Capital & Regional Regulatory News (CAL)

2 March 2023

Capital & Regional plc

("Capital & Regional" or "C&R" or "the Company" or "the Group")

Full Year Results to 30 December 2022

STRONG OPERATIONAL PERFORMANCE DRIVING PROFITABILITY AND DIVIDENDS

Capital & Regional (LSE: CAL), the UK focused REIT with a portfolio of in-town community shopping centres, today announces its full year results to 30 December 2022.

Lawrence Hutchings, Chief Executive, comments:

"2022 was a good year for Capital & Regional, both operationally, as well as in terms of strengthening the Company's balance sheet following the successful capital raise and Mall debt restructuring in November 2021. Despite the broader macro-economic headwinds throughout the year, the continued retail recovery from Covid and a robust Christmas trading season has helped us drive a strong operational performance in 2022. 

"We maintained leasing momentum with an average uplift on previous rents of 34%3, supported by our affordable average rents of c. £14 per sq ft, helping us to grow occupancy, net rental income and profit. Occupier profitability will be further supported by the recent rates revaluation which will take effect from April 2023 with average reductions in business rates to our occupiers of 30%-35% across most of our portfolio.

"The Group has delivered a significant improvement in Net LTV from 49% to 41%, despite the market wide fall in valuations in the second half of 2022. As a result, we are now able to focus on investing in our portfolio, allowing us to further reposition and remerchandise our centres at the heart of the local communities that we serve, driving footfall back towards pre-pandemic levels and creating vibrant trading places for our occupiers' essential goods and services whilst growing our occupancy, income and profit as part of our post covid recovery.

"We are encouraged by our operational resilience and a growing appreciation of the critical role which physical stores play in successful omnichannel retailing. We believe we are well-positioned to continue to navigate the current cyclical pressures and the Board's confidence in the Company's future prospects is reflected in a proposed final dividend of 2.75p per share, resulting in a total dividend for 2022 of 5.25p per share. Finally, I would like to thank our teams and stakeholders for all their hard work and support during 2022."

Continuing operational resilience

Improved profitability supporting resumption of dividend

Refocus, Restructure and Recapitalise

Notes

1 Adjusted Profit, Adjusted Earnings per share, Net Rental Income, Net Debt and the Snozone EBITDA metric are as defined in the Glossary. Adjusted Profit incorporates profits from operating activities and excludes revaluation of properties and financial instruments, gains or losses on disposal, and other non-operational items. A reconciliation to the equivalent EPRA and statutory measures is provided in Note 5 to the condensed financial statements. 

2 2021 comparative figures have been restated for a prior year adjustment to the treatment of rent concessions due to an IASB IFRS interpretation issued in October 2022 as detailed in Note 1 to the condensed financial statements. The amendment stipulates that losses which were incurred on granting rent concessions, which for the Group occurred during the Covid-19 pandemic, should be charged to the income statement in the year they are granted. 2021 revenue has also been impacted by the reclassification of Luton as a Discontinued Operation. The adjustment for the treatment of rent concessions reduced revenue and Adjusted Profit in 2021 by £1.6 million, with a corresponding reduction in the loss on revaluation of investment properties. The Adjusted Profit for 2022 is £0.3 million higher than it would have been without this adjustment to rent concessions. The reclassification of Luton as a Discontinued Operation reduced revenue in 2021 by £13.8 million.

3 For lettings and renewals (excluding development deals and CVA variations) with a term of 5 years or longer which do not include turnover rent or service charge restrictions.

4 Includes dividends declared post period end but related to the period in question.

5 Weighted average, debt maturity assumes exercise of extension options.

Use of Alternative Performance Measures (APMs)

Throughout the results statement we use a range of financial and non-financial measures to assess our performance. A number of the financial measures, including Net Rental Income, Adjusted Profit, Adjusted Earnings per share, Net Debt and the industry best practice EPRA (European Public Real Estate Association) performance measures are not defined under IFRS, so they are termed APMs. APMs are not considered superior to the relevant IFRS measures, rather Management use them alongside IFRS measures to monitor the Group's financial performance because they help illustrate the trading performance and position of the Group. All APMs are defined in the Glossary and further detail on their use is provided within the Financial Review.

