuer at 31st March 2016. An increase in value of £34.56 million
has been included in the Consolidated Proﬁt or Loss and other
Comprehensive Income.

After taking into account retained proﬁts and dividends paid during
the year, basic net asset value per share at 31st March 2016 was
280 pence (2015: 233 pence).

Directors
The Board of Directors for the ﬁnancial year to 31st March 2016
was:

D.O. Thomas (Non-executive Chairman)
S.C. Perkins
G.P. Salmon
S.R. Mew
N. Aslin
Viscount Lifford
R.S. Grainger
N.J. Shepherd
A.E.G. Gulliford (to 27th May 2015)

Biographical details of the Directors are set out on pages 30
and 31. In accordance with the Company’s Articles of Association
and the UK Corporate Governance Code. Mr N. Aslin and
Viscount Lifford having served on the Board for more than
nine years will offer themselves for annual re-election.
Mr J. Austen to be appointed to the Board from 1st July 2016
will retire and being eligible, offers himself for election
at this AGM.

Apart from service contracts and share options, details of
which are set out in the Directors’ Remuneration Report on
pages 43 to 53, no Director had a material business interest
during the year in any contract with the Company. Details of the
Directors’ interests in the ordinary shares of the Company and
share options are provided in the Directors’ Annual Remuneration
Report on pages 50 and 51.

Directors’ and officers’ liability insurance
In accordance with Article 140 of the Articles and to the extent
permitted by the Companies Acts, the Company maintains
Directors’ and Ofﬁcers’ liability insurance, which is reviewed
annually.

Substantial shareholdings
In addition to the Directors’ interests referred to on page 51
of the Directors’ Annual Remuneration Report, the Company
has been notiﬁed in accordance with the UK Listing Authorities
Disclosure and Transparency Rules of the following notiﬁable
interests in its issued share capital (see note 19 of the ﬁnancial
statements) as at 24th May 2016:

Aberforth Partners LLP
T.R. Property Investment Trust PLC
Fidelity Investment Funds
J.O. Hambro Capital Management UK

9,416,121
6,020,099
5,161,670
4,752,510

10.11
6.46
5.54
5.10

Political donations
No political donations were made during the year (2015: nil).

Charitable donations
Details of charitable donations can be found in the Sustainability
section of the Strategic Report on page 27.

Financial instruments
The Group’s ﬁnancial instruments comprise borrowings, interest
rate hedging instruments, cash and liquid resources and various
items such as trade debtors and trade creditors that arise directly
from its operations. Information regarding the Group’s ﬁnancial
instruments is given in the Strategic Report and in note 15 of the
Financial Statements.

2016 | Report and Financial Statements | McKay Securities PLC

DIRECTORS’ REPORT
continued

Share capital
The issued share capital of the Company as at 31st March 2016
was 93,158,225 ordinary shares of 20 pence each. There are no
restrictions on transfer or limitations on the holding of the ordinary
shares. None of the shares carry any special rights with regard to
control of the Company. There are no known arrangements under
which ﬁnancial rights are held by a person other than the holder
of the shares and no known agreements or restrictions on share
transfers or voting rights. The Company has employee share
schemes in which the voting rights in respect of the shares are
exercisable by the employees.

The rules about the appointment and replacement of Directors are
contained in the Company’s Articles. Changes to the Articles must
be approved by shareholders in accordance with the Articles and
applicable legislation. The Company’s Articles will be available for
inspection at the Annual General Meeting and in accordance with
applicable legislation.

Annual General Meeting
The seventieth Annual General Meeting of the Company will be
held at The Royal Thames Yacht Club, 60 Knightsbridge, London
SW1 on 14th July 2016 at 12.00 noon.

At the forthcoming Annual General Meeting the following special
resolutions will be proposed which constitute special business:

Power to allot shares
The Directors were granted authority at the last Annual General
Meeting held in 2015 to allot relevant securities up to a nominal
amount of £6,161,732. That authority will apply until the conclusion
of this year’s Annual General Meeting. At this year’s Annual General
Meeting shareholders will be asked to grant an authority to allot
shares in the Company and to grant rights to subscribe for or
convert any security into shares in the Company (i) up to a nominal
amount of £6,210,548 and (ii) comprising equity securities up
to a nominal amount of £12,421,096 (after deducting from such
limit any shares or rights allotted or granted under (i)), in connection
with an offer by way of a rights issue, (the “Section 551 authority”),
such Section 551 authority to apply until the end of the next
Annual General Meeting (or, if earlier, until close of business
on 30th September 2017).

Two special resolutions will also be proposed to grant the Directors
power to make non-pre-emptive issues for cash consideration
with rights issues and otherwise up to a total nominal amount of
£1,863,164.

Market purchase of shares
A special resolution will be proposed to renew the Directors’
authority to repurchase the Company’s ordinary shares in the
market. The authority will be limited to a maximum of 9,315,822
ordinary shares and sets the minimum and maximum prices which
may be paid.

Significant agreements
There are no agreements between the Company and its Directors
or employees providing for compensation for loss of ofﬁce or
employment that occurs because of a takeover bid.

Some of the Group’s banking arrangements may be terminable
upon a change of control of the Company.

Auditor
In accordance with Section 489 of the Companies Act 2006, a
resolution for the re-appointment of KPMG LLP as auditor of the
Company is proposed at the forthcoming Annual General Meeting.

The Directors who held ofﬁce at the date of approval of this
Directors’ Report conﬁrm that, so far as they are each aware, there
is no relevant audit information of which the Company’s auditor is
unaware and each Director has taken all reasonable steps that he
ought to have taken as a Director to make himself aware of any
relevant audit information and to establish that the Company’s
auditor is aware of that information. This conﬁrmation is given in
accordance with Section 418(2) of the Companies Act 2006.

The Group’s carbon footprint
Under the Companies Act 2006 (Strategic and Directors’ Reports)
Regulations 2013, quoted companies are required to report their
annual emissions in their Directors’ report. This Mandatory
Greenhouse Gas Emissions Reporting statement covers the
reporting period 1st April 2015 to 31st March 2016 and has been
prepared in line with the main requirements of the Greenhouse
Gas (GHG) Protocol Corporate Accounting and Reporting
Standard and ISO 14064-1:2006.

Sources of Greenhouse Gas Emissions

2015/16
(est)
tCO2e

2014/15
(actual)
tCO2e

Scope 1

Energy

Gas (EPRA sBPR fuels – Abs)

719

968

Fugitive
emissions

Refrigerant emissions

de minimis

N/A

Scope 2

Energy

Landlord–controlled electricity
(EPRA sBPR Elec Abs)

1,442

1,814

Scope 3

Energy

Total

Intensity

1,707

1,958

Landlord–obtained energy
(if sub–metered to occupiers),
all transmission and distribution
losses, and occupier-obtained
energy where applicable and
tenant has provided data
(EPRA sBPR Elec – Abs)

3,868

4,740

tCO2e / £m Adjusted profit before tax
(Scopes 1 and 2 only)

272

480

Data qualifying notes

(cid:2) This is the Group’s third year of disclosure under the

Mandatory Greenhouse Gas Emissions Reporting regulations.
The Group’s emissions for 2014/15 have been restated
due to Q4 2014/15 data not being available at the time
of reporting in 2015; this ﬁnal period of data will always
need to be estimated. As a result of this restatement, the
total emissions for 2014/15 have increased and the level
of estimation has decreased from 32% to 5%.

(cid:2) For 2015/16, 30% of energy consumption, and therefore

carbon emissions, is estimated. Q1 2016 accounts for 67%
of this estimated data. The majority of the balance comes from
30 Lombard Street, EC3 where data has been estimated while
the major development project proceeds.

McKay Securities PLC | Report and Financial Statements | 2016

(cid:2) An operational control consolidation approach has been
adopted, together with emissions factors from the
UK Government Conversion Factors for Company
Reporting 2015.

(cid:2) Within Scope 1 emissions, refrigerant-related emissions
for the period were calculated as de minimis, due to very
minimal refrigerant top-ups being recorded for this time
period, and there were no such top-ups at all in the previous
year (owned ﬂeet does not apply).

(cid:2) Adjusted proﬁt before tax value as reported in 2015/16

ﬁnancial statements – page 70 of the 2016 Annual Report
and Financial Statements.

Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report
and Financial Statements and the Group and Company ﬁnancial
statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and
Company ﬁnancial statements for each ﬁnancial year. In addition,
they are required to prepare the Group ﬁnancial statements in
accordance with IFRS as adopted by the EU and applicable law
and have elected to prepare the Company ﬁnancial statements on
the same basis.

Under company law the Directors must not approve the ﬁnancial
statements unless they are satisﬁed that they give a true and fair
view of the state of affairs of the Group and Company and of their
proﬁt or loss for that period.

In preparing each of the Group and Company ﬁnancial statements,
the Directors are required to:

(cid:2) select suitable accounting policies and then apply

them consistently;

(cid:2) make judgements and estimates that are reasonable

and prudent;

(cid:2) state whether they have been prepared in accordance

with IFRS as adopted by the EU; and

(cid:2) prepare the ﬁnancial statements on a going concern

basis unless it is inappropriate to presume that the Group
and the Company will continue in business.

The Directors are responsible for keeping adequate accounting
records that are sufﬁcient to show and explain the Company’s
transactions and disclose with reasonable accuracy, at any time,
the ﬁnancial position of the Company and enable them to ensure
that its ﬁnancial statements comply with the Companies Act 2006.
They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group
and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also
responsible for preparing a Directors’ Report, Directors’
Remuneration Report and a Corporate Governance Statement
that comply with such applicable law and regulations.

The Directors consider the Annual Report and Financial
Statements, taken as a whole, to be fair, balanced and
understandable and provide the information necessary
for shareholders to assess the Company’s performance,
business model and strategy.

The Directors are responsible for the maintenance and integrity of
the corporate and ﬁnancial information included on the Company’s
website. Legislation in the UK governing the preparation and
dissemination of ﬁnancial statements may differ from legislation
in other jurisdictions.

Throughout the year ended 31st March 2016 the Company
has complied with the 2014 UK Corporate Governance Code
(the “Code”) save for Director independence, details of which can
be found at www.frc.org.uk.

The Role of the Board
The Board of Directors (the “Board”) formulates strategy and is
responsible for the management of the Group. A schedule of
matters speciﬁcally reserved for the Board, the content of which
is reviewed annually, has been adopted and includes the approval
of the dividend policy, major capital expenditure, investments and
disposals.

The Board
For the year to 31st March 2016 the Board comprised three
executive Directors, including Mr S.C. Perkins, Chief Executive
Ofﬁcer (‘CEO’) and ﬁve non-executive Directors, being
Mr D.O. Thomas, (Non-executive Chairman), Viscount Lifford
(Senior Independent Director), Mr N. Aslin, Mr R.S. Grainger
and Mr N.J. Shepherd. Their biographical details are set out on
pages 30 and 31. Mr A.E.G. Gulliford retired on 27th May 2015.
The non-executive Chairman and non-executive Directors are
considered by the Board to be independent in that they have no
business or other relationship with the Group that might inﬂuence
their independence or judgment.

The Board formally met ten times during the period and is
provided with full and timely information in order to discharge
its duties. Attendance at Board and Committee Meetings is
set out in the table on page 37.

The roles of the Chairman and CEO are, and will continue to be,
separate. The Chairman is responsible for the leadership of the
Board and its effectiveness. He ensures a constructive relationship
exists between the executive and non-executive Directors.
Responsibility for the day to day running of the Company and
the implementation of the Company’s strategy is delegated to
the CEO with the support of the executive Directors. The division
of responsibilities between the Chairman and the CEO are set out
in writing and approved by the Board.

The Board is satisﬁed that no individual or group of Directors has
unfettered powers of discretion and that the Board and its
Committees have an appropriate balance of skills and experience
and are of sufﬁcient size to discharge their duties. The Board has
access to the advice and services of the Company Secretary and
independent legal advice at the Company’s expense, if required.
Continuing professional development training is available for
Directors as necessary.

The Board has adopted a policy and effective procedures for
managing and, where appropriate, approving conﬂicts or potential
conﬂicts of interest. Only Directors who have no interest in the
matter being considered will be able to make the relevant decision
and, in taking the decision, the Directors must act in a way they
consider in good faith will be the most likely to promote the
success of the Company.

2016 | Report and Financial Statements | McKay Securities PLC

DIRECTORS’ REPORT
continued

Committees
There are three Committees that make their recommendations to
the Board, all of which have clear terms of reference that comply
with the Code; these are reviewed annually and are available on
the Company’s website, www.mckaysecurities.plc.uk.

Audit Committee
Mr R.S. Grainger ACA is Chairman of the Audit Committee, which
met three times in the last year. Mr R.S. Grainger is identiﬁed
as having recent and relevant ﬁnancial experience as required
by the Code. The Committee’s responsibilities and activities are
set out in the Audit Committee Report on pages 38 and 39.

Remuneration Committee
Viscount Lifford is Chairman of the Remuneration Committee
which met twice in the last year and its members, policy and
activities are set out in the Directors’ Remuneration Report
on pages 43 to 53.

Nomination Committee
Mr N. Aslin FRICS is Chairman of the Nomination Committee
which met once in the last year and its responsibilities and
activities are set out in the Nomination Committee Report
on pages 40 and 41.

Risk management and internal control
The following should be read in conjunction with the Principal Risks
and Uncertainties on pages 21 to 23 of the Strategic Report.
The Board is responsible for establishing and reviewing
the Group’s system of internal control to safeguard shareholders’
investment and the Group’s assets. The Audit Committee reviews
the effectiveness of the Company’s internal ﬁnancial control and
internal control risk management systems on behalf of the Board.

The executive Directors and senior management meet on a regular
basis and are responsible for identifying key risks and assessing
their likelihood to impact on the Group. Important areas including
ﬁnancial covenants on bank borrowing, tenant default, liquidity
and interest rate movements on bank borrowings are discussed
in further detail within the Strategic Report on pages 16 and 18.
Other important areas such as risk management, corporate
taxation, legal matters, fraud, deﬁned beneﬁt pension scheme,
detailed insurance cover and contracts including maintenance
and property management all come under the direct control of
the executive Directors and are reviewed on an ongoing basis
and reported to the Board on a regular basis.

Identification of business risks
The Group has an established system of internal ﬁnancial control
which is designed to ensure the maintenance of proper accounting
records and the reliability of ﬁnancial information used within the
business. However, such a system is designed to manage rather
than eliminate the risk of failure to achieve business objectives and
can only provide reasonable and not absolute assurance against
material misstatement or loss.

Annual and long term revenue, cash ﬂow and capital forecasts
are updated quarterly during the year. Results and forecasts are
reviewed against budgets and regular reports are made to the
Board on all ﬁnancial and treasury matters.

The Directors conﬁrm that they have speciﬁcally reviewed the
framework and effectiveness of the system of internal control for
the year ended 31st March 2016.

Relations with shareholders
The UK Stewardship Code, aims to enhance the quality of
engagement between the Company and its institutional
shareholders. The Board recognises the importance of
maintaining an ongoing relationship with the Company’s
shareholders and achieves this through regular dialogue
with shareholders. The Directors meet with current and
prospective shareholders and shareholders have an
opportunity to question the Board at the Group’s Annual
General Meeting. Shareholders are given at least 20 working
days notice of the Annual General Meeting. The Chairmen of
the Audit Committee, Remuneration Committee and Nomination
Committee attend the Annual General Meeting to answer
questions. Shareholders are given the opportunity of voting
separately on each proposal and proxy votes are announced
after each resolution and posted on the Company’s website,
www.mckaysecurities.plc.uk.

