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9
Annual Report and
Financial Statements
2019
McKay Securities Plc
Annual Report and Financial Statements 2019
Introduction
& Contents
McKay is a specialist in the
development, refurbishment
and management of commercial
property – ideally positioned
to deliver quality, innovation
and growth.
We take great pride in
creating environments
where our occupiers can
realise their ambitions
and grow their business in
a long term partnership.
See more on page 22
Banbury
Poyle
LONDON
Reading
Maidenhead
Windsor Staines
Theale
Newbury
Bracknell
Woking
Fleet
Brentford
Weybridge
Wimbledon
Croydon
Leatherhead
Farnborough
Redhill
Crawley
Folkestone
What’s
inside this
report?
04
Year in Review
22
Property and
Financial Review
Contents
Strategic Report
03 Highlights
04 Year in Review
06 Chairman’s Statement
10 At a Glance
12 Business Model
14 Strategy
18 Market Context
20 Property Portfolio
22 Property and Financial Review
28 Sustainability
38 Principal Risks and Uncertainties
Governance Report
44 Board of Directors
46 Chairman’s Letter
47 Directors’ Report
50 Audit and Risk Committee Report
52 Nomination Committee Report
54 Remuneration Report
67 Statement of Directors’ Responsibilities
68
Independent Auditor’s Report
Financial Statements
75 Financial Statements
100 Glossary
102 Company and Shareholder Information
28
Sustainability
20
Property
Portfolio
06
Chairman’s
Statement
Banbury
Poyle
LONDON
Reading
Maidenhead
Windsor Staines
Theale
Newbury
Bracknell
Woking
Fleet
Brentford
Weybridge
Wimbledon
Croydon
Leatherhead
Farnborough
Redhill
Crawley
Folkestone
London
01
Office
Industrial
Other
Office
Industrial
Other
7
7
77
McKay Securities Plc Annual Report and Financial Statements 2019
Our
Vision
Our vision is to build upon
our reputation and status as
the leading property specialist
for occupiers and investors,
focused entirely on London
and the South East – and build
a business based on markets
that we know and understand.
Our
Mission
Our mission is to develop,
refurbish and manage
commercial property; working
in partnership with occupiers
to deliver quality, innovation
and growth.
We provide the very best
environments for our customers
to thrive and businesses to grow.
We deliver sustainable returns
by operating an effective and
established business model.
Download the 2019 McKay
Annual Report from
www.mckaysecurities.plc.uk
02
McKay Securities Plc Annual Report and Financial Statements 2019 Highlights
Operational
• Completion of 30 Lombard Street, EC3,
triggering commencement of the 15 year
pre‑let to St. James’s Place plc
• Commencement of construction of a
•
134,430 sq ft distribution warehouse unit
at Theale Logistics Park
19 open market lettings at a combined
contracted rent of £1.29 million pa, 8.1%
ahead of ERV
• 74.0% occupier retention rate
Financial
Profits and earnings
Shareholders’ funds
Proposed final dividend per share
£311.08m
(2018: £306.44 million)
7.4p up 2.8%
(2018: 7.2 pence), making the total dividend per
share for the year 10.2 pence (2018: 10.0 pence)
£13.19m
Profit before tax (IFRS)
(2018: £43.44 million)
£9.27m1
Adjusted profit before tax
(2018: £9.07 million)
8.8p2
EPRA earnings per share
(2018: 9.6 pence)
326p3
EPRA net asset value per share
(2018: 322 pence)
331p3
Net asset value per share (IFRS)
(2018: 326 pence)
Total property return
Debt to portfolio value (LTV net debt)
33.3%
(2018: 31.6%)
5.4%4
(2018: 12.3%)
1. See note 5 in financial statements
2. See note 9 in financial statements
3. See note 22 in financial statements
4. See KPIs on pages 24 and 25
5. See note 11 in financial statements
Portfolio valuation
£482.70m
(2018: £460.15 million)
£6.47m
1.4%
Surplus5
(2018: £24.46 million / 6.1%)
03
McKay Securities Plc Annual Report and Financial Statements 2019 Year in Review
£15.00psf
Record rent
Oakwood Trade
Park, Crawley
Portsoken House, EC3
Innovative refurbishment
of 8th floor lets on
PC £0.19m pa
£67.50psf
Record rent
Castle Lane, SW1
12,720sq ft
Pegasus 2, Crawley
Refurbishment
of entire building begins
Sustainability
Award
GRESB 3 Star
Mallard Court,
Staines-upon-Thames
Refurbishment of
11,390 sq ft begins
£0.21m pa
UBC lease completes
The Mille, Brentford
04
McKay Securities Plc Annual Report and Financial Statements 2019 Portsoken House, EC3
Innovative refurbishment
of 2nd floor lets on
PC £0.28m pa
Switchback Office
Park, Maidenhead
3 lease renewals
signed, 66% rental
increase
18 tenants
329 Bracknell
Fully let
8
Lease renewals
signed at Lower
Cherwell Street
Industrial Estate,
Banbury
Conditional
exchange for
the sale of The
Planets, Woking
Completion of
enabling works for
Theale Logistics Park
Practical completion
of 30 Lombard Street,
EC3 and St. James’s Place plc
lease begins at net contracted
rent of
£3.40m pa
91.0%
Portfolio
occupancy
(exc developments)
74.0%
Tenant
retention
05
McKay Securities Plc Annual Report and Financial Statements 2019 Chairman’s
Statement
This has been another
successful year of
delivery for the
Company, during which
we have continued to
build on the growth
strategy put in place at
the beginning of 2014.
Richard Grainger
Chairman
20th May 2019
06
McKay Securities Plc Annual Report and Financial Statements 2019 Dear Shareholder
This has been another successful year of
delivery for the Company, during which we have
continued to build on the growth strategy put in
place at the beginning of 2014. Since then, we
have delivered an 89.6% increase in portfolio
value from £254.55 million to £482.70 million,
and a 46.9% increase in shareholders’ funds
from £211.79 million to £311.08 million. Valuation
gains from our portfolio and development
programme combined with the profitable
disposal and recycling of assets totalling £67.97
million over the same period have enabled
us to maintain a stable loan to value ratio that
sits well within our target range. Shortly after
the year end we were also able to improve
our future investment firepower by £55.00
million with an increase in our loan facilities.
Our focus on the office, industrial and logistics
sectors in the UK’s strongest economic regions
combined with our in‑house development,
refurbishment and management skills,
continued to deliver shareholder value. We
are seeing the changing needs of business,
building obsolescence and the loss of space to
alternative uses combining to underpin a steady
level of occupier demand and investor appetite.
With historically constrained levels of supply
and a limited development pipeline, capital
and rental values within these markets have so
far proved remarkably resilient and stable.
It is not surprising that capital values have
remained high for prime, well let assets, as
investors seek security in these uncertain
times. In this climate, we have been quite happy
investing in our existing portfolio assets to
extract value while being on the lookout for
additional earnings enhancing acquisitions
which also offer the potential to add value
through McKay’s repositioning skills. There are
signs that pricing for this more opportunistic
stock is becoming more realistic and we now
have greater headroom to capitalise on this.
We took advantage of this strong pricing at the
end of the prior year to sell three properties,
and during the year have exchanged contracts
for the sale of The Planets, Woking, conditional
on planning consent. Despite the loss of
£1.32 million of income from the properties
sold last year and a further £0.75 million from
the transition of property into development,
adjusted profit before tax for the year
increased by 2.3% to £9.27 million (March
2018: £9.07 million). As set out in more detail
in the Property and Financial Review, this loss
of income was offset by income contributions
from our recently completed development
schemes and interest savings as a result of the
cancellation of our remaining legacy interest
rate hedging facilities at the end of last year.
EPRA net asset value per share increased by
1.2% to 326 pence (March 2018: 322 pence)
predominantly due to the £6.47 million (1.4%)
surplus generated by the independent valuation
of the property portfolio at the end of the period
of £482.70 million (March 2018: £460.15 million).
This surplus and the 2.1% (£0.69 million pa)
increase in portfolio rental value (“ERV”), which
ended the year at £33.83 million pa (March
2018: £33.15 million), both outperformed the
MSCI IPD (All property) benchmark which
delivered movements for each of 0.2%.
Our three main priorities over the year to maintain
delivery of our growth strategy have been:
• The continued implementation of our
development programme
• The release of the substantial income
potential generated within the portfolio
• Capitalising on our progress to date by
improving our scope for further growth
Good progress has been made in all three areas.
Our development priority was the delivery
of the two remaining active schemes at 30
Lombard Street, EC3 and at Theale Logistics
Park on the outskirts of Reading, following the
successful completion and letting of our office
developments in Reading and Redhill last year.
£228.15m
increase in portfolio value since 31st March 2014
£99.29m
increase in shareholders’ funds since 31st March 2014
07
McKay Securities Plc Annual Report and Financial Statements 2019 Chairman’s
Statement
continued
In March 2018 we announced that the whole of
the 30 Lombard Street (58,585 sq ft) scheme
had been pre‑let to St. James’s Place plc on
a 15 year lease at a contracted rent of £3.40
million pa (net of ground rent), with upward only
rent reviews every five years. Construction
works completed in January 2019, triggering
commencement of the lease and the new
tenant is now fitting out for occupation this
summer. This was a complex construction
project and the end result is a striking office
headquarters building that has enhanced the
streetscape of this core City of London location.
Securing a financially strong tenant on a long
lease, ahead of forecast, has also created a
valuable high‑quality asset which contributed
to the valuation surplus again this year.
This has further de‑risked our development
programme with ongoing construction now
limited to our warehouse distribution scheme
at Theale Logistics Park (134,430 sq ft). With
excellent access adjacent to Junction 12
of the M4 motorway, low site cover and low
passing rent, we identified the strong value‑
add potential when we purchased what was a
dated chilled distribution unit on the site in 2015.
It provided the scope for either refurbishment
or redevelopment at lease expiry in 2021, or
earlier if the tenant exercised a break option in
January 2018. We achieved planning consent
for a high bay warehouse and a 38.5% increase
in floor area in 2017 and, with the benefit of a 12
month rent penalty when the break clause was
exercised and encouraging market conditions,
we took the decision at the end of last year to
progress redevelopment. Demolition has now
been completed and the contractor is on site
with completion expected by December 2019.
The improved specification and the substantial
increase in floor area have increased the rental
potential by 92.2% to £1.48 million pa in a sector
that has seen strong demand driven by the
growth of e‑commerce, and our marketing
campaign continues to generate interest.
The development programme has proven to
have been well timed. The three completed
office schemes are now let at a total contracted
rent of £5.99 million pa, representing
22.0% of portfolio contracted rent.
Our second priority area has been generating
additional income from vacant properties and
securing increases to ERV at lease expiry and
rent review. This income potential, which totalled
£4.66 million pa at the beginning of the period,
has been built up as a result of positioning
portfolio assets to benefit from rental growth in
our markets. To release this income potential, we
have continued with the selective refurbishment
and direct management of the portfolio and
implemented innovative and thorough letting
campaigns. Office occupiers in particular
increasingly expect choice and flexibility, and the
increase in the serviced office sector over the
last few years has resulted in a far wider range of
occupational solutions on offer. In this evolving
market we have continued to demonstrate our
ability to design and deliver the right product
with the completion of 19 open market lettings,
at a combined contracted rent of £1.29 million
pa, exceeding March 2018 ERV by 8.1%.
We also pride ourselves on working in
partnership with a diverse range of occupiers
to deliver the very best business environments,
with sustainability at the heart of our projects
and the management of our buildings.
We will be emphasising the “McKay way”
to prospective and existing occupiers to
highlight our commitment to create the right
environment with high standards of customer
service in directly managed buildings, offering
flexibility and value for money. This operational
approach contributed to high approval ratings
in our most recent occupier survey. It also
played an important part in our high occupier
retention rate at lease break and lease
expiry, when 74.0% of occupiers remained
in occupation and a £0.21 million pa (31.6%)
increase in passing rent was achieved.
08
McKay Securities Plc Annual Report and Financial Statements 2019 Dividend
The Board is recommending a 2.8%
increase in the final dividend to 7.4 pence
per share (March 2018: 7.2 pence).
The final dividend will be paid as an ordinary
dividend on 25th July 2019 and will take the
total dividend for the year to 10.2 pence per
share (2018: 10.0 pence), an increase of 2.0%.
Outlook
The deferral of a Brexit solution has extended
uncertainty over the future pace of economic
growth and the trading environment for the
year ahead. The occupier is at the heart
of all we do, and much will depend on how
this delay affects business confidence.
However, our focus on the office, industrial and
logistics markets of London and the South East
provides us with exposure to the two strongest
and most resilient economic regions of the UK.
This, combined with the substantial income
potential still to be released from the portfolio
with a range of development and refurbishment
initiatives and our additional headroom, leaves us
well placed to deliver future shareholder value.
Richard Grainger
Chairman
20th May 2019
Having achieved these rental gains, the portfolio
reversion has been topped up with several lease
expiries over the period, as well as increases
in ERV mainly driven by refurbishment and
achieved rents. These expiries have provided
us with a number of excellent refurbishment
opportunities to improve occupier appeal and to
achieve higher rental values including schemes
at Crawley, Staines and Croydon, which are
all well established markets with constrained
supply. With the trend to greater flexibility in
lease terms, our track record of cost effective
refurbishment will be of increasing value.
Taking this portfolio activity into account,
we ended the period with contracted rents
up slightly to £27.22 million pa (March 2018:
£27.05 million) compared with the portfolio
ERV of £33.83 million pa. The difference
maintains the opportunity to increase
contracted rents by a substantial £6.61
million pa (24.3%), of which the development
at Theale represents £1.48 million pa.
Our third area of priority over the year has been
to capitalise on our strategic progress to date,
by improving our scope for further growth.
Since 2014, we have invested £63.05 million
into acquisitions, and £90.02 million in capital
expenditure on the development programme
and other portfolio projects. This investment has
added significant value to the portfolio, allowing
us to increase our borrowings without pushing
up gearing beyond acceptable levels. This,
and the ability to add completed development
schemes into the security pool, enabled us to
increase our loan facilities by £55.00 million
shortly after the year end to £245.00 million.
This has provided us with substantial firepower
and secured low margins for another five years.
09
McKay Securities Plc Annual Report and Financial Statements 2019 At a Glance
As the only REIT
specialising in the
office and industrial
markets of London
and the South East,
McKay offers a
unique proposition
for investors.
Our
portfolio
(31st March 2019)
33
Properties
£482.70m
Portfolio value
1,474,471 sq ft
Industrial
Other
Office
Internally managed
See more on page 20
1010
Other
5%
In
L
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i
s
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1
6
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%
4
a
5
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fi
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%
5
n O
2
L ondo
Banbury
Poyle
London
Reading
Maidenhead
Windsor Staines
Theale
Newbury
Bracknell
Woking
Fleet
Brentford
Weybridge
Wimbledon
Croydon
Leatherhead
Farnborough
Redhill
Crawley
Folkestone
McKay Securities Plc Annual Report and Financial Statements 2019
Banbury
Poyle
London
Reading
Maidenhead
Windsor Staines
Theale
Newbury
Bracknell
Woking
Fleet
Brentford
Weybridge
Wimbledon
Croydon
Leatherhead
Farnborough
Redhill
Crawley
Folkestone
Geographic locations
Key
Office
Industrial
Other
Banbury
Reading
Poyle
London
Maidenhead
Windsor Staines
Theale
Newbury
Office
Industrial
Other
Bracknell
Woking
Fleet
Brentford
Weybridge
Wimbledon
Croydon
Leatherhead
Farnborough
Redhill
Crawley
Folkestone
11
Office
Industrial
Other
Banbury
Poyle
London
Reading
Maidenhead
Windsor Staines
Theale
Newbury
Bracknell
Woking
Fleet
Brentford
Weybridge
Wimbledon
Croydon
Leatherhead
Farnborough
Redhill
Crawley
Folkestone
McKay Securities Plc Annual Report and Financial Statements 2019
McKay Securities Plc
Annual Report and Financial Statements 2019
Business
Model
Our primary business objective is
to deliver attractive and sustainable
returns to shareholders over the
long term, with exposure to those
property markets where the benefit
of our skills and experience will be
most productive.
12
Key
resources
Our properties:
We focus on quality office and
industrial business space within the
proven and established markets
of London and the South East
Our occupiers:
We partner with our occupiers to
provide the very best environments
for teams to thrive and businesses
to grow. Property management
is run in‑house giving direct
tenant/landlord relationships
and high tenant retention
Our suppliers:
Our geographical focus means
we know the local supply chains
well. We operate a responsible
procurement policy and work in
partnership with our suppliers
Our team:
Our experienced team are experts
in their field and we actively manage
our assets to maximise property
returns. The focus on just London
and the South East means we
know our markets intimately
Respected brand:
We take pride in everything we do
and have developed a reputation
for quality, innovation, ambition and
growth, an approach stretching
back to formation in 1946
Financial flexibility:
Strong banking relationships
and a robust balance sheet
allow flexibility to invest in the
portfolio throughout the cycle
What we do:
h
t
a
h
e
e
s
s
e t s t
B u y
et identifi ed crite ria w it h t
uisition of pro p erty a
otential to a d d v a l u
p
q
c
A
e
m
D
i
s
p
o
s
S
t
o
r
a
l
o
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c
f
m
e
ll
y
a
t
c
l
e c
a
u
r
e a
pital
ssets
M
A
ctiv
a
n
e in
-
h
m
a
n
a
a
o
g
g
e
u
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e
m
a
e
s
n
s
t
e
t
nt
e
m
p
D e velop
e nt and develo
p erties to enhance
o rtfolio returns
m
b i s
o f p r o
r
h
u
p
f
R e
We create value
through investment in
our property portfolio
to maximise income
and capital returns.
Occupiers
We offer our occupiers choice and
flexibility and quality business space.
£13.79m
development and refurbishment
capital expenditure (2018: £23.31m)
Investors
We aim to deliver attractive and
sustainable returns to shareholders.
7.4p
final dividend
(up 2.8%)
Environment
We are committed to
our sustainability objectives.
44%
Reduction over four years
in carbon emissions
Strategic priorities
GRESB Green Star status 3 years running
Delivery of
development
programme
Release of portfolio
income potential by
capturing reversion
Scope for
future growth
13
McKay Securities Plc Annual Report and Financial Statements 2019
Strategy
Our strategy is to
apply entrepreneurial
property initiatives
to generate income
and capital gains,
primarily from
office and
industrial properties
in London and
the South East to
maximise total
portfolio return.
Strategic priorities
Delivery of development
programme
See KPIs and Remuneration Policy on pages 24 and 54
Release of portfolio
income potential
by capturing reversion
See KPIs and Remuneration Policy on pages 24 and 54
Scope for future growth
14
See KPIs and Remuneration Policy on pages 24 and 54
McKay Securities Plc Annual Report and Financial Statements 2019 2018/2019
progress
Key
metrics
Looking
forward
Risks
• 30 Lombard St., EC3 completed
• Development surpluses
• Complete last letting at
– 100% let
enhance NAV, TPR and PCR
Prospero, Redhill
• Prospero, Redhill completed –
• Lettings ahead of forecast
• Complete and let Theale
94% let
enhance NAV, TPR and PCR
• Theale Logistics Park –
• Well managed programme
•
demolition completed and
contractor appointed
could impact TSR
Logistics Park
Identify and progress new
schemes
• Market downturn
• Delays in construction
• Health and safety events
• Availability of finance
• Availability of new
opportunities
See KPIs and Remuneration Policy on pages 24 and 54
Link to remuneration
• Development performance
directly impacts on short and
long term incentive plan
measures of NAV, EPS and
strategic targets
• Fully fitted space successfully
• Lettings, lease renewals and
• Rollout of McKay fit out
trialled at Portsoken House, EC3
• Developed and enhanced our
occupier services offer
• £1.29 million pa contracted rent
from open market lettings
• 74% tenant retention rate
• 32% increase in contracted rent
on renewal
rent reviews improve earnings
and reduce voids, which
enhances NAV, TPR and PCR
• Strong occupier relationships
support high tenant retention
rates, minimising voids and
refurbishment expenditure
which enhances TPR and PCR
at selected portfolio voids
• Trial the latest smart technology
and development of community
portal and building management
app
Improve occupier engagement
and rollout of the McKay offer
• Maintain high tenant retention
•
rate
• Market downturn
•
Investment in technology
and fit‑out not providing
the required returns
• Tenant default
See KPIs and Remuneration Policy on pages 24 and 54
Link to remuneration
• Releasing portfolio income
reversion directly impacts on
short and long term incentive
plan measures of NAV, EPS and
strategic targets
• Monitor the market closely for
• Capacity for future growth
• Utilise increase in debt facilities
• Lack of suitable investment
potential acquisitions
• Utilise value gains to secure
increase in debt facilities
• Capture value from portfolio
initiatives
• Recycle disposal proceeds
effectively
provides scope for gains in all
KPIs, and should enhance TSR
to add value
• Maintain banking relationships
• Secure earnings and value‑
enhancing acquisitions
opportunities
• Overpricing restricting
purchasing
• Covenant compliance
Link to remuneration
• Provides a general incentive for
the workforce to deliver future
incentive‑based gains
• Enhancing of future prospects
should impact on long term
incentive plan measure of TSR
15
McKay Securities Plc Annual Report and Financial Statements 2019 Strategy
continued
Portsoken House, EC3
Innovative fully fitted our refurbishment
of common areas, 2nd and 8th floors
complete and now 100% let.
See more on page 20
We create
value through
investment in
our property
portfolio.
Theale Logistics Park
New distribution warehouse under
construction five miles from Reading
adjacent to Junction 12 of the M4.
Practical completion December 2019
134,430 sq ft
16
McKay Securities Plc Annual Report and Financial Statements 2019 30 Lombard Street, EC3
Practical completion in January 2019,
this prime City core new office
development is now fully let for 15 years.
58,590 sq ft
See more on page 20
The Mille
12 storey landmark office building
with rolling refurbishment programme
and strong tenant retention.
96,750 sq ft
See more on page 20
Mallard Court,
Staines-upon-Thames
1st and 3rd floors currently under
refurbishment to provide innovative
office accommodation in the town
centre.
11,390 sq ft
See more on page 20
1717
McKay Securities Plc Annual Report and Financial Statements 2019 Market
Context
Why
London
and the
South East?
McKay is a specialist
in the development,
refurbishment and
management of quality
buildings within the
established and proven
markets of London and
South East England.
It is the only REIT
focused entirely on
these markets.
UK businesses are in London or the South East
1 in 3
38%
combined contribution to the UK economy of
London and South East
18
Regional strength
London and the South East are the most
dynamic of the UK’s twelve regions,
dominating in terms of population, business
prosperity and productivity, with:
• 27% of the total UK population
• 34% of all UK businesses
• 35% of the total UK disposable
•
household income
the two highest ranking by earnings,
productivity and GVA; all ahead of the
UK average
• 38% of total UK GVA
Regional diversity
Exposure to the economies of both
London and the South East provides
regional strength and diversity across
a wide range of business sectors,
minimising reliance on any one sector.
This diversity is supported by:
• a high concentration of leading
•
universities
the UK’s two leading international
airports
• efficient road and rail networks
•
the Elizabeth Line and other planned
infrastructure projects
Regional focus
With a portfolio invested in the office
and distribution/warehousing sectors,
the breadth and stability of demand
from this diverse economy provides
a strong operating platform. This is
further underpinned by favourable
market characteristics of limited
choice of modern business space and
a constrained development pipeline.
506
405
Number of businesses by UK regions (VAT and/or PAYE) (’000)
London
South East
North West
East
South West
West Midlands
Yorkshire and The Humber
East Midlands
Scotland
Wales
Northern Ireland
North East
104
73
69
Source: ONS
268
264
232
213
183
179
175
We continue to build
up our portfolio in well
established business
centres at the heart
of the UK’s economy.
Simon Perkins
Chief Executive
McKay Securities Plc Annual Report and Financial Statements 2019 McKay Trading Estate,
Poyle 73,955 sq ft
Multi-let estate development by
McKay, benefiting from the freight
throughput of Heathrow Airport.
19
McKay Securities Plc Annual Report and Financial Statements 2019 Property Portfolio
At 31st March 2019
£15m and over –
61.7% of portfolio
£10m to £15m –
18.3% of portfolio
£5m to £10m –
17.7% of portfolio
Brentford
The Mille, 1000 Great West Road (office)
Croydon
Corinthian House, Dingwall Road (office)
EC31
EC31
SW19
SW1 1
Poyle
Reading
Reading
Redhill
Crawley
Crawley
EC2
30 Lombard Street (office)
Portsoken House, Minories (office and ancillary retail)
Wimbledon Gate, Worple Road (office and ancillary retail)
Castle Lane (office)
McKay Trading Estate, Blackthorne Road (industrial)
Great Brighams Mead, Vastern Road (office)
9 Greyfriars Road (office)
Prospero, London Road (office)
Oakwood Trade Park, Gatwick Road (industrial)
Pegasus Place, Gatwick Road (office)
66 Wilson Street (office)
Maidenhead
Switchback Office Park, Gardner Road (office)
Weybridge
Sopwith Drive, Brooklands (industrial)
Woking
Woking
1 Crown Square (office and ancillary retail)
The Planets, Crown Square (leisure)
Bracknell
Building 329, Doncastle Road (office)
Farnborough Columbia House, 1 Apollo Rise (industrial)
Fleet
One Fleet, Ancells Road (office)
Folkestone
3 Acre Estate, Park Farm Road (industrial)
Folkestone
5 Acre Estate, Park Farm Road (industrial)
Leatherhead
Ashcombe House, 5 The Crescent (office)
SW11
Reading
Staines
Theale
Theale
Parkside, Knightsbridge (residential)
20/30 Greyfriars Road (office)
Mallard Court, Market Square (office and ancillary retail)
Brunel Road (industrial under construction)
Station Plaza, Station Road (office)
Windsor
Gainsborough House, 59-60 Thames Street (office)
£2m to £5m –
2.0% of portfolio
Banbury
Lower Cherwell Street Industrial Estate (industrial)
Newbury
Strawberry Hill House, Bath Road (medical)
£2m and below –
0.3% of portfolio
Percentages based on the valuation at 31st March 2019
1. Denotes leasehold properties
Chobham
Castle Grove Road (land)
Staines
2 Clarence Street (office)
20
Area sq ft
96,700
44,590
58,590
49,570
58,690
14,250
73,955
84,840
38,490
50,370
52,400
50,790
11,890
37,155
63,140
50,190
98,255
32,800
40,755
34,580
44,290
60,535
17,450
2,900
33,345
21,860
134,430
41,420
18,660
40,060
15,230
—
3,440
McKay Securities Plc Annual Report and Financial Statements 2019 Top five
assets
The top five properties
represent 42% of the
portfolio by value
The Mille,
Brentford
96,700 sq ft
Great Brighams Mead,
Reading
84,840 sq ft
30 Lombard Street,
EC3
58,590 sq ft
Wimbledon Gate,
SW19
58,690 sq ft
Portsoken House,
EC3
49,570 sq ft
21
McKay Securities Plc Annual Report and Financial Statements 2019 Property
and Financial
Review
Table 1
Location and
sector (by value)
at 31st March 2019
Total
£483m
South East Offices
London Offices
Industrial/Logistics
Other
54%
25%
16%
5%
Overview
McKay is a specialist in the development,
refurbishment and management of commercial
property, with Real Estate Investment Trust
(“REIT”) status. We adopt a proactive approach
to the release of value from our assets using
in‑house skills, and manage completed
projects internally. Our headquarters in
Reading sits at the heart of our portfolio of 33
assets, ending the period valued at £482.70
million (March 2018: £460.15 million).