For further information:

Notes to editors:

About Capital & Regional

Capital & Regional is a UK focused retail property REIT specialising in shopping centres that dominate their catchment, serving the non-discretionary and value orientated needs of the local communities. It has a strong track record of delivering value enhancing retail and leisure asset management opportunities across a portfolio of in-town shopping centres. Capital & Regional is listed on the main market of the London Stock Exchange (LSE) and has a secondary listing on the Johannesburg Stock Exchange (JSE).

Using its in-house expert property and asset management platform Capital & Regional owns and / or manages shopping centres in Hemel Hempstead, Ilford, Luton, Maidstone, Redditch, Walthamstow and Wood Green.

For further information see capreg.com.

South African secondary listing

At 30 December 2022, 7,565,067 of the Company's total 169,191,918 shares were held on the South African register representing 4.47% of the total issued share capital. Java Capital acts as JSE Sponsor for the Group.

Forward looking statements

This document contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking in nature and are subject to risks and uncertainties. Actual future results may differ materially from those expressed in or implied by these statements. Many of these risks and uncertainties relate to factors that are beyond the Group's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of government regulators and other risk factors such as the Group's ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Group operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this document. The Group does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document. Information contained in this document relating to the Group should not be relied upon as a guide to future performance.

Chairman's statement

In headline terms Capital & Regional delivered a strong performance in 2022, completing a number of initiatives to strengthen its balance sheet and reduce debt, undertaking capital expenditure in line with its community strategy, and improving occupancy. This positive momentum saw the Company increase Net Rental Income from its Investment Assets by 16.9% to £23.5m, which led to a 58.5% increase in Adjusted Profit to £10.3 million. Despite the wider economic backdrop and increases in inflation and interest rates which impacted the commercial property sector, the Company delivered 6.3% growth in NAV to £179 million (31 December 2021: £168 million) and a 1.8% increase in EPRA NTA per share to 103 pence per share, despite a valuation decline in the second half of the year.

After the very obvious challenges of 2020 and 2021, the retail environment facing the Company in 2022 was more nuanced. On the positive side, we saw an end to the pandemic restrictions with all traders open for business and footfall trending back upwards towards 2019 levels. Retail failures were significantly down and rent collection levels much improved. Counteracting the good news, the UK economy faced increasing difficulties from low growth, high inflation and a sharp end to over a decade of very low interest rates accompanying a dramatic fall in consumer confidence.

Despite fears that Christmas 2022 trading would be materially affected by these factors, seasonal retail sales were robust, albeit with volumes slightly below 2019 levels. Footfall for the year in the Company's centres was 27% ahead of 2021 and reached 84% of 2019 levels.

Another notable positive trend during the year was the slowdown in the growth of online retail reflected in challenges faced by a number of online only retailers, coupled with a widespread recognition that an omnichannel offering is an optimum model for retailers.

Based on these trends, the Company enters 2023 optimistic that our business model of Community Centres, meeting the needs of customers for non-discretionary goods and services, is well placed to benefit from a steady recovery in physical retail and weather the current economic headwinds.

Recognising the importance of income to REIT investors, we were pleased to resume the payment of dividends in 2022, supported by the improvements in NRI and Adjusted Profit.

Capital & Regional continued to demonstrate an active approach to portfolio management to ensure it delivers value for its shareholders and to be good stewards of capital, notably:

Assisted by these initiatives, the Company's net debt ratio improved over the year from 49% to 41% despite a modest fall in values of 3.6%.

Whilst the market had anticipated that falls in 2020 and 2021 would mark the low point in valuations, steeply falling values in other sectors in the second half of 2022 coupled with an absence of available bank debt continued to impact retail valuations, albeit to a far lesser degree than other real estate sectors. This also reflected very limited investment comparable transactions and general continuation of negative sentiment. Our view is that following the repricing there is now a very selective buying opportunity in the sector.

The underlying resilience of the leasing market was demonstrated by the Company's success in achieving lease renewals and new leases well ahead of both previous rent and ERV, with the affordability of rents being a key consideration in this. A total of 109 new lettings and renewals were signed in 2022, with an annual rent of £5.4 million and headline occupancy reaching 94% at the year end. Consistent with this rent collection improved from approximately 93% in 2021 to 97.6% in 2022.

Snozone continued to make strong progress post the pandemic with overall revenues up 35% and with Madrid in particular growing by 66% supported by leveraging the UK management platform, improved productivity and full systems integration. The EBITDA contribution improved from £0.8 million in 2021 to £1.4 million in 2022, despite inflation in utility costs.