In addition, there is also an investor relations section on the
Company’s website, which includes annual and interim reports,
stock exchange releases, details of the Group’s portfolio and day
to day contact details.

The Company has a share account management and dealing
facility for all shareholders via Equiniti Shareview. This offers
shareholders secure access to their account details held on
the share register to amend address information and payment
instructions directly, as well as providing a simple and convenient
way of buying and selling the Company’s ordinary shares.
For internet services visit www.shareview.co.uk or the investor
relations section of the Company’s website. The Shareview
dealing service is also available by telephone on 03456 037 037
between 8.00am and 6.00pm Monday to Friday.

McKay Securities PLC | Report and Financial Statements | 2016

Table of attendance (for the financial year to 31st March 2016)

D.O. Thomas
S.C. Perkins
S.R. Mew
G.P. Salmon
N. Aslin
Viscount Lifford
R.S. Grainger
N.J. Shepherd
A.E.G. Gulliford (to 27th May 2015)

1In attendance by invitation.

Signed by order of the Board
J.S. McKeown
Secretary

24th May 2016
Reading

Board
(10 meetings)
10
10
10
10
10
10
10
10
1

Audit
Committee
(3 meetings)
3
13
12
13
3
3
3
3
1

Remuneration
Committee
(2 meetings)
2
12
–
–
2
2
2
2
1

Nomination
Committee
(1 meeting)
1
1
–
–
1
1
1
1
–

2016 | Report and Financial Statements | McKay Securities PLC

AUDIT COMMITTEE REPORT

RICHARD GRAINGER
CHAIRMAN OF THE AUDIT COMMITTEE

Dear Shareholder

On behalf of the Board I am pleased to present the
Audit Committee Report. Over the year, the Committee
has played a key role for the Board in maintaining the
quality of our ﬁnancial reporting and overseeing the adequacy
and effectiveness of internal controls and risk management.
As a result of regular discussion with management and
frequent engagement with the external auditor, the
Committee has continued to work in an efﬁcient and
effective way.

An important addition to the Strategic Report this year is the
Viability Statement set out on page 23. This is a requirement
under the 2014 Corporate Governance Code and the
discussion and assessment of this requirement has
contributed to the review of risks facing the Group.

As previously announced, I will be stepping down as
Chairman of the Audit Committee at the conclusion of
the 2016 Annual General Meeting and will be succeeded
by Mr Jon Austen. I will remain a member of the Committee.

Richard Grainger
Chairman of the Audit Committee

24th May 2016

Committee membership
The Audit Committee (the “Committee”) consists solely of
non-executive Directors. The members of the Committee are:

R.S. Grainger ACA – Chairman
Viscount Lifford
D.O. Thomas FCA
N. Aslin FRICS
N.J. Shepherd FRICS
A.E.G Gulliford FRICS (to 27th May 2015)

Richard Grainger is identiﬁed as having recent and relevant
ﬁnancial experience as required by the Code. The Committee
met three times in the last year. Attendance of the Committee
is set out in the table in the Directors’ Report on page 37.
The Chief Finance Ofﬁcer, Chief Executive Ofﬁcer and external
auditors regularly attend Committee meetings by invitation.

Committee role and responsibilities
The main role and responsibilities of the Committee are set out
within its Terms of Reference which are reviewed annually and are
available on the Company’s website, www.mckaysecurities.plc.uk.

These responsibilities include:

(cid:2) monitoring and assessing the integrity of the ﬁnancial

statements of the Group including its annual and half yearly
reports;

(cid:2) reviewing the Company’s internal control and risk management
systems and reviewing annually the requirement for an internal
audit function;

(cid:2) recommending to the Board for shareholder approval at the
Annual General Meeting the appointment of the external
auditor and to approve their remuneration and terms of
engagement;

(cid:2) reviewing and monitoring the external auditor’s independence
and objectiveness and the effectiveness of the audit process;
and

(cid:2) developing and reviewing policy on the engagement of the

external auditor to supply non-audit services.

The Committee discharges its responsibilities by holding regular
meetings with the external auditor, including bi-annual meetings
to review half yearly reports and ﬁnancial statements. In addition,
the Committee meets the external auditor at least once a year to
discuss its remit and any issues arising from the audit.

The UK Corporate Governance Code states that where requested
by the Board the Committee provides advice on whether the
Report and Financial Statements taken as a whole is fair, balanced
and understandable, providing the information necessary for
shareholders to assess the Company’s performance, business
model and strategy. At the request of the Board the Committee
has considered the Annual Report and Financial Statements 2016
and taking into account management reports the Committee
concluded it was fair, balanced and understandable and
provided the necessary information for shareholders to
assess the Group’s performance business model and
strategy and advised the Board accordingly.

McKay Securities PLC | Report and Financial Statements | 2016

The Committee focused on the signiﬁcant judgement in the
Report and Financial Statements in respect of the Group’s property
valuation. The valuation was reviewed along with its associated
risks, and the Committee gained comfort from the valuer’s
methodology and other supporting market information.

Whistleblowing policy
The Audit Committee reviews arrangements by which staff of
the Company may in conﬁdence raise concerns that may be in
respect of ﬁnancial reporting or other matters. These detailed
procedures are set out in the Company’s Staff Handbook and
the Company’s policy is available on the Company’s website
www.mckaysecurities.plc.uk.

Internal audit
The Group has a small management team operating from one
location. Accordingly the Board exercises close control over the
Group’s activities. This enables the close involvement of the
executive Directors with the day to day operational matters of the
Group. Therefore the Committee recommended to the Board that,
at the present time, there is no requirement to establish an internal
audit function.

External auditor
The Committee has recommended to the Board that KPMG LLP
be put forward to be appointed as auditor and a resolution
concerning their appointment will be put to the forthcoming
AGM of the Company.

The Board is aware of the FRC guidance and EU audit reforms
in respect of auditor appointment and will conform with this
guidance. KPMG were appointed over 20 years ago. Although
there has not been a tender process in that period fees are
negotiated on an annual basis.

The last year KPMG can audit the Group is for the year ended
31st March 2020.

KPMG rotate the engagement partner on a 5 year cycle designed
to retain objectivity and independence. The KPMG audit fee was
£79,250, with related assurance work of £18,720. Taxation related
fees totalled £46,410. The Committee keeps under review the
ratio of audit to non audit fees to ensure that the independence
and objectivity of the external auditor are not put at risk.
The Committee can conﬁrm that it is satisﬁed the external
auditor remains independent.

2016 | Report and Financial Statements | McKay Securities PLC

NOMINATION COMMITTEE REPORT

Committee membership
Members of the Nomination Committee (the “Committee”) are:

N. Aslin FRICS - Chairman
Viscount Lifford
D.O. Thomas FCA
R.S. Grainger ACA
N.J. Shepherd FRICS
S.C. Perkins MRICS
A.E.G Gulliford FRICS (to 27th May 2015)

The Committee met once in the last year. Attendance of
the Committee is set out in the table in the Directors’ Report
on page 37.

Committee role and responsibilities
The main roles and responsibilities of the Committee are set out
within its Terms of Reference which are reviewed annually and are
available on the Company’s website, www.mckaysecurities.plc.uk.

These responsibilities include:

(cid:2) regularly reviewing the structure, size and composition of

the Board;

(cid:2) membership of Board Committees;

(cid:2) succession planning for directors and other senior executives;

(cid:2) identifying and nominating for the approval of the Board,
candidates to ﬁll board vacancies as and when they arise;

(cid:2) reviewing the results of the board performance evaluation
process that relate to the composition of the Board; and

(cid:2) making recommendations to the Board concerning the

re-election by shareholders of directors under the annual
re-election provisions of the Code or the retirement by rotation
provisions in the Company’s articles of association.

NIGEL ASLIN
CHAIRMAN OF THE NOMINATION COMMITTEE

Dear Shareholder

During the year, the Committee made further progress with
succession planning in order to continue to refresh the Board
and its Committees. The work of the Committee has been
particularly important this year, being focused on the selection
and appointment of a Chairman to succeed David Thomas,
who stands down at the end of this year’s AGM after nine
years in the role. As a consequence of planning over previous
periods, the Committee was in a position to recommend the
appointment of Richard Grainger as Chairman as an internal
candidate with excellent knowledge of the business and
past experience.

At that time, Richard will stand down as Chairman of the
Audit Committee and will be succeeded by Jon Austen, a
qualiﬁed accountant with experience in senior ﬁnancial roles,
who joins the Board and its Committees as an independent
non-executive Director on 1st July 2016. The Committee
has also considered the challenge over the year ahead of
the review of the Group’s remuneration policy. To provide
continuity through this review and its implementation,
Nick Shepherd will succeed James Lifford as Chairman of
the Remuneration Committee, also at the conclusion of
the AGM. James will continue in his role as Senior
Independent Director.

The Committee continues its review of the composition
of the Board and Committees, to maintain the appropriate
balance of skills needed to operate in an effective fashion.
Considerable progress has been made with this succession
planning over the period, and, once this is complete, it is
intended that the Board and Committees will also fully
comply with the independence requirements of the
UK Corporate Governance Code.

Nigel Aslin
Chairman of the Nomination Committee

24th May 2016

McKay Securities PLC | Report and Financial Statements | 2016

Policy on diversity
When considering recruitment the Committee considers all aspects
of diversity, including gender. The Committee considers that the
right balance of skills and experience are key to an effective Board
and therefore all candidates are considered on merit and no
diversity targets are set.

The gender diversity of the Company is set out below:

Gender diversity of the Company
Year to 31st March 2016

Board

Senior
Management

Other
Employees

Re-election of Directors
In accordance with the Articles of Association and the
UK Corporate Governance Code any Director:

(cid:2) who has been appointed by the Board since the last AGM, or

(cid:2) who held ofﬁce at the time of the two preceding AGMs and

did not retire at either of them, or

(cid:2) who has held ofﬁce with the Company, other than employment
or executive ofﬁce, for a continuous period of nine years or
more at the date of the meeting

shall retire from ofﬁce and may offer himself for re-election.

Mr J. Austen, appointed since the last AGM, will retire and being
eligible, offers himself for election. Mr N. Aslin and Viscount Lifford
will be offering themselves for re-election having served on
the Board for more than nine years. The biographical details
of the Directors are available on pages 30 and 31. The Board
are of the opinion that Mr N. Aslin and Viscount Lifford retain
their independence in both character and judgement.

Male

Female

Our operations are based solely in the UK and are
low risk in relation to human rights issues. No human
rights concerns have arisen during the period.

Board performance appraisal
A formal annual appraisal of the Board, its Committees and
individual Directors was undertaken during February and
March 2016. All appraisals consisted of an internally run
exercise using an appraisal questionnaire on a range of
benchmarks. It concluded that the Board operated in an
effective manner with open and transparent dialogue and
a high level of challenging and constructive debate. The review
conﬁrmed that the Board would continue to allow sufﬁcient time
in order to conduct property site visits as it was agreed that these
added value to strategic discussions. The Chairman assessed the
individual Directors’ questionnaires and the Senior Independent
Director assessed the questionnaire completed by the Chairman.
Feedback was provided to all Directors. The appraisals concluded
that each individual Director continued to be effective, providing a
range of skills, experience and independence.

2016 | Report and Financial Statements | McKay Securities PLC

REMUNERATION

VISCOUNT LIFFORD
CHAIRMAN OF THE REMUNERATION COMMITTEE

Dear Shareholder

I am pleased to introduce our Report on Directors’ Remuneration
for the year ended 31st March 2016.

No changes are proposed to the Directors’ Remuneration Policy
Report following approval at the 2014 AGM. This is set out on
pages 43 to 46 for ease of reference.

Resolutions at the forthcoming AGM will include approval of the
Directors’ Annual Remuneration Report which provides details
of the remuneration earned by Directors in the year ended
31st March 2016 and how the Policy will be operated in the
year ending 31st March 2017.

Performance and reward
Over the year remuneration continued to be based on a
combination of ﬁxed pay and performance related pay linked
to the Group’s annual bonus scheme and Performance Share
Plan (PSP).

For the year under review, the performance targets of the bonus
scheme were partially met. This results in a bonus payment
equivalent to 70% of basic salary for executive Directors,
of which 20% is to be awarded in nil cost shares with a
3 year vesting period.

The 7th grant of the PSP (awarded in 2013) reached the end of
the 3 year performance period on 31st March 2016. In this case,
targets were fully achieved, resulting in 100% of the award vesting.

(cid:2) the annual grant of PSP awards, subject to relative TSR
and absolute NAV growth performance conditions,
continues to incentivise executives to deliver the
Company’s long-term strategic objectives.

However, the Committee has retained the following additions
from prior years:
(cid:2) the share ownership guidelines for executive Directors will
be formalised and increased. For grants awarded in 2015
and beyond, executive Directors will be required (rather than
encouraged in the past) to retain at least 50% of the net of
tax shares which vest until a shareholding of at least 200%
of salary (100% of salary previously) is achieved;

(cid:2) the introduction of a two year post vesting hold period for

PSP awards granted in 2015 and beyond;

(cid:2) a reduction in the level of the threshold PSP vesting from

30% to 25% of the potential grant; and

(cid:2) ﬁnal adjustments to executive Director salary levels in
light of the signiﬁcant change in size and complexity of
the business.

I will be stepping down as Chairman of the Committee at
the conclusion of the 2016 AGM but will remain a member.
Nick Shepherd, who succeeds me as Chairman, will be well
placed to oversee and implement the three year review of
the Directors’ Remuneration Policy Report.

Further detail is provided in the Directors’ Annual Remuneration
Report.

I hope that the Company will receive your support to approve
the resolution at this year’s AGM.

Remuneration policy for 2016/17
Following a review of the existing Directors’ Remuneration Policy,
the Committee concluded that the Policy remains appropriate
and should continue to operate for 2016/17 without change
to the general composition. Speciﬁcally, it was decided that:
(cid:2) the structure and quantum of the annual bonus, based
on growth in NAV per share and EPS, continues to be
appropriate and aligned to shareholders’ interests; and

Viscount Lifford
Chairman of the Remuneration Committee

24th May 2016

McKay Securities PLC | Report and Financial Statements | 2016

REMUNERATION
Directors’ Remuneration Policy Report

The Directors’ Remuneration Policy Report was approved by
shareholders at the 2014 AGM and it is intended that it will
operate for a three year period and be reviewed in advance
of the 2017 AGM. Decisions made by the Committee remain
in accordance with the Policy and no changes are to be
proposed at the 2016 AGM.

Policy overview
The policy of the Committee is to align the interests of the
executive Directors with those of shareholders by structuring
the levels of basic salary and remuneration to attract, retain and
motivate executive Directors of the quality required and with the
appropriate skills to manage and develop the Group successfully.
When determining the structure of the remuneration, the
Committee is cognisant of the potential for executive remuneration
policies to encourage undue risk taking, but is satisﬁed that the
Group's policy is appropriate in this regard, with a sensible balance
between ﬁxed and performance linked pay and the use of different
performance metrics measured over differing periods.

How the views of shareholders are taken into account
The Remuneration Committee considers shareholder feedback
received each year following the AGM. This feedback, plus any
additional feedback received during any meetings from time to
time, is then considered as part of the Company's annual review
of remuneration policy.

In addition, the Remuneration Committee will seek to engage
directly with major shareholders and their representative bodies
should any material changes be proposed to the remuneration
policy. Details of votes cast for and against the resolution to
approve last year’s remuneration report and any matters discussed
with shareholders during the year are set out in the Directors’
Remuneration Report.

How the views of employees are taken into account
When determining salaries and other elements of remuneration
for our executives we take account of general pay movement and
employment conditions elsewhere in the Group, as well as the
relevant general markets.

The Committee will consider employees' views when determining
the design of the Company's senior executive remuneration policy.