The sector and location breakdown of these
assets is shown in table 1, highlighting that we
remain entirely focused on the office, industrial
and logistics markets of London and the South
East, where we have a clear expertise. These
are the most dynamic regions of the UK,
dominating in terms of population, business
prosperity and productivity, and provide a
strong platform for our continued growth.
The rent and occupancy profile of the
portfolio at the end of the period is shown in
table 2. Contracted rental income and the
rental value of the portfolio (“ERV”) both
increased over the period, with the difference
of £6.61 million representing the significant
24.3% reversionary potential still to be
released from the portfolio. Occupancy has
reduced slightly, ending the period at 88.0%
(March 2018: 89.3%) and at 91.0% (March
2018: 92.6%) excluding developments.
Occupational demand for office, industrial
and logistics space within London and the
South East has proved stable over the period,
despite the continuing political uncertainly.
The historically constrained supply of modern
business space looks set to result in future
shortfalls of available space across a number of
centres, supporting current rents and increasing
the prospects for future rental growth.
We recognised the potential for successful
development in these supply constrained
markets in 2014 and embarked on the
development of three office schemes with the
benefit of the £86.70 million capital raise at that
time. Having completed and let the schemes
in Reading and Redhill last year, we achieved
practical completion of the last of the three
schemes at 30 Lombard Street, EC3 in January
2019 which triggered commencement of the
15 year lease to St. James’s Place plc for the
entire building. These three schemes are now
98.0% let overall, on 10‑15 year leases with a
combined contracted rent of £5.99 million pa.
Sustainability has been of increasing importance
to us, our occupiers and our supply chain for
a number of years. We continue to evolve our
sustainability strategy, which has ensured
that the importance of creating and managing
environmentally sustainable buildings has been
integrated into our business since its adoption in
2014. In September 2018 we were delighted to be
awarded our highest ever Green Star award by
the Global Real Estate Sustainability Benchmark
(“GRESB”), maintaining our status for the third
year running as amongst the most sustainable
companies in the commercial property sector.
Market review
The South East office market, which represents
the largest sector in our portfolio (54.3% by
value), is currently experiencing its lowest
levels of both vacancy and supply for ten years.
The vacancy rate across the market of 7.6%
has almost halved from 14.2% five years ago
and the vacancy rate for new floorspace of
1.9% (1.75 million sq ft) is now at an historic low.
The supply of new stock shows no signs of
alleviating this, with speculative development
completions estimated to add just 0.5 million
sq ft in 2019 and 0.4 million sq ft in 2020, well
below the ten year annual average of 0.70 million
sq ft. Building obsolescence is also restricting
the supply of modern accommodation in this
Table 2
Portfolio yields and reversions
31st March 2019
31st March 2018
Current rental income1
£ m
pa
21.24
Yield2 Occupancy3
4.1%
Contracted rental income1
27.22
5.3%
88.0%
Uplifts at rent review/lease expiry
Void properties (exc developments3)
Void (developments)
Portfolio reversion
Total portfolio ERV
Equivalent yield
2.53
2.60
1.48
6.61
33.83
9.0%
3.0%
6.6%
5.7%
1. Net of ground rents
2. Yield on portfolio valuation with notional purchaser’s costs (6.75%) added
3. By ERV
£ m
pa
19.66
27.05
2.55
2.11
1.44
6.10
33.14
Yield2 Occupancy3
4.0%
5.5%
89.3%
7.4%
3.3%
6.8%
5.8%
22
McKay Securities Plc Annual Report and Financial Statements 2019 Five year summary
Financial measure
Gross rental income (£’000)
Net rental income from investment properties (£’000)
Profit before taxation (£’000)
Adjusted profit before taxation (£’000)
Investment properties (£’000)
Loans and borrowings (£’000)
Total equity (£’000)
Ordinary dividends per share (pence)
Earnings per share – basic (pence)
Earnings per share – adjusted basic (pence)
Net asset value per share (pence)
EPRA net asset value per share (pence)
Interest cover
Loan to value
2019
21,608
19,096
13,190
9,272
2018
21,844
20,453
43,443
9,067
2017
20,790
19,871
17,594
8,605
482,700
460,150
429,915
(163,176)
(144,598)
(134,100)
2016
20,159
17,664
53,160
7,943
401,170
(113,701)
311,083
306,440
270,792
261,223
10.2
14.0
9.9
331
326
2.1
33
10.0
46.3
9.7
326
322
2.0
32
9.0
18.8
9.2
289
303
2.0
32
8.8
57.2
8.5
280
301
1.9
29
2015
17,617
14,922
33,282
5,791
352,760
(91,302)
215,495
8.7
36.1
5.3
233
270
1.8
26
£6.61m pa
24% portfolio reversion
329 Bracknell
Comprehensive refreshment
incorporating co‑working breakout
space and kitchens with smaller suites
to suit tenant demand.
32,800 sq ft
The building itself has
provided us with the image
required to support
our business needs and
growth plans – it’s been
great in that sense.
2323
McKay Securities Plc Annual Report and Financial Statements 2019 Property
and Financial
Review
continued
market, with 50.1% of the stock within the relevant
MSCI IPD (“IPD”) index now older than the
generally held building design life of 25 years.
Despite the political uncertainty, office take‑up
in the South East in 2018 totalled 2.44 million
sq ft, which was the highest for the last five
years and comfortably above the ten year
average of 1.92 million sq ft. A number of larger
lettings that had been in the market for some
time completed during the year, with these
occupiers recognising the need to commit
to protect against future supply constraints.
However, 77.5% of 2018 take up was for unit
sizes below 60,000 sq ft, maintaining the long
term trend for smaller lettings which supports
our continued focus on this area of the market.
Whilst take up in Q1 2019 of 0.36 million sq ft
was 16.2% below the ten year average, named
demand at the end of the quarter of 3.02 million
sq ft was only 6.7% lower than Q4/2018, of
which 0.50 million sq ft was under offer.
Our four central London office properties
accounted for 25.0% of our portfolio at the end
of the period, all of which are fully let. Market
conditions in London have remained stable,
as new supply is constrained by uncertainty
while demand and take up have remained
broadly in line with long term averages. Current
availability in central London stands at 14.24
million sq ft compared to the ten year average
of 16.12 million sq ft, showing a low vacancy
rate of 6.2% (ten year average: 7.1%).
The industrial and logistics sector remains
buoyant with occupier demand being driven
by the exponential rise of the e‑commerce
sector and supply constrained by a scarcity
of land on which to build conveniently located
warehouses. Total supply in the South East of
4.50 million sq ft reflects a low vacancy rate of
4.5%, the lowest of any core region in the UK.
This provides just 1.1 years’ supply based on
current levels of take up. These market dynamics
continue to support the development of our
134,430 sq ft distribution warehouse at Theale
Logistics Park on the outskirts of Reading.
There has undoubtedly been more caution
generally in the investment market over the year
given the protracted Brexit negotiations. Within
our markets, fewer investment opportunities
and stable yields suggest distressed sellers
have been limited. Investment volumes within
the South East office market totalled £2.80
billion in 2018 compared to the five year
average of £3.57 billion. Local authorities
remained the largest single investor group,
accounting for 33.0% of the total volume.
The weight of money seeking office investment
opportunities in central London was still
evident in 2018, with investment totalling
£16.31 billion. This trend has been maintained
in Q1 2019 with investment turnover totaling
£5.04 billion, significantly ahead of the ten
year quarterly average of £3.76 billion.
Development programme
Practical completion of our new build 58,590 sq ft
City core office scheme at 30 Lombard Street,
EC3 was achieved in January 2019. The building
had been pre‑let to St. James’s Place plc in March
2018, and completion triggered commencement
of the 15 year lease of the entire building. The net
contracted rent of £3.40 million pa, equating to
£65.00 per sq ft overall, was in line with ERV.
Theale Logistics Park, our 134,430 sq ft
distribution warehouse development at Junction
12 of the M4 motorway, is now under construction
with completion due in December 2019. In
the period, demolition of the old warehouse
was completed, after which further planning
conditions had to be resolved. During this time,
we were able to negotiate a more favourable build
contract which was signed in early April 2019.
This self‑contained, innovatively designed
distribution warehouse, with a large secure
72 metre yard, will provide best in class supply
to meet growing industrial and distribution
occupier demand, in a location which is already
favoured by a number of blue chip companies.
The marketing campaign is already under way
with interesting leads, but tenant commitment
within this sector is more likely once the
building is fully, or substantially, built out.
Key performance
indicators:
Portfolio Capital Return (capital) (%)
(“PCR”)
Total Portfolio Return (capital and income) (%)
(“TPR”)
15%
20%
13.8
11.4
18.4
15.9
7.4
18
0%
1.4
19
12.3
6.8
1.7
17
16
15
5.4
19
0%
18
17
16
15
The annual valuation and realised surpluses from the
Company’s investment portfolio expressed as a
percentage return on the valuation at the beginning of
the year, adjusted for acquisitions and capital
expenditure.
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.
Link to strategy:
Link to strategy:
24
McKay Securities Plc Annual Report and Financial Statements 2019
Asset management
Following the letting success of our recent
developments the focus over the year
has been on releasing the substantial
portfolio reversion and strengthening
relationships with our occupiers to assist
with retention at lease break and expiry.
The occupational market in both London and
the South East is witnessing increasing demand
for flexibility and convenience. For tenants,
there is the perceived flexibility of serviced
offices at one end of the spectrum countered by
the desire for identity, branding and a sense of
ownership at the other. We have the assets and
skills to offer a middle ground and can provide
tenants with the benefits of a traditional lease
across a range of unit sizes and lease lengths,
whilst managing our buildings in‑house and
giving occupiers direct access to their landlord.
Having recognised this trend a number of
years ago, we have evolved a flexible offer at
One Crown Square, Woking (50,190 sq ft)
and 329 Bracknell (32,800 sq ft) where we
continue to deliver rental growth. This year saw
7.1% and 4.1% rental value growth respectively
for these buildings compared to the IPD
benchmark of 1.9%, driven by strong tenant
demand for this model which is being actively
applied elsewhere within the portfolio.
At Portsoken House, EC3, as part of the
refurbishment of the vacant floors (part 8th floor:
3,260 sq ft and 2nd floor: 5,146 sq ft) we fitted
out the space to give potential occupiers the
convenience of immediate occupation while also
providing better value space compared to the
equivalent serviced office market. With the trade‑
off of minimal letting incentives, we let both floors
before practical completion at rents 8.2% ahead
of ERV on the part 8th floor (£0.19 million pa) and
9.0% ahead on the 2nd floor (£0.28 million pa).
In a number of cases, this flexible offer is
combined within a building with longer
lease arrangements. This has worked to our
advantage at The Mille, where we completed
the ten year pre‑let of the entire 2nd floor
(8,312 sq ft at a contracted rent of £0.21 million
pa) to serviced office provider UBC, which
was previously operating under a legacy loss
making management agreement on the 3rd
floor. This in turn has enabled us to progress a
refurbishment of the 3rd floor into four smaller
suites of c. 2,000 sq ft each, which is the most
sought after unit size in the Brentford market.
At the end of the period, the rental value of the
9.0% portfolio void (excluding developments)
totalled £2.60 million pa, of which 58.1% was
undergoing refurbishment. The two most
significant projects to begin during the period
were at Pegasus Place, Crawley and at Mallard
Court, Staines‑upon‑Thames. Pegasus Place is
a campus of three office buildings developed by
the Company in 2003, where we are carrying out
a major overhaul of Pegasus Two (12,720 sq ft),
to enable a multi‑letting campaign at top Crawley
rents. Completion of the refurbishment is due
in July and good interest is already apparent.
At Mallard Court, in the centre of Staines‑
upon‑Thames, we are carrying out a wholesale
refurbishment of two of the three office floors
(11,390 sq ft) as well as upgrading the reception.
Where this was previously a traditional
multi‑let building with a manned reception,
the refurbishment will deliver a modern,
unmanned, smart building incorporating
the latest technology with an occupier app
enabling mobile‑device control of heating,
cooling, lighting and access. Completion is
due shortly and marketing is under way.
Our South East industrial and logistics assets
represented 15.6% of the portfolio (by value)
at the end of the period and continue to deliver
strong returns. Our seven existing industrial and
logistics assets are 91.9% let and lease renewals
and other management initiatives have continued
to improve the value and quality of these holdings.
Across the portfolio as a whole over the year,
this activity resulted in a total of 19 open market
lettings with a combined contracted rent of
£1.29 million pa, which was 8.1% ahead of
ERV. In addition, we achieved a high tenant
retention rate of 74.0% of tenants at lease
break and expiry, including the renewal
of 21 leases at a 31.6% (£0.21 million pa)
increase to the prior contracted rent.
With the lack of new and Grade A supply in
the South East office market, we continue to
work up our pipeline of refurbishment and
development initiatives which include Great
Brighams Mead, Reading and Station Plaza,
Theale. Great Brighams Mead is a standalone
84,840 sq ft office headquarters building
exceptionally well located just a few minutes’
walk from the recently upgraded railway station.
The Company developed and let the building
to Hutchison 3G for 21 years in 2001. The
potential exists at expiry in 2022 to refurbish
and benefit from the recent uplift in central
Reading rents and the opening of the Elizabeth
Line, which is set to strengthen Reading’s
position as the capital of the Thames Valley.
Station Plaza is an estate of three office buildings
totalling 41,420 sq ft situated opposite Theale
railway station, purchased in 2014 with an income
yield of 10.1%. The existing 20 year lease, which
expires in July 2019, is currently generating a rent
of £0.90 million pa (£21.82 psf) which compares
to recent Grade A Theale rents in excess of
£30.00 psf. The property has attracted a wide
range of freehold and leasehold interest and a
number of options are being reviewed, including
refurbishment plans to refresh the buildings
to create a vibrant estate next to the station.
Acquisitions and disposals
We continued to monitor potential investment
properties both on and off market over the year
but did not make acquisitions despite appraising
many opportunities. We remain of the view
that there will be better value available as the
market continues to mature, and we are well
placed to take advantage of any weakness or
attractive prospects that become available.
Net Asset Value Return (%)
(“NAV”)
25%
Total Shareholder Return (%)
(“TSR”)
50%
22.7
36.2
14.7
24.8
9.4
18
3.6
17
0%
4.4
19
-11.3
-30%
-8.6
-0.8
16
15
19
18
17
16
15
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.
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.
Link to strategy:
Link to strategy:
25
McKay Securities Plc Annual Report and Financial Statements 2019
Property
and Financial
Review
continued
Having recycled £67.97 million from twelve
disposals between 2015 and 2018 into new
and existing portfolio properties, this has
been a quieter year. However, we continue
to keep a number of sales under review,
particularly where we can take advantage
of one‑off pricing or reinvest into new
assets with better growth prospects
The only disposal activity over the period
was announced in March 2019 following the
exchange of conditional contracts for the sale of
The Planets (98,255 sq ft) in Woking town centre.
It is let to Woking Borough Council until 2020,
operating as a conference centre, amusement
arcade, bingo hall and hotel. The asset has
delivered an income yield in excess of 8.0%,
and was purchased in 2014 with the intention
to redevelop a mixed use scheme including
offices on expiry of the lease. Having reviewed a
range of scenarios with our professional team,
it was clear that the most viable option would be
residential use. To maximise value, we designed
a 35‑storey scheme and presented it to Woking
Council and, with approval in principle for its
height and massing, we offered the site to the
residential market rather than redevelop beyond
our recognised area of expertise and focus.
Completion of the sale is conditional on the buyer
gaining planning consent, and the price will be
determined by the number of units consented.
Valuation
Knight Frank’s independent valuation of the
Company’s property portfolio as at 31st March
2019 totalled £482.70 million (March 2018:
£460.15 million). This delivered a surplus of £6.47
million (1.4%) for the 12 month period, with the first
half contributing 1.7% and the second half ‑0.3%.
Tables 3 and 4 show the portfolio capital and
rental values as determined by our valuers
against the corresponding IPD benchmarks.
Overall portfolio capital and rental growth
outperformed IPD All Property, and the
Table 3
Capital value movement
12 months to 31st March 2019
London offices
South East offices
Total offices
Industrial/Logistics
Other
Total (excluding developments)
Developments4
Total portfolio
Valuation movements (%) after allowing for capex incurred during the period
IPD monthly index allocations, IPD London = City segment
IPD monthly index (All property)
1
2.
3
4 Theale Logistics Park and Lombard Street, EC3
Table 4
Rental value movement
12 months to 31st March 2019
London offices
South East offices
Total offices
Industrial/Logistics
Other
Total (excluding developments)
Developments4
Total portfolio
1. Segments analysed by IPD geographical area, exc dev
2.
3.
4.
IPD monthly index – movement by segment where applicable, IPD London = City segment
IPD monthly index (All property)
Theale Logistics Park and Lombard Street, EC3
26
2019 portfolio
valuation
£m
2018 portfolio
valuation
£m
12 month1
movement
IPD2
movement
57.20
261.90
319.10
65.65
24.55
409.30
73.40
482.70
56.25
260.10
316.35
60.85
21.65
398.85
61.30
460.15
0.5%
‑1.7%
-1.3%
7.8%
12.1%
0.7%
4.9%
1.4%
2.6%
1.4%
1.6%
10.7%
–
0.2%3
–
0.2%
2019 portfolio
ERV
£m pa
2018 portfolio
ERV
£m pa
12 month1
movement
IPD2
movement
3.68
20.27
23.95
3.85
1.15
28.95
4.88
33.83
3.62
19.76
23.38
3.78
1.16
28.32
4.83
33.15
1.5%
2.6%
2.4%
1.9%
‑0.3%
2.2%
1.2%
2.1%
1.2%
1.9%
1.5%
4.5%
–
0.2%3
–
0.2%
McKay Securities Plc Annual Report and Financial Statements 2019 Adjusted profit before tax, our measure of
recurring profit, increased by £0.20 million
(2.3%) to £9.27 million (March 2018: £9.07
million) primarily due to lower interest costs
as a result of cancelling the remaining
interest rate swap in March 2018. Adjusted
basic earnings per share increased by 2.1%
to 9.85 pps (March 2018: 9.65 pps).
Gross rents, including SIC 15 adjustments,
increased on a like‑for‑like basis (excluding
sales and developments) by 6.6% (£1.31 million).
However, overall gross rents reduced by 1.1%
(£0.24 million) to £21.61 million (March 2018:
£21.84 million) due to the loss of income of
£1.32 million from the profitable disposals
made last year and the loss of £0.75 million of
rental income following commencement of
redevelopment at Theale Logistics Park. These
anticipated reductions were partially offset
by a rental contribution of £0.53 million from
30 Lombard Street, EC3 following the lease
commencement in January 2019, in addition
to further significant rental contributions
from Prospero, Redhill (£0.78 million) and
The Mille, Brentford (£0.25 million).
Administration costs reduced to £6.25
million (March 2018: £6.31 million), primarily
due to a reduced cost of bonus offsetting
the inflationary rise in salaries.
The interest cost for the year reduced to £6.13
million (March 2018: £6.74 million), despite
the average debt in the period increasing to
£157.96 million (March 2018: £144.82 million).
This significant reduction reflects the benefit
of cancelling the £33.00 million remaining
swap in March 2018, which carried a coupon
of 5.17%. The cancellation also contributed to
the weighted average cost of debt reducing
to 3.34% prior to amortisation and finance
lease interest (March 2018: 4.06%).
Balance sheet
Shareholders’ funds increased from
£306.44 million to £311.08 million over
the period, principally due to the £6.47
million valuation surplus (£4.83 million
excluding SIC 15 adjustment).
EPRA NAV per share increased by 1.2% over
the period to 326 pence (March 2018: 322
pence). NNNAV per share also increased by
1.2% to 326 pence (March 2018: 322 pence)
and IFRS NAV per share increased by 1.5%
to 331 pence (March 2018: 326 pence).
At the year end, debt facilities totalled £190.00
million (March 2018: £190.00 million). Drawn
debt at the end of the period was £165.00 million
(March 2018: £147.00 million). The gearing ratio
of drawn debt to portfolio value (LTV: net debt
basis) as at 31st March 2019 was 33.3% (March
2018: 31.6%). The increase in drawings over the
year was primarily a result of £13.79 million of
capital expenditure being invested on portfolio
development and refurbishment projects.
On 8th April 2019, we announced an increase
in available facilities from £190.00 million
to £245.00 million. Building on our strong
relationships with our banking group, three
bilateral facilities (£125.00 million) were replaced
by one club facility of £180.00 million. The
club comprises Barclays, Lloyds, NatWest
and Santander, all contributing equally. The
facility is for five years and at commencement
contributed to a weighted average length
of debt of 6.6 years and a low weighted
average cost of debt, if fully drawn, of 3.0%.
The current £65.00 million facility with
Aviva and the new club facility provides
£80.00 million of headroom over our current
drawings to support operational flexibility,
deliver further portfolio initiatives and provide
increased scope for new investments.
Net cash inflow from operating activities
was £8.42 million (March 2018: inflow £7.50
million) and interest cover based on adjusted
profit plus finance costs as a ratio to finance
costs was 2.08x (March 2018: 1.98x).
As a REIT, the Company is tax exempt
in respect of qualifying capital gains and
qualifying rental income, which covers
the majority of the Company’s activities.
Any residual income has been offset by
allowable costs, and there is therefore no tax
charge for the period (March 2018: nil).
Defined benefit pension scheme
Under the application of accounting standard
IAS19, the Company’s pension deficit reduced
over the period from £2.16 million to £2.11
million. The decrease in the deficit was mainly
due to the contributions paid into the scheme
compensating for the increase in scheme
liabilities resulting from a lower discount rate.
As a result of the triennial valuation for the period
to 31st March 2017, which showed a funding
level of 87.5% on a continuing valuation basis,
our annual contribution to the scheme remains
at £0.24 million. The scheme was closed to
new entrants in the 1980s, and now consists
of six pensioners and no active members.
Financial risks
The financial risks are documented in the
Principal Risks and Uncertainties section
of the Strategic Report on page 38.
S. Perkins
Chief Executive
G. Salmon
Chief Financial Officer
20th May 2019
portfolio total return of 5.4% outperformed
the IPD All Property return of 5.0%.
Through our asset selection and refurbishment
initiatives, the rental value of our largest
weighting, South East offices, outperformed
the benchmark, but the capital growth
underperformed. There are two reasons for
this. Firstly, as anticipated with future pipeline
opportunities at Great Brighams Mead,
Reading and Station Plaza, Theale, values have
declined by 7.8% and 18.1% respectively as
the leases approach expiry. The subsequent
uplift in value following refurbishment will see
values enhanced. Secondly, at Pegasus Place,
Crawley and One Crown Square, Woking we
suffered tenant defaults which led to capital
value declines of 5.4% and 8.2% respectively,
which will be recovered on re‑letting.
Our South East industrial and logistics portfolio
saw capital growth of 7.8% compared to the IPD
benchmark of 10.7%. Our two largest assets by
value in this sector, The McKay Industrial Estate
at Poyle, next to Heathrow, and Oakwood Trade
Park in Crawley, increased in value by 12.8%
and 11.1% respectively. The overall performance
was below the benchmark due to lease expiries
over the period and other properties holding
their value after a strong performance last year.
Although rental growth of 1.5% in our London
offices outperformed IPD, capital growth
was marginally lower due to characteristics
of the small number of assets in this sector.
The Planets in Woking (within “Other”)
saw strong capital value growth of 20.2%
to reflect the uplift in the conditional sale
price over the March 2018 book value.
Development properties over the year consisted
of Brunel Road, Theale and 30 Lombard
Street, EC3. Much of the value created by
the pre‑letting of 30 Lombard Street was
included within the 2018 valuation, but the 4.9%
overall valuation surplus incorporated further
gains primarily due to lease completion.
Dividends
The final dividend of 7.4 pence per share (March
2018: 7.2 pps) will be paid on 25th July 2019 to
those on the register on 31st May 2019. With the
interim dividend of 2.8 pence per share, this takes
the total dividend for the year to 10.2 pence per
share, an increase of 2.0% on the previous year.
As a REIT, the Company is required to distribute
at least 90.0% 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 20.0%. Previous losses attributed
to the cost of cancelling interest rate hedging
instruments has offset the profits attributable
to the PID. As a result, the final dividend will be
paid as an ordinary dividend rather than a PID.
Income statement
Profit before tax (“IFRS”) totalled £13.19
million (March 2018: £43.44 million). This
included the unrealised surplus on valuation
(including SIC 15 adjustment) for the period of
£4.83 million (March 2018: £25.07 million).
27
McKay Securities Plc Annual Report and Financial Statements 2019 Sustainability
A new
sustainability
vision
We have again made
great progress against
our sustainability
targets this year, fully
achieving 89%.
68
2018 GRESB score
44%
reduction in CO2e since 2015/16
Introduction
As well as working hard to achieve our targets,
another important action undertaken this year
has been the in‑depth review and reframing
of our sustainability strategy. Our existing
sustainability framework of Creating Sustainable
Buildings, Managing Sustainable Buildings,
and Engaging Stakeholders has served us well
since it was first launched in 2013. However,
as we were developing and moving forward
into the next ambitious phase of our business
strategy, we felt it was timely to look also at
our sustainability ambitions over the next 5‑10
years. The pace of technological, social and
environmental change is breathtaking and
therefore there is also rapid change in tenant,
community and shareholder expectations in
this area. We want to make sure our business is
future‑proofed, resilient and able to respond to
these changing expectations. We completed
our detailed sustainability strategy development
process in March 2019 and will set out our new
strategy later in the sustainability update together
with our new sustainability targets for 2019/20.
In the meantime, the following pages
provide an update on all our activities and
achievements during 2018/19 against
our existing objectives and targets.