Although this was a year of recovery, it continued to present many challenges to the Company's management and staff and I should record the Board's appreciation of their exceptional efforts in meeting these and delivering a positive year for Capital & Regional. I should also thank my Board colleagues for their unstinting support.

David Hunter, Chairman

Chief Executive's Statement

I would like to start by echoing the Chairman's comments about the positive progress made across all aspects of the Group over the course of 2022, which have led to this strong set of results underpinned by further improvements at an operating level driven by demand led growth in rental income.

In writing this statement I felt compelled to look back over 2022 with the realisation it was a year of two halves and how challenging the second half has been for both UK PLC and the global economy. It is easy to forget that we were still in varying forms of Covid restrictions in the first quarter of 2022. These had a significant impact on our operations, albeit through the restrictions in 2020 and 2021 our teams had learnt how to support our communities, with providing safe access to our essential goods and services, and each other alongside protecting our business through the varying disruptions.

During the second quarter of 2022, we witnessed a sense of optimism throughout the retail sector after two years of significant disruption and an acceleration in the long cycle structural changes driven by technology, specifically online retailing. The restrictions on physical retail forcing retailers and consumers online through a closure of all but essential stores had provided the catalyst to test the role of the physical store in the distribution of goods and services. I am pleased to say that the market is now starting to once again appreciate the critical role that the physical store plays, a vital and expanding function in what remains one of the largest sectors of the UK economy. We have seen first-hand the renewed focus on the physical store with better leasing and occupancy outcomes throughout 2022 across our portfolio of community centres. 

The impact of a maturing in online migration is very significant to the future of physical retailing and accordingly to our business and community centre strategy. The return to physical retailing by consumers, communities and retailers has been faster and more comprehensive than many retailers and analysts had envisaged. We believe the future of retailing will be a seamless, omnichannel ecosystem where the store plays a vital role in selling goods and services, facilitating, and lowering the cost of last mile, forward and return logistics and in the acquisition of new customers. The continued evolution of the physical store is positive for our community centre strategy which envisaged the challenges of online disruption when it was launched in December 2017. Encouragingly our retailer tenants often tell us that our stores are some of the most profitable in their operations, particularly in an era where the operational cost of online is increasing.  The recent review of rateable values will also see our retailers benefit from significant savings in business rates payable from April 2023 with the typical reduction at our centres around 30%-35%.

In locations where we are most progressed with delivering our community strategy, including Wood Green and Walthamstow in London, we are seeing the greatest benefits to our stakeholders with a recovery in footfall, and occupancy as well as encouraging leasing outcomes which are driving growth in rental income. We have also seen a good recovery from our Snozone business with an EBITDA contribution of £1.4 million (2021: £0.8 million) reflecting a more normalised trading year and significant progress in our Snozone Madrid operation that was acquired in February 2021.

These factors and the hard work of our teams supported a recovery in our operational business, together with the stability in our balance sheet that our 'Refocus, Restructure and Recapitalise' transaction provided. The culmination of these actions has enabled us to reinstate our dividend after more than two years and we are pleased to be a fully functioning Real Estate Investment Trust once again.

Following the ongoing tragic events in Ukraine, and wider global cost-of-living and inflationary pressures, we witnessed a rapid unravelling of quantitative easing by central banks in the second half of 2022. This created further uncertainty for the sector with the prospect of higher energy and food costs impacting consumer confidence and spending. To date, the UK Consumer has proven more resilient than many forecasts or indices have suggested. This was evidenced in a more resilient performance over the key Christmas trading period, relative to media and industry predictions. Nonetheless, we remain vigilant and cautious of the impact of inflationary pressures as we look to accelerate the roll out of our community strategy through active repositioning of our centres via the deployment of our capex programme. Replacing discretionary retail with essential community centre retailers such as supermarkets and NHS medical centres remains a key income and value driver for the Company.

Our operational focus in the short to medium term is clear, to recover income and value lost over the past two years through increasing occupancy, converting temporary let shops to permanent, delivering the additional income from our capex programme and streamlining our cost base.

We are not immune from the impacts of high inflation or higher interest rates on property valuations. However, following six years of rebasing in rents and valuations we are better positioned than many sectors of the commercial property market with higher yielding, well-let centres in strong growing urban locations, especially in London, which now represents more than 85% of our portfolio by value.