2016 | Report and Financial Statements | McKay Securities PLC

REMUNERATION
Directors’ Remuneration Policy Report - continued

Remuneration policy for Directors
The table below sets out the remuneration policy which has operated since it was approved at the 2014 AGM.

Element

Base salary

Purpose and
link to strategy

To recruit and reward
executives of the
quality required and
appropriate skills to
manage and develop
the Group successfully.

Beneﬁts

To provide market
competitive beneﬁts.

Operation

Maximum opportunity

Performance measures

Reviewed annually by the
Committee, on the basis of the
performance of the individual
executive Director and
comparability with other similarly
sized companies within the sector.

Paid on a monthly basis.

The Company typically provides:
(cid:2) Car allowance (paid monthly)
(cid:2) Medical insurance
(cid:2) Life assurance

N/A

There is no prescribed maximum annual
increase. The Committee is guided by the
general increase for the broader employee
population and market conditions but on
occasions may need to recognise, for
example, a change in the scale, scope or
role and/or market movements.

There is no prescribed maximum

N/A

Pension

To provide market
competitive beneﬁts.

The Company provides contributions
to a money purchase pension scheme
and/or a cash allowance in lieu of pension

Up to 20% of salary

N/A

Annual bonus

To incentivise and
reward delivery of the
Company’s annual
strategic plan.

Up to 75% of salary

Payable in cash up to 50% of salary
3 year deferral for amounts greater
than 50% of salary.

Annual bonus targets are set by the
Remuneration Committee at the
beginning of the relevant ﬁnancial year.

Details of the performance targets set
for the year under review and performance
against them is provided in the Directors’
Remuneration Report.

Performance
Share Plan
(‘PSP’)

To incentivise and
reward the delivery
of the Company’s
strategic objectives.

To provide further
alignment with
shareholders through
the use of shares
and to aid retention.

Annual grant of conditional awards,
which vest subject to continued
employment and satisfaction of
challenging performance conditions.

Dividends that would be payable on
the unvested share awards may be
paid out at the end of the vesting period
based on the proportion of the award
that actually vests.

Normal grant policy:
Up to 100% of salary pa

Maximum grant level
Up to 150% of salary pa

Exceptional grant level:
Up to 200% of salary pa

Non-executive
Director fees

To attract and retain a
high-calibre Chairman
and non-executive
Directors by offering
a market competitive
fee level.

Fees are paid on a monthly basis.

Fee levels are recommended by
the Board within the levels sets in
the Articles of Association, to reﬂect
the responsibility of each role and
time commitments required.

The Chairman and non-executive
Directors are not eligible for any
other beneﬁts.

As for the executive Directors
there is no prescribed maximum
annual increase. The Board,
excluding non-executives, is guided
by the general increase for the broader
employee population and market
conditions but on occasions may need
to recognise, for example, change in
responsibility, and/or time commitments.

Based on a combination of growth
in NAV per share and growth in
EPS targets.

30% of the bonus opportunity is
payable for achieving threshold,
increasing on a straight line basis
to 100% payout for maximum
performance.

A clawback mechanism applies in
the event of material misstatement,
error or misconduct.

Performance is measured over
3 years based on a combination
of relative Total Shareholder Return
('TSR') and absolute NAV growth.

30% of the award (reduced
to 25% for 2016 and future
PSP awards) vests for achieving
threshold, increasing on a straight .
line basis to 100% vesting for
maximum performance.

2 year hold period post vesting.

A clawback mechanism applies in
the event of material misstatement,
error or misconduct.

N/A

Notes
1.

Executive Directors are now required to build a holding of shares in the Company to the value of 200% of basic salary.

The Committee operates incentive plans according to their respective rules and where relevant in accordance with the Listing Rules. Consistent with market practice,
the Committee retains discretion over a number of areas relating to the operation and administration of the plan. These include, but are not limited to, determining who
participates, the timing of awards, award levels, setting performance targets, amending performance targets (if an event occurs, in exceptional circumstances, to enable
the targets to fulﬁl their original purpose), assessing performance targets, treatment of awards on a change of control, treatment of awards for leavers and adjusting
awards (e.g. as a result of a change in capital structure).

The annual bonus is based on performance against a combination of NAV and EPS growth targets, aligned with the Company's annual strategic plan. A sliding scale of
targets is set for each metric to encourage continuous improvement and challenge the delivery of stretch performance.

The Committee considers that the mix of EPS, NAV and TSR performance conditions in the incentive arrangements provides an appropriate balance between focussing
management on achieving short and long-term goals and company-speciﬁc ﬁnancial and relative stock market out-performance.

There are no material differences in the structure of remuneration arrangements for the executive Directors and the general employee population, aside from participation
rates in incentive schemes.

For the avoidance of doubt, in approving this Directors' Remuneration Policy, authority is given to the Company to honour any commitments entered into with current or
former Directors (such as the payment of the prior year's annual bonus or the vesting/exercise of share awards granted in the past). Details of any payments to former
Directors will be set out in the Annual Report on Remuneration as they arise.
McKay Securities PLC | Report and Financial Statements | 2016

Remuneration scenarios for executive Directors
The charts below illustrate how the composition of the
executive Directors' remuneration packages varies at
three performance levels, namely, at minimum (i.e. ﬁxed pay),
target and maximum levels under the policy set out below.

Service contracts
The executive Directors' service contracts are terminable by the
Company on not less than one year's notice. In each case the
contracts are subject to six months' notice by the executive
Director. The service contracts are dated as follows:

Executive Director

Date of service contract

S.C. Perkins
S.R. Mew
G.P. Salmon

16th March 2004
16th March 2004
2nd May 2011

The non-executive Directors have rolling terms of appointment,
providing for them to retire by rotation in accordance with the
Articles of Association. All Directors will submit themselves for
re-election at least once every three years. Any non-executive
Director who has served on the Board for more than nine years
from the date of their ﬁrst election will retire and submit himself
for re-election annually. The terms of appointment for the
non-executive Directors are dated as follows:

Non-Executive Director

Date of service contract

A.E.G. Gulliford (retired 27th May 2015) 19th April 2004
D.O. Thomas
N. Aslin
Viscount Lifford
R.S. Grainger
N.J. Shepherd

31st August 2005
2nd May 2006
29th August 2006
1st May 2014
21st January 2015

Approach to recruitment and promotions
The remuneration package for a new executive Director would
be set in accordance with the terms of the Company’s prevailing
approved remuneration policy at the time of appointment and take
into account the skills and experience of the individual, the market
rate for a candidate of that experience and the importance of
securing the relevant individual.

Salary would be provided at such a level as required to attract the
most appropriate candidate and may be set initially at a below
mid-market level on the basis that it may progress towards the
mid-market level once expertise and performance has been
proven and sustained. The annual bonus potential would be limited
to 75% of salary and grants under the PSP would be limited
to 100% of salary (up to 200% of salary in exceptional
circumstances). In addition, the Committee may offer additional
cash and/or share-based elements to replace deferred or incentive
pay forfeited by an executive leaving a previous employer. It would
seek to ensure, where possible, that these awards would be
consistent with awards forfeited in terms of vesting periods,
expected value and performance conditions.

For an internal executive Director appointment, any variable pay
element awarded in respect of the prior role may be allowed to
pay out according to its original terms. For external and internal
appointments, the Committee may agree that the Company will
meet certain relocation and/or incidental expenses as appropriate.

Value of the gross remuneration packages at different levels of performance
for the financial year ending 31st March 2016

1200

1,000

800

600

400

200

0
0
0
£

’

£1132k

33%

25%

42%

£803k

23%

18%

59%

£474k

100%

£565k
23%

18%
59%

£335k

100%

£795k

33%

25%

42%

£528k

23%

18%

59%

£312k
100%

£743k

33%

25%

42%

Basic

Target

Maximum

Basic

Target

Maximum

Basic

Target

Maximum

S.C. PERKINS, CEO

S.R. MEW, PROPERTY DIRECTOR

G.P. SALMON, CFO

PSP award

Bonus

Basic salary, benefits
and pension

Notes
1.

Salaries are based on those applying on 1st April 2016.

The value of taxable beneﬁts is based on the cost of supplying those beneﬁts
(as disclosed) for the year ending 31st March 2016.

The value of pension receivable is taken to be 20%, 18% and 18% of
salary respectively.

The target level of bonus is taken to be 50% of the maximum bonus opportunity.

The target level of vesting under the PSP is taken to be 50% of the maximum
of the face value of the award at grant.

The impact of share price movement and dividend accrual has been excluded.

2016 | Report and Financial Statements | McKay Securities PLC

REMUNERATION
Directors’ Remuneration Policy Report - continued

Approach to leavers
There are no predetermined provisions for compensation within
the executive Directors' service contracts in the event of loss of
ofﬁce. The Committee considers all proposals for the early
termination of the service contracts for executive Directors and
senior executives and would observe the principle of mitigation.
It has been the Committee’s general policy that the service
contracts of executive Directors (none of which are for a
ﬁxed term) should provide for termination of employment by
giving 12 months’ notice or by making a payment of an amount
equal to 12 months’ basic salary and pension contributions in
lieu of notice. It is the Committee’s general policy that no executive
Director should be entitled to a notice period or payment on
termination of employment in excess of the levels set out in his
or her service contract.

Annual bonus may be payable with respect to the period of the
ﬁnancial year served although it will be pro-rated and normally paid
at the normal payout date. Any share-based entitlements granted
to an executive Director under the Company’s share plans will be
determined based on the relevant plan rules. However, in certain
prescribed circumstances, such as death, ill-health, disability,
retirement or other circumstances at the discretion of the
Committee, "good leaver" status may be applied. For good leavers,
awards will normally vest on the date of cessation, subject to the
satisfaction of the relevant performance conditions at that time and
reduced pro-rata to reﬂect the proportion of the performance
period actually served, although the Remuneration Committee
has the discretion to disapply the application of time pro-rating
if it considers it appropriate to do so.

McKay Securities PLC | Report and Financial Statements | 2016

REMUNERATION
Directors’ Annual Remuneration Report

Committee role and membership
The Committee consists solely of non-executive Directors.
The members of the Committee (who all served throughout the
year) are:

Viscount Lifford – Chairman
Mr D.O. Thomas
Mr N. Aslin
Mr R.S. Grainger
Mr N.J. Shepherd
Mr A.E.G Gulliford (to 27th May 2015)

No member has any personal interest in the matters decided by
the Committee, nor any day to day involvement in the running of
the business and therefore all members are considered by the
Company to be independent. The Committee members have
no personal ﬁnancial interest, other than as shareholders, in
the matters to be decided.

The terms of reference of the Remuneration Committee are
available on the Company's website www.mckaysecurities.plc.uk.

Details of the Committee members' attendance at Committee
meetings during the ﬁnancial year are as follows:

Committee member

Number of meetings attended

Viscount Lifford
D.O. Thomas
N. Aslin
R.S. Grainger
N.J. Shepherd
A.E.G Gulliford

2 out of 2
2 out of 2
2 out of 2
2 out of 2
2 out of 2
1 out of 2

External advisors
During the year the Committee received independent advice from
New Bridge Street (part of Aon plc) on a range of remuneration
issues. New Bridge Street was appointed by the Committee and
neither New Bridge Street nor any other part of Aon plc have any
other connection or provided any other services to the Company.
Total fees paid to New Bridge Street in respect of its services to the
Committee during the year were £20,016.

New Bridge Street is a member of the Remuneration Consultants
Group and abides by the Remuneration Consultants Group Code
of Conduct, which requires its advice to be objective and impartial.

The Chief Executive attends meetings by invitation, but is not
involved in the discussion of his own remuneration.

Implementation of the Remuneration Policy for the year
ending 31st March 2017
Salaries
The executive Directors' salaries were reviewed by the Committee
in February 2016 and increases of 5%, 3% and 7% have
been awarded to the Chief Executive Ofﬁcer, Property Director
and Chief Finance Ofﬁcer respectively from April 2016.
These increases compare with potential awards of up to
10% following consultation last year with major investors
and representative bodies.

Salary as at
1st April 2015

Salary as at
1st April 2016

Percentage
increase

S.C. Perkins
S.R. Mew
G.P. Salmon

£358,000
£255,000
£230,000

£376,000
£263,000
£246,000

5%
3%
7%

Benefits in kind and pension
The Company continues to operates a policy whereby executive
Directors are offered a car allowance, medical insurance, life
assurance and pension contributions, or cash in lieu of pension
contributions (further details of which are set out on page 44).

Annual bonus scheme
The maximum bonus potential for the year ending 31st March
2017 will remain at 75% of basic salary. Performance will
continue to be based on NAV growth per share (60%) and
absolute growth in EPS (40%).

Disclosure of prior year target
The bonus targets for the year ended 31st March 2015 were:

Earnings growth

NAV growth

Threshold
Maximum
Actual
Result
Threshold
Maximum
Actual
Result

£5.65 million
£7.80 million
£5.79 million
32%
£2.38 pps
£2.54 pps
£2.77 pps
100%

Fees for the Chairman and non-executive Directors
The Chairman and non-executive Directors' fees were increased
by 4%, effective from 1st April 2016. A summary of the fees is as
follows:

Fees as at
1st April 2015

Fees as at
1st April 2016

Percentage
increase

D.O. Thomas
Viscount Lifford
N Aslin
R.S. Grainger
N.J. Shepherd
A.E.G. Gulliford

£59,100
£35,500
£35,500
£35,500
£35,500
£35,500

£61,500
£36,900
£36,900
£36,900
£36,900
n/a

4%
4%
4%
4%
4%
n/a

2016 | Report and Financial Statements | McKay Securities PLC

REMUNERATION
Directors’ Annual Remuneration Report - continued

Performance Share Plan
PSP awards to be granted in the year ending 31st March 2017 will be subject to the following targets:

Performance condition

Relative total shareholder
return against a bespoke group
of quoted real estate companies
(60% of award)

Threshold target
(25% vesting)

Median

Stretch target
(100% vesting)

End of
performance period

Upper quartile

31st March 2020

Absolute NAV growth
(40% of award)

Average annual growth of
6% in excess of RPIX

Average annual growth of
25% in excess of RPIX

31st March 2020

Consistent with previous years, executive Directors will receive a PSP award equivalent in value to 100% of salary conditional on
performance criteria. Clawback provisions will continue to apply.

In line with the 2014 UK Corporate Governance Code, the Remuneration Committee has decided, prior to the next policy review in 2017,
to require the Directors to hold PSP vested shares relating to grants made in 2015 onwards, for a further two years, subject to the need
to ﬁnance any costs of acquisition and associated tax liabilities.

The Remuneration Committee has further decided to formalise the requirement for executive Directors to hold 200% of their basic salary
in shares by retaining at least half of the post tax quantum of PSP vested shares until that target is achieved.

Directors’ remuneration
Executive
S.C. Perkins

S.R. Mew

G.P. Salmon

Non-executive
D.O. Thomas

Viscount Lifford

N. Aslin

R.S. Grainger

N.J. Shepherd

A.E.G. Gulliford

Fees/salary
fees
£’000

Beneﬁts
£’000

Pension
including
salary
supplement
£’000

2016
2015

358
311

255
222

230
191

59
56

36
34

36
31

36
7

9
34

23
29

24
20

22
24

—
—

68
60

45
40

41
34

—
—

Annual
bonus
£’000

251
170

179
121

162
105

—
—

Value of
long
term
incentives
£’000

Total
remuneration
£’000

497
569

354
405

303
337

—
—

1,197
1,139

857
808

759
692

59
56

36
34

36
31

36
7

9
34

McKay Securities PLC | Report and Financial Statements | 2016

Notes
1.