Our progress to date
Since the launch of our sustainability
strategy in 2013, the Company has delivered
some notable achievements, including:
MANAGING
SUSTAINABLE
BUILDINGS
To add value to the
Company’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
• High sustainability ratings for all new
developments and major refurbishments,
including a BREEAM ‘Outstanding’ rating for
9 Greyfriars Road, Reading and BREEAM
‘Excellent’ ratings for Prospero, Redhill and
30 Lombard Street, EC3
• A 13% reduction in like‑for‑like landlord‑
controlled electricity consumption and a 41%
reduction in like‑for‑like landlord‑controlled
gas consumption between 2015/16 and
2018/19
• A 31% reduction in like‑for‑like landlord‑
controlled water consumption in the same
period
• A 44% reduction in carbon footprint over
four years (far surpassing our original target
which was to reach a 16% reduction by March
2020). A great leap forward was made in the
2018/19 period in particular, as we agreed
Like-for-like energy consumption
(MWh)
Like-for-like greenhouse gas emission
(tonnes CO2e)
Like-for-like water consumption
(m³)
3.5m
3.4m
3.3m
2.1m
6.0m
6.1m
5.6m
5.2m
3,599
3,293
2,668
2,000
10,770
8,682
7,364
7,419
FY 15/16
FY 16/17
FY 17/18
FY 18/19
FY 15/16
FY 16/17
FY 17/18
FY 18/19
FY 15/16
FY 16/17
FY 17/18
FY 18/19
Electricity
Natural gas
28
McKay Securities Plc Annual Report and Financial Statements 2019 supply contracts for renewable electricity
across the portfolio such that all landlord‑
supplied electricity is now zero carbon, which
equates to an 84% reduction in carbon
footprint from 2017/18
• An Environmental Management Programme
running over a period of several years for the
five most resource intensive assets in the
portfolio, where the Company has
implemented energy and water saving
measures. Energy consumption at those five
assets has been reduced by 26%
• Significant improvement in our GRESB score,
from 37 in 2014 to 68 in 2018, equivalent to a
three‑star rating
Creating sustainable buildings
As well as the importance of a low carbon
development, evidence of the connection
between healthy office buildings and workforce
productivity continues to build, pushing
developers to integrate health and wellbeing
features into building design and corporate
occupiers to specify space which demonstrates
these credentials. Within McKay’s own portfolio,
demand for sustainable buildings has been
evidenced by the positive market response to
our recent office developments in Redhill and
Reading. The fact that 78% of our occupiers
rank the total cost of occupancy as one of
the most important attributes of a building
also underlines the significance of promoting
a design and management approach that
balances a reduction in resource consumption
with an increase in occupier wellbeing.
Composition of total annual
predicted energy bill
£
300,000
250,000
200,000
150,000
100,000
50,000
0
£2 per sq ft
Typical UK office
Prospero, Redhill
A sustainability
success story
• Prospero, Redhill achieved BREEAM
‘Excellent’ and EPC ‘A’ ratings upon
completion in November 2016. The
building features significant levels of
natural light, LED lighting and a highly
energy efficient building envelope
• These design features meant that
electricity consumption was predicted
to be 60% lower than a typical UK office
building, thereby reducing annual
occupancy costs and greenhouse
gas emissions
• This was already a great news story for
McKay and for tenants, but energy
modelling on the building in‑use
has revealed that its real energy
performance even surpasses these
excellent design stage expectations,
enabling us to save around £20,000 this
year on our electricity bill in spite of an
increase in the unit cost
29
McKay Securities Plc Annual Report and Financial Statements 2019 Sustainability
continued
Progress against development targets
New development targets
Status
Progress against occupier engagement
targets
Achieved
Occupier engagement targets
Status
Continue to monitor the
compliance of contractors
with McKay’s Sustainability
Requirements for
Development and
Refurbishment Projects,
ensuring that sustainability is
consistently integrated as part
of the tendering process.
Ensure all new developments
and major refurbishments
achieve minimum BREEAM
‘Excellent’ and an EPC rating
of at least ‘B’.
Follow up on the results and
recommendations of the
post‑occupancy evaluation of
Prospero, Redhill, to ensure
that all aspects of operational
performance meet design
intent.
Achieved
Achieved
In the year ending March 2019, we completed
one new office development at 30 Lombard
Street, EC3 and embarked upon the
development of the Theale Logistics Park in
Reading. McKay maintains a commitment to
ensure that all new developments and major
refurbishments achieve minimum BREEAM
‘Excellent’ and an EPC rating of at least ‘B’. Our
development standards also help ensure that
all five of the material issues for our portfolio
identified in our recent strategy review are
managed for our development pipeline. For
both the 2019 developments our Sustainability
Requirements for Development were included
in the tendering process, forming a pre‑
requisite to appointment of contractors and
involving engagement on an ongoing basis with
contractors to support their implementation.
Managing sustainable buildings
We set ourselves two targets in relation to
occupier engagement for completion during
the year ending March 2019. One of these
was already achieved, and the other was
still in progress as at the end of March, as
we were holding off designing the building
awards until we had received customer
feedback through our occupier survey.
30
Include information about
assets’ sustainability, including
energy efficiency and health
and wellbeing features,
within marketing materials,
highlighting their benefits for
occupiers.
Introduce a building awards/
competition to encourage
uptake of sustainability
practices amongst tenants.
Achieved
In progress
Occupier survey
In late 2018 and early 2019, we sent a satisfaction
survey to 118 occupiers, receiving responses
from 27%. We asked occupiers to rate their
overall satisfaction with McKay as a landlord,
as well as a range of other aspects including:
• McKay’s understanding of their business
needs
• Their experience of the leasing process
• Quality of relationship with McKay’s
management teams
• Presentation of the property
• Their own sustainability priorities
The survey captured both quantitative and
qualitative feedback and provided very useful
insights on McKay’s current performance
as a landlord and areas for further action.
We were particularly proud that 85% of
responses stated they would be very or
highly likely to recommend McKay as a
landlord. Moreover, 94% indicated that they
were satisfied with McKay’s understanding
of their business needs, with 75% rating this
attribute as ‘strong’ or ‘exceptional’. McKay’s
approach to occupier engagement and the
quality of its relationships with customers was
also indexed well, suggesting that McKay’s
overall approach to customer service is
working well and should be maintained.
In terms of sustainability, employee health,
wellbeing and productivity stood out as
being of greatest importance to occupiers.
Occupiers’ assessment of the relative
importance of these issues has been reflected
within McKay’s sustainability strategy
review, and objectives have been set to
steer future action in relation to each one.
Monitoring and improving the
environmental performance of our
portfolio
By taking action to increase efficiencies
wherever possible within our assets,
particularly the largest contributors to our
environmental footprint, we have made
significant improvements in the energy and
water consumption and carbon emissions of our
portfolio over the last few years as shown in the
charts in the introduction and in the table overleaf.
Snapshot of occupier survey results
How likely are you to recommend
McKay as a landlord?
How well does McKay understand
your business needs?
Highly likely
Very likely
Likely
Somewhat likely
Unlikely
47%
38%
9%
6%
0%
Strong understanding
Exceptional understanding
Good understanding
Little understanding
No understanding
50%
25%
19%
6%
0%
McKay Securities Plc Annual Report and Financial Statements 2019 Progress against environmental performance targets
Environmental performance targets1
Status
Performance
Achieve a 12% reduction in like‑for‑like landlord‑controlled
electricity consumption relative to a 2015/16 baseline.
Achieved
13% reduction
Achieve a 12% annual reduction in like‑for‑like landlord‑
controlled gas consumption (adjusted for heating degree
days) relative to a 2015/16 baseline.
Achieved
41% reduction
Achieve a 12% reduction in like‑for‑like landlord‑controlled
carbon emissions, against a 2015/16 baseline.
Achieved
44% reduction
Achieve a 9% reduction in like‑for‑like landlord‑controlled
water consumption, against a 2015/16 baseline.
Achieved
31% reduction
Maintain 100% of operational waste diverted from landfill
for landlord‑managed portfolio.
Achieved
100% diversion
Increase the recycling rate across all properties for which
the Company has management control to 48% by 31st
March 2019, in line with ‘Good Practice’ according to the
Real Estate Environmental Benchmark (“REEB”).
Not achieved
35% rate
1.
Like‑for‑like analysis takes into account occupancy rates across the portfolio in the gas, electricity and water consumption trend
calculations. It also incorporates ‘heating degree day’ analysis to normalise gas consumption. The water like‑for‑like analysis
has excluded a very large proportion of the portfolio due to missing data and should be viewed with significant caution. Calendar
year 2018 recycling rate and disposal routes are taken as an approximation of the financial year 2018/19 recycling rate and
disposal routes
Waste: Disposal routes
(tonnes)
3.83
37.55
17.75
17.75
6.86
45.02
9.26
4.91
90.45
FY 17/18
106.78
FY 18/19
Incineration (with energy recovery) facility
Refuse derived fuel
Off-site materials recovery facility
Recycling facility
Composting
We also continue to send zero waste direct to landfill across our portfolio as per the chart illustrating
our waste disposal routes. Unfortunately, as the table to the right shows, we have not been able to
increase the recycling rate of the properties where we have management control in line with the
REEB for ‘Good Practice’, so our waste recycling rate is still lower than our target.
Waste: Recycling rate
(%)
We are already working to improve on this. In autumn 2018 we commissioned a waste review to
identify potential solutions to boost recycling rates across our directly managed portfolio and
followed up on the recommendations in early 2019 through engagement with waste contractors.
We hope that with due attention to this aspect we will be able to improve recycling rates in line with
our target.
Progress against environmental management targets
Environmental management targets
Pilot an innovative energy‑saving technology at one of the Company’s major
energy consuming assets.
Pilot an innovative water‑saving technology at one of the Company’s major
water consuming assets.
Continue to review EPC risk associated with new purchases and create
improvement plans for any asset with an ‘E’ rating or below, to bring it up to at
least a ‘D’ rated EPC.
Roll out phase two of the Company’s Renewable Energy Review Strategy,
which will involve conducting detailed studies into the feasibility of
incorporating solar PV panels at five properties, and then select at
least one property at which to take forward an installation, subject to
commercial viability.
Status
Achieved
Achieved
Achieved
Achieved
64.7
64.6
35.3
FY 17/18
35.4
FY 18/19
Total recycled
Total non-recycled
31
McKay Securities Plc Annual Report and Financial Statements 2019 Sustainability
continued
Employee training
To engage and inspire our workforce to
create and manage sustainable buildings,
we organise Continuing Professional
Development (“CDP”) on these themes.
In the year to March 2019, this included
two separate training sessions on both
environmental and health and wellbeing
certification standards. Following these
sessions, we have introduced health
and wellbeing initiatives for occupiers
at 329 Bracknell as a pilot project,
including the offer of weekly exercise
classes with a personal trainer.
We are also organising further
building tours for our employees
to explore examples of successful
tenant engagement programmes
focused on sustainability.
One of the reasons for the observed
improvements in energy and water
performance across the portfolio is that McKay
implemented a rolling programme of upgrades
and improvements across the portfolio.
As part of any refurbishment programme,
energy and water efficiency upgrades are
made wherever the cost‑effective opportunity
arises. The most significant reductions in energy
consumption between 2015/16 and 2018/19
have been achieved at The Mille, Brentford and
One Crown Square, Woking, due to the upgrades
carried out to multiple aspects of HVAC and
lighting, among a raft of other improvements.
Recent upgrades at Corinthian House, Croydon
have included individually mounted PIR urinal
flushing sensors and sensor hand basin taps
installed in newly refurbished toilets, replacing
old automatic cistermiser flushing and traditional
taps. We will look to roll out this new water‑saving
technology across the portfolio wherever we
are refurbishing toilets. We have also benefited
from an award‑winning new lift system created
by Kone, called NMX, which is 28% more energy
efficient than the current equivalent, and includes
an EcoDisc hoisting motor and regenerative
drive, standby power saving and LED lighting.
Our improvement programme also helps us
to manage portfolio EPC risk. The minimum
energy efficiency standard (“MEES”), which
32
As well as increasing our assets’ energy
efficiency, we have also been proactive in
assessing the viability of installing renewable
energy systems within its existing sites. In
2018/19, we commissioned some more
detailed technical and commercial feasibility
studies on assets where initial surveys
had indicated potential for installing solar
photovoltaic panels (“PV”) and we are now
reviewing the results of these assessments.
Engaging our stakeholders
We have continued to make good progress in this
area of our strategy, and details are provided
below.
Progress against stakeholder targets
Status
Achieved
Achieved
Achieved
Achieved
Investor and employee
engagement targets
Maintain or enhance GRESB
performance relative to 2017.
Hold a minimum of two
sustainability‑related CPD
sessions to increase
awareness of key sustainability
issues amongst employees.
Continue to organise annual
sustainable building tours to
inform and inspire employees.
Continue to ensure
compliance with the
Company’s Responsible
Procurement Policy through
the agreed annual auditing
process.
Industry benchmarking
We continue to participate in the GRESB and in
2018 were particularly proud to obtain a GRESB
score of 68, a six‑point increase on our 2017
performance and an improvement of over 30
points since our first year of participation in
2014. Reflecting the ongoing evolution of our
approach and delivery of management and
performance targets, we have now moved
from a 2‑star to 3‑star GRESB rating.
Health and safety management
Although not forming part of our sustainability
targets, health and safety (“H&S”) is a critical
element of the Company’s oversight of the
portfolio, and as such, is a key item to update
on here. The Company’s H&S Policy and
Procedures reflect legislation and latest best
practice; a copy of the General Statement is
available on the Company’s website and has
been shared with all suppliers and employees.
Implementation of the Company’s H&S is
managed by the Safety Management Company
(“SMG”). The SMG meets monthly when it
originates from the Energy Act 2011, came into
force on 1st April 2018, making it unlawful to let
any properties in England and Wales with an
EPC rating of ‘F’ or ‘G’. Having taken a proactive
approach to managing EPC risk, working with
our asset managers and development team to
improve our EPCs at every opportunity, less
than 0.5% of the assets within the Company’s
portfolio (by ERV) are currently ‘F’ or ‘G’ rated.
Breakdown of EPC rating
across the portfolio by ERV
No EPC held
A
B
C
D
E
F
G
12%
8%
18%
19%
24%
19%
0%
0%
McKay Securities Plc Annual Report and Financial Statements 2019 reviews any legislative changes that may
affect the Company and its portfolio and takes
appropriate action on any risks highlighted to
actively reduce the Company’s risk profile. A
programme of health and safety training has
been implemented for employees, alongside
a programme of training with the Company’s
contractors and consultants to ensure they are
working to the same standard. For the year to
March 2019, there have been no accidents of a
nature reportable to Health and Safety Executive.
Modern slavery and sustainable
procurement
The Modern Slavery Act 2015 (“the Act”) was
introduced with the objective of reducing human
trafficking and slavery. The Company is not
obliged to report under the Act as its turnover is
well below the £36 million turnover threshold.
Despite this, the Company has in place a
number of policies supporting a zero‑tolerance
approach to slavery, human trafficking, as well
as bribery and corruption which accord with
the Act’s objectives. These include our policies
on responsible procurement, health and safety,
equal opportunities and other staff policies
in place in respect of bullying, harassment,
grievance and whistleblowing. As part of the
regular review of these policies, the Company
will look to improve and enhance this framework.
Suppliers and contractors play a fundamental
role in delivering McKay’s sustainability
objectives and we updated our Responsible
Procurement Policy and pre‑qualification
questionnaires with more ambitious
social and environmental requirements in
2017/18. Building on that, over the past year,
we have created a supplier assessment
questionnaire covering aspects such as the
Real Living Wage, environmental policies
and management procedures and the use of
products with lower environmental impact
and we have sent that out to a sample of our
suppliers to check on their performance.
Supporting local communities
At present, McKay engages with local
communities principally through the planning
process and its community investment
activities. Community investment activities are
co‑ordinated by our Charity Committee and
focus on supporting local children’s charities.
Low carbon design in
practice at Theale
Logistics Park
Theale Logistics Park will be a new, high
quality, 134,430 sq ft industrial/ distribution
unit located next to Junction 12 of the M4 in
Reading. McKay is undertaking works to deliver
a self‑contained, high specification warehouse
unit. The project is on track to achieve BREEAM
‘Excellent’ for Industrial New Construction,
Core and Shell, and boasts a range of integral
features designed to reduce carbon emissions
and resource consumption, as well as lower
our impact on the surrounding environment,
and support occupier health and wellbeing.
For example, building materials with high
Green Guide ratings and responsible sourcing
certification have been specified, and we have
selected prefabricated steel frames to reduce
resource consumption and waste. The site
falls within the Berkshire Biodiversity Action
Plan area, and wildlife friendly planting will be
installed as well as bird and bat boxes. Most
significantly, an 800 sq ft array of PV panels
will be installed on the building, providing an
annual electrical output of 7,875 kWh and
reducing building CO2 emissions by 21%.
The office areas have been designed to
maximise daylight levels, thereby supporting
better occupier health and wellbeing, as well as
reducing lighting requirements. Indoor air quality
will be enhanced through locating air intakes
and exhausts a significant distance apart and
far from the main road. Sustainable mobility is
also encouraged by the provision of cycling
facilities and a 70‑space cycle park, as well as
the site’s proximity to Theale train station.
33
McKay Securities Plc Annual Report and Financial Statements 2019 Sustainability
continued
Mandatory carbon reporting
We fulfil our statutory obligations for corporate reporting, which includes disclosure of the Company’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.
McKay’s Mandatory Greenhouse Gas Emissions Reporting statement covers the reporting period
1st April 2018 to 31st March 2019 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. The table below provides the relevant data with the accompanying explanatory notes.
The significant reduction in the Company’s overall carbon footprint in 2018/19 is due to three key
aspects: 1) gas consumption decreased by 35% compared to last year’s usage; 2) ‘location‑based’
electricity emissions reduced due both to improvements in energy efficiency and to the ongoing
decarbonisation of the grid; and 3) in FY 2018/19, the Company procured 100% renewable electricity,
resulting in the complete decarbonisation of its Scope 2 and 3 emissions (calculated using the
‘market‑based’ method).
Sources of greenhouse gas emissions
Scope 1
emissions
Energy
Gas (EPRA sBPR
fuels‑Abs)
Fugitive
emissions
Energy
Scope 2
emissions
Scope 3
emissions
Energy
Refrigerant emissions
Landlord‑controlled
electricity (EPRA sBPR
Elec – Abs)
Landlord‑obtained
energy sub‑metered to
tenants and all
transmission and
distribution losses
(EPRA sBPR 3.6)
Total
Carbon Intensity3: Scope 1+2 emissions of
tCO2e/£m adjusted profit before tax
2018/19
tonnes of CO2e
(location‑based
calculation1)
2018/19
tonnes of CO2e
(market‑based
calculation2)
2017/18
tonnes of CO2e
451
451
706
De minimis
De minimis
De minimis
1,942
0
2,091
233
2,626
258
0
451
49
294
3,091
302
Data qualifying notes
• This is the Company’s sixth year of disclosure under the Mandatory Greenhouse Gas Emissions Reporting
regulations
• The Company’s emissions for the year to March 2018 have been restated due to Q4 2017/18 data not being
available at the time of reporting in 2018; this final period of data is estimated in every Annual Report. For the
financial year to March 2019, 27% of energy consumption, and therefore carbon emissions, is estimated.
FY 18/19 Q4 accounts for 99% of this estimated data
• This statement has been prepared in line with the main requirements of the GHG Protocol Corporate
Accounting and Reporting Standard and ISO 14064‑1:2006. For the first time this year, Scope 2 dual reporting
was undertaken, which discloses one Scope 2 emission figure according to a location‑based method and
another according to a market‑based method
• Within Scope 1 emissions, refrigerant‑related emissions for the period were de minimis
• An operational control consolidation approach has been adopted
1
2
For the ‘location‑based’ method of emissions calculations, standard emissions factors from the UK Government Emissions
Conversion Factors for Greenhouse Gas Company Reporting 2018 were used
For the ‘market‑based’ method, the Company’s contractual instruments for the purchase of certified renewable electricity were
accounted for, resulting in a significant reduction in the Company’s real carbon footprint
3 Carbon intensity only includes Scope 1 and Scope 2 emissions in the calculation
Looking to the 2020s:
A new sustainability vision
Five years on from our first sustainability strategy,
environmental and social trends have continued
to evolve apace, and new sub‑trends have risen
up the agenda. Coupled with this, we are actively
pursuing our ambitions to reposition our brand,
engage more deeply with occupiers and grow
our portfolio. Hence we decided that 2018/19
was an appropriate time to review and refresh
our sustainability strategy in line with the latest
trends and the Company’s strategic direction.
The Right Choice for a Sustainable
Business
Our mission is to work in partnership to deliver
quality, innovation and growth. As a specialist
REIT focused on London and the South East,
we need to anticipate and prepare for the
future evolution of our market and the trends
that affect our customers’ prosperity.
By harnessing innovations in office designs and
technologies to create low carbon, resource
efficient and healthy buildings we aim to help
people feel positive and businesses to thrive.
Strategy review process
In autumn 2018, McKay kickstarted the process
of refreshing its sustainability strategy with
support from external adviser JLL. This involved
six ‘materiality tests’, which covered a review of
McKay’s baseline activities and achievements
to date; assessments of future trends, peer
practices and legislation to gauge future
market direction; a tenant survey to understand
occupiers’ sustainability concerns; and a
review of investor expectations, focusing on the
requirements of GRESB and the Task Force on
Climate‑related Financial Disclosures (“TCFD”).
The findings of these tests enabled us
to refocus our sustainability strategy
and vision, and pinpoint 14 ‘material’
sustainability issues which underpin our
new focus areas and suite of objectives.
34
McKay Securities Plc Annual Report and Financial Statements 2019 Our new framework
Our new sustainability vision – The Right Choice for a Sustainable Business
– is fully aligned to our corporate vision, mission and purpose and is
supported by a strategic framework based around three focus areas.
Sustainability
Strategy Framework
The Right Choice
for a Sustainable
Business
A customer-focused
and flexible landlord
Low carbon, resource
efficient and healthy
buildings
A progressive and
transparent business
We have defined ten objectives which will guide our annual target setting,
motivate our employees and provide clarity to investors, occupiers and
other stakeholders as to the wider ambitions of our business and the
contribution that we can make towards key sustainability trends. Our
objectives are also aligned to our 14 ‘material’ sustainability issues. The
details of our programme and our 2019/20 targets are provided below.
A customer-focused
and flexible landlord
Our approach
Delivering outstanding customer service is paramount to our business, and
this principle is reflected in our approach to sustainability. By actively
marketing our sustainability credentials to attract and retain customers we
can demonstrate that we are the right choice of landlord for businesses
which have their own sustainability goals. By anticipating, understanding
and acting upon feedback from our customers, we can bolster our
reputation as a business partner and support business growth.
Material issues
• Tenant attraction and retention
• Technological innovation
• Diversity, equal opportunity and inclusivity
3
4
Undertake a gap analysis of a selection of current assets’
digital infrastructure provision against good practice
references, aiming to define a minimum standard for digital
infrastructure provision for different asset types, and to trial
smart technology in one property
Develop questions to be included within the next customer
survey, to ask more specifically about customers’ needs and
expectations with regard to building‑related features and
amenities to support diversity and inclusivity
Low carbon, resource
efficient and healthy
buildings
Our approach
Creating low carbon, resource efficient and healthy buildings will be
essential to meet a range of stakeholder requirements in the 2020s. We are
pleased that over the last five years we have already made great strides in
this area as reported above, which we can further build on to continue to
ensure our portfolio is future‑proofed and fit for purpose in the coming
decade.
Material issues
• Energy and carbon
• Building health, wellbeing and productivity
• Waste and resource management
• Water
• Building labels and standards
Objectives
• Actively participate in the transition towards a low carbon economy by
increasing our assets’ energy efficiency, generating and procuring
renewable sources of energy and providing infrastructure for electric
vehicles
• Pursue a circular approach to resource use that reduces construction
and fit‑out costs, increases the flexibility of our buildings, benefits local
communities, reduces operational costs and reduces environmental
impacts from waste
• Put health at the forefront of our property development and
management strategy to help our customers’ businesses prosper and
the people using our buildings to feel fit and well
2019/20 targets
Objectives
• Provide outstanding customer service by being an approachable,
•
responsive and proactive landlord
Invest in digital infrastructure that enables our customers to be better
connected, more productive and have a lower environmental impact
• Seek to ensure that our assets support modern workplace
requirements and continue to engage our existing customers
2019/20 targets
1
2
Create and implement a follow‑up action plan in response to
the 2019 customer survey
Implement the building awards/competition to encourage
uptake of sustainability practices amongst our customers
5
6
7
8
Ensure the electricity procured for any new asset acquired in
the 2019/20 period is shifted to a renewable electricity tariff by
the end of the year, to maintain McKay’s 100% zero carbon
electricity procurement status
Achieve a year‑on‑year 4% reduction in like‑for‑like landlord
controlled electricity and gas consumption and work towards
20% reduction in carbon emissions by FY 2024/25 from
FY 2019/20
Proceed with the implementation of new energy saving
technologies at a minimum of one asset
Secure approval for the implementation of PV panels on at
least one new development or major refurbishment, following
the results of the Renewable Energy Strategy Review
35
McKay Securities Plc Annual Report and Financial Statements 2019 Sustainability
continued
9
10
11
12
13
14
15
16
17
18
19
20
Continue to ensure that all new developments and major
refurbishments achieve minimum BREEAM ‘Excellent’ and an
EPC rating of at least ‘B’
Define and approve an ambitious 2030 carbon reduction
target and action plan to achieve this through a combination of
energy efficiency measures, on‑site renewables and
purchase of green energy tariffs
Identify a development/refurbishment project (if a suitable
opportunity arises) where McKay could seek to achieve net
zero carbon (as a pilot) before 2022
Increase the recycling rate across all properties for which
the Company has management control to at least 52% by
31st March 2020, in line with ‘Good Practice’ in office assets
according to the latest available REEB
Implement the recommendations of the waste review at
assets where McKay has management control
social value that our business can create in the communities where we
operate. This will enable us to preempt pressure from investors and
prepare our business for more demanding planning and/or regulatory
requirements on these aspects.