Our commitment to ESG continues and we are very proud of all the work we have undertaken in partnership with over 180 charities in the communities we serve, supporting those most in need. I cannot recall a time when our support is more necessary. One of my favourite charities is the Level Trust in Luton which has provided more than 4,000 school uniforms for children from households who are unable to afford them. Key to us being able to tailor our support to where it is most needed is our relationships with the local councils. I was humbled whilst attending a function in Walthamstow where the council described our relationship and support as "exemplar".

Continuing on the theme of making a difference to people's lives, our GEMS ('going the extra mile') awards highlight the often extraordinary lengths our onsite team(s) go to in order to assist members of our communities. This can be as simple as helping people who have encountered difficulties, or visitors just appreciating having someone to chat to, at our guest service desks or in our security teams, on their regular visits to our centres.

Outlook

The macroeconomic environment continues to present a challenging backdrop, most prominently through the impact of inflationary pressures on the consumer exacerbated by the tragic war in Ukraine. 

Nonetheless, the actions taken over the last 18 months to restructure the balance sheet and refocus the portfolio have stabilised and significantly strengthened the business. This, aligned with our operational resilience and a growing appreciation of the critical role which physical stores play in successful omnichannel retailing, leave us well positioned to withstand such pressures. The profile of our assets with their focus on non-discretionary goods and services, the previous resetting of rents and values, and the portfolio premium to the risk-free rate, puts us in a stronger position on a relative basis than some other retail property assets and the wider real estate sector.

We have a clear roadmap to increase Adjusted Profits by more than 20% in the medium term and are also well placed to take advantage of selective opportunities to grow the business and further utilise our proven skills and management expertise.

Finally, I would like to thank our team members for all their hard work over the past year in ever changing, often unfamiliar and challenging circumstances both professionally and personally.

We remain committed to navigating the economic and sectoral challenges whilst delivering for all our stakeholders of which our shareholders are of critical importance. We are ambitious as owners of commercial property and stewards of capital and we will continue our relentless focus on improving every aspect of our business.

Thank you to all our shareholders.

Lawrence Hutchings, Chief Executive

Operating review

New lettings, renewals and rent reviews1

1 Includes transactions for Hemel Hempstead, Ilford, Maidstone, Walthamstow, Wood Green, Blackburn (until the point of sale in 2022) and Luton. 

2 For lettings and renewals (excluding development deals and CVA variations) with a term of 5 years or longer which do not include turnover rent or service charge restrictions.

Demonstrating the team's ability to capture rental growth and the continued demand for space at our centres, we completed 109 new lettings and renewals during the year, securing annualised rent of £5.4 million at a combined average premium to previous rent of 34.0%2 and to previous ERV of 13.7%2. This was fewer deals than 2021 but a higher total value (2021: 143 new lettings and renewals for a combined annual rent of £5.2 million).

Highlights include signing an agreement for lease with the NHS for a new community healthcare centre at Ilford on a 25-year lease term. Planning permission was obtained in October 2022 and construction work commenced at the end of 2022. The new 20,000 sq ft purpose-built facility is due to open to the public in 2024. At Wood Green the new NHS diagnostics centre opened in October 2022 and we subsequently signed an agreement to extend it by a further 3,000 sq ft, to approximately 8,500 sq ft. 

Also at Ilford, we signed an agreement to relocate and upsize TK Maxx into a new 35,000 sq ft store occupying the first floor of what was the former Debenhams unit. This will enable remerchandising of the existing TK Maxx unit which sits in a prime location at the entrance next to Ilford station, which will benefit from the full opening of the new Elizabeth Line. 

At Walthamstow we have let the entire new 16,000 sq ft food hall on the mezzanine level, which we created in the rebuild following the 2019 fire, to a great local operator, Crate. The facility will involve seven street eat style food operators alongside an in-house bar and coffee kiosk, coupled with events and exhibition space, all of which is due to open in late summer 2023.

All of these initiatives are great examples of our strategy in action and further embed our centres at the heart of their local communities, helping drive footfall to the benefit of the other retailers while providing all in one convenience and experience to our customers.

Rental income and occupancy

1 Investment Assets include the Group's centres at Hemel Hempstead, Ilford, Maidstone, Walthamstow and Wood Green. Prior year comparatives restated on the same basis.

Occupancy increased by 120 basis points over the year to 94.1%, with one of the main drivers being the inclusion of the NHS community healthcare centre at Ilford. Only around 4% of the total now relates to temporary lettings or development units. as we have gradually improved this from approximately 7% over the last 18 months. The potential to convert more of these temporary arrangements to permanent lettings on typically stronger terms provides opportunity to improve Net Rental Income.