Taxable beneﬁts
Beneﬁts comprise car allowance, medical insurance and life assurance.

Annual bonus payments
The annual bonus for the year ended 31st March 2016 was based on performance against NAV targets (60% of the bonus
potential) and EPS targets (40% of the bonus potential).

Metric
NAV growth

Weighting
60%

Threshold

Maximum
Actual
RPI + 3% RPI + 10% >RPI + 10%

EPS growth

40%

90%

112.5%

107%

Total

100%

% outturn
45%
of salary
(maximum:
45%)
25%
of salary
(maximum:
30%)
70%
of salary

Bonus payments (cash or shares) are subject to clawback. Overpayments may be reclaimed in the event of performance
achievements being found to be materially misstated or erroneous, or in the event of misconduct.

Long term incentives
The PSP award granted on 20th June 2013 is subject to performance to the year ended 31st March 2016. The performance
conditions attached to this award and actual performance against these conditions is as follows:

Threshold
target

Actual
performance
RPIX + 6% RPIX + 25% >RPIX + 25%

Maximum
target

Vesting
level
100%

Median Upper quartile Upper quartile

100%

Metric
NAV growth

Relative TSR

Weighting

60%

Performance
condition
40% Average annual NAV growth
of RPIX + 6% (25% vesting)
over three ﬁnancial years
Relative TSR performance
against a group of quoted
real estate sector companies
over three ﬁnancial years.
30% of this part of the
award for achieving threshold
performance, increasing on
a straight line basis to full
vesting for achieving for
achieving the stretch target.

Total vesting

100%

Based on the estimated vesting percentage above, details of the shares under award and the estimated value (based on the
share price at 31st March 2016 of £2.3975 per share) is as follows:

Executive
S.C. Perkins
S.R. Mew
G.P. Salmon

Number of
shares
at grant
207,274
147,569
126,458

Estimated
number of
shares
to vest
207,274
147,569
126,458

Estimated
number of
shares
to lapse
—
—
—

Estimated
value
£000
497
354
303

2016 | Report and Financial Statements | McKay Securities PLC

REMUNERATION
Directors’ Annual Remuneration Report - continued

Details of PSP awards granted in the year
The following award was granted to the executive Directors on 18th June 2015:

Number of
Type of
award

Basis of
award
granted
Nil-cost option 100% of salary
Nil-cost option 100% of salary
Nil-cost option 100% of salary

S.C. Perkins
S.R. Mew
G.P. Salmon

Details of outstanding share awards

Share
price
at date
of grant
£2.55
£2.55
£2.55

Number of
shares
over which
award was
granted
140,392
100,000
90,196

% of
face value
that would
vest at
threshold
performance

Vesting
determined by
performance
over
25% Three ﬁnancial
years to
25%
25% 31st March 2018

Face
value of
award
£’000
£358
£255
£230

31st March
2015
Number
of shares

Granted in
2015/16
Number
of shares

Vested in
2015/16
Number
of shares

Lapsed in
2015/16
Number
of shares

31st March
2016
Number
of shares

Share
price
at grant
£

Date from
exercisable/
vesting

Expiry

S.C. Perkins
2012 PSP
2013 PSP
2014 PSP
2015 PSP

S.R. Mew
2012 PSP
2013 PSP
2014 PSP
2015 PSP

G.P. Salmon
2012 PSP
2013 PSP
2014 PSP
2015 PSP

S.C. Perkins
2012 Defered bonus
2013 Defered bonus

S.R. Mew
2012 Defered bonus
2013 Defered bonus

G.P. Salmon
2012 Defered bonus
2013 Defered bonus

227,724
207,274
137,004

—
—
—
140,392

227,724
—
—
—

162,121
147,569
97,709

— 162,121
—
—
—
—
—
100,000

134,942
126,458
84,317

—
—
—
90,196

134,942
—
—
—

15,611
15,208

11,114
10,827

8,490
9,012

—
—

15,611
—

11,114
—

8,490
—

—
—
—
—

—
207,274
137,004
140,392
484,670

—
147,569
97,709
100,000
345,278

—
—
— 126,458
84,317
—
90,196
—
300,971

—
—

—
15,208
15,208

—
10,827
10,827

—
9,012
9,012

1.28 13.06.2015 13.06.2018
1.44 20.06.2016 19.06.2019
2.27 11.06.2017 10.06.2020
17.06.2021
2.55 18.06.2018

1.32
1.49

23.07.2015
24.07.2016

22.07.2018
23.07.2019

1.32
1.49

23.07.2015
24.07.2016

22.07.2018
23.07.2019

1.32
1.49

23.07.2015
24.07.2016

22.07.2018
23.07.2019

The last ESOS grant (2005) expired on 29th June 2015.

McKay Securities PLC | Report and Financial Statements | 2016

Statement of Directors' shareholdings and share interests

S.C. Perkins
S.R. Mew
G.P. Salmon

D.O. Thomas
Viscount Lifford
N. Aslin
R.S. Grainger
N.J. Shepherd
A.E.G. Gulliford

Beneﬁcially
owned at
31st March
2015
196,765
56,295
51,496

136,686
60,000
70,300
—
—
40,292

Beneﬁcially
owned at
31st March
2016
2210,000
134,719
87,366

151,642
70,000
90,000
10,000
6,925
n/a

Outstanding
PSP
performance
awards
484,670
345,278
300,971

Outstanding
deferred
bonus
awards
15,208
10,827
9,012

1Shareholding
as a
% of
salary
141
127
91

1Based on share price as at 31st March 2016 of £2.3975 per share.
2Beneﬁcial holdings, as deﬁned by the Companies Act, would include a further 5,602 shares.

Executive Directors are now required to build up a holding of shares in the Company to the value of 100% of salary, increasing to 200%
of salary for PSP grants awarded in 2015 and beyond.

Payments within the year to past Directors
No payments were made to past Directors in the year ended 31st March 2016.

Loss of office payments
No Director left in the year and no compensation for loss of ofﬁce was paid. The principles governing compensation for loss of ofﬁce
payments are set out on page 46.

Percentage change in the remuneration of the Chief Executive Officer
The table below shows the percentage change in the Chief Executive Ofﬁcer's total remuneration (excluding the value of any long-term
incentives and pension beneﬁts receivable in the year) between FY2014/2016 and FY2015/2016 compared to that of the average
for all employees of the Group.

Chief Executive Ofﬁcer
Average employees

% Change from FY2014/2015 to FY2015/2016

Remuneration
5%
4%

Beneﬁts
0%
0%

Bonus
28%
29%

2016 | Report and Financial Statements | McKay Securities PLC

REMUNERATION
Directors’ Annual Remuneration Report - continued

Comparison of TSR performance and pay
The chart below shows the Group's TSR compared to the FTSE Real Estate Index and the FTSE All Share Index over the past six years.

This chart shows the value of £100 invested in the FTSE Real Estate Index and the FTSE All Share Index. These indices have been
chosen by the Remuneration Committee as they are considered to be an appropriate benchmark against which to assess the relative
performance of the Group.

(£)

£450

£400

£350

£300

£250

£200

£150

£100

£50

31MARCH

2009

2010

2011

2012

2013

2014

2015

2016

Key:

McKay Securities PLC

FTSE 350 Real Estate Index

FTSE All Share Index

Source: Thomson Reuters

The total remuneration ﬁgures for the Chief Executive Ofﬁcer during each of the last six ﬁnancial years are shown in the table below.
The total remuneration ﬁgure includes the annual bonus based on that year's performance and PSP awards based on three year
performance periods ending just after the relevant year end. The annual bonus payout and PSP vesting level, as a percentage of
the maximum opportunity are also shown for each of these years.

Total remuneration (£'000)
Annual bonus (% of salary)
LTIP vesting (% of max)

2010/2011
£365
0
0

2011/2012
£410
10
0

2012/2013
£413
13
0

2013/2014
£802
45
60

2014/2015
£1,139
55
100

2015/2016
£1,197
70
100

Relative Importance of the spend on pay
The following table shows the Company's actual spend on pay (for all employees) relative to dividends.

Staff costs (£'m)
Dividends (£'m)

2015/2016
£4.2
£8.2

2014/2015
£4.0
1£8.0

% change
7%
2.5%

£1.6 million of the staff costs ﬁgures relates to pay for the executive Directors. This is different to the aggregate of the single ﬁgures for
the year under review due to the way in which the share based awards are accounted for. The dividend ﬁgures relate to amounts payable
in respect of the relevant ﬁnancial year.

1The ﬁnal dividend of 6.1 pence per share will be paid on 93.16 million shares (92.43 million for 2014/15).

McKay Securities PLC | Report and Financial Statements | 2016

Statement of shareholder voting
At last year's AGM, the Directors' Remuneration Report resolution was carried on a show of hands and received the following proxy votes
from shareholders:

Proxy votes cast in favour*
Proxy votes cast against
Total votes cast
Proxy votes withheld

*includes discretionary votes of 19,500.

The disclosure on Directors’ remuneration in the tables on page 48 to 51 has been audited.

The Directors’ Annual Remuneration Report has been approved by the Board of Directors.

Signed on behalf of the Board of Directors.

Number of votes
67,107,537
1,218,795
68,326,332
667,569

98.22%
1.78%
100.00%

By Order of the Board
Viscount Lifford
Chairman of the Remuneration Committee

24th May 2016

2016 | Report and Financial Statements | McKay Securities PLC

STATEMENT OF THE DIRECTORS’ RESPONSIBILITIES
For the year ended 31st March 2016

We conﬁrm that to the best of our knowledge:

(cid:2) the Group ﬁnancial statements, prepared in accordance with
IFRSs as adopted by the EU, give a true and fair view of the
assets, liabilities, ﬁnancial position and proﬁt or loss of the
Group and the undertakings included in the consolidation
taken as a whole; and

(cid:2) the Report of the Directors, incorporating the Chairman’s

Statement and the Strategic Review, includes a fair review
of the development and performance of the business and
the position of the Group, and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face.

The Directors consider the Report and Financial Statements,
taken as a whole, to be fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Company’s performance, business model and strategy.

S.C. Perkins
Chief Executive Ofﬁcer

G.P. Salmon
Chief Finance Ofﬁcer

24th May 2016

McKay Securities PLC | Report and Financial Statements | 2016

REPORT OF THE INDEPENDENT AUDITOR

To the members of McKay Securities PLC only

Opinions and conclusions arising from our audit

1 Our opinion on the financial statements is unmodified

We have audited the ﬁnancial statements of McKay Securities PLC
for the year ended 31st March 2016 set out on pages 58 to 83.

In our opinion:
(cid:2) 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
31st March 2016 and of the Group’s proﬁt for the year
then ended;

(cid:2) the Group ﬁnancial statements have been properly prepared

in accordance with International Financial Reporting Standards
as adopted by the European Union (IFRSs as adopted by
the EU);

(cid:2) the parent company ﬁnancial statements have been properly
prepared in accordance with IFRS as adopted by the EU
and as applied in accordance with the provisions of the
Companies Act 2006; and

(cid:2) the ﬁnancial statements have been prepared in accordance
with the requirements of the Companies Act 2006; and, as
regards the Group ﬁnancial statements, Article 4 of the IAS
Regulation.

2 Our assessment of risks of material misstatement
In arriving at our audit opinion above on the ﬁnancial statements
the risk of material misstatement that had the greatest effect
on our audit was as follows (unchanged from 2015):

Valuation of investment properties £399 million
(2015: £350 million) risk vs 2015
Refer to page 38 (Audit Committee Report), page 65 (accounting
policy) and pages 72 to 73 (ﬁnancial disclosures)
(cid:2) the risk – Investment Properties represent 96% (2015: 97%)

of gross assets of the Group. The portfolio comprises
36 (2015: 40) properties which are externally valued by
qualiﬁed independent valuers and held at fair value at the
balance sheet date. Each property is unique and the fair value
requires signiﬁcant judgment and estimation, in particular over
the key assumptions of the estimated rental value and the yield.
The key assumptions will be impacted by a number of factors
including location, quality and condition of the building and
tenant credit rating. Valuing investment properties under
development can be further complicated by the need to
forecast cost to complete. Whilst comparable market
transactions provide good valuation evidence, the unique
nature of each property means that a key factor in the property
valuations are assumptions with signiﬁcant judgments on
which we focused our audit.

(cid:2) our response – In this area our procedures included

discussions with the Group’s external property valuers to
understand movements in property values within the portfolio
and to determine the valuation methodology used. We included
our own property valuation specialist to assist us in:

(cid:2) critically assessed the competence and experience of the
external property valuers used by the Group by assessing
their objectivity, professional qualiﬁcations and resources;
(cid:2) critically assessing the results of their report by checking
that the valuations were in accordance with the RICS
Valuation Professional Standards ‘the Red Book’ and IFRS
and that the methodology adopted was appropriate by
reference to acceptable valuation practice;

(cid:2) critically assessing the historical accuracy of the valuations
by comparing disposal proceeds to the recent valuations;
(cid:2) challenging the key assumptions upon which the valuations
were based including those relating to forecast rents, yields,
vacant periods and irrecoverable expenditure by making a
comparison to our own understanding of the market; and

(cid:2) challenging the results of their report by comparing the
change in the valuation to industry benchmarks; and

(cid:2) for major properties under development, agreeing

signiﬁcant project costs to signed contracts, assessing
the progress of development and leasing status and
recalculating the forecast costs to complete included
in the valuations. We also considered the adequacy of
the Group's disclosures about the degree of estimation
and sensitivity to key assumptions made when valuing
these properties.

3 Our application of materiality and an overview of the scope

of our audit

Materiality for the group ﬁnancial statements as a whole was
set at £4.1 million (2015: £7.2 million), determined with reference
to a benchmark of total group assets, of which it represents 1%,
reﬂecting industry consensus levels (2015: 2%).

In addition, this year we applied materiality of £0.40 million to
Net Rental Income from Investment Properties, Administration
costs and Net Finance Costs, for which we believe misstatement
of lesser amounts than materiality for the ﬁnancial statements as
a whole can be reasonably expected to inﬂuence the company’s
members’ assessment of the ﬁnancial performance of the Group.

We reported to the Audit Committee any corrected or uncorrected
misstatements exceeding £0.21 million (2015: £0.36 million),
in addition to other identiﬁed misstatements that warranted
reporting on qualitative grounds

Audits for group reporting purposes were performed by the Group
team at each of the four (2015: four) reporting components of
the Group which represented 100% (2015: 100%) of total Group
assets, group revenue and group proﬁt before tax. The Group
team determined the component materialities, which ranged
from £0.06 million to £0.24 million (2015: £0.45 million to
£0.77 million), having regard to the mix of size and risk proﬁle
of the Group across the components.

2016 | Report and Financial Statements | McKay Securities PLC

REPORT OF THE INDEPENDENT AUDITOR
continued

4 Our opinion on other matters prescribed by the

Companies Act 2006 is unmodified

In our opinion:
(cid:2) the part of the Directors’ Remuneration Report to be audited

has been properly prepared in accordance with the Companies
Act 2006;

(cid:2) the information given in the Strategic Report and the Directors’
Report for the ﬁnancial year for which the ﬁnancial statements
are prepared is consistent with the ﬁnancial statement.

Under the Companies Act 2006 we are required to report to you if,
in our opinion:
(cid:2) adequate accounting records have not been kept by the parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or

(cid:2) the parent Company ﬁnancial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or

(cid:2) certain disclosures of Directors’ remuneration speciﬁed by law

5 We have nothing to report on the disclosures of

are not made; or

principal risks

Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to in relation to:
(cid:2) the Directors’ Viability Statement on page 23, concerning the
principal risks, their management, and, based on that, the
Directors’ assessment and expectations of the Group’s
continuing in operation over the four years to March 2020; or;

(cid:2) the disclosures in note 1 of the ﬁnancial statements

concerning the use of the going concern basis of accounting.