Investor attraction and retention
Material issues
•
• Transparent disclosure
• Corporate governance
• Community health and wellbeing
• Sustainable procurement
• Health and safety
Objectives
• Protect and enhance the value of our assets and future‑proof our
business by anticipating and responding to evolving environmental and
social trends
• Communicate clearly and directly with our stakeholders and maintain
Organise at least one CPD session on the circular economy to
provide information and inspiration to employees on this topic
•
our culture of sound corporate governance
Identify opportunities to support the resilience of local communities
around our assets, co‑creating places where people and business can
thrive
• Monitor and report transparently on our sustainable business
performance by using KPIs linked to each of our focus areas, and
maintain our position in the GRESB
2019/20 targets
21
22
23
24
25
26
27
28
29
Continue to ensure that sustainability health and wellbeing
are integrated into asset marketing and communications,
including asset websites and asset profiles on the
corporate website
Create asset‑level sustainability scorecards which can be
used to track asset performance, with this performance data
also used in asset marketing
Review and update McKay’s acquisitions and developments
checklists in line with the sustainability trends and material
issues identified through the 2018/19 strategy review
Define the brief for a review of the portfolio (and local transport
links) against key climate risk criteria – looking out to 2030
As part of McKay’s rebranding, integrate our new
sustainability vision into our value proposition and corporate
website content
Over a two‑year period, identify key locations and a shortlist of
projects/charities focused on community resilience which
McKay could support
Maintain or enhance GRESB performance relative to 2018
Take forward the recommendations of the gap analysis
undertaken against the requirements of the TCFD
Aim to increase environmental data coverage with a focus on
tenant energy, GHG emissions and water data, in line with
GRESB requirements
Achieve a year‑on‑year 4% reduction in like‑for‑like landlord‑
controlled water consumption, and work towards 20%
reduction by FY 2024/25 from FY 2019/20
Proceed with the implementation of new water saving
technologies in a minimum of two assets
Undertake a gap analysis of a selection of current assets’
health and wellbeing features against good practice
references, aiming to define a minimum standard for health
and wellbeing that can be applied to all assets (by type),
aligned to an appropriate certification standard (e.g. WELL
or Fitwel).
Undertake a post‑occupancy evaluation at a suitable asset, to
identify the extent to which occupier experience matches with
the design intent
Develop questions to be included within the next occupier
survey, to ask more specifically about occupiers’ perceptions
of their demised area and common parts building areas in
relation to health and wellbeing
Organise at least one tour of an exemplary sustainable
building for health and wellbeing, to inform and inspire
employees
A progressive and
transparent business
Our approach
We are proud of our brand and reputation as the leading property specialist
in our region, and it is of utmost importance for us to maintain our status as a
progressive and transparent business that is open and responsive to
trends within both the investor community and wider society. Whilst we
continue to uphold high standards of corporate governance, procurement
and health and safety management, we will also be sharpening our focus on
the management and disclosure of sustainability risk and unlocking the
36
McKay Securities Plc Annual Report and Financial Statements 2019 A BREEAM ‘Excellent’
development in the
heart of the City of
London
30 Lombard Street, EC3 is located in the
City of London and McKay completed the
redevelopment in January 2019. This triggered
the completion of the pre‑let of the entire
building to one financial services tenant.
Awarded a BREEAM ‘Excellent’ rating and an
EPC ‘B’, the building was fitted with a well‑
performing façade and highly efficient LED
lighting system, incorporating daylight dimming.
Supportive of occupier comfort and
productivity, the building also features a
HVAC system zoned such that the BMS is
able to keep the temperatures of the indoor
environment well controlled across the
floorplate. Occupants have access to a planted
roof terrace with views across the City, and
public transport links, the walkability of the
area, and local amenities are all excellent.
37
McKay Securities Plc Annual Report and Financial Statements 2019 Principal Risks and
Uncertainties
Risk governance
structure
Risk appetite
The Risk Management Committee identified four key areas of risk to the business:
External
Financial
Portfolio
Corporate
Low
Medium
Risk appetite
High
The Company’s strategy of sector and
geographic diversity within these markets
adds value in positive market conditions and
spreads risk in negative market conditions.
An ongoing process for identifying, evaluating
and managing emerging and principal risks faced
by the Company was in place throughout the year
to 31st March 2019 and up to the date of approval
of the Annual Report and Financial Statements.
A robust assessment of the principal risks
facing the Company has been carried out and
the principal risks are listed on pages 40 to 42.
The Board’s overall strategy is based on a
low/medium risk appetite determined by an
assessment of the prospects within our chosen
real estate markets and compliance with the
stringent requirements of the REIT regime.
This consistent long term strategy has proved
to be successful through numerous property
cycles with the inherent risks of property
development and investment mitigated by
internal portfolio management by professionals
with extensive market experience located
at the geographic centre of the portfolio.
Decision making is based on an open culture,
with clearly defined terms of reference for
the internal Risk Management Committee,
overseen by an independent Board. Although
economic conditions within our selected
markets of London and the South East are
beyond our control, they have proven to be more
resilient and less volatile through the regular
property cycles than the market as a whole.
The Board
The Board develops the Company’s
strategic approach to risk and maintains
overall responsibility for monitoring the
effectiveness of the Company’s risk
management and internal control systems.
The Audit and Risk
Committee
Membership:
Independent
Non‑Executive Directors
The Audit and Risk Committee, on behalf of
the Board, reviews the effectiveness of the
Company’s internal financial control and
internal control risk management systems.
The Risk
Sub-committee
Membership:
Executive Directors
The Risk Sub‑committee maintains the
Company’s Risk Register, designs and
maintains the Company’s financial control
and internal risk management systems and
advises on future potential risk exposure.
38
McKay Securities Plc Annual Report and Financial Statements 2019
Viability statement
In accordance with provision C.2.2 of the 2016
UK Corporate Governance Code (provision 31
of the 2018 Code) the Directors have assessed
the viability of the Company beyond the 12 month
period required by the going concern provision.
Assessment period
A five year period has been used for this
assessment, with particular focus on years
one to three. This timeframe is considered
appropriate for the following reasons:
• The Company’s internal modelling is for a five
•
year period
It is a reasonable period for matters including
the assessment of income generation and the
availability of debt funding
• The majority of the Company’s contracted
income expires within five years
• Clearing bank loans are currently for a five
•
year term
In the past, property has proved cyclical and a
five year time horizon is considered a
reasonable timeframe to assess future cycles
• The time taken from acquiring an asset,
finalising a strategy, obtaining planning
permission through to letting is approximately
three to five years
Assessment process
The principal risks to the continued operation
of the Company have been reviewed and
are described in the table on pages 40 to 42.
These risks were subjected to quantitative
and qualitative analysis. Scenario testing,
based on current economic circumstances,
was undertaken, including consideration of:
•
the implications of a decline in income
• a decline in capital values
•
increasing interest costs
• an increased length in the period an asset is
vacant
In order to stress test these risks on a quantitative
financial basis five key business areas were
identified:
• dividend cover
•
• REIT compliance
•
•
lending covenants (“LTV”)
lending covenants (“ICR”)
liquidity
These key business areas were tested using four
scenarios being:
Scenario 1: reduction in rental income
Scenario 2: reduction in capital values
Scenario 3: increase in interest costs
Scenario 4: increased length in the period an
asset is vacant
Assumptions and expectation
The result of the testing against these four
scenarios demonstrated that the Company
can accommodate each of these scenarios,
either without any mitigation, or with mitigation
where the scenario imposes stress.
Further, the Board considered the impact
on the business of a combination of the four
scenarios, which could result, for example,
from a disorderly Brexit, and concluded that
it was reasonable to expect the Company to
accommodate this further scenario without
threatening the viability of the Company.
Based upon the robust risk assessment
described above, the Board has a reasonable
expectation that the Company will be
able to continue operations and meet its
foreseeable liabilities as they fall due over
the period to March 2024, subject to any
significant events beyond its control.
This long term viability statement was
approved by the Board on 20th May 2019.
Going concern statement
In accordance with provision C.1.3 of the 2016
UK Corporate Governance Code (provision
30 of the 2018 Code) the Directors have
reviewed cashflow forecasts which show that
the Company has sufficient facilities to meet
forecast outgoings and expects to comply
with all covenants for the next five years.
In April 2019 the Company successfully
renegotiated an increase in its facilities with
its long terms lenders and entered into a new
facility on the basis of a pool of lenders. For
more detailed information please see page 27.
After making the appropriate enquiries the
Directors have a reasonable expectation that
the Company has adequate resources to
continue in operation for the foreseeable future
(a period of at least 12 months from the date of
the approval of the financial statements). For this
reason, they continue to adopt the going concern
basis in preparing the financial statements.
39
McKay Securities Plc Annual Report and Financial Statements 2019 Principal Risks
and Uncertainties
continued
Principal risks and their impact
How risk is managed
Macroeconomic 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 Company’s strategy accordingly.
Disorderly Brexit damages the UK
economy.
Financial
Interest rate rise
Leading to lower profits.
The Board’s policy is to borrow at both fixed and floating rates
of interest.
Lack of liquidity
Increasing the cost of borrowing and the
ability to borrow.
This is managed through a mixture of short and long term bank
facilities to ensure sufficient funds are available to cover
potential liabilities arising against projected cashflows.
Risk exposure change
in the year
Ongoing Brexit
discussions continue to
maintain a climate of
uncertainty that could
impact on corporate
decision making and
increased sector risk.
A £65 million facility
with Aviva provides
39% of total
borrowings fixed or
hedged. Further
hedging remains under
review.
A newly secured £180
million revolving credit
facility in April 2019 with
a syndicate of lenders
replaced the previous
bilateral facilities and
secures debt facilities for
the next five years.
Breach of financial covenants on bank
borrowings
As a result of rental or capital movement.
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
Company complied with
all such covenants.
Major tenant default
Losing a significant tenant that materially
impacts profits.
This is monitored using Dun & Bradstreet checks for new
tenants together with ongoing credit checks and internal
credit control. The Board receives regular information on
rental arrears and rent collection activities.
Credit control
environment remains
constant.
Taxation
REIT non‑compliance.
As a REIT, the Company 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
Company complied with
the regulations.
Auditor rotation
Disorderly change of external auditors.
The audit tender process ensures the successful auditor has
a thorough understanding of the Company’s structure in order
to ensure sufficient resourcing and timetabling for a smooth
and timely audit process.
40
McKay Securities Plc Annual Report and Financial Statements 2019
Key
Risk exposure in the last year has:
Link to strategy:
Increased
Unchanged
Reduced
Delivery of development programme
Release of portfolio income potential by capturing reversion
Scope for future growth
Principal risks and their impact
How risk is managed
Risk exposure change
in the year
Portfolio
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 climate, the
property market cycle and occupier demand.
Market conditions remain
generally unchanged.
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
Exposure to volatility of rental values.
Reduction in capital values
Exposure to volatility of capital values.
The Company focuses entirely on London and the South East
in established and proven markets.
An experienced and proven acquisition team with a wide
network of contacts and advisers ensure the Company 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.
The Board is regularly presented with details of capital
expenditure and progress on developments, including
appraisals and sensitivity analysis.
Regular appraisals of developments and refurbishments are
carried out.
Contractors are assessed for financial stability and historic
performance.
Design and build contracts are issued where appropriate;
others are fully designed prior to commencement of works.
The Company continually monitors planning and regulatory
reform and takes advice from external advisers and industry
specialists.
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.
An open market valuation of the Company’s properties is
undertaken at the year end and half year by independent
external valuers in accordance with RICS guidelines and
analysed by the Company’s auditors. Valuations are then
reviewed by the Audit and Risk Committee and approved by
the Board.
The Company retains a borrowing headroom should there be
an overall decline in capital values.
Constant review by management of tenant covenant, lease
length and asset management of buildings to preserve/
increase capital values.
With practical completion
of the Company’s
Lombard Street
development in January
2019 this leaves one
speculative industrial
development at Theale
ongoing, thereby reducing
development risk
exposure.
Occupier demand in
smaller lot sizes.
Supply constraints in the
Company’s markets have
contributed to improved
rental values.
Increased uncertainty in
macro environment has
increased the volatility of
capital values.
41
McKay Securities Plc Annual Report and Financial Statements 2019 Principal Risks
and Uncertainties
continued
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 including fraud
and bribery.
Legal and regulatory risk
No‑compliance with regulations and laws
resulting in planning and project delays,
fines and loss of reputation.
The Company retains an external investor and public relations
consultancy. Press releases are approved by the Chief
Executive prior to release. The Company produces a staff
handbook that sets out an employee code of conduct and
other guidelines.
No significant main factors
to increase risk.
The Company employs experienced staff and external
advisers to provide guidance on regulatory requirements.
Continued compliance
with regulation.
The Board approves and adopts the Company’s policies
for compliance with current legislation.
Retention/recruitment
Failure to retain or attract key individuals
could impact on major decision making and
the future prosperity of the Company.
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.
Sector employment
opportunities remain
constant.
Health and safety
Accidents to employees, contractors,
occupiers and visitors to properties
resulting in injury, litigation or the delay of
refurbishment/redevelopment projects.
The SMG meets regularly to review the health and safety risk
profile and to implement new management systems required.
These meetings review the Company’s Fire Risk Assessments,
Safety Inspections, and contractors’ insurance and safe
working practices. The SMG is supported by specialist
external advisers.
There were no significant
issues to report in the year.
IT/cyber
Cyber attack resulting in IT systems failure.
Antivirus software and firewalls protect IT systems. Data and
programmes are regularly backed up and backups are
secured offsite.
Increase in global
incidents of this nature.
Implementation of Company’s Business Continuity Plan.
Cyber fraud insurance is in place.
Terrorism
Terrorist attack impacting a building from the
Company’s portfolio resulting in loss of
income or building costs.
Terrorist attack affecting employees.
All buildings have insurance to cover a terrorist incident and
loss of rent.
All three Executive Directors generally avoid travelling over
longer distances together.
Government advises that
the threat level indicates
the likelihood of a terrorist
attack in the UK is severe.
Approval of Strategic Report
The Strategic Report for the year end 31st March 2019 has been approved by the Board and was signed on its behalf by:
S Perkins
Chief Executive
20th May 2019
42
McKay Securities Plc Annual Report and Financial Statements 2019 Governance Report
44 Board of Directors
46 Chairman’s Letter
47 Directors’ Report
50 Audit and Risk Committee Report
52 Nomination Committee Report
54 Remuneration Report
67 Statement of Directors’ Responsibilities
68
Independent Auditor’s Report
43
McKay Securities Plc Annual Report and Financial Statements 2019 2
3
6
4
7
Board of Directors
1
5
44
McKay Securities Plc Annual Report and Financial Statements 2019
1
Richard Grainger ACA
Chairman
3
Giles Salmon FCA
Chief Financial Officer
Aged 58. Chartered Accountant. Appointed
Chairman in July 2016, having been
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 Liberation
Group. A member of the Remuneration
and Nomination Committees.
2
Simon Perkins MRICS
Chief Executive
Aged 54. Chartered Surveyor. 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 in January 2003.
Member of the Nomination Committee.
Aged 53. Chartered Accountant. Joined
the Company in May 2011 and appointed
as Chief Financial Officer in August 2011.
Previously at BAA Lynton, managing
the Airport Property Partnership.
4
Tom Elliott MRICS
Property Director
Aged 44. Chartered Surveyor. Joined
the Company in September 2016 after
11 years with Land Securities Group
PLC, where his latest role was Head of
Investment for the London Portfolio.
Appointed a Director in April 2017.
5
Jon Austen FCA
Senior Independent Director
Aged 62. Chartered Accountant. Appointed
a Non-Executive Director in July 2016.
Currently Chief Financial Officer of Audley
Group Limited and a Non-Executive Director
of Supermarket Income REIT plc. Formerly
Group Finance Director of Urban&Civic
plc to July 2016. Chairman of the Audit
and Risk Committee and a member of the
Nomination and Remuneration Committees.
6
Nick Shepherd FRICS
Independent Non-Executive
Employee Representative
Non-Executive (“desNED”)
Aged 60. Chartered Surveyor. Appointed
a Non-Executive Director in January
2015. Formerly Senior Partner of Drivers
Jonas until 2010 and Vice Chairman of
Deloitte UK until May 2013. Chairman of
the Property Income Trust for Charities
and Non-Executive Chairman of Hectare
Agritech Ltd. Chairman of the Remuneration
Committee and a member of the Audit
and Risk, and Nomination Committees.
7
Jeremy Bates MRICS
Independent Non-Executive
Aged 53. Chartered Surveyor. Appointed
a Non-Executive Director in January
2017. Director of Savills UK Limited,
EMEA Head of Occupational Markets
and UK Head of Transaction Services.
Chairman of the Nomination Committee
and a member of the Audit and Risk,
and Remuneration Committees.
45
McKay Securities Plc Annual Report and Financial Statements 2019
Chairman’s Letter
Dear Shareholder
I am pleased to
introduce our Corporate
Governance Report
for the year ended
31st March 2019.
Richard Grainger
Chairman
At McKay we continue to strive for high
standards of corporate governance throughout
the business and aim to work in the best interests
of our shareholders and other stakeholders
in a responsible and ethical manner. Sound
corporate governance is embedded into the
culture of the Company and continues to be an
essential part of the Board’s stewardship and
the delivery of our business strategy over the
long term.
We continue to comply with the requirements of
the 2016 UK Corporate Governance Code
(the “2016 Code”) throughout the year. The 2018
UK Corporate Governance Code (the “2018
Code”) comes into effect for companies with
reporting periods starting on or after 1st January
2019 and therefore the Company is not required
to report on its compliance until next year.
However, we have already adopted many of the
recommendations and have made reference to
the 2018 Code throughout this year’s report.
The Board and its Committees operate under a
clear mandate with specific Terms of Reference
for each Committee, a Schedule of Matters
Reserved for the Board and a clear division
of responsibilities between me as Chairman and
the Chief Executive. Each of the Committees
annually review their Terms of Reference and
this year each Committee has incorporated
updates to comply with the 2018 Code.
Consequently, early adoption of two significant
new provisions were put in place in advance of
the requirement to do so.
The first of these was the introduction of
the newly appointed position of Employee
Representative Non-Executive Director
(desNED). After careful consideration of the
requirements of this role for a Company of our
size, the Board approved the recommendation
of the Nomination Committee that existing
Non-Executive Director Nick Shepherd
should be appointed to this role.
The second is the requirement that the Chair
of the Board is not a member of the Audit and
Risk Committee and my resignation from
this Committee was announced in February 2019.
Both of these early adopted provisions were
put in place with effect from 1st April 2019.
Further explanation can be found in the
Nomination Committee and Audit and Risk
Committee Reports respectively, and copies
of the Committees’ Terms of Reference can
be found on the Company’s website at
www.mckaysecurities.plc.uk.
We continue to regularly review the composition
of the Board, and although no changes to the
Board have been made this year, succession
planning remains high on the Nomination
Committee’s agenda. I am satisfied that we have
a strong Board with the appropriate balance of
skills, experience and independence to add
value to Board decision making and debate.
Board meetings are conducted in an open and
transparent manner, with all Directors engaging
in open and honest debate. This is reflected in
the responses received when undertaking our
46
annual Board, Committee and individual Director
evaluations. All Non-Executive Directors have
confirmed to me their ability to provide the time
commitment required to discharge their
responsibilities effectively. Further details of this
year’s evaluation process and outcomes can be
found within the Nomination Committee Report
on page 52.
This year the Audit and Risk Committee led the
important process of tendering for a new
external auditor. This was a thorough and well
executed exercise which resulted in the
recommendation to the Board to appoint Deloitte
as successor to KPMG for the financial year to
31st March 2020. A full report on the tender
process can be found in the Audit and Risk
Committee Report on page 50.
Our Annual General Meeting will be held on
4th July 2019 and the Board and me hope you
will be able to attend. Details of all business to
be transacted is included within the Notice
of Meeting.
Richard Grainger
Chairman
20th May 2019
McKay Securities Plc Annual Report and Financial Statements 2019 Directors’ Report
Introduction
The Directors have pleasure in submitting
their report and audited financial statements
for the year ended 31st March 2019. As
permitted under legislation (Companies
Act 2006 Section 414C (11)) some of the
matters in this report have been included in
the following pages of the Annual Report:
Sections of the report and audited
financial statements for the year ended
31st March 2019
Section
Business Model and Strategy
Future Business Developments
Principal Risks and Uncertainties
Viability and Going Concern
Statements
Greenhouse Gas Emissions
Financial Instruments
Statement of Directors’
Responsibilities
Diversity Policy
Page
12
9
38
39
34
94
67
53
Profit and distribution
The profit for the year is set out in the
Consolidated Profit and Loss and other
Comprehensive Income Statement. Profit
before tax was £13.2 million (2018: £43.4 million).
Under the REIT regime the Company will, in the
normal course of business, be required to pay at
least 90% of its income 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 7.4 pence per share, all of which
will be paid as an ordinary dividend, making
a total for the year of 10.2 pence per share
(2018: 10.0 pence). If approved at the
Annual General Meeting on 4th July 2019
the dividend will be paid on 25th July 2019
to shareholders recorded on the register at
the close of business on 31st May 2019.
Activity and assets
The business of the Company is that of property
investment and development in the United
Kingdom. The subsidiary undertaking principally
affecting the profits or net assets of the
Company in the year is listed in note 13 of the
Annual Report and Financial Statements.
Property valuations
The Company’s properties were valued by an
external professional valuer at 31st March 2019.
An increase in value of £4.83 million (2018:
£25.07 million) has been included in the
Consolidated Profit and Loss and other
Comprehensive Income Statement.
After taking into account retained profits and
dividends paid during the year, basic net
asset value per share at 31st March 2019
was 331 pence (2018: 326 pence).
Directors
The Board of Directors for the financial year to
31st March 2019 was:
R Grainger1
S Perkins
G Salmon
T Elliott
J Austen
J Bates
N Shepherd
1.
Independent on appointment as Chairman
Details of the Chairmen and members of the
Audit and Risk Committee, Nomination
Committee, and Remuneration Committee are
provided in each of the Committee Reports.
Biographical details of the Directors are set out
on pages 44 and 45. In accordance with the
Company’s Articles of Association and the UK
Corporate Governance Code all the Directors
being eligible will offer themselves for re-election
at the 2019 AGM.
Apart from service contracts and share options,
details of which are set out in the Directors’
Remuneration Report on pages 54 to 66, 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 62 and 63.
Directors’ and officers’ liability
insurance
In accordance with Article 140 of the Articles and
to the extent permitted by the Companies Act,
the Company maintains directors’ and officers’
liability insurance, which is reviewed annually.
Substantial shareholdings
In addition to the Directors’ interests referred
to on page 63 of the Directors’ Annual
Remuneration Report, the Company has
been notified in accordance with the UK
Listing Authorities Disclosure Guidance and
Transparency Rules of the following holdings
of the Company’s shares (see note 19 of the
financial statements) as at 31st March 2019:
Aberforth Partners LLP
Bank of Montreal* (BMO)
ING Groep N.V.
J.O. Hambro Capital
Management UK
Shares
%
12,294,642 13.06
12.41
11,685,996
5.60
5,269,972
4,752,510
5.06
* The aggregate interest held by BMO includes 9.90% held by
Thames River Capital LLP
Notification since 31st March 2019:
ING Groep N.V.
5,290,186
5.62
Shares
%
Political donations
No political donations were made during the year
(2018: nil).
Charitable donations
The Company donates to local and national
charities as appropriate during the year.
Share capital
The issued share capital of the Company as at
31st March 2019 was 94,124,425 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.
47
McKay Securities Plc Annual Report and Financial Statements 2019
Directors’ Report
continued
Annual General Meeting
The 73rd Annual General Meeting of the
Company will be held at The Royal Thames
Yacht Club, 60 Knightsbridge, London SW1 on
4th July 2019 at 3.00pm.
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
AGM held in 2018 to allot relevant securities up
to a nominal amount of £6,263,673. That
authority will apply until the conclusion of this
year’s AGM. At this year’s AGM 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
£6,274,961 and (ii) comprising equity securities
up to a nominal amount of £12,549,923 (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 AGM (or, if earlier, until
close of business on 30th September 2020).
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 £1,882,488.
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
9,412,442 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 Company’s banking arrangements
may be terminable upon a change of control of
the Company’s.
48
Auditor
KPMG LLP undertook the audit for the year to
31st March 2019.
The Company will seek shareholder approval to
change its auditor at the AGM from KPMG LLP
to Deloitte LLP if approved, and Deloitte LLP will
undertake the half year review for the period to
30th September 2019 and a full audit for the year
ending 31st March 2020. Details of the tender
process to select Deloitte LLP can be found in
the Audit and Risk Committee Report on page 51.
In accordance with Section 489 of the
Companies Act 2006, a resolution for the
appointment of Deloitte LLP as auditor of the
Company is therefore proposed at the
forthcoming AGM.
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.
Disclosures required under Listing Rule
9.8.4R
Section Information
Page
87
Interest capitalised and tax
relief
Details of long term incentive
plans
54-66
Waiver of Director
emoluments
55
1
4
6
Throughout the year to 31st March 2019
the Company has complied with the 2016 UK
Corporate Governance Code and is working
towards compliance with the 2018 Code, 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 Company. A Schedule of Matters
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 2019 the Board
comprised of three Executive Directors, and four
Non-Executive Directors. Their biographical
details are set out on pages 44 and 45. The
composition of the Board complies with
provision B.1.2 of the 2016 Code and provision 11
of the 2018 Code. The Board considers the
Non-Executive Directors to be independent in
that they have no business or other relationship
with the Company 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 49.
The roles of the Chairman and Chief Executive
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 Chief
Executive with the support of the Executive
Directors. The division of responsibilities
between the Chairman and the Chief Executive
is set out in writing and approved by the Board.
Mr J Austen is the Senior Independent Director
and Mr N Shepherd has been appointed from
1st April 2019 to the newly formed role of
Employee Representative Non-Executive
Director (“desNED”).
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.
McKay Securities Plc Annual Report and Financial Statements 2019
The Board has adopted a policy and effective
procedures for managing and, where
appropriate, approving conflicts or potential
conflicts of interest should they arise. 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.
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 and Risk Committee
Mr J Austen FCA is Chairman of the Audit and
Risk Committee, which met five times in the last
year. Mr J Austen is identified as having recent
and relevant financial experience as required by
the Code. In compliance with provision 24 of the
2018 Code Mr R Grainger, being Chairman of the
Board, stepped down from the Audit and Risk
Committee from 1st April 2019. Further details,
along with the Committee’s responsibilities and
activities are set out in the Audit and Risk
Committee Report on pages 50 and 51.
Nomination Committee
Mr J Bates MRICS is Chairman of the
Nomination Committee. The Committee met
twice in the last year and its responsibilities and
activities, including the appointment of new
Directors, their induction and the performance
evaluation of the Board are set out in the
Nomination Committee Report on pages 52
and 53.
Remuneration Committee
Mr N Shepherd FRICS is Chairman of the
Remuneration Committee which met three
times in the last year. The Committee members,
the Directors’ Remuneration Policy and the
Directors’ Annual Remuneration Report are set
out in the Directors’ Remuneration Report on
pages 54 to 66.
Risk management and internal control
The following should be read in conjunction with
the principal risks and uncertainties on pages 38
to 42 of the Strategic Report. The Board is
responsible for establishing and reviewing the
Company’s system of internal control to
safeguard shareholders’ investment and the
Company’s assets. The Audit and Risk
Committee reviews the effectiveness of the
Company’s internal financial control and internal
control risk management systems on behalf of
the Board.