6 We have nothing to report in respect of the matters
on which we are required to report by exception

Under ISAs (UK and Ireland) we are required to report to you if,
based on the knowledge we acquired during our audit, we have
identiﬁed other information in the annual report that contains a
material inconsistency with either that knowledge or the ﬁnancial
statements, a material misstatement of fact, or that is otherwise
misleading.

In particular, we are required to report to you if:
(cid:2) we have identiﬁed material inconsistencies between the

knowledge we acquired during our audit and the Directors’
statement that they consider that the annual report and
ﬁnancial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s position and performance,
business model and strategy; or

(cid:2) the Audit Committee Report does not appropriately address

matters communicated by us to the Audit Committee.

(cid:2) we have not received all the information and explanations we

require for our audit.

Under the Listing Rules we are required to review:
(cid:2) the Directors’ statement, set out on page 54, in relation to

going concern and longer term viability; and

(cid:2) the part of the Corporate Governance Statement on pages
32 to 37 relating to the Company’s compliance with the
eleven provisions of the 2014 UK Corporate Governance
Code speciﬁed for our review.

We have nothing to report in respect of the above responsibilities.

Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement
set out on page 35, the Directors are responsible for the
preparation of the ﬁnancial statements and for being satisﬁed
that they give a true and fair view. A description of the scope
of an audit of ﬁnancial statements is provided on the Financial
Reporting Council’s website at www.frc.org.uk/auditscopeukprivate.
This report is made solely to the Company’s members as a
body and is subject to important explanations and disclaimers
regarding our responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2014a, which are
incorporated into this report as if set out in full and should be
read to provide an understanding of the purpose of this report,
the work we have undertaken and the basis of our opinions.

Shaun Kirby
(Senior Statutory Auditor)

for and on behalf of
KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London E14 5GL

24th May 2016

McKay Securities PLC | Report and Financial Statements | 2016

58 Consolidated Proﬁt or Loss

and other Comprehensive Income
59 Group Statement of Financial Position
60 Company Statement of Financial Position
61 Group Cash Flow Statement
62 Company Cash Flow Statement
63 Consolidated Statement
of Changes in Equity
64 Company Statement of
Changes in Equity

65 Notes to the Financial Statements

329 Bracknell

CONSOLIDATED PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended 31st March 2016

Gross rents and service charges receivable
Direct property outgoings
Net rental income from investment properties
Administration costs
Operating profit before gains on investment properties
Proﬁt on disposal of investment properties
Revaluation of investment properties
Operating profit
Net ﬁnance costs – ﬁnance costs

– ﬁnance income

Proﬁt on disposal of associated undertaking

Profit before taxation
Taxation
Profit for the year
Other comprehensive income:

Items that will not be reclassiﬁed subsequently to proﬁt or loss
Actuarial movement on deﬁned beneﬁt pension scheme

Total comprehensive income for the year

Earnings per share
Basic
Diluted

Adjusted earnings per share ﬁgures are shown in note 9.

Dividends
Previous year’s ﬁnal dividend of 6.0p (2015: 5.9p) paid during the year

Interim dividend of 2.7p (2015: 2.7p) paid during the year

Proposed ﬁnal dividend of 6.1p (2015: 6.0p)

Notes
2

2
3

11
4
6
6
13

2016
£’000
23,689
(6,025)
17,664
(5,878)
11,786
9,106
34,564
55,456
(4,478)
2,182
—

53,160
—
53,160

2015
£’000
21,409
(6,487)
14,922
(5,439)
9,483
679
42,097
52,259
(19,802)
32
793

33,282
—
33,282

(15)
53,145

(493)
32,789

57.17p
56.36p

36.08p
35.48p

5,546

5,414

2,515

2,496

8,198

5,546

The total comprehensive income for the year is all attributable to the equity holders of the parent company.

McKay Securities PLC | Report and Financial Statements | 2016

GROUP STATEMENT OF FINANCIAL POSITION
As at 31st March 2016

Non-current assets
Investment properties — Valuation as reported by the valuers

— Adjustment for rents recognised in advance under SIC 15
— Adjustment for grossing up of head leases

Plant and equipment
Investments
Total non-current assets

Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets

Total assets

Current liabilities
Trade and other payables
Finance lease liabilities
Interest rate derivatives
Bank overdraft
Total current liabilities

Non-current liabilities
Loans and other borrowings
Pension fund deﬁcit
Finance lease liabilities
Interest rate derivatives
Total non-current liabilities

Total liabilities

Net assets

Equity
Called up share capital
Share premium account
Retained earnings
Revaluation reserve
Total equity

Net asset value per share

EPRA net asset value per share

Notes

2016
£’000

2015
£’000

401,170
(5,869)
3,745
399,046
91
—
399,137

352,761
(6,342)
3,785
350,204
63
793
351,060

15,641
—
15,641

10,339
—
10,339

414,778

361,399

(10,938)
(286)
(2,944)
(261)
(14,429)

(9,938)
(286)
(6,164)
(572)
(16,960)

(113,701)
(1,839)
(4,121)
(19,465)
(139,126)

(91,302)
(1,940)
(4,121)
(31,581)
(128,944)

(153,555)

(145,904)

261,223

215,495

18,632
77,708
54,571
110,312
261,223

280p

301p

18,486
75,917
36,340
84,752
215,495

233p

270p

11
12
13

15
16
15

15
24
16
15

These ﬁnancial statements were approved by the Board of Directors on 24th May 2016 and were signed
on its behalf by D.O. Thomas and S.C. Perkins

2016 | Report and Financial Statements | McKay Securities PLC

COMPANY STATEMENT OF FINANCIAL POSITION
As at 31st March 2016

Non-current assets
Investment properties
Plant and equipment
Investments
Total non-current assets

Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets

Total assets

Current liabilities
Trade and other payables
Finance lease liabilities
Interest rate derivatives
Bank overdraft
Total current liabilities

Non-current liabilities
Loans and other borrowings
Pension fund deﬁcit
Finance lease liabilities
Interest rate derivatives
Total non-current liabilities

Total liabilities

Net assets

Equity
Called up share capital
Share premium account
Retained earnings
Revaluation reserve
Total equity

Notes

2016
£’000

2015
£’000

11
12
13

15
16
15

15
24
16
15

371,302
91
23,806
395,199

291,000
63
23,806
314,869

23,096
—
23,096

39,320
—
39,320

418,295

354,189

(45,149)
(180)
(2,944)
(261)
(48,534)

(35,118)
—
(6,164)
(572)
(41,854)

(113,701)
(1,839)
(2,704)
(19,465)
(137,709)

(91,302)
(1,940)
—
(31,581)
(124,823)

(186,243)

(166,677)

232,052

187,512

18,632
77,708
27,054
108,658
232,052

18,486
75,917
27,984
65,125
187,512

These ﬁnancial statements were approved by the Board of Directors on 24th May 2016 and were signed
on its behalf by D.O. Thomas and S.C. Perkins

McKay Securities PLC | Report and Financial Statements | 2016

GROUP CASH FLOW STATEMENT
For the year ended 31st March 2016

Operating activities
Proﬁt before tax
Adjustments for:
Depreciation
Other non-cash movements
Proﬁt on disposal of investment properties
Movement in revaluation of investment properties
Net ﬁnance costs
Proﬁt on disposal of associated undertaking
Cash flow from operations before changes in working capital
Increase in debtors
Increase in creditors
Cash generated from operations
Interest paid
Interest received
Cash flows from operating activities

Investing activities
Proceeds from sale of investment properties
Proceeds from sale of investments
Purchase and development of investment properties
Purchase of other ﬁxed assets
Cash flows from investing activities

Financing activities
Proceeds from issue of share capital
Increase in borrowings
Equity dividends paid
Swap cancellation fee
Cash flows from financing activities

Net decrease/(increase) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at end of the year

2016
£’000

2015
£’000

53,160

33,282

18
1,101
(9,106)
(34,564)
2,296
—
12,905
(5,027)
1,177
9,055
(5,810)
11
3,256

33,207
793
(37,660)
(45)
(3,705)

—
21,986
(8,061)
(13,165)
760

311
(572)
(261)

44
1,354
(679)
(42,097)
19,769
(793)
10,880
(3,439)
2,704
10,145
(5,227)
32
4,950

6,886
—
(60,949)
(94)
(54,157)

510
53,935
(7,910)
—
46,535

(2,672)
2,100
(572)

2016 | Report and Financial Statements | McKay Securities PLC

COMPANY CASH FLOW STATEMENT
For the year ended 31st March 2016

Operating activities
Proﬁt before tax
Adjustments for:
Depreciation
Other non-cash movements
Proﬁt on disposal of investment properties
Movement in revaluation of investment properties
Net ﬁnance costs
Cash flow from operations before changes in working capital
Increase in debtors
Increase in creditors
Cash generated from operations
Interest paid
Interest received
Cash flows from operating activities

Investing activities
Proceeds from sale of investment properties
Returns from investment in subsidiary
Purchase and development of investment properties
Purchase of other ﬁxed assets
Cash flows from investing activities

Financing activities
Proceeds from issue of share capital
Increase in borrowings
Equity dividends paid
Swap cancellation fee
Cash flows from financing activities

Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at end of the year

2016
£’000

2015
£’000

51,972

26,987

18
1,085
(5,568)
(36,572)
2,553
13,488
(11,318)
2,685
4,855
(5,982)
959
(168)

13,292
19,319
(32,847)
(45)
(281)

—
21,986
(8,061)
(13,165)
760

311
(572)
(261)

44
1,212
(679)
(36,171)
18,382
9,775
(6,738)
3,063
6,100
(5,262)
1,664
2,502

6,886
—
(58,501)
(94)
(51,709)

510
53,935
(7,910)
—
46,535

(2,672)
2,100
(572)

McKay Securities PLC | Report and Financial Statements | 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31st March 2016

At 31st March 2014

18,352

75,541

37,354

57,988

189,235

Attributable to equity holders of the parent company

Share
capital
£’000

Share
premium
£’000

Revaluation
reserve
£’000

Retained
earnings
£’000

Total
equity
£’000

Proﬁt for the year
Other comprehensive income:
Transfer surplus on revaluation of properties
Other
Transfer on disposal of investment in
associated undertaking
Transfer on disposal of investment properties
Actuarial loss on deﬁned beneﬁt pension scheme
Total comprehensive profit for the year
Issue of new shares net of costs
Dividends paid in year
Fair value of share based payments
At 31st March 2015

Proﬁt for the year
Other comprehensive income:
Transfer surplus on revaluation of properties
Transfer on disposal of investment in
associated undertaking
Transfer on disposal of investment properties
Actuarial loss on deﬁned beneﬁt pension scheme
Total comprehensive profit for the year
Issue of new shares net of costs
Dividends paid in year
Fair value of share based payments
At 31st March 2016

—

—
—

—
—
—
–
134
—
—
18,486

—

—
—
—
–
146
—
—
18,632

—

—
—

—
—
—
–
376
—
—
75,917

—

—
—
—
–
1,791
—
—
77,708

—

33,282

42,097
—

1,417
3,884
—
47,398
—
—
—
84,752

(42,097)
(19)

(1,417)
(3,884)
(493)
(14,628)
—
(7,910)
890
36,340

—
(19)

—
—
(493)
32,770
510
(7,910)
890
215,495

—

53,160

34,564

(34,564)

—

—
(9,004)
—
25,560
—
—
—
110,312

—
9,004
(15)
27,585
(1,937)
(8,061)
644
54,571

—
—
(15)
53,145
—
(8,061)
644
261,223

2016 | Report and Financial Statements | McKay Securities PLC

COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31st March 2016

At 31st March 2014

18,352

75,541

25,071

48,584

167,548

Share
capital
£’000

Share
premium
£’000

Revaluation
reserve
£’000

Retained
earnings
£’000

Total
equity
£’000

Proﬁt for the year
Other comprehensive income:
Transfer surplus on revaluation of properties
Other
Transfer on disposal of investment properties
Actuarial loss on deﬁned beneﬁt pension scheme
Total comprehensive income for the year
Issue of new shares net of costs
Dividends paid in year
Fair value of share based payments
At 31st March 2015

Proﬁt for the year
Other comprehensive income:
Transfer of property from subsidiary
Transfer surplus on revaluation of properties
Transfer on disposal of investment properties
Actuarial loss on deﬁned beneﬁt pension scheme
Total comprehensive income for the year
Issue of new shares net of costs
Dividends paid in year
Fair value of share based payments
At 31st March 2016

—

26,987

—
—
—
—
–
134
—
—
18,486

—
—
—
—
–
376
—
—
75,917

36,171
—
3,883
—
40,054
—
—
—
65,125

(36,171)
(20)
(3,883)
(493)
(13,580)
—
(7,910)
890
27,984

—
(20)
—
(493)
26,474
510
(7,910)
890
187,512

—

51,972

51,177

—
—
—
—
–
146
—
—
18,632

—
—
—
—
–
1,791
—
—
77,708

7,278
36,572
(317)
—
43,533
—
—
—
108,658

(7,278)
(36,572)
317
(15)
8,424
(1,937)
(8,061)
644
27,054

—
—
—
(15)
51,957
—
(8,061)
644
232,052

McKay Securities PLC | Report and Financial Statements | 2016

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2016

1 Accounting policies

Basis of preparation
The Group and Parent Company ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union (EU) and therefore comply with Article 4 of the EU IAS Regulation.

In accordance with Section 408 Companies Act 2006 a separate Proﬁt or Loss and other Comprehensive Income for
McKay Securities PLC (the Company) is not presented. The proﬁt for the year after tax of the Company is £51,972,000
(2015: £26,987,000).

During the ﬁnancial year, the following accounting standards and guidance were adopted by the Company, none of these had any material
impact on the ﬁnancial statements:

IFRS 10 – Consolidated Financial Statements;

IFRS 12 – Disclosure of Interests in Other Entities;

IAS 27 (revised) – Separate Financial Statements;

IAS 32 (amended) – Financial Instruments: Presentation of Offsetting Financial Assets and Financial Liabilities; and

IAS 36 (amended) – Impairment of Assets on Recoverable Amounts Disclosures for Non-Financial Assets.

None of the new standards or amendments to existing standards or interpretations, which are endorsed but not yet effective, have been
adopted, or are expected to have any material impact on the ﬁnancial statements.

The ﬁnancial statements are prepared on a going concern basis as explained in the Principal Risks and Uncertainties and
Viability Statement on page 23.

Significant judgements and estimates
In the process of preparing the Group’s ﬁnancial statements management is required to make judgements, estimates and assumptions
when applying accounting policies that may affect the reported amounts of revenues, expenses, assets and liabilities. Any judgements,
estimates and associated assumptions used in the preparation of the ﬁnancial statements are based on management’s best information
at the time, however actual outcomes may differ from estimates used. Not all accounting policies require estimates and assumptions,
however management consider them signiﬁcant in applying to valuations, for which qualiﬁed external advisors are used, of investment
properties, ﬁnancial instruments, share-based payments and deﬁned beneﬁt pension obligations and are disclosed in the applicable
policies and notes below.

Basis of consolidation
The consolidated ﬁnancial statements of the Company and its subsidiaries (the Group) have been prepared on a historical cost basis,
except for investment property and derivative ﬁnancial instruments which are measured at fair value through the Proﬁt or Loss and
other Comprehensive Income. Subsidiary companies are those entities under the control of the Company. Control means being
exposed or have rights to variable returns from its involvement and has the ability to affect those returns through its power over
the Company.

Intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in
preparing the consolidated ﬁnancial statements.

Properties
The Group’s properties are held as investments to earn rental income and for capital appreciation and are stated at fair value at the
balance sheet date. The value, reﬂecting market conditions, is determined at each reporting date by independent external valuers and
any gain or loss arising from a change in value is recognised in the Proﬁt or Loss and other Comprehensive Income and transferred
to the revaluation reserve in the Group Statement of Financial Position. Any accrued rent receivable recognised as a separate asset
in accordance with the Group’s accounting policy on lease incentives is deducted from the external valuation.

Properties purchased are recognised on legal completion in the accounting period and measured initially at cost including transaction
costs. Sales of properties are recognised on unconditional exchange of contracts in the accounting period when the signiﬁcant risks
and rewards of ownership have been transferred. Gains and losses arising on the disposal of investment properties are recognised
in the Proﬁt or Loss and other Comprehensive Income, being the difference between net sale proceeds and the carrying value of
the property.

Subsequent expenditure on investment properties is capitalised only when it increases the future economic beneﬁts associated with
the property. All other expenditure is charged to the Proﬁt or Loss and other Comprehensive Income.

2016 | Report and Financial Statements | McKay Securities PLC

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2016

1 Accounting policies continued

Properties continued
Interest and other outgoings less rental income relating to investment properties in the course of development are capitalised, and
added to the cost of the property. Interest capitalised is calculated on development outgoings, including material refurbishments to
investment property, using the weighted average cost of general Group borrowings for the year. A property ceases to be treated as
being in the course of development when substantially all the activities that are necessary to prepare the property for use are completed.

Properties held under long leases where the Group has substantially all the risks and beneﬁts of ownership are accounted for as
ﬁnance leases and carried at the lower of fair value or present value of future minimum lease payments. The present value of the future
minimum lease payments is recognised as a liability with a corresponding asset added to the carrying value of the leasehold property.
The minimum lease payments are apportioned between ﬁnance charges in the Proﬁt or Loss and other Comprehensive Income and
the reduction of the Group Statement of Financial Position liability. Contingent rents are charged as an expense in the Proﬁt or Loss
and other Comprehensive Income in the period incurred.

Plant and equipment
Plant and equipment is stated at cost less accumulated depreciation. Depreciation is provided on a straight line basis at rates calculated
to write off the cost less estimated residual value over their useful lives, which are estimated to be between 3 and 5 years.

Cash and cash equivalents
Cash comprises cash at bank and short term deposits held on call. Cash equivalents comprise investments with minimal risk to changes
in value that are readily convertible into cash with an original maturity of three months or less. Bank overdrafts that are repayable on
demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for
the purpose only of the cash ﬂow statement.

Trade and other receivables and payables
Trade and other receivables are recognised at invoice cost unless an impairment provision has been made when there is objective
evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed
as being remote. Trade and other payables are recognised at invoice cost.

Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. Subsequent to initial recognition,
loans and borrowings are measured at amortised cost using the effective interest rate method.

Reserves
The revaluation reserve represents the unrealised surpluses and deﬁcits arising on revaluation of the Group’s properties and is not
available for distribution until realised through sale.

Segmental analysis
All of the Group’s revenue is derived from the ownership of investment properties located in South East England and central London.
The management team works within a single structure which includes the executive Directors acting as chief operating decision maker.
Responsibilities are not deﬁned by type or location, each property being managed individually and reported on for the Group as a whole
directly to the Board of Directors. Properties under development generate no revenue and are treated as investment properties in the
portfolio. The Directors therefore consider there to be only one reporting segment.

McKay Securities PLC | Report and Financial Statements | 2016

1 Accounting policies continued

Revenue
The Group has entered into commercial property leases on its investment property portfolio. The Directors consider, based on the terms
and conditions, the signiﬁcant risks and rewards of ownership of the properties are retained and therefore account for the leases as
operating leases. Rental income receivable under operating leases less initial direct costs on arranging the leases is recognised on a
straight line basis over the non-cancellable term of the lease.

The aggregate value of incentives for lessees to enter into lease agreements, usually in the form of rent free periods or capital
contributions, is recognised over the lease term or to tenant option to break as a reduction of rental income.

Premiums received from tenants to terminate leases are recognised as income from investment properties when they arise.

Service charges and other such receipts arising from expenses recharged to tenants, with the Group acting as principal, are recognised
in the period that the expense can be contractually recovered and included gross in income from investment properties.

Interest received on short term deposits is recognised in ﬁnance income as it accrues.

Borrowing costs
Interest on borrowings, including interest on ﬁnance leases, is recognised in the Proﬁt or Loss and other Comprehensive Income
in the period during which it is incurred, except for interest capitalised in accordance with the Group’s policy on properties under
development (see Properties above). Costs incurred on putting in place borrowing facilities are recognised in ﬁnance costs over
the term of the facility.

Derivative financial instruments
The Group uses derivative ﬁnancial instruments, such as interest rate swaps, to manage its exposure to interest rate risk. The differences
between interest payable by the Group and interest payable to the Group by the swap counterparties are dealt with on an accruals basis.

At each reporting date the instruments are stated at fair value in the Group Statement of Financial Position which is the estimated
amount that the Group would receive or pay to terminate the instruments based on the current interest rate yield structure.
The Group has not applied hedge accounting for any ﬁnancial instrument in place and any movement in fair value is recognised
in the Proﬁt or Loss and other Comprehensive Income.

Share-based payments
The Group operates an equity-settled share-based performance plan outlined in the Directors Remuneration Report under which
Directors and employees are able to acquire shares in the Company. The fair value cost beneﬁt of the employee services received for the
options granted is recognised over the vesting period in employee costs within administration expenses with a corresponding amount
recognised in equity. The charge is measured using valuation models and assumptions outlined in note 18 with adjustment for when
non-market conditions are not expected to be met.

Post employment benefits
The Group operates two pension schemes. The deﬁned beneﬁt scheme is based on ﬁnal pensionable pay and has been closed to new
entrants since 1989. The assets of the scheme are held separately from those of the Group and are measured at fair value, the scheme
obligations being calculated at discounted present value, with any net surplus or deﬁcit recognised in the Group balance sheet.
Current service cost and interest on scheme liabilities less the expected return on scheme assets are recognised as an expense
in the Proﬁt or Loss and other Comprehensive Income. Actuarial gains and losses on scheme liabilities are recognised in equity
through the Proﬁt or Loss and other Comprehensive Income. The assumptions used by a qualiﬁed actuary are outlined in note 24.

The Group contributes to eligible employees’ deﬁned contribution personal pension plans and does not accept any responsibility for
the beneﬁts gained from these plans. The contributions are recognised as an expense in the Proﬁt or Loss and other Comprehensive
Income as incurred but the Group does not recognise any gains or losses arising from movements in the value of the personal pension
plans.

2016 | Report and Financial Statements | McKay Securities PLC

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2016

1 Accounting policies continued

Taxation
Any tax charge recognised in the Proﬁt or Loss and other Comprehensive Income comprises current and deferred tax except to
the extent that it relates to items recognised directly in equity, in which case the related tax is recognised in equity.

Current tax is the expected tax liability on the results for the year adjusted for items that are not taxable or deductable, or taxable and
deductable in other periods, together with any adjustment in respect of previous years calculated using tax rates and laws enacted or
substantively enacted at the balance sheet date.

Deferred tax is the tax expected to be paid or recovered on temporary differences arising between the carrying amounts of assets and
liabilities for ﬁnancial reporting purposes and their tax base. The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance
sheet date. Tax liabilities are recognised for all taxable temporary differences and tax assets to the extent that future taxable proﬁts will
be available against which the asset can be utilised.

The Group converted to REIT status on 1st April 2007 and as a consequence substantially all the Group’s activities as a property rental
business are exempt from tax, including rental proﬁts and gains on rental property disposals.

2 Net rental income from investment properties

Gross rents receivable
SIC 15 adjustment (spreading of rental incentives)
Gross rental income
Service charges receivable

Direct property outgoings

2016
£’000
19,413
746
20,159
3,530
23,689
(6,025)
17,664

2015
£’000
17,005
612
17,617
3,792
21,409
(6,487)
14,922

Rent receivable under the terms of the leases is adjusted, in accordance with SIC 15, for the effect of any incentives given.

McKay Securities PLC | Report and Financial Statements | 2016

3 Administration costs

Group
Directors’ — remuneration

— bonus1

Staff — costs
— bonus
National Insurance
Pension costs
Share based payment accounting charge (IFRS 2)

Depreciation (note 12)
Ofﬁce costs
Legal and professional fees
General expenses

1Amount charged to income in year to 31st March 2016.

The average number of persons employed by the Group and Company during the year was 17 (2015: 16).

Employee costs

Salaries
Social security costs
Pension costs – deﬁned beneﬁt scheme

– deﬁned contributions

Share based payment accounting charge

Fees paid to auditor
Statutory audit services

McKay Securities PLC audit
Subsidiary audits

Assurance services
Interim review
Service charge audits

Taxation services

Corporation tax compliance
VAT advice

Future services – contracted fees

XBRL tagging

2016
£’000

1,150
464
792
419
473
314
624
4,236
18
542
1,059
23
5,878

2016
£’000

2,825
473
57
257
624
4,236

2016
£’000

70
3

19
6

42
—
140

2015
£’000

1,006
396
714
294
350
307
890
3,956
44
418
978
43
5,439

2015
£’000

2,409
350
67
240
890
3,956

2015
£’000

67
4

18
6

39
—
134

Amounts paid to the Company’s auditor in respect of services to the Company, other than the audit of the Company’s ﬁnancial statements,
have not been disclosed as the information is required instead to be disclosed on a consolidated basis.

Details of Directors’ remuneration can be found on page 48 in the Directors’ Annual Remuneration Report.

2016 | Report and Financial Statements | McKay Securities PLC

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2016

4 Operating profit
Operating proﬁt is identiﬁed in the income statement and represents the proﬁt on activities before ﬁnance costs, share of associated
undertakings and taxation.

5 Adjusted profit before tax
Adjusted proﬁt before tax is the Group’s preferred measure to provide a clearer picture of recurring proﬁts from core rental activities
before tax, adjusted as set out below.

Profit before tax
Change in fair value of derivatives
Movement in revaluation of investment properties
Proﬁt on disposal of investment properties
Proﬁt on disposal of associated undertaking and revaluation movements
IFRS 2 adjustment to share based payments
Adjusted profit before tax

6 Net finance costs

Interest on bank overdraft and loans
Finance lease interest on leasehold property obligations
Finance arrangement costs
Fair value loss on derivatives
Capitalised interest (note 8)

Fair value gain on derivatives
Interest receivable

Net finance costs

7 Taxation

Total tax in the Profit or Loss and other Comprehensive Income

Reconciliation to effective rate of tax:
Profit on ordinary activities before tax
Tax charge on profit at 20% (2015: 21%)
Effects of:

REIT tax exemption
Permanent differences
Other timing differences

Tax for period (as above)

2016
£’000
53,160
(2,171)
(34,564)
(9,106)
—
624
7,943

2016
£’000
5,657
285
413
—
(1,877)
4,478
(2,171)
(11)
(2,182)
2,296

2015
£’000
33,282
15,187
(42,097)
(679)
(793)
890
5,790

2015
£’000
4,896
285
100
15,188
(667)
19,802
—
(32)
(32)
19,770

2016
£’000
—

2015
£’000
—

53,160
10,632

33,282
6,989

(10,632)
—
—
—

(8,015)
1,021
5
—

8 Capitalised interest
Interest relating to investment properties in the course of development is dealt with as explained in note 1.

Interest capitalised during the year amounted to £1,877,139 (2015: £666,590) and relates to refurbishment works to
London, 30 Lombard Street EC3; Newbury, Strawberry Hill House; Reading, 9 Greyfriars Road; and Redhill, London Road.

Total development interest capitalised amounts to £9,068,658 (2015: £7,191,519).

McKay Securities PLC | Report and Financial Statements | 2016

9 Earnings per share

Basic earnings per share

Change in fair value of derivatives
Movement in revaluation of investment properties
Proﬁt on disposal of investment properties
Associated undertaking disposals and revaluation
Adjusted profit for share based payments
Adjusted earnings per share

2016
p
57.17
(2.34)
(37.17)
(9.79)
—
0.67
8.54

2015
p
36.08
16.46
(45.63)
(0.74)
(0.86)
0.97
6.28

Basic earnings per share on ordinary shares is calculated on the proﬁt in the year of £53,160,000 (2015: £33,282,000) and
92,983,951 (2015: 92,255,120) shares, being the weighted average number of ordinary shares in issue during the year.

Weighted average number of ordinary shares in issue
Number of shares under option
Number of shares that would have been issued at fair value
Diluted weighted average number of ordinary shares in issue

Basic earnings per share

Effect of dilutive potential ordinary shares under option
Diluted earnings per share

Change in fair value of derivatives
Movement in revaluation of investment properties
Proﬁt on disposal of investment properties
Associated undertaking disposals and revaluation

EPRA diluted earnings per share

2016
Number
of shares
92,983,951
1,722,237
(399,554)

2015
Number
of shares
92,255,120
2,233,578
(672,668)
94,306,634 93,816,030

2016
p
57.17
(0.81)
56.36

(2.30)
(36.65)
(9.65)
—
7.76

2015
p
36.08
(0.60)
35.48

16.19
(44.87)
(0.72)
(0.86)
5.22

EPRA diluted earnings per share is calculated on the same proﬁt after tax and on the weighted average diluted number of shares in
issue during the year of 94,306,634 (2015: 93,816,030) shares, which takes into account the number of potential ordinary shares
under option.

Adjusted earnings per share excludes the after tax effect of proﬁt from the disposal of investment properties, surrender premiums
received, the change in the fair value of derivatives and the movement in revaluation of investment properties. The EPRA measure
includes all of these adjustments except for surrender premiums which are added back.

10 Dividends

The ﬁnal dividend is not included in the accounts as a liability as at 31st March 2016, as it is subject to shareholder approval at the
Annual General Meeting. The ﬁnal dividend for 2015 and interim for 2016 paid in the year are included in the Consolidated Statement
of Changes in Equity on page 63.

Ordinary dividends
Previous year’s ﬁnal dividend of 6.0p paid during the year
Interim dividend of 2.7p (2015: 2.7p) paid during the year
Total recognised in financial statements
Proposed final dividend of 6.1p (2015: 6.0p)

2016
£’000

5,546
2,515
8,061
8,198

2015
£’000

5,414
2,496
7,910
5,546

2016 | Report and Financial Statements | McKay Securities PLC

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2016

11 Investment properties

Valuation
At 1st April 2015
Transfer
Additions – acquisitions

– development

Revaluation surplus
Adjustment for rents recognised
in advance under SIC 15
Disposals
Amortisation of grossed up headlease liabilities
Book value as at 31st March 2016

Adjustment for grossing up of headlease liabilities
Adjustment for rents recognised
in advance under SIC 15
Valuation as at 31st March 2016

Freehold

306,259
—
11,337
16,704
32,783

641
(24,285)
—
343,439

Group
Long
Leasehold

43,945
—
—
9,342
2,528

(168)
—
(40)
55,607

Total
£’000

Freehold
£’000

350,204
—
11,337
26,046
35,311

473
(24,285)
(40)
399,046

291,000
—
11,337
16,704
32,782

(600)
(7,785)
—
343,438

Company
Long
Leasehold
£’000

—
22,025
—
1,429
4,602

(168)
—
(24)
27,864

Total
£’000

291,000
22,025
11,337
18,133
37,384

(768)
(7,785)
(24)
371,302

—

(3,745)

—

(2,471)

5,571
349,010

298
52,160

5,869
401,170

5,571
349,009

298
25,691

5,869
374,700

At 1st April 2014
Additions – acquisition

– development

Revaluation surplus
Adjustment for rents recognised in advance under SIC 15
Disposals
Amortisation of grossed up headlease liabilities
Book value as at 31st March 2015

Adjustment for grossing up of headlease liabilities
Adjustment for rents recognised in advance under SIC 15
Valuation as at 31st March 2015

Freehold
£’000
215,304
51,710
7,398
38,709
(655)
(6,207)
—
306,259

—
6,211
312,470

Group
Long
leasehold
£’000
37,341
—
2,602
3,999
43
—
(40)
43,945

Total
£’000
252,645
51,710
10,000
42,708
(612)
(6,207)
(40)
350,204

Company

Freehold
£’000
201,916
51,710
7,411
36,736
(566)
(6,207)
—
291,000

(3,785)
131
40,291

(3,785)
6,342
352,761

—
4,970
295,970

In accordance with the Group’s accounting policy on properties there was an external valuation at 31st March 2016. These valuations,
were carried out by Mellersh and Harding, Chartered Surveyors and Valuers. All valuations were carried out in accordance with the
Appraisal and Valuation Standards of RICS, on an open market basis.