The Risk Sub-committee is responsible for
identifying key risks and assessing their likely
impact on the Company and maintaining the Risk
Register. The Sub-committee members
comprise the Executive Directors and it reports
to the Audit and Risk Committee. Important
areas include property, financial and corporate
risks. Other important areas such as corporate
taxation, legal matters, 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.
Identification of business risks
The Company 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 2019.
Relations with shareholders
The UK Stewardship Code aims to enhance
the quality of engagement between the
Company and its shareholders. The Board
recognises the importance of maintaining
an ongoing relationship with the Company’s
shareholders and achieves this through regular
dialogue. The Directors meet with current and
prospective shareholders and shareholders
have an opportunity to question the Board
at the Company’s AGM. Shareholders are
given at least 20 working days notice of the
AGM. The Chairmen of the Audit and Risk
Committee, Nomination Committee and
Remuneration Committee attend the AGM
to answer questions. Shareholders are given
the opportunity of voting separately on each
proposal and are informed of proxy voting figures.
These figures are posted on the Company’s
website, www.mckaysecurities.plc.uk.
There is also an investor relations section on the
Company’s website, which includes annual and
interim reports. The website also includes stock
exchange releases, details of the Company’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 8.30am and 4.30pm Monday to Friday.
Signed by order of the Board:
J McKeown
Secretary
20th May 2019
Reading
Table of Board meeting attendance (for the financial year to 31st March 2019)
Board
(10 meetings)
Audit and Risk
Committee
(5 meetings)
Remuneration
Committee
(3 meetings)
Nomination
Committee
(2 meetings)
10
10
10
10
10
10
10
5
51
41
31
5
5
5
3
31
–
–
3
3
3
2
2
–
–
2
2
2
R Grainger
S Perkins
G Salmon
T Elliott
J Austen
J Bates
N Shepherd
1.
In attendance by invitation
49
McKay Securities Plc Annual Report and Financial Statements 2019 Audit and Risk
Committee Report
Dear Shareholder
I am pleased to present
the Audit and Risk
Committee Report
for the year ended
31st March 2019.
Jon Austen
Chairman of the Audit and Risk Committee
50
KPMG LLP undertook the audit for the year
ended 31st March 2019 and their Auditor’s
Report can be found on pages 68 to 74.
My report last year made reference to the
Company’s proposed engagement of a new
external auditor for the audit of the year to 31st
March 2020 to maintain compliance with EU
audit reforms and FRC guidance. Following a
competitive tender process, the Company
intends to appoint Deloitte LLP. As is normal
practice, shareholders will be asked to authorise
its appointment at the AGM on 4th July 2019.
KPMG LLP has provided the Company with
many years of exemplary service and I would
like to thank all those involved both this year and
over past years for their thorough work and
assistance.
When the Committee reviewed its Terms of
Reference this year it took the opportunity to
incorporate the requirements of the 2018 UK
Corporate Governance Code. Provision 24
of the 2018 Code introduced a requirement that
the Chair of the Board should not be a member of
the Audit Committee, to reinforce independence.
Following discussions between the Nomination
Committee and the Audit and Risk Committee,
early adoption of this provision was
recommended to the Board and consequently
Richard Grainger stepped down as a member of
the Committee on 1st April 2019.
The focus of the Committee for 2020 will be to
ensure the smooth transition between the
outgoing and incoming auditors. In addition we
will continue to play a key role in maintaining the
quality of our financial reporting and the
adequacy and effectiveness of internal controls
and risk management.
Jon Austen
Chairman of the Audit and Risk Committee
20th May 2019
McKay Securities Plc Annual Report and Financial Statements 2019 Committee membership
The Audit and Risk Committee (the “Committee”)
consists solely of independent Non-Executive
Directors. The members of the Committee are:
J Austen FCA – Chairman
J Bates MRICS
N Shepherd FRICS
Jon Austen is identified as having recent and
relevant financial experience and the Committee
believes as a whole it has competence relevant
to the sector in which the Company operates.
The Committee met five times in the last year
with full Committee attendance at all meetings.
The table of attendance is set out in the
Directors’ Report on page 49.
The Chief Executive (“CEO”) , Chief Financial
Officer (“CFO”) and external auditors regularly
attend by invitation. The Committee meets twice
a year with the external audit engagement
partner to provide the opportunity to discuss
matters without executive management being
present.
The Committee’s annual appraisal process was
an internally run exercise using the Company’s
digital board solution in the format of a
questionnaire, completed by all members and
submitted on line. This was reviewed by the
Committee Chairman and feedback was
provided at a meeting of the Committee. Future
actions included improvements to the induction
process and Committee members enhancing
their knowledge through attendance of training
programmes. The evaluation concluded that the
Committee continued to operate in an efficient
and effective way.
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:
• Financial reporting: monitoring and
assessing the integrity of the financial
statements of the Company including its
annual and half yearly reports and advising
the Board on whether taken as a whole these
are fair, balanced and understandable;
• Risk management and internal controls:
reviewing the Company’s risk management
and internal control systems;
• Compliance, whistleblowing and fraud:
reviewing the adequacy and security of the
Company’s arrangements; and
• External and internal audit: recommending to
the Board for shareholder approval at the
AGM the appointment or re-appointment of
the external auditor and overseeing the
relationship with the external auditor. Managing
the selection process for the appointment of
the external auditor and regularly reviewing
its independence and objectivity. Committee
consideration is also given annually to the
requirement of an internal audit function.
Main activities of the Committee
during the year
Financial statements
The Committee focused on the significant
judgement in the Annual Report and Financial
Statements in respect of the Company’s
property valuation. The valuation of the
Company’s portfolio is undertaken by an
external professional valuer, Knight Frank LLP,
and the assumptions and judgements are
discussed and reviewed with the Committee.
The valuation was reviewed along with its
associated risks, and the Committee gained
comfort from the valuer’s methodology and
other supporting market information.
As requested by the Board, the Committee
undertook a review of the Annual Report
and Financial Statements for the year ended
31st March 2019 and advised the Board that,
taken as a whole, these were fair, balanced
and understandable and provided the
information necessary for shareholders
to assess the Company’s position and
performance, business model and strategy.
Risk management and internal control
The Committee is responsible for reviewing the
Company’s risk management and internal
control systems. The Risk Management
Sub-committee has delegated responsibilities
including overseeing and advising on the current
and future risk exposure of the Company,
maintaining the Company’s risk register and
reviewing the effectiveness of the Company’s
internal financial controls. The Risk Management
Sub-committee met three times during the year
and reported its findings to the Audit and Risk
Committee. For further information on the
Company’s risk appetite, principal risks and
uncertainties and the long-term viability
statement please see pages 38 to 42.
Whistleblowing policy
The Audit and Risk Committee reviewed
arrangements by which staff of the
Company may in confidence raise concerns in
respect of the financial reporting and other
matters. These detailed procedures are set out
in the Company’s Staff Handbook and the
Company’s policy is available on the website
www.mckaysecurities.plc.uk.
External auditor
KPMG LLP undertook the audit for the year
ended 31st March 2019 and their audit fee was
£75k with related assurance work of £25k.
Non-audit fees, being tax services and debt
advisory services, are provided by PwC.
As reported last year the Committee was aiming
to engage an alternative external auditor for the
2020 audit. This proposed appointment was
subject to a rigorous competitive tender
process, which commenced in September 2018.
The tender process
The tender process was divided into a number
of stages:
• An initial shortlist of four firms was produced,
made up of two of the Big 4 and two outside
the Big 4. The Company did not approach
PwC due to a conflict of interest as PwC
provide non-audit services.
• The Chairman of the Audit and Risk
Committee wrote to the Company’s principal
investors and major representative bodies
to outline the tender proposals, inform them
of the selected parties for the shortlist and
offer the opportunity to discuss any aspect
of the process.
• A steering group was appointed to oversee
the project. This comprised the Audit and
Risk Committee Chairman, CFO and the
Financial Controller (“FC”), who was charged
with leading the day to day process.
• The most recent FRC Audit Quality Review
reports for the shortlisted firms were
reviewed.
• A Request for Proposal (“RFP”) was issued to
the head of audit of the four shortlisted firms.
The RFP contained the key information
regarding the tender process, e.g. timings,
contact details, and the deliverables
expected from the audit firms along with the
selection criteria to be used to make the final
decision.
• The CFO and the FC subsequently met with
the audit partners of the four shortlisted firms.
• The FC was the conduit for the firms to gain
an understanding of the business. He met
and assessed the proposed audit
team members.
• At this stage the shortlist was reduced to
three.
• The Audit and Risk Committee Chairman met
with the audit partner of the three shortlisted
candidates and a separate meeting between
the audit partner and the CEO was also held.
• The three shortlisted firms presented their
tenders early in 2019. All members of the
Audit and Risk Committee attended the
presentation along with the CEO and the
CFO. Following the presentations, the Audit
and Risk Committee held a meeting to
discuss and review the presentations.
• The Committee then presented two firms
to the Board as possible options for the
appointment of the statutory auditor, with a
clearly justified preference for one of those
options, being Deloitte LLP.
• The recommendation of the Committee was
approved by the Board and announced on
11th February 2019.
Internal audit
The Committee reviewed the requirement for an
internal audit function and concluded that as
there is a small management team operating
from one location enabling close involvement
of the Executive Directors in the day to day
operational matters of the Company, coupled
with the comprehensive internal controls
currently in place, no requirement to establish an
internal audit function was needed at this time.
This recommendation was made to the Board.
51
McKay Securities Plc Annual Report and Financial Statements 2019
Nomination Committee
Report
Dear Shareholder
I am pleased to present
the report of the
Nomination Committee
for the year ended
31st March 2019.
Jeremy Bates
Chairman of the Nomination Committee
In addition, with the removal of the 2018 Code’s
provision enabling Chairs of smaller companies
to be a member of the Audit Committee, the
membership of the Audit and Risk Committee
was reviewed and Richard Grainger, the
Company’s Chairman, stood down from the
Audit and Risk Committee.
These changes were announced to the market
on 11th February 2019 and came into effect on
1st April 2019.
The Committee will continue to support the
Board and its Committees, to ensure they
continue to have the appropriate balance of skills,
experience, independence and knowledge to
enable them to discharge their respective duties
and responsibilities effectively.
Jeremy Bates
Chairman of the Nomination Committee
20th May 2019
During the year, the Committee focused on the
composition of the Board and Committees, and
early adoption of a new provision of the 2018 UK
Corporate Governance Code, that highlighted
the increasing need to consider the employee
voice at Board level.
The composition of the Board and Committees
continues to comply with the independence
requirements of the 2016 UK Corporate
Governance Code. Maintaining this compliance
is an important responsibility for the Committee,
and we place an emphasis on succession
planning at Board level in particular, to provide
sufficient time to enable managed change as far
as possible. As with the other Committees, when
the Committee Terms of Reference were
reviewed, the opportunity was taken to
incorporate the requirements of the 2018 Code.
These revised Terms of Reference are
available to view at the Company’s website,
www.mckaysecurities.plc.uk.
There has been much coverage of the
importance of ensuring that the views of
employees are represented at Board level.
Having considered the different options to
achieve this, and to meet the new 2018 Code
requirements, the Committee recommended
to the Board a new role of Employee
Representative Non-Executive Director as a
suitable way to achieve this. The Committee’s
recommendation that this position be filled by
existing Non-Executive Director Nick Shepherd
was agreed by the Board.
52
McKay Securities Plc Annual Report and Financial Statements 2019 Committee membership
Members of the Nomination Committee are:
J Bates MRICS – Chairman
J Austen FCA
R Grainger ACA
N Shepherd FRICS
S Perkins MRICS
The Nomination Committee met twice in the last
year with 100% attendance.
The required majority of the members of the
Committee are independent Non-Executive
Directors.
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:
•
regularly reviewing the structure, size and
composition of the Board;
• membership of Board Committees;
• succession planning for Directors and other
•
•
•
senior executives;
identifying and nominating for the approval of
the Board candidates, to fill Board vacancies
as and when they arise including the role of
Senior Independent Director and Employee
Representative Non-Executive Director;
reviewing the results of the Board
performance evaluation process that relate
to the composition of the Board;
reviewing the equality and diversity policy of
the Company;
• making recommendations to the Board
concerning the re- election of Directors by
shareholders; and
• annual review of the Nomination Committee
Policy on diversity
The Company is committed to treating all
employees equally and considers all aspects of
diversity, including gender and ethnicity, when
considering recruitment at any level of the
business. The Board supports the principle of
the Hampton-Alexander review for greater
female representation on the Board and the
Parker Review on ethnic diversity and ensures
that any list of candidates for any Board position
includes both male and female candidates with a
wide range of backgrounds. The Board is mindful
that the right balance of skills and experience of
the candidate is key and therefore all candidates
are considered on merit and no diversity targets
are set.
The Board takes overall responsibility for the
development of equality and diversity and
ensures that progress is reviewed and further
actions taken as necessary. The Company’s
policy on equality and diversity is available to
view on the website. The gender diversity of the
Company is set out below:
Gender diversity of the Company
as at 31st March 2019
Board
Senior
management
Other
employees
Terms of Reference.
Total
Board performance appraisal
A formal annual appraisal of the Board, its
Committees and individual Directors was
undertaken during February and March 2019.
The appraisal process was an internally run
exercise undertaken using the Company’s digital
board solution in the format of a series of
questionnaires that were completed by the
Directors and submitted on-line. The process
was implemented and administered by the
Company Secretary.
The Board and Committee appraisals concluded
that the Board and Committees operated in an
effective manner with open and transparent
dialogue and a high level of challenging and
constructive debate. Future actions included
the introduction of an employee representative
Non-Executive Director (appointment in
place), ways to improve the Director induction
process, increasing the number of meetings
held at portfolio assets and a continued
emphasis on succession planning.
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 provide an
effective and appropriate range of skills and
experience, whilst demonstrating commitment
and independence. Collectively, the Directors
have a wide range of knowledge, skills and many
years of experience in the commercial sector,
working at both strategic and operational level.
Re-election of Directors
As recommended under Provision B.7.1. of
the 2016 UK Corporate Governance Code,
all Directors of the Company, being eligible,
will offer themselves for election at the
2019 AGM. The biographical details of the
Directors are available on pages 44 and 45.
0
4
8
12
16
20
24
Male
Female
Our operations are based solely in the UK and
are low risk in relation to human rights issues. No
human rights issues have arisen in the period.
Succession planning
The Nomination Committee considers
succession planning for Directors and other
senior executives. The succession plans are
based around any identified future skill
shortages, are regularly reviewed and ensure
a formal, rigorous and transparent procedure
for new appointments.
Non-Executive Directors are appointed for an
initial three year term and are subject to annual
re-election at the AGM. Any term beyond six
years is subject to particularly rigorous review in
line with the Company’s strategy for progressive
refreshing of the Board. The longest serving
Non-Executive is Richard Grainger, who joined
the Board in May 2014. There have been no new
appointments made to the Board in the last
12 months.
53
McKay Securities Plc Annual Report and Financial Statements 2019
Remuneration Report
1 Annual Statement
Dear Shareholder
I am pleased to
present the Directors’
Remuneration Report
for the year ended
31st March 2019, which
has been prepared
by the Remuneration
Committee (“the
Committee” and
approved by the Board.
Nick Shepherd
Chairman of the Remuneration Committee
The report is divided
into three sections:
1
2
3
The Annual Statement of the
Remuneration Committee Chairman
for the year ended 31st March 2019,
which summarises remuneration
outcomes and how the Remuneration
Policy will operate for the year ending
31st March 2020;
the Remuneration Policy Report,
which details the Company’s policy on
the remuneration of Executive and
Non-Executive Directors which was
last approved by shareholders at the
2017 AGM; and
the Annual Report on Remuneration,
which provides further detail on
page 60 how the Remuneration Policy
was implemented in the year ended
31st March 2019, and how the
Remuneration Policy will operate for
the year ending 31st March 2020.
The Committee has continued to work
closely with the Board to ensure delivery of
the Directors’ Remuneration Policy, approved
by shareholders at the 2017 AGM. This work
is summarised below, and set out in detail
in subsequent sections of this report.
Publication in July 2018 of the Revised UK
Corporate Governance Code by the Financial
Reporting Council (“FRC”) introduced a number
of new and updated remuneration policies and
practices. The 2018 Code applies to accounting
periods beginning on or after 1st January 2019,
so we will be required to comply with the Code
for the financial year to 31st March 2020. Despite
this, and a number of requirements only applying
to companies with more than 250 employees,
this report includes a number of voluntary
early disclosures in respect of requirements
of the 2018 Code. This demonstrates our
commitment to provide shareholders with
a remuneration structure that continues to
comply with the most recent guidance.
At the 2020 AGM we will be tabling a binding
resolution to seek shareholder approval to
renew our existing Directors’ Remuneration
Policy being three years since the last vote.
There are likely to be a number of updates, but
the Committee is satisfied that the 2017 Policy
remains relevant and robust, and therefore no
changes are proposed for approval at this year’s
AGM. Only the Annual Statement and Annual
Report on Remuneration will be subject to a
vote (advisory) at the forthcoming 2019 AGM.
54
McKay Securities Plc Annual Report and Financial Statements 2019 Fees for the Chairman
This year, the Chairman of the Board has taken
the decision to waive any increase in his fee for
the year commencing 1st April 2019 and
therefore his fee will remain at the same level as
2018 (i.e. £90,000).
Conclusion
I hope you remain supportive of the approach to
Policy implementation for 2019/20 which is a
continuation of our considered and prudent
approach to remuneration at McKay, and that
you will therefore vote in favour of the
remuneration related resolution that will be
tabled at the forthcoming AGM.
Nick Shepherd
Chairman of the Remuneration Committee
20th May 2019
Committee activities during the year
The Committee met three times during 2018/19.
The main Committee activities during the year
(full details of which are set out in the Annual
Report on Remuneration) included:
• determining Executive Directors’ base salary
levels for 2019/20;
• setting the Executive Directors’ bonus
targets for 2018/19 and agreeing the outturn
in respect of the 2017/18 annual bonus;
• agreeing the structure of the annual bonus
for 2019/20;
• determining vesting of the 2016 PSP awards
which reached the end of the three year
performance period on 31st March 2019;
• overseeing the grant of the PSP awards in
2018/19 which was made over shares worth
100% of salary to the Executive Directors and
which vest subject to the achievement of a
blend of challenging absolute NAV per share
growth targets and relative TSR targets;
• considering the 2018 UK Corporate
Governance Code and new disclosure
requirements; and
• considering risk in respect of the
Remuneration Policy.
Pay and performance
The positive performance for the year ended
31st March 2019 has been reflected in
the payments made to the Executive Directors
under the annual bonus plan – performance
against the EPS, NAV and strategic targets
resulted in a bonus of 64% of the maximum. The
excess annual bonus over 50% of salary will be
deferred into shares for three years.
In respect of the PSP awards granted in 2016,
which vest in June 2019, three-year
performance to 31st March 2019 against the
NAV targets will result in 14% of that element
vesting while performance against the relative
TSR targets will result in 0% of that element
vesting. Further details (including information
regarding the targets and performance against
them) are set out in the Annual Report on
Remuneration.
Discretion
The Committee has full discretion to vary
performance related pay, but this was not
considered necessary during the year or post
year end.
Policy implementation for the year
ending 31st March 2020
The Directors’ Remuneration Policy will be
operated for 2019/20 as follows:
• base salaries increased in line with the
general workforce rate of increase;
• pension provision will remain unchanged for
existing Executive Directors. Pension
provision for the future appointment of
Executive Directors will be consistent with
the general workforce;
•
• maximum bonus potential for 2019/20 will
continue to be set at 100% of basic salary
with performance continuing to be based on
NAV growth (30%), EPS growth (45%) and
strategic targets (25%), consistent with those
targets operated for the general workforce;
long term incentive awards will continue to be
granted under the 2017 Performance Share
Plan, with Executive Directors receiving
awards over shares equivalent in value to
100% of base salary, with 40% of the
potential award based on NAV performance
targets and 60% based on relative TSR
targets;
• performance targets for the 2019 grant of
PSP awards will remain unchanged. The
three year NAV growth targets will be 12%
(25% of this part of an award vests) to 35%
(100% of this part of an award vests). The
TSR targets will range from median (25% of
this part of an award vests) to upper quartile
(100% of this part of an award vests) as
measured against a FTSE Real Estate sector
group;
• a two year post vesting holding period will
continue to apply to PSP awards after the
three year performance period;
• malus and clawback provisions will continue
to operate; and
• shareholding guidelines will remain at 200%
of salary.
55
McKay Securities Plc Annual Report and Financial Statements 2019 Remuneration Report continued
2 Remuneration Policy Report
A summary of the Remuneration Policy approved by shareholders at the 2017 AGM is as follows:
Element
Base
salary
Benefits
Pensions
Annual
bonus
Purpose and
link to strategy
Operation
To recruit and reward
executives of the quality
required and with
appropriate skills to manage
and develop the Company
successfully.
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 and the market generally.
Paid on a monthly basis.
To provide appropriate levels
of benefits to executives of
the quality required and
appropriate skills to manage
and develop the Company
successfully.
To provide appropriate levels
of pension provision to
executives of the quality
required and appropriate
skills to manage and develop
the Company successfully.
To incentivise and reward the
delivery of the Company’s
strategic objectives.
The Company typically provides:
Car allowance (paid monthly)
Medical insurance
Life assurance
The Committee reserves the discretion to
introduce new benefits where it concludes that it
is appropriate to do so, having regard to the
particular circumstances and to market practice.
Where appropriate, the Company will meet certain
costs relating to Executive Director relocations
(which are not subject to the benefits cap).
Executive Directors can receive pension
contributions to personal pension
arrangements or, if a Director is impacted by
annual or lifetime limits on contribution levels
to qualifying pension plans, the balance (or all)
can be paid as a cash supplement.
Annual bonus plan levels and the
appropriateness of measures are reviewed
annually as close as is practicable to the
commencement of each financial year to
ensure they continue to support our strategy.
Once set, performance measures and targets
will generally remain unchanged for the year,
except to reflect events such as corporate
acquisitions or other major transactions
where the Committee considers it to be
necessary in its opinion to make appropriate
adjustments.
Annual bonus plan outcomes are paid in cash up
to 50% of salary, with three year deferral into
shares for outcomes greater than 50% of salary.
The number of shares subject to vested deferred
share awards may be increased to reflect the
value of dividends that would have been payable
during the vesting period.
Malus/clawback provisions apply in the event of
material misstatement, error or misconduct up to
three years following the relevant payment date.
Performance
Share Plan
(“PSP”)
To incentivise and reward the
delivery of the Company’s
strategic objectives and to
provide further alignment
with shareholders through
the use of shares and to aid
retention.
Awards under the PSP may be granted as nil/
nominal cost options or conditional awards
which vest to the extent that performance
conditions are satisfied over a period of at
least three years. A two year posting vesting
holding period will also normally apply. Part/all
of vested awards may also be settled in cash.
The PSP rules allow that the number of shares
subject to vested PSP awards may be increased
to reflect the value of dividends that would have
been paid in respect of any dividends payable
falling between the grant and the release of
shares.
Non-
Executive
Director fees
To attract and retain a
high-calibre Chairman and
Non-Executive Directors by
offering appropriate fees.
The fees paid to the Chairman and Non-
Executive Directors are set by reference to
comparability with other similarly sized
companies within the sector and the market
generally. The fees payable to the Non-
Executive Directors are determined by the
Board, with the Chairman’s fees determined
by the Committee.
The Chairman and Non-Executive Directors will
not participate in any cash or share incentive
arrangements.
The Company reserves the right to provide
benefits including travel and office support.
Fees are paid on a monthly basis.
56
Maximum opportunity
Performance measures
The Committee is guided by the general salary
N/A
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.
However, a formal cap on salaries will apply such
that no incumbent Executive Director’s base
salary shall be increased beyond £500,000.
The aggregate value of any benefits provided to
N/A
any single Director will not exceed £75,000.
Up to 20% of salary
N/A
Up to 100% of salary
The performance measures applied may be
financial or non-financial and corporate, divisional
or individual and in such proportions as the
Committee considers appropriate. Where a
sliding scale of targets is used, attaining the
threshold level of performance for any measure
will not typically produce a pay-out of more than
30% of the maximum portion of overall annual
bonus attributable to that measure, with a sliding
scale to full pay-out for maximum performance.
The Committee will also retain the flexibility to
adjust the bonus outturn based upon a formulaic
assessment of performance against the targets if
it believes that this outturn does not reflect overall
performance and/or shareholders’ experience.
The Committee may set such performance
conditions on PSP awards as it considers
appropriate, whether financial or non-financial
and whether corporate, divisional or individual.
Performance periods may be over such periods
as the Committee selects at grant, which will not
be less than, but may be longer than, three years.
No more than 25% of awards vest for attaining
the threshold level of performance.
Normal grant policy:
Up to 100% of salary
Maximum normal grant level:
Up to 150% of salary
Exceptional grant level:
Up to 200% of salary
When determining fee increases, the Company
N/A
is guided by the general increase for the broader
employee population and market conditions but
on occasion may need to recognise, for
example, change in responsibility, time
commitment and/or market movements.
The aggregate fees and any benefits of the
Chairman and Non-Executive Directors will not
exceed the limit from time to time prescribed
within the Company’s Articles of Association for
such fees.
McKay Securities Plc Annual Report and Financial Statements 2019 Element
Base
salary
Purpose and
link to strategy
Operation
To recruit and reward
executives of the quality
required and with
Reviewed annually by the Committee, on the
basis of the performance of the individual
Executive Director and comparability with
appropriate skills to manage
other similarly sized companies within the
and develop the Company
sector and the market generally.
successfully.
Paid on a monthly basis.
Benefits
To provide appropriate levels
The Company typically provides:
The Committee reserves the discretion to
of benefits to executives of
Car allowance (paid monthly)
the quality required and
Medical insurance
appropriate skills to manage
Life assurance
introduce new benefits where it concludes that it
is appropriate to do so, having regard to the
particular circumstances and to market practice.
and develop the Company
successfully.
Where appropriate, the Company will meet certain
costs relating to Executive Director relocations
(which are not subject to the benefits cap).
Pensions
To provide appropriate levels
Executive Directors can receive pension
of pension provision to
executives of the quality
required and appropriate
contributions to personal pension
arrangements or, if a Director is impacted by
annual or lifetime limits on contribution levels
skills to manage and develop
to qualifying pension plans, the balance (or all)
the Company successfully.
can be paid as a cash supplement.
Maximum opportunity
Performance measures
N/A
The Committee is guided by the general salary
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.
However, a formal cap on salaries will apply such
that no incumbent Executive Director’s base
salary shall be increased beyond £500,000.