The historical cost of properties stated at valuation is approximately £280 million (2015: £257 million) for the Group and £255 million
(2015: £220 million) for the Company.

The amount of interest capitalised during the year was £1,877,139 (2015: £666,590). The Group is a REIT and therefore does not
obtain relief from Corporation Tax.

McKay Securities PLC | Report and Financial Statements | 2016

11 Investment properties continued

Investment property valuation method and assumptions
The fair value of the property portfolio has been determined using income capitalisation techniques, whereby contracted and market rental
values are capitalised with a market capitalisation rate. The resulting valuations are cross-checked against the equivalent yields and the
fair market values per square foot derived from comparable recent market transactions on arm’s length terms.

These techniques are consistent with the principles in IFRS 13 Fair Value Measurement and use signiﬁcant unobservable inputs such
that the fair value measurement of each property within the portfolio has been classiﬁed as Level 3 in the fair value hierarchy. There were
no transfers in or out of Level 3 for investment properties during the year.

Gains and losses recorded in proﬁt or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy
amount to £34.6 million (2015: £42.1 million) and are presented in the Group income statement in the line item ‘Revaluation of investment
properties’.

The signiﬁcant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the
Group’s property portfolio, together with the impact of signiﬁcant movements in these inputs on the fair value measurement, are shown
below:

Valuation technique1
Fair value
ERV (per sq ft pa) – average
ERV (per sq ft pa) – range
True equivalent yield – average
True equivalent yield – range
Capital value per sq ft

London
Ofﬁces
Income
Capitalisation

£72,910,000
£55.12
£9.48-£81.00
5.02%
4.62%-6.17%
£546

South East
Ofﬁces
Income
Capitalisation

South East
Industrial
Income
capitalisation

£234,100,100
£24.61
£5.00-£38.08
7.43%
5.48%-11.88%
£303

£73,480,000
£8.76
£4.48-£13.50
6.82%
5.55%-8.08%
£131

A further £20.68 million has been designated other and not included in the analysis above.

1For properties under development, the fair value is calculated by estimating the fair value of the completed property using the income
capitalisation technique less estimated costs to completion and a risk premium

Deﬁnitions for ERV and True equivalent yield are provided in the glossary on page 84.

Sensitivity analysis
Increase/(decrease) in value of investment properties

12 Plant and equipment

Change in ERV

Change in equivalent yield

+5%

-5%

+0.25%

-0.25%

£17.2m

£(18.6)m

£(17.9)m

£20.0m

Cost
Opening
Additions
Disposals
Closing

Depreciation
Opening
Charge for year
Disposals
Closing
Net book value

Group
£’000

394
46
(11)
429

331
18
(11)
338
91

2016
Company
£’000

391
46
(11)
426

328
18
(11)
335
91

Group
£’000

492
94
(192)
394

479
44
(192)
331
63

2015
Company
£’000

489
94
(192)
391

476
44
(192)
328
63

2016 | Report and Financial Statements | McKay Securities PLC

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2016

13 Investments

Company
At 1st April 2015 and 31st March 2016

Group
At 1st April 2014
Revaluation
At 31st March 2015
Disposals
At 31st March 2016

Other
investments
£’000

Shares in
subsidiary
undertakings
£’000

Investment
in associated
undertaking
£’000

—

23,806

—
793
793
(793)
—

—
—
—
—
—

—

—
—
—
—
—

Total
£’000

23,806

—
793
793
(793)
—

At 31st March 2016 McKay Securities PLC had the following wholly owned subsidiary undertakings all of which operate in England
and are registered in England and Wales with the exception of Celina Holdings Limited which is registered in Gibraltar:

Acreway Limited Baldwin House Limited

Celina Holdings Limited

All subsidiaries are included in the consolidation.

The principal activity of the subsidiary undertakings is property investment and development.

The Directors are of the opinion that the investment in the subsidiary undertakings is worth not less than the current book value.

Other investments comprised listed securities held by the Group, stated at fair values based on quoted market prices consistent with
level 1 of the valuation hierarchy.

14 Trade and other receivables

Trade receivables
Amounts due from subsidiary undertakings
SIC 15 lease incentives
Other debtors and prepayments

2016
Group
£’000
14
—
5,869
9,758
15,641

Company
£’000
14
11,898
5,869
5,315
23,096

2015
Group
£’000
54
—
6,342
3,942
10,338

Company
£’000
54
30,824
4,970
3,472
39,320

All the above debtors are receivable within one year except for lease incentives of £4,702,000 (2015: £5,228,000), accrued in
accordance with SIC 15. The carrying amounts are a reasonable approximation of the fair values estimated as the present value of
future cash ﬂows.

Group trade receivables that were past due but not impaired are as follows:

Less than three months due
Between three and six months due
Between six and twelve months due

The Group holds no collateral in respect of these receivables.

2016
£’000
9
4
1
14

2015
£’000
37
10
7
54

McKay Securities PLC | Report and Financial Statements | 2016

15 Liabilities

Trade and other payables

Rent received in advance
Other taxation and social security costs
Amounts owed to subsidiary undertakings
Other creditors and accruals

2016
Group
£’000

4,866
80
—
5,992
10,938

Company
£’000

4,845
—
34,810
5,494
45,149

2015
Group
£’000

3,864
1,962
—
4,112
9,938

Company
£’000

3,504
1,914
26,035
3,665
35,118

The fair value of current liabilities is estimated as the present value of future cash ﬂows which approximate their carrying amounts due to
the short term maturities.

Creditor days for the Group were 25 days (2015: 12 days).

Loans and other borrowings
The analysis of bank loans which are secured on certain of the freehold and leasehold properties of the Group is as follows:
2016
£’000

Group and Company
Secured bank loans
Bank facility fees

116,000
(2,299)
113,701

The bank loans are secured against land and buildings with a carrying amount of £368,750,000 (2015: £240,100,000).

Repayable in:
Less than 1 year
1-2 years
2-5 years
5-10 years
Greater than 10 years

2016
Group
£’000

—
29,942
29,806
—
53,953
113,701

Company
£’000

—
29,942
29,806
—
53,953
113,701

2015
Group
£’000

—
70,500
20,802
—
—
91,302

2015
£’000

91,500
(198)
91,302

Company
£’000

—
70,500
20,802
—
—
91,302

2016 | Report and Financial Statements | McKay Securities PLC

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2016

15 Liabilities continued

Borrowing facilities
The Group has various undrawn committed borrowing facilities. The facilities available in respect of which all conditions precedent had
been met were as follows:

Expiring in less than 1 year
Expiring in 1 – 2 years
Expiring in 2 – 5 years
Expiring in 5 – 10 years

2016
£’000
—
5,000
54,000
—
59,000

2015
£’000
—
49,500
14,000
—
63,500

Liquidity risk
Liquidity risk is managed through committed bank facilities that ensure sufﬁcient funds are available to cover potential liabilities arising
against projected cash ﬂows. The Group’s facilities are revolving, allowing the Group to apply cash surpluses to temporarily reduce debt.

Exposure to credit and interest rate risks arise in the normal course of the Group's business. Derivative ﬁnancial instruments are used
to reduce exposure to interest rate ﬂuctuations.

Credit risk
Credit evaluations are performed on all tenants looking to enter into lease or pre-lease agreements with the Group. Credit risk
is managed by tenants paying rent in advance. Outstanding tenants’ receivables are regularly monitored.

At the statement of ﬁnancial position date there were no signiﬁcant concentrations of credit risk, except for the low risk lease
commitments which were either government departments or held a top credit rating. The maximum exposure to credit risk is
represented by the carrying amount of each ﬁnancial asset including derivative ﬁnancial instruments on the Group Statement
of Financial Position.

The Group has no exposure to currency risks.

Market risk
The Group is exposed to market risk through changes in interest rates or availability of credit.

Interest rate risk
The Group adopts a policy of ensuring that its exposure to interest rate ﬂuctuations is mitigated by the use of ﬁnancial instruments.
Participating swaps and interest rate swaps have been entered into to achieve this purpose. The swap matures in 2032, and has
a swap rate of 5.17%. Provision is made within the terms of the ﬁnancial instruments for the counterparty bank to terminate the
instruments by invoking credit breaks, the next of which is in 2022. If such a credit break were exercised, a payment would be
made between the parties dependent on market value at that time. The Group does not hold or issue derivative ﬁnancial
instruments for trading purposes.

A 25 basis points change in interest rate levels would increase or decrease the Group’s annual proﬁt and equity by £290,000
(2015: £199,000). This sensitivity has been calculated by applying the interest rate change to the variable rate borrowings, net
of interest rate swaps, at the year end. The comparative ﬁgure for 2015 was also based on a 25 basis points change in interest rates.
The 25 basis points change being used shows how the proﬁt or loss and equity would have been affected by changes in the relevant
risk variable that were reasonably possible at the year end.

McKay Securities PLC | Report and Financial Statements | 2016

15 Liabilities continued

Interest rate derivatives
The Group adopts a policy of ensuring that its exposure to interest rate fluctuations is mitigated by the use of financial instruments.
Interest rate swaps have been entered into to achieve this purpose.

The Group does not hold or issue derivative financial instruments for trading purposes.

As at 31st March 2016
Interest rate swaps

Interest rate swaps

As at 31st March 2015

Interest rate swaps
Interest rate swaps

Amount
£’000

Rate

Maturity

3Next
credit
break

45,000

5.17%

Sept 2032

Sept 2022

Amount
£’000
45,000

75,000
5,000
80,000

Rate
5.17%

5.17%
4.65%

Fair
value
before
BCVA
£’000
(24,422)

(39,297)
(2,282)
(41,579)

5BCVA
£’000
2,013

3,731
103
3,834

Fair
value
£’000
(22,409)

(35,566)
(2,179)
(37,745)

1£5 million interest rate swap was terminated on 24th April 2015 at a cost of £2.13 million.
2£30 million of the £75 million interest rate swap was terminated on 7th May 2015 at a cost of £11.03 million.
3Credit breaks are triggered by the bank and require the prevailing mark to market value to be paid or received.
4Call options are triggered by the bank and require no payment by either party.
5BCVA – Bilateral Credit Valuation Adjustment is now required by IFRS 13 to be incorporated in the mark to market valuations.

The fair value of interest rate derivatives has been split between current and non-current liabilities according to the expected timing of
cashﬂows as follows:

Current
Non-current

Weighted average cost of borrowing

2016
£’000
(2,944)
(19,465)
(22,409)

2015
£’000
(6,164)
(31,581)
(37,745)

2016
4.35%

2015
5.78%

The Group does not hedge account its interest rate derivatives and states them at fair value in the statement of ﬁnancial position based
on quotations from the Group’s banks, any movement passing through the Statement of Proﬁt or Loss and other Comprehensive Income.
All ﬁnancial liabilities are classed as level 2 in accordance with the fair value hierarchy stated in IFRS 13. The fair value of these level 2
contracts are estimated by discounting expected future cash ﬂows using current market interest rates and yield curve over the remaining
term of the instrument.

There are no liabilities at maturity and no material unrecognised gains or losses.

The Group had a deﬁcit of hedging instruments over drawn loans and other borrowings at 31st March 2016 of £16,000,000
(2015: £11,500,000).

In both 2016 and 2015 there was no difference between the book value and the fair value of all the other ﬁnancial assets and liabilities
of the Group and Company.

2016 | Report and Financial Statements | McKay Securities PLC

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2016

16 Obligations under finance leases

Group finance lease liabilities are payable as follows:
Within one year
In second to ﬁfth years inclusive
Later than ﬁve years

Less future ﬁnance charges
Present value of lease obligations

Minimum lease
payments
2015
£’000

2016
£’000

286
1,142
25,512
26,940
(22,533)
4,407

286
1,142
25,771
27,199
(22,792)
4,407

The above ﬁnance lease liabilities relate to investment properties with a carrying value of £52,160,000 (2015: £40,290,000). The terms
of these lease agreements are for periods of between 99 and 125 years. There are no restrictions imposed by the lease agreements.
No contingent rents are payable.

Finance lease liabilities are effectively secured as the rights to the leased assets revert to the lessor in event of default.

17 Operating leases
The Group leases out all of its investment properties under operating leases.

The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows:

Not later than one year
Later than one year but not later than ﬁve years
Later than ﬁve years

2016
£’000
19,044
58,285
19,208
96,537

2015
£’000
18,292
58,924
30,938
108,154

McKay Securities PLC | Report and Financial Statements | 2016

18 Share based payments

During the year to 31st March 2016, the Group had two share based payment arrangements, which are described below. In the case
of the PSP awards, the expected volatility was determined by calculating historical volatility of the Group’s share price.

2001 Executive Share Option Scheme
The options are exercisable after three years but before 10 years, subject to certain performance criteria. If the performance criteria have
not yet been met by the third anniversary of the date of grant the options lapse. The performance criteria, where applicable, are based on
an increase in NAV equal to or greater than the RPIX over the same period plus 6%.

At 31st March 2015
Lapsed during year
At 31st March 2016

There were no options granted in the year.

There are no equity-settled options outstanding at 31st March 2016.

Weighted
average
exercise
price
280p

Number
of options
294,642
294,642
—

Performance Share Plan
The performance targets for PSP awards are a combination of TSR and absolute NAV performance over a three year period.
If the performance criteria have not been met at the end of the vesting period then the awards will lapse.

The nil cost awards outstanding at 31st March 2016 have been fair valued using a Monte Carlo valuation pricing model using the following
main assumptions:

Share price
Term
Risk free rate
Dividend yield
Volatility – Company
TSR fair value
NAV fair value

18th June
2015
£2.55
3 years
0.80%
3.35%
18.6%
£1.43
£2.35

11th June
2014
£2.27
3 years
1.13%
3.79%
17%
£1.36
£2.03

20th June
2013
£1.42
3 years
0.71%
5.99%
20%
£0.61
£1.19

2016 | Report and Financial Statements | McKay Securities PLC

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2016

19 Called up share capital

Ordinary 20 pence shares in issue
At 1st April 2015
Issue of shares in year
At 31st March 2016

20 Capital management

2016
Issued
£

Number
of shares

2015
Issued
£

Number
of shares

18,485,197
146,448
18,631,645

92,425,988
732,237

91,758,348
667,640
93,158,225 18,485,197 92,425,988

18,351,670
133,527

The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, to provide returns to
shareholders and to maintain an appropriate capital structure to minimise the cost of capital. The current capital structure of the
Group comprises a mix of equity and debt. Equity comprises issued share capital, reserves and retained earnings, as disclosed in
the Group Balance Sheet.