The aggregate value of any benefits provided to
any single Director will not exceed £75,000.
N/A
Up to 20% of salary
N/A
Annual
bonus
To incentivise and reward the
Annual bonus plan levels and the
Annual bonus plan outcomes are paid in cash up
delivery of the Company’s
appropriateness of measures are reviewed
to 50% of salary, with three year deferral into
strategic objectives.
annually as close as is practicable to the
shares for outcomes greater than 50% of salary.
Up to 100% of salary
commencement of each financial year to
The number of shares subject to vested deferred
ensure they continue to support our strategy.
share awards may be increased to reflect the
value of dividends that would have been payable
Once set, performance measures and targets
during the vesting period.
will generally remain unchanged for the year,
except to reflect events such as corporate
Malus/clawback provisions apply in the event of
material misstatement, error or misconduct up to
three years following the relevant payment date.
acquisitions or other major transactions
where the Committee considers it to be
necessary in its opinion to make appropriate
adjustments.
Performance
Share Plan
(“PSP”)
To incentivise and reward the
Awards under the PSP may be granted as nil/
The PSP rules allow that the number of shares
delivery of the Company’s
strategic objectives and to
provide further alignment
with shareholders through
the use of shares and to aid
retention.
nominal cost options or conditional awards
subject to vested PSP awards may be increased
which vest to the extent that performance
to reflect the value of dividends that would have
conditions are satisfied over a period of at
been paid in respect of any dividends payable
least three years. A two year posting vesting
falling between the grant and the release of
holding period will also normally apply. Part/all
shares.
of vested awards may also be settled in cash.
Normal grant policy:
Up to 100% of salary
Maximum normal grant level:
Up to 150% of salary
Exceptional grant level:
Up to 200% of salary
The performance measures applied may be
financial or non-financial and corporate, divisional
or individual and in such proportions as the
Committee considers appropriate. Where a
sliding scale of targets is used, attaining the
threshold level of performance for any measure
will not typically produce a pay-out of more than
30% of the maximum portion of overall annual
bonus attributable to that measure, with a sliding
scale to full pay-out for maximum performance.
The Committee will also retain the flexibility to
adjust the bonus outturn based upon a formulaic
assessment of performance against the targets if
it believes that this outturn does not reflect overall
performance and/or shareholders’ experience.
The Committee may set such performance
conditions on PSP awards as it considers
appropriate, whether financial or non-financial
and whether corporate, divisional or individual.
Performance periods may be over such periods
as the Committee selects at grant, which will not
be less than, but may be longer than, three years.
No more than 25% of awards vest for attaining
the threshold level of performance.
Non-
Executive
Director fees
To attract and retain a
The fees paid to the Chairman and Non-
The Chairman and Non-Executive Directors will
high-calibre Chairman and
Executive Directors are set by reference to
not participate in any cash or share incentive
Non-Executive Directors by
comparability with other similarly sized
arrangements.
offering appropriate fees.
companies within the sector and the market
generally. The fees payable to the Non-
The Company reserves the right to provide
Executive Directors are determined by the
benefits including travel and office support.
Board, with the Chairman’s fees determined
by the Committee.
Fees are paid on a monthly basis.
When determining fee increases, the Company
is guided by the general increase for the broader
employee population and market conditions but
on occasion may need to recognise, for
example, change in responsibility, time
commitment and/or market movements.
N/A
The aggregate fees and any benefits of the
Chairman and Non-Executive Directors will not
exceed the limit from time to time prescribed
within the Company’s Articles of Association for
such fees.
Notes
1. Executive Directors are required to build a holding of
shares in the Company to the value of 200% of salary
2.
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 plans.
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)
3. The annual bonus and PSP are based on performance
against targets that are aligned with the Company’s short,
medium and long term strategic plan. Where appropriate,
a sliding scale of targets is set for each metric to
encourage continuous improvement and the delivery of
stretch performance
4. There are currently no material differences in the broad
structure of remuneration arrangements for the Executive
Directors and the general employee population, aside
from participation rates in incentive schemes. While the
appropriate benchmarks vary by role, the Company
seeks to apply the philosophy behind this policy across
the Company as a whole. To the extent that the
Company’s pay policy for Directors differs from its pay
policies for groups of staff, this reflects the appropriate
market rate position and/or typical practice for the
relevant roles. The Company takes into account pay
levels, bonus opportunity and share awards applied
across the Company as a whole when setting the
Executive Directors’ Remuneration Policy
5. For the avoidance of doubt, in approving this Directors’
Remuneration Policy, authority was 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
6. The Regulations and related investor guidance
encourages companies to disclose a cap within which
each element of the Directors’ Remuneration Policy will
operate. Where maximum amounts for elements of
remuneration have been set within the Directors’
Remuneration Policy, these will operate simply as caps
and are not indicative of any aspiration
7. While the Committee does not consider it to form part of
benefits in the normal usage of that term, it has been
advised that corporate hospitality, whether paid for by the
Company or another, and business travel for Directors
and in exceptional circumstances their families, may
technically come within the applicable rules and so the
Committee expressly reserves the right for the
Committee to authorise such activities within its agreed
policies
8. The Committee may make minor amendments to the
Policy set out above for regulatory, exchange control, tax
or administrative purposes or to take account of a change
in legislation, without obtaining shareholder approval for
that amendment
57
McKay Securities Plc Annual Report and Financial Statements 2019 Remuneration Report continued
2 Remuneration Policy Report continued
Remuneration scenarios for Executive Directors
The charts illustrate how the potential composition of the Executive Directors’ remuneration packages varies at four performance levels, namely, at basic
(i.e. fixed pay only), target, maximum and maximum plus share price growth.
Chief Executive Officer (£’000)
Chief Financial Officer (£’000)
Property Director (£’000)
£1,519
£1,318
12%
30%
27%
31%
27%
£814
12%
25%
£512
£1,004
14%
£872
31%
26%
30%
26%
£286
£459
13%
25%
£748
31%
31%
£864
13%
27%
27%
£543
12%
24%
£345
100%
63%
39%
34%
100%
63%
39%
34%
100%
62%
38%
33%
Minimum
On-target
Maximum
Fixed pay
Annual bonus
Maximum
with share
price growth
Minimum
On-target
Maximum
Fixed pay
Annual bonus
Maximum
with share
price growth
Minimum
On-target
Maximum
Fixed pay
Annual bonus
Maximum
with share
price growth
Long term incentive plan
Share price
Long term incentive plan
Share price
Long term incentive plan
Share price
Maximum
Based on the maximum remuneration receivable
(excluding share price appreciation and
dividends):
• Annual bonus: consists of maximum bonus of
100% of base salary.
• PSP: consists of the face value of awards of
100% of salary under PSP.
Maximum with share price growth
As per the maximum scenario albeit with a 50%
share price growth assumption on the PSP
awards above.
Target
Based on what the Director would receive if
performance was on target (excluding share
price appreciation and dividends):
•
Annual bonus: consists of the on-target
bonus (50% of maximum opportunity of
100% of salary used for illustrative purposes).
PSP: consists of the threshold level of vesting
(25% vesting) of awards of 100% of salary
under PSP.
Basic
• Consists of base salary, benefits and
pension.
• Base salary is the salary to be paid in
2019/20.
• Benefits have been estimated for the year
ending 31st March 2020.
• Pension measured as the defined
•
contribution or cash allowance in lieu of
Company contributions of up to 20% of
salary.
58
McKay Securities Plc Annual Report and Financial Statements 2019 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 the
operation of our remuneration practices. 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 this Remuneration Policy
and last year’s remuneration report and any
matters discussed with shareholders during the
year are set out in the Directors’ Remuneration
Report (subject to issues of commercial
sensitivity).
How the views of employees are taken
into account
When determining salaries and other elements
of remuneration for our executives the
Committee takes account of general pay
movement and employment conditions
elsewhere in the Company, as well as the
relevant general markets. The Committee takes
due account of employees’ views when
determining the design of the Company’s senior
executive Remuneration Policy although,
reflecting typical current practice, the
Committee does not formally consult with
employees when determining remuneration of
the Executive Directors.
External appointments
The Company’s policy is to permit an Executive
Director to serve as a Non-Executive Director
elsewhere when this does not conflict with the
individual’s duties to the Company, and where an
Executive Director takes such a role they may be
entitled to retain any fees which they earn from
that appointment. Such appointments are
subject to approval by the Chairman. At present
no Executive Director holds any such external
appointments.
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 (which
are available for inspection at the Company’s
head office) are subject to six months’ notice by
the Executive Director. The service contracts
are dated as follows:
Executive Director
Date of service contract
S Perkins
G Salmon
T Elliott
16th March 2004
2nd May 2011
8th July 2016
The Non-Executive Directors have rolling terms
of appointment, providing for them to retire by
rotation in accordance with the Articles of
Association. In line with the UK Corporate
Governance Code all Directors will submit
themselves for re-election annually. The terms of
appointment for the Non-Executive Directors
are dated as follows:
Non-Executive Director
Date of service contract
R Grainger
J Austen
N Shepherd
J Bates
1st May 2014
8th July 2016
21st January 2015
17th January 2017
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 increase once expertise and
performance has been proven and sustained.
The caps on fixed pay in the policy table will not
apply to a new recruit, as provided for in the
Regulations. The annual bonus potential would
be limited to 100% 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.
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 up to 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
normally be prorated and paid at the normal
pay-out 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 normally 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 prorating if it considers it
appropriate to do so. Deferred share awards
would normally vest on cessation (save where
“good leaver” status is not conferred).
59
McKay Securities Plc Annual Report and Financial Statements 2019 Remuneration Report continued
3 Annual Report on Remuneration
Committee role and membership
The Committee consists solely of Non-
Executive Directors. The members of the
Committee who served during the year are:
N Shepherd – Chairman
J Austen
J Bates
R Grainger
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
N Shepherd
J Austen
J Bates
R Grainger
3 out of 3
3 out of 3
3 out of 3
3 out of 3
Remuneration related risk
The Committee is satisfied that neither the
structure of the remuneration packages (i.e. the
combination of cash versus shares and short
versus long term), nor the performance
measures operated under the annual bonus and
Performance Share Plan, encourages
inappropriate risk taking or exposes the
Remuneration Committee to material
remuneration-related risks. The remuneration
arrangements at McKay:
• have been designed to align the interests of
the executives (and employees, given that
there is strong alignment of packages
internally) with shareholders and to support
the sustainable delivery of the Company
strategy; and
• contain a number of shareholder protections
(i.e. malus and clawback provisions,
shareholding guidelines, bonus deferral and
post vesting holding periods on PSP awards).
As such, the Committee is satisfied that the
controls and procedures in place to mitigate
remuneration-related risks for Executive
Directors and employee population more
generally are appropriate and proportionate.
External advisors
During the year the Committee received
independent advice from FIT Remuneration
Consultants LLP (“FIT”) on a range of
remuneration issues. FIT has no other
connection nor does it provide any other
services to the Company. Total fees paid to FIT in
respect of its services to the Committee during
the year were £25k ex VAT. FIT 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.
Directors’ remuneration for the year ended 31st March 2019 (audited)
The remuneration of the Directors for the years 2019 and 2018 was as follows:
Directors’ remuneration
Fees/salary fees
£’000
Benefits
£’0001
Pension
including salary
supplement
£’000
Annual
bonus
£’000
Value of long
term incentives
£’000
Total
remuneration
£’000
Executive
S Perkins
G Salmon
T Elliott
Non-Executive
R Grainger
J Austen
J Bates
N Shepherd
Former Directors*
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
395
384
259
251
227
220
90
80
45
44
40
39
45
44
–
25
28
28
34
32
27
25
–
–
–
–
–
–
–
–
–
–
69
67
42
41
25
24
–
–
–
–
–
–
–
–
–
–
252
259
165
170
144
149
–
–
–
–
–
–
–
–
–
–
61
154
40
99
33
77
–
–
–
–
–
–
–
–
–
–
805
892
540
593
456
495
90
80
45
44
40
39
45
44
–
25
* Nigel Aslin retired from the Board on 22nd May 2017 while Viscount Lifford retired from the Board on 18th September 2017
Notes
1. Benefits
Benefits comprise car allowance and medical insurance
60
McKay Securities Plc Annual Report and Financial Statements 2019
The annual bonus for the year ended 31st March 2019 was based on the following NAV per share targets, EPS and strategic targets:
Weighting
30%
45%
25%
100%
% of salary
maximum
30%
45%
25%
100%
Threshold
Maximum
Actual
% of maximum
% of salary
RPI + 3%
90%
RPI + 10%
110%
< RPI + 3%
> 110%
See below
0%
100%
75%
0%
45%
18.75%
63.75%
63.75%
Metric
NAV growth
EPS growth
Strategic targets
Total
Strategic targets
Target
1. Rent collection
2. Voids (ex-development)
3. Tenant retention
4. Development progress
5. Sustainability Strategy and H&S delivery
Total
Weighting
Committee
assessment
5%
5%
5%
5%
5%
100%
75%
100%
25%
75%
Out-turn
5%
3.75%
5%
1.25%
3.75%
18.75%
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 16th June 2016 was subject to performance, for the 3 years ended 31st March 2019. The performance conditions attached to
this award and actual performance against these conditions were as follows:
Metric
NAV growth
Weighting
40%
Relative TSR
60%
Performance condition Threshold target Maximum target
RPIX + 6%
RPIX + 25%
Actual
performance
36%
of maximum
Vesting level
14%
Median Upper quartile
< median
0%
Average NAV per share growth of RPIX
+ 6% to 25% (full 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 vests for achieving threshold
performance, increasing on a straight line basis
to full vesting for achieving for achieving the
stretch target.
Total
14%
Based on the vesting percentage above, details of the shares under award and their estimated value (based on the share price at 31st March 2019 of £2.35
per share) is as follows:
Executive
S Perkins
G Salmon
T Elliott
Number
of shares
at grant
181,643
118,841
96,618
Number of
shares
to vest
26,029
17,030
13,845
Number of
shares to
lapse
155,614
101,811
82,733
Estimated
value
vesting £1
61,169
40,020
32,537
Face value
of awards
vesting £2
Impact of
share price
on vesting £3
53,881
35,252
28,660
7,288
4,768
3,877
1. Based on the three month average share price to 31 March 2019
2. Based on the number of shares vesting multiplied by the share price at the date of grant (£2.07)
3. Based on the estimated value at vesting, less the face value of awards vesting
The awards granted in 2016 do not receive the value of dividend equivalents.
A two year post vesting holding period applies to the 2016 awards.
61
McKay Securities Plc Annual Report and Financial Statements 2019 Remuneration Report continued
3 Annual Report on Remuneration continued
Details of PSP awards granted in the year (audited)
The following awards were granted to the Executive Directors on 8th June 2018:
Number of type of
award
Basis of award
granted
Share price at
date of grant1
S Perkins
G Salmon
T Elliott
Nil-cost option
Nil-cost option
Nil-cost option
100% of salary
100% of salary
100% of salary
£2.67
£2.67
£2.67
1. Based on the average 5 day share price prior to 8th June 2018
Details of outstanding share awards (audited)
Number of
shares over
which award
was granted
147,940
96,816
84,869
Face value
of award
£’000
£395,000
£258,500
£226,600
% of face value
that would vest
at threshold
performance
Vesting determined by
performance over
25%
25%
25%
Three financial
years to
31st March 2021
31st March 2018
Number of
shares
Granted in
2018/19
Number of
shares
Vested in
2018/19
Number of
shares
Lapsed in
2018/19
Number of
shares
31st March
2019
Number of
shares
Share
price at
grant £
Date from
exercisable/
vesting
Expiry
PSP Awards
S Perkins
2015 PSP
2016 PSP
2017 PSP
2018 PSP
G Salmon
2015 PSP
2016 PSP
2017 PSP
2018 PSP
T Elliott
2015 PSP
2016 PSP
2017 PSP
2018 PSP
Deferred bonus awards
S Perkins
2016 Deferred bonus
2017 Deferred bonus
2018 Deferred bonus
G Salmon
2016 Deferred bonus
2017 Deferred bonus
2018 Deferred bonus
T Elliott
2017 Deferred bonus
2018 Deferred bonus
62
140,392
181,643
167,467
–
489,502
90,196
118,841
109,607
–
318,644
69,688
96,618
96,070
–
262,376
34,996
–
25,227
60,223
22,484
–
16,511
38,995
–
14,472
14,472
–
–
–
147,940
147,940
–
–
–
96,816
96,816
–
–
–
84,869
84,869
–
–
–
–
–
–
–
–
56,157
–
–
–
56,157
36,078
–
–
–
36,078
27,867
–
–
–
27,867
–
–
–
–
–
–
–
–
84,235
–
–
–
84,235
54,118
–
–
–
54,118
41,821
–
–
–
41,821
–
–
–
–
–
–
–
–
–
181,643
167,467
147,940
497,050
–
118,841
109,607
96,816
325,264
–
96,618
96,070
84,869
277,557
34,996
–
25,227
60,223
22,484
–
16,511
38,995
–
14,472
14,472
2.55
2.07
2.29
2.67
2.55
2.07
2.29
2.67
2.55
2.07
2.29
2.67
18.06.2018
16.06.2019
18.07.2020
08.06.2021
17.06.2021
15.06.2022
17.07.2027
07.06.2028
18.06.2018
16.06.2019
18.07.2020
08.06.2021
17.06.2021
15.06.2022
17.07.2027
07.06.2028
18.06.2018
16.06.2019
18.07.2020
08.06.2021
17.06.2021
15.06.2022
17.07.2027
07.06.2028
2.07
–
2.67
16.06.2019
–
08.06.2021
15.06.2022
–
07.06.2028
2.07
–
2.67
16.06.2019
–
08.06.2021
15.06.2022
–
07.06.2028
–
2.67
–
08.06.2021
–
07.06.2028
McKay Securities Plc Annual Report and Financial Statements 2019
Statement of Directors’ shareholdings and share interests (audited)
S Perkins
G Salmon
T Elliott
R Grainger
J Austen
J Bates
N Shepherd
Beneficially
owned at
31st March
2018
304,1382
133,283
17,187
Beneficially
owned at
31st March
2019
Outstanding
PSP
performance
awards
333,9012
152,306
31,734
497,050
325,264
277,557
Outstanding
deferred bonus
awards
Shareholding
as a %
of salary1,3
60,223
38,995
14,472
229
165
48
47,638
10,000
–
15,575
47,638
20,500
–
23,315
1. Based on year end salaries and share price as at 31st March 2019 of £2.35 per share, and based on beneficially owned shares and vested PSP awards (using the net of tax numbers where awards are
yet to be exercised)
2. Beneficial holdings, as defined by the Companies Act, would include a further 5,602 shares
3. Executive Directors are required to build up a holding of shares in the Company to the value of 200% of salary
Post employment shareholding policy
Following the publication of the new UK Corporate Governance Code, the Remuneration Committee has developed a post cessation shareholding policy
for Executive Directors as follows:
• Unvested deferred annual bonus and PSP awards will be treated in line with the good leaver/bad leaver provisions explained in the shareholder
approved Remuneration Policy;
• Any PSP awards which vested pre-cessation but which are still subject to the two year holding will need to be retained by the individual, post cessation,
until the relevant two year holding period has expired; and
• No restrictions will apply in respect of own shares held (whether held as part of the shareholding guideline or not).
The Remuneration Committee will review the above policy as part of the three year Remuneration Policy review in advance of the 2020 AGM.
Payments within the year to past Directors (audited)
No payments were made to past Directors in the year ended 31st March 2019 (2018: £25,000).
Percentage change in the remuneration of the Chief Executive
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
Total remuneration (£’000)
Annual bonus (% of salary)
PSP vesting (% of max)
£409
38
27
£309
0
0
£410
10
0
£413
13
0
£802
45
60
£1,139
55
100
£1,197
70
100
£690
28
40
£902
68
40
£805
64
14
The table below shows the percentage change in the Chief Executive’s remuneration between 2017/2018 and 2018/2019 compared to that of the
average for all employees of the Company.
Chief Executive
Average employees
% Change from 2017/18 to 2018/19
Remuneration
Benefits
Bonus1
1%
-1%
1%
2%
-3%
-11%
1. Remuneration is the total of basic salary, benefits and bonus payments
2. Whilst outturn of the bonus fell to 64% from 90%, as explained in last year’s report, the CEO bonus opportunity rose from 75% to 100% of salary for the year to 31st March 2019
63
McKay Securities Plc Annual Report and Financial Statements 2019
Remuneration Report continued
3 Annual Report on Remuneration continued
Comparison of TSR performance
The chart below shows the Company’s TSR compared to the FTSE Real Estate Index and the FTSE All Share Index over the past ten 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 Company.
(£)
600
500
400
300
200
100
0
31 March 2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
McKay Securities plc
FTSE 350 Real Estate Index
FTSE All Share Index
Source: Thomson Reuters
The total remuneration figures for the Chief Executive during each of the last ten financial years are shown in the table on page 63. 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.
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)
2017/18
2018/19
% change
£4.9
£9.4
£4.7
£9.61
-4.1%
2.0%
£1.7 million of the staff costs in 2018/19 figures relate 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.
1. The final dividend of 7.4 pence per share will be paid on 94.12 million shares (93.95 million for 2017/18)
64
McKay Securities Plc Annual Report and Financial Statements 2019 CEO pay ratio
CEO pay ratio data is presented below on a voluntary basis for the year ended 31st March 2019 (as McKay has fewer than 250 employees, it will not be
required to disclose this information). The data shows how the CEO’s single figure remuneration for 2018/19 (as taken from the single figure remuneration
table) compares to equivalent single figure remuneration for full-time equivalent UK employees ranked at the 25th, 50th and 75th percentiles.
Year
2018/19
Method
75th percentile pay ratio
Median pay ratio
25th percentile pay ratio
Option A
4.9 : 1
8.0 : 1
11.3 : 1
No components of pay and benefits have been omitted for the purpose of the above calculations. Option A was selected by the Committee given that this
method of calculation was considered to be the most robust approach statistically.
Option A is a single total remuneration figure for each employee on which to identify the lower quartile, upper quartile and median individuals for the
calculation.
Option B is more suitable for entities with a high number of employees.
Year
2018/19
CEO basic salary for year ended 31st March 2019: £395,000
CEO single figure for year ended 31 March 2019: £805,000
Quartile Salary Data:
Quartile Total Pay and Benefits Data:
75th percentile
Median
25th percentile
75th percentile
Median
25th percentile
£94,600
£54,400
£46,400
£164,222
£100,434
£71,560
Gender pay
McKay is not required to publish Gender Pay statistics given that it has fewer than 250 employees. However, the Board has considered gender pay in
detail and is committed to fairness. Voluntary disclosure was considered, but the calculations are not considered to be statistically robust given McKay’s
low number of employees.
Statement of shareholder voting
The following table presents the voting at the 2017 AGM in respect of the Directors’ Remuneration Policy and the 2018 AGM in respect of the Directors’
Remuneration Report:
Proxy votes cast in favour1
Proxy votes cast against
Total votes cast
Proxy votes withheld
1.
Includes discretionary votes of 880,161
Remuneration Policy
2017 AGM
Remuneration Report
2018 AGM
Number of votes
%
Number of votes
59,611,717
259,887
99.57%
0.43%
63,165,201
16,608
59,871,604
100%
63,181,809
13,792
15,000
%
99.97%
0.03%
100%
The disclosure on Directors’ remuneration in the tables on pages 60 to 63 has been audited.
65
McKay Securities Plc Annual Report and Financial Statements 2019 Remuneration Report continued
3 Annual Report on Remuneration continued
Implementation of the Remuneration Policy for the year ending 31st March 2020
Salaries
The Executive Directors’ salaries were reviewed by the Committee in February 2019 and it was concluded that they should be increased by 2%
(reflecting the general workforce increase). Therefore, base salaries for 2019/20, effective 1st April 2019, will be S Perkins – £402,900,
G Salmon – £263,700 and T Elliott – £231,100.
Benefits and pension
The Company will continue to operate a policy whereby Executive Directors are offered a car allowance, medical insurance, life assurance, income
protection and pension contributions, or cash in lieu of pension contributions.
Annual bonus scheme
The maximum bonus potential for 2019/20 will continue to be set at 100% of basic salary with performance continuing to be based on NAV growth – 30%
of salary, EPS growth – 45% of salary and strategic targets – 25%. These targets will include such areas as portfolio occupancy, tenant retention, rent
collection and environmental, health and safety and will be consistent with those targets operated for the general workforce.
Full disclosure of the targets, and performance against the targets will be included in the 2020 Directors’ Remuneration Report to the extent that they are
not considered to be commercially sensitive. Deferral and clawback provisions will continue to apply.
Performance Share Plan
PSP awards to be granted in the year ending 31st March 2020 will be subject to the following targets:
Performance condition
Threshold target
(25% vesting)
Stretch target
(100% vesting)
End of
performance period
Relative TSR against a bespoke group of quoted real estate companies (60% of award)
Absolute NAV per share growth (40% of award)
Median
Growth of 12%
31st March 2022
Upper quartile
Growth of 35% 31st March 2022
The Committee considers the above targets to be appropriately challenging.
Consistent with previous years, Executive Directors will receive a PSP award equivalent in value to 100% of salary. Clawback provisions will continue to
apply, as will a two year post vesting holding period.
Fees for the Chairman and Non-Executive Directors
The Chairman of the Board has waived any increase in his fee for the year commencing 1st April 2019 and his fee will remain at the same level as 1st April 2018.
R Grainger
J Austen
J Bates
N Shepherd
The Directors’ Annual Remuneration Report has been approved by the Board of Directors.
Fees as at
1st April 2018
Fees as at
1st April 2019
£90,000
£44,800
£39,700
£44,800
£90,000
£45,500
£40,500
£45,500
Signed on behalf of the Board of Directors.
By Order of the Board:
Nick Shepherd
Chairman of the Remuneration Committee
20th May 2019
66
McKay Securities Plc Annual Report and Financial Statements 2019
Statement of Directors’ Responsibilities in respect of
the Annual Report and the Financial Statements
The Directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the parent Company’s
transactions and disclose with reasonable
accuracy at any time the financial position of the
parent Company and enable them to ensure
that its financial statements comply with the
Companies Act 2006. They are responsible
for such internal control as they determine is
necessary to enable the preparation of financial
statements that are free from material
misstatement, whether due to fraud or error, and
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
Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate
Governance Statement that complies with that
law and those regulations.
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.1
Responsibility statement of the
directors in respect of the annual
financial report
We confirm that to the best of our knowledge:
the financial statements, prepared in
•
accordance with the applicable set of
accounting standards, give a true and fair
view of the assets, liabilities, financial position
and profit or loss of the company and the
undertakings included in the consolidation
taken as a whole; and
the report of Directors’ includes a fair review
of the development and performance of the
business and the position of the issuer and
the undertakings included in the
consolidation taken as a whole, together with
a description of the principal risks and
uncertainties that they face.
•
We consider the Annual Report and Accounts,
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.
S Perkins
Chief Executive
G Salmon
Chief Financial Officer
20th May 2019
The Directors are responsible for preparing the
Annual Report and the Group and parent
Company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare
Group and parent Company financial statements
for each financial year. Under that law they are
required to prepare the Group financial
statements in accordance with International
Financial Reporting Standards as adopted by the
European Union (IFRSs as adopted by the EU)
and applicable law and have elected to prepare
the parent 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 parent Company
and of their profit or loss for that period. In
preparing each of the Group and parent
Company financial statements, the Directors are
required to:
• select suitable accounting policies and then
apply them consistently;
• make judgements and estimates that are
reasonable, relevant and reliable;
• state whether they have been prepared in
accordance with IFRSs as adopted by the EU;
• assess the Group and parent Company’s
ability to continue as a going concern,
disclosing, as applicable, matters related to
going concern; and
• use the going concern basis of accounting
unless they either intend to liquidate the
Group or the parent Company or to cease
operations, or have no realistic alternative but
to do so.
1 Where the financial statements are published on the internet
67
McKay Securities Plc Annual Report and Financial Statements 2019 Independent
Auditor’s Report
to the members of McKay Securities Plc
1. Our opinion is unmodified
We have audited the financial statements of McKay Securities Plc
(“the Company”) for the year ended 31 March 2019 which comprise the
Consolidated Profit and Loss and Other Comprehensive Income, Group
Statement of Financial Position, Company Statement of Financial Position,
Group Cash Flow Statement, Company Cash Flow Statement,
Consolidated Statement of Changes in Equity, Company Statement of
Changes in Equity, and the related notes, including the accounting policies
in note 1.
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the
Group’s and of the parent Company’s affairs as at 31 March 2019 and
of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union (IFRS as adopted by the EU);
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
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.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained is a
sufficient and appropriate basis for our opinion. Our audit opinion is
consistent with our report to the Audit & Risk Committee.
We were first appointed as auditor by the shareholders before 1947. The
period of total uninterrupted engagement is for more than the 72 financial
years ended 31 March 2019. We have fulfilled our ethical responsibilities
under, and we remain independent of the Group in accordance with, UK
ethical requirements including the FRC Ethical Standard as applied to
listed public interest entities. No non-audit services prohibited by that
standard were provided.
Overview
Materiality:
Group financial
statements as
a whole
Coverage
Key audit matters
Recurring risks
Event
driven
£3.9m (2018:£4.6m)
0.8% (2018: 1.0%) of total
Group assets
100% (2018:100%) of total
Group assets
vs 2018
Valuation of Investment property
(Group and parent Company)
New: The impact of uncertainties due
to the UK exiting the European Union
on our audit
New: Going concern
68
McKay Securities Plc Annual Report and Financial Statements 2019
2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit
matters in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities,
our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for
the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we
do not provide a separate opinion on these matters.
The impact of uncertainties due to
the UK exiting the European Union
on our audit
Refer to page 9 (The Chairman’s
Statement), page 39 (Viability Statement)
and page 40 (Principal Risks and
Uncertainties).
The risk
Our response
Unprecedented levels of uncertainty:
All audits assess and challenge the
reasonableness of estimates, in particular as
described in valuation of investment property
below, and related disclosures and the
appropriateness of the going concern basis of
preparation of the financial statements (see
below). All of these depend on assessments of
the future economic environment and the
Group’s future prospects and performance.
In addition, we are required to consider the other
information presented in the Annual Report
including the principal risks disclosure and the
viability statement and to consider the directors’
statement 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.
Brexit is one of the most significant economic
events for the UK and at the date of this report its
effects are subject to unprecedented levels of
uncertainty of outcomes, with the full range of
possible effects unknown.
We developed a standardised firm-wide approach to
the consideration of the uncertainties arising from
Brexit in planning and performing our audits. Our
procedures included:
• Our Brexit knowledge: We considered the
directors’ assessment of Brexit-related sources of
risk for the Group’s business and financial resources
compared with our own understanding of the risks.
We considered the directors’ plans to take action to
mitigate the risks.
• Sensitivity analysis: When addressing valuation of
investment property and other areas that depend on
forecasts, we compared the directors’ analysis to
our assessment of the full range of reasonably
possible scenarios resulting from Brexit uncertainty
and, where forecast cash flows are required to be
discounted, considered adjustments to discount
rates for the level of remaining uncertainty.
• Assessing transparency: As well as assessing
individual disclosures as part of our procedures on
valuation of investment property we considered all
of the Brexit related disclosures together, including
those in the strategic report, comparing the overall
picture against our understanding of the risks.
Our results
• As reported under valuation of investment property
and going concern below, we found the resulting
estimates and related disclosures of valuation of
investment property and disclosures in relation to
going concern to be acceptable.
• However, no audit should be expected to predict
the unknowable factors or all possible future
implications for a company and this is particularly
the case in relation to Brexit.
69
McKay Securities Plc Annual Report and Financial Statements 2019 Independent
Auditor’s Report
continued
Valuation of Investment Property
(Group and parent Company)
(Group: £464 million; 2018: £446 million;
parent Company £395 million; 2018:
£387 million)
Refer to page 50 (Audit and Risk
Committee Report), page 84
(accounting polices) and page 89
(financial disclosures).
The risk
Our response
Subjective valuation:
Our procedures included:
Investment properties represent 93% (2018:
95%) of gross assets of the Group and 85%
(2018: 88%) of gross assets of the parent
Company. The Group portfolio comprises 33
(2018: 33) properties which are externally valued
by a qualified independent valuer and held at fair
value at the balance sheet date.
Each property is unique and determining its fair
value requires significant judgement 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 occupancy. Valuing
investment properties under development can
be further complicated by the need to estimate
the progress of development and forecast costs
to complete.
The unique nature of each property means that
significant judgement is required in relation to
these assumptions and this was a focus area for
our audit.
The effect of these matters is that, as part of our
risk assessment, we determined that the
valuation of investment properties has a high
degree of estimation uncertainty, with a potential
range of reasonable outcomes greater than our
materiality for the financial statements as a
whole, and possibly many times that amount. The
financial statements (note 11) disclose the
sensitivity estimated by the Group.
• Assessing valuer’s credentials: We assessed the
valuer’s objectivity, professional qualifications and
experience through discussions with the valuer and
reading their valuation report and terms of
engagement.
• Methodology choice: We held discussions with the
Group’s external property valuer to determine the
valuation methodology used. We used our own
property valuation specialist to assist us in assessing
the results of the valuer’s report by evaluating
whether 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.
• Benchmarking assumptions: With the assistance
of our own property valuation specialist, we held
discussions with the Group’s external property
valuer to understand movements in property values.
For a sample of properties where the fair value
movements were outside our predetermined
thresholds, we challenged the key assumptions
used by the valuer upon which these 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 to industry benchmarks.
• Test of detail: For the property under development,
we assessed the progress of the development and
evaluated assumptions over construction costs
agreeing them to construction contracts and the
Group’s project appraisals.
• Assessing transparency: We considered the
adequacy of the Group’s disclosures about the
degree of estimation and sensitivity to key
assumptions made when valuing properties.
•
Our results
We found the valuation of investment properties to
be acceptable (2018 result: acceptable).
70
McKay Securities Plc Annual Report and Financial Statements 2019 Going concern
Disclosure quality
The risk
Refer to page 39 (Going concern
statement) and page 83 (accounting
polices).
The financial statements explain how the Board
has formed a judgement that it is appropriate to
adopt the going concern basis of preparation for
the Group and parent Company.
That judgement is based on an evaluation of the
inherent risks to the Group’s and Company’s
business model and how those risks might affect
the Group’s and Company’s financial resources
or ability to continue operations over a period of
at least a year from the date of approval of the
financial statements.
The risks most likely to adversely affect the
Group’s and Company’s available financial
resources over this period were :
•
•
increased cost of debt from interest rate rises;
tenant default impacting cash flow and
earnings; and
• significant reduction in property values.
There are also less predictable but realistic
second order impacts, such as the impact of
Brexit, which could result in a rapid reduction of
available financial resources.
The risk for our audit was whether or not those
risks were such that they amounted to a material
uncertainty that may have cast significant doubt
about the ability to continue as a going concern.
Had they been such, then that fact would have
been required to have been disclosed.
Our response
Our procedures included:
• Funding assessment:
Assessed the committed level of financing available
to the Group for at least the next 12 months through
review of the facility agreements, including its ability
to meet covenants in place by reviewing of
management’s forecasts;
• Historical comparisons:
Considered the Group’s historical budgeting accuracy,
by assessing actual performance against budget.
• Sensitivity analysis:
We considered sensitivities over the level of available
financial resources indicated by the Group’s financial
forecasts taking account of reasonably possible (but
not unrealistic) adverse effects that could arise from
these risks individually and collectively; and
We critically assessed and challenged the sensitivities
applied and the mitigating actions available to the
Directors.
• Assessing transparency:
Assessed the completeness and accuracy of the
matters covered in the going concern disclosures
by comparing this to the key assumptions, key
sensitivities and mitigating actions considered by
the Directors.
Our results: We found the going concern disclosure
without any material uncertainty to be acceptable
(2018 result: acceptable).
71
McKay Securities Plc Annual Report and Financial Statements 2019 Group materiality
£3.9m (2018: £4.6m)
£3.9m
Whole financial‚
statements materiality‚
(2018: £4.6m)
£0.20m
Misstatements reported
to the Audit and Risk
Committee
(2018: £0.23m)
Independent
Auditor’s Report
continued
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
£3.9 million (2018: £4.6 million), determined with reference to a benchmark
of total Group assets of £497.0 million (2018: £467.1 million), of which it
represents 0.8% (2018: 1.0%).
Total Group assets
£497m (2018: £467m)
In addition, we applied a lower materiality of £0.35 million (2018: £0.45
million) to net rental income from investment properties, administration
costs and net finance costs, for which we believe misstatements of lesser
amounts than materiality for the financial statements as a whole could
reasonably be expected to influence the Company’s members’
assessment of the financial performance of the Group.
Materiality for the parent Company financial statements as a whole was
set at £3.5 million (2018: £4.4 million), determined with reference to a
benchmark of Company total assets of £463.5 million (2018: £441.7
million), of which it represents 0.8% (2018: 1.0%).
We agreed to report to the Audit & Risk Committee any corrected or
uncorrected identified misstatements exceeding £0.20 million (2018:
£0.23 million), in addition to other identified misstatements that warranted
reporting on qualitative grounds.
Total Group assets
Group materiality
The Group team performed the audit of the Group as if it was a single
aggregated set of financial information. This approach is unchanged from
the prior year. The audit of the Group was performed using the Group
materiality level set out above.
4. We have nothing to report on going concern
The Directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Company or the Group
or to cease their operations, and as they have concluded that the
Company’s and the Group’s financial position means that this is realistic.
They have also concluded that there are no material uncertainties that
could have cast significant doubt over their ability to continue as a going
concern for at least a year from the date of approval of the financial
statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of the Directors’
conclusions and, had there been a material uncertainty related to going
concern, to make reference to that in this audit report. However, as we
cannot predict all future events or conditions and as subsequent events
may result in outcomes that are inconsistent with judgements that were
reasonable at the time they were made, the absence of reference to a
material uncertainty in this auditor’s report is not a guarantee that the
Group and the Company will continue in operation.
We identified going concern as a key audit matter (see section 2 of this
report). Based on the work described in our response to that key audit
matter, we are required to report to you if:
• we have anything material to add or draw attention to in relation to the
directors’ statement in note 1 to the financial statements on the use of
the going concern basis of accounting with no material uncertainties
that may cast significant doubt over the Group and Company’s use of
that basis for a period of at least twelve months from the date of
approval of the financial statements ; or
•
the related statement under the Listing Rules set out on page 39 is
materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
72
McKay Securities Plc Annual Report and Financial Statements 2019 5. We have nothing to report on the other information in
the Annual Report
The directors are responsible for the other information presented in the
Annual Report together with the financial statements. Our opinion on the
financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether, based on our financial statements audit work, the information
therein is materially misstated or inconsistent with the financial statements
or our audit knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the strategic report
and the directors’ report;
•
•
in our opinion the information given in those reports for the financial
year is consistent with the financial statements; and
in our opinion those reports have been prepared in accordance with
the Companies Act 2006.
Corporate governance disclosures
We are required to report to you if:
• we have identified material inconsistencies between the knowledge
we acquired during our financial statements 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
•
the section of the annual report describing the work of the Audit & Risk
Committee does not appropriately address matters communicated by
us to the Audit & Risk Committee.
We are required to report to you if the Corporate Governance Statement
does not properly disclose a departure from the eleven provisions of the
UK Corporate Governance Code specified by the Listing Rules for our
review.
We have nothing to report in these respects.
6. We have nothing to report on the other matters on which
we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our
opinion:
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act 2006.
• 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
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements
audit, we have nothing material to add or draw attention to in relation to:
•
•
•
the directors’ confirmation within the Directors’ Viability Statement on
page 39 that they have carried out a robust assessment of the principal
risks facing the Group, including those that would threaten its business
model, future performance, solvency and liquidity;
the Principal Risks and Uncertainties disclosures describing these
risks and explaining how they are being managed and mitigated; and
the directors’ explanation in the Directors’ Viability Statement of how
they have assessed the prospects of the Group, over what period they
have done so and why they considered that period to be appropriate,
and their statement as to whether they have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment, including
any related disclosures drawing attention to any necessary
qualifications or assumptions.
Under the Listing Rules we are required to review the Directors’ Viability
Statement. We have nothing to report in this respect.
Our work is limited to assessing these matters in the context of only the
knowledge acquired during our financial statements audit. As we cannot
predict all future events or conditions and as subsequent events may result
in outcomes that are inconsistent with judgements that were reasonable at
the time they were made, the absence of anything to report on these
statements is not a guarantee as to the Group’s and Company’s longer-
term viability.
•
the parent Company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not
made; or
• we have not received all the information and explanations we require
for our audit.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 67, the directors
are responsible for: the preparation of the financial statements including
being satisfied that they give a true and fair view; such internal control as
they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud
or error; assessing the Group and parent Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting unless they
either intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
73
McKay Securities Plc Annual Report and Financial Statements 2019
8. The purpose of our audit work and to whom we owe
our responsibilities
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the Company
and the Company’s members, as a body, for our audit work, for this report,
or for the opinions we have formed.
Richard Kelly (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London, E14 5GL
20th May 2019
Independent
Auditor’s Report
continued
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or other irregularities (see below), or error, and to
issue our opinion in an auditor’s report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud, other irregularities or
error and are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website
at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably be
expected to have a material effect on the financial statements from our
general commercial and sector experience and through discussion with
the directors (as required by auditing standards), and discussed with the
directors the policies and procedures regarding compliance with laws and
regulations. We communicated identified laws and regulations throughout
our team and remained alert to any indications of non-compliance
throughout the audit.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the
financial statements including financial reporting legislation (including
related companies legislation), distributable profits legislation and taxation
legislation and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial statement
items.
Secondly, the Group is subject to many other laws and regulations where
the consequences of non-compliance could have a material effect on
amounts or disclosures in the financial statements, for instance through
the imposition of fines or litigation or the loss of the Group’s licence to
operate. We identified the following areas as those most likely to have such
an effect: health and safety, anti-bribery, employment law, REIT legislation
and certain aspects of company legislation recognising the financial
nature of the Group’s activities and its legal form . Auditing standards limit
the required audit procedures to identify non-compliance with these laws
and regulations to enquiry of the directors and inspection of regulatory
and legal correspondence, if any. These limited procedures did not identify
actual or suspected non-compliance.
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the
financial statements, even though we have properly planned and
performed our audit in accordance with auditing standards. For example,
the further removed non-compliance with laws and regulations
(irregularities) is from the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures required by
auditing standards would identify it. In addition, as with any audit, there
remained a higher risk of non-detection of irregularities, as these may
involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal controls. We are not responsible for preventing
non-compliance and cannot be expected to detect non-compliance with
all laws and regulations.
74
McKay Securities Plc Annual Report and Financial Statements 2019 Financial Statements
2019
76 Consolidated Profit and Loss and other
Comprehensive Income
77 Group Statement of Financial Position
78 Company Statement of Financial
Position
79 Group Cash Flow Statement
80 Company Cash Flow Statement
81 Consolidated Statement of Changes
in Equity
82 Company Statement of Changes
in Equity
83 Notes to the Financial Statements
75
McKay Securities Plc Annual Report and Financial Statements 2019 Consolidated Profit and Loss and other Comprehensive Income
For the year ended 31st March 2019
Gross rents and service charges receivable
Other property income
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
Finance costs
Finance income
Profit before taxation
Taxation
Profit for the year
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss
Remeasurement 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
31st March 2018 final dividend of 7.2p (31st March 2017: 6.3p) paid during the year
Notes
2
2
3
11
4
6
6
7
9
10
2019
£’000
25,344
73
(6,321)
19,096
(6,245)
12,851
–
4,833
17,684
(4,498)
4
13,190
–
13,190
2018
£’000
25,500
792
(5,838)
20,454
(6,305)
14,149
5,746
25,066
44,961
(5,089)
3,570
43,442
–
43,442
(135)
13,055
(70)
43,372
14.02p
13.91p
46.25p
45.91p
6,765
5,910
30th September 2018 interim dividend of 2.8p (30th September 2017: 2.8p) paid during the year
2,635
2,631
Proposed final dividend of 7.4p (31st March 2018: 7.2p)
6,965
6,765
The total comprehensive income for the year is all attributable to the equity holders of the parent Company.
The accompanying notes on pages 83 to 99 form an integral part of these financial statements.
76
McKay Securities Plc Annual Report and Financial Statements 2019 Group Statement of Financial Position
As at 31st March 2019
Non-current assets
Investment properties – Valuation as reported by the valuers
– Adjustment for rents recognised in advance under SIC 15
– Assets held for sale
– Adjustment for grossing up of headleases
Plant and equipment
Trade and other receivables
Total non-current assets
Current assets
Trade and other receivables
Assets held for sale
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Loans and other borrowings
Trade and other payables
Finance lease liabilities
Interest rate derivatives
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
2019
£’000
2018
£’000
482,700
460,150
(8,326)
(14,400)
4,404
464,378
71
10,292
474,741
3,501
14,400
4,363
22,264
(6,691)
(11,925)
4,404
445,938
42
5,861
451,841
1,617
11,925
1,725
15,267
497,005
467,108
–
(16,234)
(285)
–
–
(9,501)
(285)
–
(16,519)
(9,786)
(163,176)
(144,598)
(2,108)
(4,119)
–
(2,164)
(4,120)
–
(169,403)
(150,882)
(185,922)
(160,668)
311,083
306,440
18,825
79,652
79,981
132,625
311,083
331p
326p
18,791
79,235
80,622
127,792
306,440
326p
322p
16
11
12
14
14
11
15
15
16
15
15
24
16
15
19
22
22
The accompanying notes on pages 83 to 99 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 20th May 2019 and were signed on its behalf by R Grainger and S Perkins.
77
McKay Securities Plc Annual Report and Financial Statements 2019
Company Statement of Financial Position
As at 31st March 2019
Registration number 421479
Non-current assets
Investment properties – Valuation as reported by the valuers
– Adjustment for rents recognised in advance under SIC 15
– Assets held for sale
– Adjustment for grossing up of head leases
Plant and equipment
Investments in subsidiary
Trade and other receivables
Total non-current assets
Current assets
Trade and other receivables
Assets held for sale
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Loans and other borrowings
Trade and other payables
Finance lease liabilities
Interest rate derivatives
Total current liabilities
Non-current liabilities
Loans and other borrowings
Pension fund deficit
Finance lease liabilities
Trade and other payables
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
2019
£’000
2018
£’000
11
12
13
14
14
11
15
15
15
15
24
15
19
413,650
(7,618)
(13,500)
2,883
395,415
71
–
6,839
402,850
(6,691)
(11,925)
2,883
387,117
42
–
5,861
402,325
393,020
43,339
13,500
4,363
61,202
35,049
11,925
1,725
48,699
463,527
441,719
–
(11,749)
(180)
–
–
(9,536)
(180)
–
(11,929)
(9,716)
(163,176)
(144,598)
(2,108)
(2,703)
(203)
–
(2,164)
(2,703)
–
–
(168,190)
(149,465)
(180,119)
(159,181)
283,408
282,538
18,825
79,652
63,380
121,551
18,791
79,235
64,002
120,510
283,408
282,538
The accompanying notes on pages 83 to 99 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 20th May 2019 and were signed on its behalf by R Grainger and S Perkins.
78
McKay Securities Plc Annual Report and Financial Statements 2019
Group Cash Flow Statement
For the year ended 31st March 2019
Operating activities
Profit before tax
Adjustments for:
Depreciation
Other non-cash movements
Profit on sale 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/(decrease) in creditors
Cash generated from operations
Interest paid
Interest received
Cash flows from operating activities
Investing activities
Proceeds from sale of investment properties
Purchase and development of investment properties
Purchase of other fixed assets
Cash flows from investing activities
Financing activities
Increase in borrowings
Equity dividends paid
Cancellation of derivative
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 the end of the year
The accompanying notes on pages 83 to 99 form an integral part of these financial statements.
2019
£’000
2018
£’000
13,190
43,442
46
1,725
–
(4,833)
4,494
14,622
(6,274)
5,623
13,971
(5,560)
4
8,415
–
(14,304)
(76)
(14,380)
18,003
(9,400)
–
8,603
2,638
1,725
4,363
34
1,350
(5,746)
(25,066)
1,519
15,533
(497)
(1,373)
13,663
(6,171)
5
7,497
26,773
(25,031)
(14)
1,728
9,908
(8,541)
(13,352)
(11,985)
(2,760)
4,485
1,725
79
McKay Securities Plc Annual Report and Financial Statements 2019 Company Cash Flow Statement
For the year ended 31st March 2019
Operating activities
Profit before tax
Adjustments for:
Depreciation
Other non-cash movements
Profit on sale 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
Purchase and development of investment properties
Purchase of other fixed assets
Cash flows from investing activities
Financing activities
Increase in borrowings
Equity dividends paid
Cancellation of derivative
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 the end of the year
The accompanying notes on pages 83 to 99 form an integral part of these financial statements.
2019
£’000
2018
£’000
9,417
38,545
46
1,704
–
(1,041)
4,457
14,583
(9,181)
1,306
6,708
(5,500)
1,243
2,451
–
(8,340)
(76)
(8,416)
18,003
(9,400)
–
8,603
2,638
1,725
4,363
34
1,345
(5,746)
(15,755)
1,535
19,958
(18,770)
1,474
2,662
(6,066)
1,477
(1,927)
26,773
(15,607)
(14)
11,152
9,908
(8,541)
(13,352)
(11,985)
(2,760)
4,485
1,725
80
McKay Securities Plc Annual Report and Financial Statements 2019 Consolidated Statement of Changes in Equity
For the year ended 31st March 2019
At 31st March 2017
Profit for the year
Other comprehensive income:
Transfer surplus on revaluation of properties
Transfer on disposal of investment properties
Remeasurement on defined benefit pension scheme
Total comprehensive income for the year
Issue of new shares net of costs
Dividends paid in year
Deferred bonus
Costs of share based payments
At 31st March 2018
Profit for the year
Other comprehensive income:
Transfer surplus on revaluation of properties
Remeasurement on defined benefit pension scheme
Total comprehensive income for the year
Issue of new shares net of costs
Dividends paid in year
Deferred bonus
Costs of share based payments
At 31st March 2019
Attributable to equity holders of the parent Company
Share
capital
£’000
18,762
Share
premium
£’000
78,929
–
–
–
–
–
29
–
–
–
–
–
–
–
–
306
–
–
–
Revaluation
reserve
£’000
117,929
–
25,066
(15,203)
–
9,863
–
–
–
–
18,791
–
79,235
–
127,792
–
–
–
–
34
–
–
–
–
–
–
417
–
–
–
4,833
–
4,833
–
–
–
–
Retained
earnings
£’000
55,172
43,442
(25,066)
15,203
(70)
33,509
(335)
(8,541)
21
796
80,622
13,190
(4,833)
(135)
8,222
(451)
(9,400)
110
878
Total
equity
£’000
270,792
43,442
–
–
(70)
43,372
–
(8,541)
21
796
306,440
13,190
–
(135)
13,055
–
(9400)
110
878
18,825
79,652
132,625
79,981
311,083
The accompanying notes on pages 83 to 99 form an integral part of these financial statements.
81
McKay Securities Plc Annual Report and Financial Statements 2019 Company Statement of Changes in Equity
For the year ended 31st March 2019
At 31st March 2017
Profit for the year
Other comprehensive income:
Transfer surplus on revaluation of properties
Transfer on disposal of investment properties
Remeasurement on defined benefit pension scheme
Total comprehensive income for the year
Issue of new shares net of costs
Dividends paid in year
Deferred bonus
Costs of share based payments
At 31st March 2018
Profit for the year
Other comprehensive income:
Transfer surplus on revaluation of properties
Transfer on disposal of investment properties
Remeasurement on defined benefit pension scheme
Total comprehensive income for the year
Issue of new shares net of costs
Dividends paid in year
Deferred bonus
Costs of share based payments
At 31st March 2019
Share
capital
£’000
18,762
Share
premium
£’000
78,929
–
–
–
–
–
29
–
–
–
–
–
–
–
–
306
–
–
–
Revaluation
reserve
£’000
119,958
–
15,755
(15,203)
–
552
–
–
–
–
18,791
–
79,235
–
120,510
–
–
–
–
–
34
–
–
–
–
–
–
–
417
–
–
–
1,041
–
–
1,041
–
–
–
–
Retained
earnings
£’000
34,138
38,545
(15,755)
15,203
(70)
37,923
(335)
(8,541)
21
796
64,002
9,417
(1,041)
–
(135)
8,241
(451)
(9,400)
110
878
Total
equity
£’000
251,787
38,545
–
–
(70)
38,475
–
(8,541)
21
796
282,538
9,417
–
–
(135)
9,282
–
(9,400)
110
878
18,825
79,652
121,551
63,380
283,408
The accompanying notes on pages 83 to 99 form an integral part of these financial statements.
82
McKay Securities Plc Annual Report and Financial Statements 2019 Notes to the Financial Statements
For the year ended 31st March 2019
1 Accounting policies
Basis of preparation
The Group and 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 and 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 £9,417,000 (2018: £38,545,000).
The Group is required to adopt IFRS 9 Financial Instruments, IFRS 15 Revenue Recognition, both effective from 1st January 2018, and IFRS 16 leases
effective from 1st January 2019.