The Group uses a number of key metrics to manage its capital structure:

(cid:0) gearing
(cid:0) bank covenant gearing
(cid:0) LTV

The Board monitors the ability of the Group to pay dividends out of available cash and distributable proﬁts.

21 Related party transactions

Subsidiary undertakings
Acreway Limited (in liquidation)
Baldwin House Limited
Celina Holdings Limited (in liquidation)

Balance
owed to/(owing from)
2015
2016
£’000
£’000

26,286
(11,899)
8,524
22,911

26,035
(20,447)
(10,378)
(4,790)

There were no transactions with Directors, who are considered key management personnel, other than remuneration, details of which are
provided in the Directors’ Annual Remuneration Report on pages 43 to 53.

McKay Securities PLC | Report and Financial Statements | 2016

22 Net asset value per share

Basic
Number of shares under option
Diluted/EPRA NNNAV
Adjustment to fair value of derivatives
EPRA NAV

23 Commitments and contingent liabilities

31st March
2016

Net
assets
£’000
261,223
863
262,086
22,410
284,496

Shares
’000
93,158
1,552
94,710
—
94,710

Net
asset value
per share
p
280
(3)
277
24
301

31st March
2015

Net
assets
£’000
215,495
1,433
216,928
37,745
254,673

Shares
’000
92,426
2,125
94,551
—
94,551

Net
asset value
per share
p
233
(3)
230
40
270

Capital expenditure committed but not provided for

There were no capital commitments for the Group at the year end.

24 Pensions

2016
Group
£’000
–

Company
£’000
–

2015
Group
£’000
–

Company
£’000
–

The Group and Company operates a deﬁned beneﬁt pension scheme in the UK providing beneﬁts based on ﬁnal pensionable salary.
The assets of the scheme are held separately from those of the Group, being invested with insurance companies and managed funds.
The contributions are determined by a qualiﬁed actuary on the basis of a triennial valuation using the attained age method. The most
recent actuarial valuation was as at 31st March 2014. The assumptions which have the most signiﬁcant effect on the results of the
valuation are those relating to the rate of return on investments and the rate of increase in salaries. It was assumed that the investment
returns would be 5.0% per annum.

The Group contributes £240,000 per annum into the Scheme.

At the 31st March 2014 actuarial valuation the scheme was 82% funded on the continuing valuation basis. A recovery plan and schedule
of contributions has been agreed designed to address this shortfall.

The IAS 19 valuation for the pension scheme disclosures is based on the most recent actuarial valuation at 31st March 2014 and updated
by First Actuarial in order to assess the liabilities of the scheme at 31st March 2016. Scheme assets are stated at their market value at
31st March 2016.

2016 | Report and Financial Statements | McKay Securities PLC

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2016

24 Pensions continued

The assets of the scheme have been taken at market value and the liabilities have been calculated using the following principal actuarial
assumptions:

Inflation
Salary increases
Rate of discount
Pension in payment increases

2016
2.8%
n/a
3.3%
2.7%

2015
2.9%
n/a
3.1%
2.8%

The mortality assumptions adopted at 31st March 2016 imply the following life expectancies for members currently aged 60:

Male = 26.5 years

The fair value of scheme assets are as follows:
Equities
Gilts
Corporate and overseas bonds
Cash
Other

The asset split is approximated using the current fund splits for each manager.

Changes in the value of scheme assets over the year
Market value of assets at start of year
Expected return on scheme assets
Actuarial (loss)/gain
Employer contributions
Beneﬁts paid
Market value of assets at end of year

£’000

1,695
533
437
582
2,166
5,413

5,829
178
(431)
240
(403)
5,413

2,120
521
365
553
2,270
5,829

5,464
232
291
242
(400)
5,829

The amount included in the Group and Company Statement of Financial Position arising from the liabilities in respect of the deﬁned
beneﬁts scheme is as follows:

Market value of scheme assets
Value of deﬁned beneﬁt obligation
Deficit in scheme
Gains/(losses) on scheme liabilities

Due to experience
Due to change of basis

Experience gains/(losses) on scheme assets

2016
£’000
5,413
(7,252)
(1,839)

45
(304)
(57)

2015
£’000
5,829
(7,769)
(1,940)

8
725
(67)

2014
£’000
5,464
(7,153)
(1,689)

(9)
450
(69)

Analysis of changes in the value of the defined benefit obligation over the period:

Value of deﬁned beneﬁt obligation at start of period
Interest cost
Beneﬁts paid
Actuarial (gains)/losses: experience differing from that assumed
Actuarial (gains)/losses: changes in demographic assumptions
Actuarial (gains)/losses: changes in ﬁnancial assumptions
Value of defined benefit obligation at end of period

2013
£’000
5,604
(7,823)
(2,219)

19
(599)
212

2016
£’000
7,769
235
(403)
(45)
(78)
(226)
7,252

2012
£’000
5,465
(7,305)
(1,840)

(52)
(730)
(71)

2015
£’000
7,153
299
(400)
(8)
(2)
727
7,769

McKay Securities PLC | Report and Financial Statements | 2016

24 Pensions continued

Sensitivity analysis

Assumption
Discount rate
RPI inﬂation
Assumed life expectancy

Analysis of the amount charged to operating profit:

Operating profit
Current service cost
Analysis of the amount (credited)/charged to ﬁnance costs/(income)
Expected return on pension scheme assets
Interest on pension scheme liabilities
Net return
Total charge to profit or loss

Change in
assumption

Change in
deﬁned
beneﬁt
obligation

+/-0.5% p.a.
+/-0.5% p.a.
+1 year

-5%/+6%
+4%/-4%
+4%

2016
£’000

–

(178)
235
57
57

2015
£’000

–

(232)
299
67
67

Analysis of the amount recognised directly in equity via other comprehensive income:

Difference between expected and
actual return on assets
Experience gains and losses arising
on the scheme liabilities
Effects of changes in the demographic
and ﬁnancial assumptions underlying the
present value of the scheme liabilities
Total

2016
£’000
431

8% of scheme assets

2015
£’000
(291) 5% of scheme assets

(349) 5% of the present value
of the scheme liabilities

719 9% of the present value
of the scheme liabilities

–

0% of the present value
of the scheme liabilities
1% of the present value
of the scheme liabilities

(2) 0% of the present value
of the scheme liabilities
426 6% of the present value
of the scheme liabilities

Analysis of the movement in the balance sheet deficit:

Deficit in scheme at beginning of year
Movement in year:

Current service cost
Net interest/return on assets
Contributions
Actuarial gain/(loss)

Deficit in scheme at end of year

2016
£’000
(1,940)

(57)
240
(82)
(1,839)

2015
£’000
(1,689)

—
(67)
242
(426)
(1,940)

The last active member reached retirement age in May 2013. The Group continues to contribute £240,000 per annum.

2016 | Report and Financial Statements | McKay Securities PLC

GLOSSARY

Adjusted EPS
Earnings per share based on proﬁts and adjusted to exclude certain
items as set out in note 9.

Interest cover
The number of times Group net interest payable is covered by
underlying proﬁt before interest and taxation.

Adjusted profit before tax
Proﬁt before tax adjusted to exclude certain non-recurring items as
set out in note 5.

Interest rate swap
A ﬁnancial instrument where two parties agree to exchange an
interest rate obligation for a pre-determined amount of time.

Book value
The amount at which assets and liabilities are reported in the
accounts.

BREEAM
Building Research Establishment Assessment Method.
An environmental standard that rates the sustainability of
buildings in the UK.

Contracted rent
Rent payable under the terms of a lease, less ground rent, with no
allowance for the value of incentives granted at lease
commencement.

CRC
Carbon Reduction Commitment. A mandatory emissions reduction
standard in the UK and covers all forms of energy excluding
transportation fuels.

Diluted figures
Reported amount adjusted to include the effects of potential
shares issuable under employee share schemes.

Dun and Bradstreet
Provider of business information and risk management insight.

Earnings per share (EPS)
Proﬁt after taxation attributable to ordinary shareholders divided by
the weighted average number of ordinary shares in issue during the
year.

EPC
Energy Performance Certiﬁcate. Certiﬁcates carry ratings which
measure the energy and carbon emission efﬁcency of the property
using a grade from an ‘A’ to a ‘G’.

EPRA
Standard calculation methods for adjusted EPS and NAV as set out
by the European Public Real Estate Association (EPRA) in their
Best Practice and Policy Recommendations.

Estimated Rental Value (ERV)
The valuers estimated amount for which ﬂoor space should let on
the date of valuation on appropriate lease terms net of ground rents
payable. Also known as MRV.

Extensible Business Reporting Language (XBRL)
A computer language for electronic transmission of business
and ﬁnancial information.

GRESB
Global Real Estate Sustainability Benchmark.

Industrial property
Term used to include light industrial, industrial and distribution
warehouse property falling with classes B1c, B2 and B8 of the
Town & Country Planning Use Classes Order. The terms does not
include retail warehousing, falling within class A1 of the Order.

Initial yield
Net rents payable at the valuation date expressed as a percentage
of the value of property assets after allowing for notional
purchasers’ costs.

IPD
Investment Property Databank. Leading provider of independent
statistical analysis to the commercial property sector.

Loan to value (LTV)
Drawn debt divided by the value of property assets.
Net asset value (NAV) per share
Total equity divided by the number of ordinary shares in issue at the
period end.
Net debt
Total borrowings less cash credit balances.
Property Income Distribution (PID)
PID dividend payments are taxable as letting income in the hands
of shareholders who pay tax. They are paid after deduction of
withholding tax at the basic rate.
REIT (Real Estate Investment Trust)
A tax efﬁcient structure for the management of property. It must be
publicly quoted with 75% of its proﬁts and assets derived from a
qualifying property rental business which is exempt from tax on
income and gains.
Rental value growth
Increase in rental value, as determined at the valuation date, over
the period on a like-for-like basis.
Reversion
Potential uplift in rental value to market rent, as determined at the
valuation date, likely to arise from a rent review, lease renewal or
letting.
RPIX
Retail Prices Index excluding mortgage interest.
Shareholders’ funds
Total equity of the Group.
SIC 15
The IFRS treatment in respect of letting incentives. It requires the
Group to offset the value of incentives granted to lessees against
the total rent due over the length of the lease, or to a break clause if
earlier.
Stamp duty land tax
Government tax levied on certain legal transactions including the
purchase of property.
Total shareholder return (TSR)
The growth in the value of an Ordinary share plus dividends
reinvested during the year expressed as a percentage of the share
price at the beginning of the year.
True equivalent yield
The constant capitalisation rate, which, if applied to all cash ﬂows
from an investment property, including current net reversions and
such items as voids and expenditure, equates to the market value
having taken into account notional purchasers costs and assuming
rents paid quarterly in advance.
Weighted average unexpired lease term (WAULT)
The average lease term remaining to expiry across the portfolio
weighted by rental income. This is also disclosed assuming all
break clauses are exercised at the earliest date.

McKay Securities PLC | Report and Financial Statements | 2016

COMPANY AND SHAREHOLDER INFORMATION

2016
15th June
14th July
28th July
November
December

2017
January
March
May/June

Registered Auditor
KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL

Corporate Solicitors
Slaughter and May
One Bunhill Row
London EC1Y 8YY

Registrar and Transfer Office
Equiniti Limited
Aspect House, Spencer Road
Lancing
West Sussex BN99 6DA
UK: 0371 384 2101*
Overseas: 44(0) 121 415 7047

Financial calendar
Annual Report posted to shareholders
Annual General Meeting
Final dividend
Interim announcement
Interim Statement posted to shareholders

Interim dividend
Financial year end
Preliminary announcement

Secretary
J.S. McKeown A.C.I.S.

Registered Office
20 Greyfriars Road, Reading
Berkshire RG1 1NL
Tel: 0118 950 2333

Registered Number
421479

Website
www.mckaysecurities.plc.uk

Enquiries relating to shareholders, such as queries concerning
notiﬁcation of change of address, dividend payments and lost
share certiﬁcates, should be made to the Company’s registrars.
The Company has a share account management and dealing
facility for all shareholders via Equiniti Limited Shareview.
This offers shareholders secure access to their account details
held on the share register to amend address information and
payment instructions directly, as well as providing a simple and
convenient way of buying and selling the Company’s ordinary
shares. For internet services visit www.shareview.co.uk or
the investor relations sections of the Company’s website.
The Shareview Dealing service is also available by telephone on
08456 037 037 between 8.30am and 4.30pm Monday to Friday.

The best way to ensure that dividends are received as quickly as
possible is to instruct the Company’s registrars to pay them directly
into a bank or building society account; tax vouchers are then
mailed to shareholders separately. Dividend mandate forms are
available from the registrars. This method also avoids the risk of
dividend cheques being delayed or lost in the post.

Financial information about the Company including the
Annual and Interim reports, public announcements and
share price data are available from the Company’s website
at www.mckaysecurities.plc.uk and on the Internet at
www.morningstar.co.uk.

The document is printed on a combination of two papers which are both produced
from 100% recycled ﬁbres sourced from post consumer waste. The papers are
also FSC certiﬁed and manufactured at an ISO 14001 accredited mill.

FSC – Forest Stewardship Council

This ensures there is an audited chain of custody from the tree in the well-managed
forest through to the ﬁnished document in the printing factory.

*Lines are open 8.30am to 5.30pm, Monday to Friday, excluding
Bank Holidays.

ISO 14001 – A pattern of control for an environmental management system
against which an organisation can be credited by a third party.

2016 | Report and Financial Statements | McKay Securities PLC

McKay RA Cover 2016_McKay RA Cover 2014 21/05/2016 11:23 Page 1

REPORT AND
FINANCIAL STATEMENTS
2016

M
C
K
A
Y
S
E
C
U
R
T
E
S
P
L
C

R
E
P
O
R
T
A
N
D
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

2
0
1
6

McKay Securities PLC
20 Greyfriars Road
Reading
Berkshire RG11NL

T: 0118 950 2333
www.mckaysecurities.plc.uk

mckaysecurities.plc.uk

McKay RA Cover 2016_McKay RA Cover 2014 21/05/2016 11:23 Page 2

- while keping right hand margin the same

CONTENTS

02 Financial Highlights

03 Chairman’s Statement

06 Strategic Report

29 Governance

55 Report of the Independent Auditor

57 Financial Statements 2016

84 Glossary

85 Company and Shareholder Information

COMPANY AND SHAREHOLDER INFORMATION

2016
15th June
14th July
28th July
November
December

2017
January
March
May/June

Registered Auditor
KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL

Corporate Solicitors
Slaughter and May
One Bunhill Row
London EC1Y 8YY

Registrar and Transfer Office
Equiniti Limited
Aspect House, Spencer Road
Lancing
West Sussex BN99 6DA
UK: 0371 384 2101*
Overseas: 44(0) 121 415 7047

Financial calendar
Annual Report posted to shareholders
Annual General Meeting
Final dividend
Interim announcement
Interim Statement posted to shareholders

Interim dividend
Financial year end
Preliminary announcement

Secretary
J.S. McKeown A.C.I.S.

Registered Office
20 Greyfriars Road, Reading
Berkshire RG1 1NL
Tel: 0118 950 2333

Registered Number
421479

Website
www.mckaysecurities.plc.uk

FSC – Forest Stewardship Council

This ensures there is an audited chain of custody from the tree in the well-managed
forest through to the ﬁnished document in the printing factory.

*Lines are open 8.30am to 5.30pm, Monday to Friday, excluding
Bank Holidays.

ISO 14001 – A pattern of control for an environmental management system
against which an organisation can be credited by a third party.

2016 | Report and Financial Statements | McKay Securities PLC