Newly effective accounting standards
Management has considered the impact on the Group of new standards IFRS 9, IFRS 15, IFRS 16, amendments to standards and interpretations that are
endorsed by the EU. The Group’s assessment of the impact of these new standards is set out below.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments was issued in July 2014 and was endorsed by the EU in 2016. It replaces existing financial instruments guidance, including
IAS 39 Financial Instruments: Recognition and Measurement. This standard is effective for accounting periods commencing on or after 1st January 2018.
The standard addresses the classification and measurement of financial instruments and will require additional disclosures. Further to this, a new
impairment measurement model for financial assets based around expected credit losses has been introduced. There is no longer a requirement for a
credit event to have occurred before a credit loss is recognised.
The Group has adopted the new standard in its consolidated financial statements for the year ended 31st March 2019. The Group has considered the
impact of adopting IFRS 9 and determined that there was no material impact on the results and as such there is no required restatement disclosure.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers was issued in 2014 and was endorsed by the EU in 2016. IFRS 15 establishes a comprehensive
framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18
Revenue. IFRS 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted.
The Group has adopted the new standard in its consolidated financial statements for the year ended 31 March 2019. The Group has considered the
impact of adopting IFRS 15 and determined that there was no material impact on the Group’s revenue accounting policies.
Standards issued but not yet effective
IFRS 16 Leases
IFRS 16 Leases was issued in January 2016, and was endorsed by the EU in 2017. IFRS 16 introduces a single on-balance sheet lease accounting model
for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a corresponding lease liability representing its
obligation to make lease payments. There are optional exemptions for short term leases and leases of low value items.
IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating
Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods
beginning on or after 1st January 2019. Early adoption is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the
date of initial application of IFRS 16.
The Group did not early adopt this standard. No material impact is expected with the adoption of IFRS 16 as the Group has no current lease commitments.
The financial statements are prepared on a going concern basis as explained in the Principal Risks and Uncertainties and going concern Statement on
page 39.
Basis of consolidation
The consolidated financial statements of the Company and its subsidiary (the Group) have been prepared on a historical cost basis, except for investment
property which is measured at fair value through the Profit and Loss and other Comprehensive Income. The subsidiary company is 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 subsidiary.
Intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in preparing the
consolidated financial statements.
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 and are disclosed in the applicable policies and notes below.
83
McKay Securities Plc Annual Report and Financial Statements 2019 1 Accounting policies continued
Investment 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 and 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 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 and 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 and Loss and other Comprehensive Income.
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 and 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 and Loss and other Comprehensive Income in the period incurred.
Assets held for sale
Properties held for sale are classified as non-current assets if their carrying amount will be recovered principally through sale rather than through
continuing use, they are available for immediate sale and sale is highly probable within one year.
Investment Properties held for sale are carried at fair vale in the Statement of Financial Position. Intangible assets and property, plant and equipment once
classified as held for sale or distribution are not amortised or depreciated.
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 three and five 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. Impairment provisions are always measured
at an amount equal to lifetime expected credit losses. Balances are written off when the probability of recovery is assessed as being remote.
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. This forms part of retained earnings.
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.
84
McKay Securities Plc Annual Report and Financial Statements 2019Notes to the Financial Statements continuedFor the year ended 31st March 2019 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.
The Revenue recognition policy for the following revenue streams are in line with IFRS 15, as revenue is recognised when it transfers control over a
product or service to a customer.
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 and 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 Investment 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 by using an effective interest rate.
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 and 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. This also
includes the share-based payment element of the bonus.
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 Statement of Financial Position. Current service cost and net interest on
scheme liabilities and scheme assets are recognised as an expense in the Profit and Loss and other Comprehensive Income. Actuarial gains and losses
on scheme assets and liabilities are recognised in equity through the Profit and 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 and 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.
Taxation
Any tax charge recognised in the Profit and 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 deductible, or taxable and deductible 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.
85
McKay Securities Plc Annual Report and Financial Statements 2019 1 Accounting policies continued
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
Other property income
Direct property outgoings
Rent receivable under the terms of the leases is adjusted, in accordance with SIC 15, for the effect of any incentives given.
3 Administration costs
Group
Directors’ – remuneration
Staff
– bonus1
– costs
– bonus
National Insurance
Pension costs – defined benefit scheme
– defined contributions
Share based payment accounting charge (IFRS 2)2
Depreciation (note 12)
Office costs
Legal and professional fees
General expenses
1. Amount charged to income in year to 31st March 2019.
2. Including prior year deferred bonus charges and adjustments.
The average number of persons employed by the Group and Company during the year was 20 (2018: 19).
2019
£’000
20,287
1,321
21,608
3,736
25,344
73
(6,321)
19,096
2018
£’000
21,545
299
21,844
3,656
25,500
792
(5,838)
20,454
2019
£’000
2018
£’000
1,290
440
1,043
339
502
49
194
837
4,694
46
560
935
10
1,271
577
977
398
570
50
217
796
4,856
34
415
938
62
6,245
6,305
86
McKay Securities Plc Annual Report and Financial Statements 2019Notes to the Financial Statements continuedFor the year ended 31st March 2019
3 Administration costs continued
In advance of each audit, the Committee obtains confirmation from the external auditor that it remains independent and that the level and nature of
non-audit fees are not an independence threat. Note 3 details the total fees paid to KPMG. The Committee considers KPMG to be independent to
the Company.
Fees paid to auditor
Statutory audit services
McKay Securities Plc audit
Subsidiary audits
Assurance services
Interim review
Service charge audits
2019
£’000
2018
£’000
73
2
19
6
100
72
2
19
10
103
Details of Directors’ remuneration can be found on page 60 in the Directors’ Annual Remuneration Report.
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
Cancellation of derivatives
Change in fair value of derivatives
Movement in revaluation of investment properties
Other property income (see note 2)
Profit on disposal of investment properties
IFRS 2 adjustment to share based payments
Adjusted profit before tax
6 Net finance costs
Interest on bank overdraft and loans
Commitment fee
Finance lease interest on leasehold property obligations
Finance arrangement costs
Capitalised interest (note 8)
Cancellation of derivatives
Change in fair value of derivatives
Interest receivable
Net finance costs
2019
£’000
13,190
–
–
(4,833)
(73)
–
988
9,272
2019
£’000
5,025
250
285
575
(1,637)
4,498
–
–
(4)
(4)
4,494
2018
£’000
43,442
13,352
(16,917)
(25,066)
(792)
(5,746)
795
9,068
2018
£’000
5,633
240
285
590
(1,659)
5,089
13,352
(16,917)
(5)
(3,570)
1,519
87
McKay Securities Plc Annual Report and Financial Statements 2019 7 Taxation
Total tax in the Consolidated Profit and Loss and other Comprehensive Income
Reconciliation to effective rate of tax:
Profit on ordinary activities before tax
Tax charge on profit at 19% (2018: 19%)
Effects of:
REIT tax exemption
Tax for period (as above)
2019
£’000
–
13,190
2,506
2018
£’000
–
43,442
8,254
(2,506)
(8,254)
–
–
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 £1,637,218 (2018: £1,658,692) and relates to works to London, 30 Lombard Street, EC3; and Theale,
Brunel Road.
Total development interest capitalised amounts to £14,186,547 (2018: £12,549,320).
9 Earnings per share
Basic earnings per share
Cancellation of derivatives
Change in fair value of derivatives
Movement in revaluation of investment properties
Other property income
Profit on disposal of investment properties
Share based payments
Adjusted earnings per share
2019
p
14.02
–
–
(5.14)
(0.08)
–
1.05
9.85
2018
p
46.25
14.22
(18.02)
(26.69)
(0.84)
(6.12)
0.85
9.65
Basic earnings per share on ordinary shares is calculated on the profit in the year of £13,190,000 (2018: £43,442,000) and 94,087,315 (2018: 93,925,375)
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
Cancellation of derivatives
Change in fair value of derivatives
Movement in revaluation of investment properties
Other property income
Profit on disposal of investment properties
EPRA earnings per share
88
2019
Number of
shares
2018
Number of
shares
94,087,315
93,925,375
1,721,064
1,516,011
(974,797)
(808,206)
94,833,582
94,633,180
2019
p
14.02
(0.11)
13.91
–
–
(5.10)
–
–
8.81
2018
p
46.25
(0.34)
45.91
14.11
(17.88)
(26.49)
–
(6.07)
9.58
McKay Securities Plc Annual Report and Financial Statements 2019Notes to the Financial Statements continuedFor the year ended 31st March 2019 9 Earnings per share continued
EPRA 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
94,833,582 (2018: 94,633,180) 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, the cancellation of derivatives, the movement in revaluation of investment properties and share-based payments. The EPRA
measure includes all of these adjustments except surrender premiums included in other property income, which are added back.
10 Dividends
The final dividend is not included in the accounts as a liability as at 31st March 2019, as it is subject to shareholder approval at the Annual General Meeting.
The final dividend for 2018 and interim for 2019 paid in the year are included in the Consolidated Statement of Changes in Equity on page 81.
Ordinary dividends
31st March 2018 final dividend of 7.2p (31st March 2017: 6.3p) paid during the year
30th September 2018 interim dividend of 2.8p (30th September 2017: 2.8p) paid during the year
Total recognised in financial statements
Proposed final dividend of 7.4p (31st March 2018: 7.2p)
11 Investment properties
2019
£’000
6,765
2,635
9,400
6,965
2018
£’000
5,910
2,631
8,541
6,765
Valuation
At 1st April 2018
Additions – development
Revaluation surplus/(deficit)
Adjustment for rents recognised in advance
under SIC 15
Disposals
Amortisation of grossed up headlease
liabilities
Group
Company
Freehold
£’000
Long leasehold
£’000
Total
£’000
Freehold
£’000
Long leasehold
£’000
Total
£’000
368,957
88,906
457,863
368,957
30,085
399,042
8,213
1,987
7,869
4,481
16,082
6,468
8,213
1,987
(1,032)
(602)
(1,634)
(1,032)
–
–
–
(1)
–
(1)
–
–
619
(19)
105
–
–
8,832
1,968
(927)
–
–
Book value as at 31st March 2019
378,125
100,653
478,778
378,125
30,790
408,915
Adjustment for grossing up of headlease
liabilities
Adjustment for rents recognised in advance
under SIC 15
Valuation as at 31st March 2019
–
(4,404)
(4,404)
–
(2,883)
(2,883)
7,325
385,450
1,001
97,250
8,326
7,325
293
7,618
482,700
385,450
28,200
413,650
89
McKay Securities Plc Annual Report and Financial Statements 2019 11 Investment properties continued
Group
Company
Freehold
£’000
Long Leasehold
£’000
Total
£’000
Freehold
£’000
Long Leasehold
£’000
Total
£’000
Valuation
At 1st April 2017
Additions – development
Revaluation surplus/(deficit)
Adjustment for rents recognised in advance
under SIC 15
Disposals
Amortisation of grossed up headlease
liabilities
368,718
4,738
17,217
(726)
(20,990)
–
428,333
368,718
28,014
396,732
59,615
20,023
9,247
24,761
26,464
4,738
17,217
22
–
(1)
(704)
(726)
(20,990)
(20,990)
(1)
–
2,113
(64)
22
–
–
6,851
17,153
(704)
(20,990)
–
Book value as at 31st March 2018
368,957
88,906
457,863
368,957
30,085
399,042
Adjustment for grossing up of headlease
liabilities
Adjustment for rents recognised in advance
under SIC 15
–
(4,404)
(4,404)
–
(2,883)
(2,883)
6,293
398
6,691
6,293
398
6,691
Valuation as at 31st March 2018
375,250
84,900
460,150
375,250
27,600
402,850
In accordance with the Group’s accounting policy on properties there was an external valuation at 31st March 2019. These valuations, were carried out by
Knight Frank LLP, 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 £335 million (2018: £319 million) for the Group and £278 million (2018: £269 million)
for the Company.
The amount of interest capitalised during the year was £1,637,218 (2018: £1,658,692). The Group is a REIT and therefore does not obtain relief from
Corporation Tax.
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 value for 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. 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.
One of the assets held for sale has been valued based on the capital value per square foot. If the capital value per square foot were to increase or decrease
by 10%, the year end calculation will increase or decrease by £1.4 million.
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 £4.8
million (2018: £25.1 million) and are presented in the Group income statement in the line item ‘Revaluation of investment properties’.
90
McKay Securities Plc Annual Report and Financial Statements 2019Notes to the Financial Statements continuedFor the year ended 31st March 2019 11 Investment properties continued
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 technique
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
A further £24.55 million has been designated other and not included in the analysis above.
Definitions for ERV and true equivalent yield are provided in the glossary on page 100.
Sensitivity analysis
Change in value of investment properties
12 Plant and equipment
London Offices
Income
Capitalisation
South East Offices
Income
Capitalisation
South East
Industrial Income
Capitalisation
£120,800,000
£261,900,000
£75,450,000
£56.93
£28.41
£10.47
£10.00–£80.00 £15.00–£47.50
£4.65–£15.50
4.70%
6.81%
5.20%
4.35%–5.75%
5.71%–8.57% 4.49%–6.90%
£900.57
£367.05
£148.15
Change in ERV
Change in equivalent yield
+5%
-5%
+0.25%
-0.25%
£23.0m
£(23.3)m
£(23.9)m
£25.5m
Group
£’000
2019
Company
£’000
Group
£’000
2018
Company
£’000
Cost
Opening
Additions
Disposals
Closing
Depreciation
Opening
Charge for year
Disposals
Closing
Net book value
218
75
(13)
280
176
46
(13)
209
71
215
75
(13)
277
173
46
(13)
206
71
214
14
(10)
218
152
34
(10)
176
42
211
14
(10)
215
149
34
(10)
173
42
91
McKay Securities Plc Annual Report and Financial Statements 2019
13 Investments
Company
At 1st April 2018
At 31st March 2019
Shares in
subsidiary
undertakings
£’000
–
–
Total
£’000
–
–
At 31st March 2019 McKay Securities Plc had the following wholly owned subsidiary undertaking which operates in England and is registered in England
and Wales: 20 Greyfriars Road, Reading, Berkshire, RG1 1NL.
Baldwin House Limited
The above subsidiary is included in the consolidation.
The principal activity of the subsidiary undertaking is property investment and development.
The Directors are of the opinion that the investment in the subsidiary undertaking is not worth less than the current book value.
14 Trade and other receivables
Current
Trade receivables
Amounts due from subsidiary undertakings
SIC 15 lease incentives
Other debtors and prepayments
Non-current
SIC 15 lease incentives
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.
The transactions relate to capital expenditure funded by the parent £7,354,000.
Group
£’000
–
–
–
3,501
3,501
2019
Company
£’000
–
40,790
1,486
1,063
43,339
Group
£’000
–
–
830
787
1,617
2018
Company
£’000
–
33,436
830
783
35,049
10,292
6,839
5,861
5,861
2019
£’000
2018
£’000
–
–
–
–
–
–
–
–
92
McKay Securities Plc Annual Report and Financial Statements 2019Notes to the Financial Statements continuedFor the year ended 31st March 2019 15 Liabilities
Trade and other payables
Rent received in advance
Other taxation and social security costs
Amounts owed to subsidiary undertakings
SIC 15 creditor
Other creditors and accruals
Group
£’000
4,975
1,732
–
1,964
7,563
16,234
2019
Company
£’000
4,969
1,609
–
505
4,666
11,749
Group
£’000
4,238
967
–
4,296
9,501
2018
Company
£’000
4,220
1,020
–
4,296
9,536
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 7 days (2018: 4 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:
Group and Company
Secured bank loans
Bank facility fees
The bank loans are secured against land and buildings with a carrying amount of £403,300,000 (2018: £395,125,000).
Group
£’000
–
66,698
32,432
–
64,046
163,176
2019
Company
£’000
–
66,698
32,432
–
64,046
163,176
Repayable in:
Less than 1 year
1–2 years
2–5 years
5–10 years
Greater than 10 years
Changes in liabilities arising from financing activities
Current loans as at 1st April
Non-current loans as at 1st April
Total loans as at 1st April
Increase in borrowings
Facility fee amortisation
Total loans as at 31st March
2019
£’000
2018
£’000
165,000
(1,824)
147,000
(2,402)
163,176
144,598
Group
£’000
–
–
2018
Company
£’000
–
–
80,639
80,639
–
63,959
144,598
–
63,959
144,598
2019
£’000
2018
£’000
–
144,598
144,598
18,003
575
34,973
99,127
134,100
9,908
590
163,176
144,598
93
McKay Securities Plc Annual Report and Financial Statements 2019 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
2019
£’000
–
18,000
7,000
–
2018
£’000
–
–
43,000
–
25,000
43,000
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.
On 8th April the company increased total facility to £245m (from £190m). Three bilateral facilities (£125m) were replaced with one credit facility (RCF)
of £180m.
Financial instrument maturity
At 31st March 2019
Non-derivative financial liabilities
Bank overdraft
Secured bank loans
Finance lease liabilities
Trade payables
At 31st March 2018
Non-derivative financial liabilities
Bank overdraft
Secured bank loans
Finance lease liabilities
Trade payables
Total
2 months
or less
2–12
months
1–2
years
2–5
years
More than
5 years
Contractual cash flows
–
165,000
26,083
9,185
200,268
–
–
–
9,185
9,185
–
285
–
285
–
–
67,000
33,000
285
–
857
–
–
65,000
24,656
–
67,285
33,857
89,656
Total
2 months
or less
2–12
months
1–2
years
2–5
years
More than
5 years
Contractual cash flows
–
147,000
26,369
5,209
178,578
–
–
–
5,209
5,209
–
–
285
–
285
–
–
285
–
285
–
82,000
855
–
–
65,000
24,944
–
82,855
89,944
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.
94
McKay Securities Plc Annual Report and Financial Statements 2019Notes to the Financial Statements continuedFor the year ended 31st March 2019 15 Liabilities continued
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. The remaining swap
was cancelled on 28th March 2018 for £13,352,210.
A 25 basis points change in interest rate levels would increase or decrease the Group’s annual profit and equity £250,000 (2018: £367,500). This
sensitivity has been calculated by applying the interest rate change to the variable rate borrowings at the year end. The comparative figure for 2018 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.
Interest rate derivatives
The remaining swap was cancelled on 28th March 2018 in full at a cost to the Group of £13,352,210.
Weighted average cost of borrowing
2019
3.34%
2018
4.06%
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 and Loss and other Comprehensive Income. Interest rate swaps 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.
In both 2019 and 2018 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.
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
2019
£’000
2018
£’000
285
1,142
24,656
26,083
(21,679)
4,404
285
1,142
24,943
26,370
(21,966)
4,404
The above finance lease liabilities relate to investment properties with a carrying value of £97,250,000 (2018: £84,900,000). 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
2019
£’000
22,503
56,293
61,519
140,315
2018
£’000
21,142
58,060
28,424
107,626
95
McKay Securities Plc Annual Report and Financial Statements 2019 18 Share based payments
During the year to 31st March 2019, the Group had one share based payment arrangement, which is described below. In the case of the PSP awards, the
expected volatility was determined by calculating historical volatility of the Group’s share price.
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 2019 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
19 Called up share capital
Ordinary 20 pence shares in issue
At 1st April
Issue of shares in year
At 31st March
8th June
2018
£2.67
3 years
0.80%
0%
31.0%
£1.73
£2.70
18th July
2017
£2.26
3 years
0.26%
0%
29.0%
£1.42
£2.26
16th June
2016
£2.07
3 years
0.27%
4.27%
21.27%
£0.77
£1.81
Issued
£
2019
Number of
shares
Issued
£
2018
Number of
shares
18,791,022
93,955,109
18,761,690
93,808,450
33,857
169,316
29,332
146,659
18,824,879
94,124,425
18,791,022
93,955,109
20 Capital management
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 metrics1 to manage its capital structure:
• gearing
• LTV
The Board monitors the ability of the Group to pay dividends out of available cash and distributable profits.
1. See glossary.
21 Related party transactions
Subsidiary undertakings
Baldwin House Limited
Balance owed to/(owing from)
2019
£’000
2018
£’000
(40,790)
(40,790)
(33,436)
(33,436)
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 54 to 66.
The estimated IFRS 2 share based payment charge to the Directors is £697,000 (2018: £592,000).
These related party transactions are between Baldwin House Limited and the Company. They relate to property payments and receipts for the two
properties held in Baldwin House Limited. This balance is zero at Group level.
96
McKay Securities Plc Annual Report and Financial Statements 2019Notes to the Financial Statements continuedFor the year ended 31st March 2019 22 Net asset value per share
31st March 2019
31st March 2018
Basic
Number of shares under option
Diluted/EPRA NNNAV
Adjustment to fair value of derivatives
Net assets
£’000
311,083
1,635
312,718
–
Shares
’000
94,124
1,732
95,856
–
EPRA NAV
312,718
95,856
23 Commitments and contingent liabilities
Capital expenditure committed but not provided for
Net
asset value
per share
p
331
(5)
326
–
326
2019
Group
’000
11,381
Net assets
£’000
306,440
1,200
307,640
–
307,640
Company
£’000
11,381
Shares
’000
93,955
1,593
95,548
–
95,548
2018
Group
£’000
10,703
Net
asset value
per share
p
326
(4)
322
–
322
Company
£’000
190
These commitments relate to the Group’s one current development in place at the end of the year.
24 Pensions
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 2017. 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 2017 actuarial valuation the scheme was 88% 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 2017 and updated by First Actuarial
in order to assess the liabilities of the scheme at 31st March 2019. Scheme assets are stated at their market value at 31st March 2019.
The Scheme has been closed to new entrants since 1989.
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
The mortality assumptions adopted at 31st March 2019 imply the following life expectancies for members currently aged 60:
Male = 26.3 years
The fair value of scheme assets are as follows:
Equities
Gilts
Corporate and overseas bonds
Absolute return portfolios
Property
Cash
Other
2019
3.2%
n/a
2.2%
3.1%
2018
3.1%
n/a
2.4%
3.0%
£’000
£’000
1,909
334
277
2,322
149
312
29
723
59
40
4,575
–
77
57
5,332
5,531
97
McKay Securities Plc Annual Report and Financial Statements 2019 24 Pensions continued
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
Return on scheme assets
Actuarial gain
Employer contributions
Benefits paid
2019
£’000
5,531
131
(148)
240
(422)
2018
£’000
5,600
127
(23)
240
(413)
Market value of assets at end of year
5,332
5,531
Analysis of changes in the value of the defined benefit obligation over the period:
2019
£’000
7,695
180
(422)
(148)
(74)
209
2018
£’000
7,884
177
(413)
109
25
(87)
7,440
7,695
Change in
assumption
Change in
defined benefit
obligation
+/-0.5% p.a.
+/-0.5% p.a.
+1 year
-/+5%
+3%/-4%
+5%
2019
£’000
2018
£’000
–
(131)
180
49
49
–
(127)
177
50
50
Value of defined benefit obligation at start of period
Interest cost
Benefits paid
Actuarial gains: experience differing from that assumed
Actuarial gains: changes in demographic assumptions
Actuarial gains: changes in financial assumptions
Value of defined benefit obligation at end of period
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)
Return on pension scheme assets
Interest on pension scheme liabilities
Net return
Total charge to profit and loss
98
McKay Securities Plc Annual Report and Financial Statements 2019Notes to the Financial Statements continuedFor the year ended 31st March 2019 24 Pensions continued
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
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
The last active member reached retirement age in May 2013.
2019
£’000
148
(13)
–
135
2018
£’000
23
47
–
70
0% of scheme assets
0% of the present value of the
scheme liabilities
0% of the present value of the
scheme liabilities
2% of the present value of the
scheme liabilities
2019
£’000
(2,164)
–
(49)
240
(135)
2018
£’000
(2,284)
–
(50)
240
(70)
(2,108)
(2,164)
99
McKay Securities Plc Annual Report and Financial Statements 2019
Glossary
Adjusted EPS
Earnings per share based on profits and adjusted to exclude certain items
as set out in note 9.
Gearing
Drawn debt to shareholders’ funds.
Adjusted profit before tax
Profit before tax adjusted to exclude certain recurring and non-recurring
items relating to non-core rental activity as set out in note 5.
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.
Carrying value
The value of an asset based on prior valuation with the addition of any
subsequent capital expenditure.
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.
GRESB
Global Real Estate Sustainability Benchmark.
Industrial property
Term used to include light industrial, industrial and distribution warehouse
property falling within classes B1c, B2 and B8 of the Town & Country
Planning Use Classes Order. The term 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.
Interest cover (“ICR”)
The number of times Group net interest payable is covered by underlying
profit before interest and taxation.
Interest rate swap
A financial instrument where two parties agree to exchange an interest
rate obligation for a pre-determined amount of time.
CRC
Carbon Reduction Commitment. A mandatory emissions reduction
standard in the UK and covers all forms of energy excluding transportation
fuels.
IPD/MSCI
Investment Property Databank. Leading provider of independent
statistical analysis to the commercial property sector.
Diluted figures
Reported amount adjusted to include the effects of potential shares
issuable under employee share schemes.
Loan to value (“LTV”)
Drawn debt divided by the value of property assets.
Dun and Bradstreet
Provider of business information and risk management insight.
Net asset value (“NAV”) per share
Total equity divided by the number of ordinary shares in issue at the period
end.
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.
Net debt
Total borrowings less cash credit balances.
EPC
Energy Performance Certificate. Certificates carry ratings which measure
the energy and carbon emission efficiency of the property using a grade
from an ‘A’ to a ‘G’.
EPRA
Standard calculation methods for adjusted EPS, NAV and NNNAV as set
out by the European Public Real Estate Association (EPRA) in their Best
Practice and Policy Recommendations.
Equivalent yield
The internal rate of return from an investment property, based on the value
of the property assuming the current rent passing reverts to ERV and
assuming the property becomes fully reoccupied over time. It assumes
that rent is received quarterly in advance.
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.
100
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.
(Real Estate Investment Trust (“REIT”)
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 Price Index excluding mortgage interest.
Shareholders’ funds
Total equity of the Company.
McKay Securities Plc Annual Report and Financial Statements 2019
SIC 15
The IFRS treatment in respect of letting incentives. It requires the
Company 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.
101
McKay Securities Plc Annual Report and Financial Statements 2019 Company and Shareholder Information
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 McKeown ACIS
Registered Office
20 Greyfriars Road, Reading
Berkshire RG1 1NL
Tel: 0118 950 2333
Registered Number
421479
Website
www.mckaysecurities.plc.uk
2019
3rd June
4th July
25th July
November
December
2020
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
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 03456 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.
102
McKay Securities Plc Annual Report and Financial Statements 2019
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McKay Securities Plc Annual Report and Financial Statements 2019 104
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McKay Securities Plc
20 Greyfriars Road,
Reading, Berkshire, RG1 1NL
T. 0118 950 2333
www.mckaysecurities.plc.uk