Contracted rent is broadly in line with the December 2021 level. This excludes approximately £1.2 million of rent where deals have exchanged but completion remains subject to planning or other conditions. Such deals include the NHS community healthcare centre at Ilford and the new Crate food hall at Walthamstow.

Passing rent has improved by £0.5 million to £30.5 million since 30 December 2021, with the largest contributor being the letting to the Department for Work and Pensions for Job Centres at Ilford commencing cash rent payments during the period. 

Operational performance

In total there were 53 million shopper visits across the portfolio during 2022. This was 27.4% higher than in 2021. This increase is 2.8% lower than the growth in the national index, reflecting the Company's strong outperformance in 2021 when non-essential retailers were unable to open. 

Footfall continued to recover to pre-pandemic levels with the 2022 levels equivalent to 84.3% of 2019, compared to 79% for the first six months. Anecdotal evidence from our retailers suggests that sales have bounced back at a higher rate than footfall reflecting more efficient use of visits.

Car park income for the year was £6.0 million for the Group's Investment Assets, approximately 26% higher than 2021 although 29% lower than 2019 both on a like for like basis excluding Blackburn.

Business rates

The recent review of business rates will result in a significant reduction in rates payable for most retail operators. Across our portfolio the typical reduction that will apply to occupiers will be 30%-35%, with the exception of Walthamstow where reductions are estimated to be approximately 10%. The withdrawal of downwards transitional arrangements means that occupiers will immediately see the full benefit of reductions from April 2023. The changes will deliver significant benefits to store affordability and profitability.

Rent Collection1

97.6% of rent in respect of 2022 has now been collected, broadly representing a return to pre-pandemic levels and an approximate 4.5% increase on 2021. The improved collection rates have enabled the net release of provisions totalling c. £1.4 million. The table below provides further detail:

1 Investment Assets include the Group's centres at Hemel Hempstead, Ilford, Maidstone, Walthamstow and Wood Green.

Rent collection for the first quarter of 2023, including monthly invoices for January and February 2023, is currently running at 91.9%. 

Capital expenditure investment

In total £9.0 million was invested across the Group's Investment Assets in 2022. £5.3 million was invested in planning fees, enabling works and other costs including relocating tenants, all to facilitate delivery of the £21.6 million Walthamstow residential land sale receipt. Other projects included £0.8 million for the creation of the new Job Centre at Ilford which opened in March 2022, £0.8 million across the NHS and TK Maxx projects in Ilford and £0.4 million on the new Walthamstow Food Hall.

We anticipate capital expenditure in 2023 to be more than £15 million with the major projects being:

The average yield on cost of the above projects is expected to be in the range of 8% to 9%. This financial metric does not factor in the 'halo' effect these improvements have in terms of driving footfall and sales across the centres as a whole.

Shopping Centre ESG

For the shopping Centre portfolio, we have established our Net Zero Carbon (NZC) Pathway aligned with industry best practice and guidelines, including the UKGBC's definition of net zero and the Better Building Partnership's (BBP) Climate Commitment, both of which we are now signatories. Our NZC Pathway quantifies and prioritises the necessary emission reductions to our target year of 2040 and beyond and includes ambitious emission reduction targets across Scope 1 and 2. The creation of our NZC Pathway is an important milestone on our journey and defines the actions and priorities we need to put in place to stay true to our commitment to our communities, employees and the long-term resilience and success of our business.

We have upskilled our operational teams through training on sustainability awareness, especially in relation to supporting our occupiers and helping to reduce Scope 3 emissions. We are in the process of developing an occupier engagement programme on sustainability to increase awareness and profile.

We have made significant strides against our environmental targets increasing our energy efficiency, reducing Scope 1 natural gas consumption by 53% and Scope 2 electricity consumption by 20%, against 2019.

In addition to developing our NZC pathway we have also completed a detailed assessment of climate risk governance and the climate related risks aligned to best practice recommendations of the Task Force of Climate-related Financial Disclosures (TCFD). By formalising oversight of climate related issues into our risk management framework, we can mitigate the risks and garner related opportunities, such as reducing operational costs and capital expenditure and increasing revenues and asset values.

2022 was a year of giving back, putting our communities and guests at the core of our initiatives. Following a successful launch in 2021, the Community Wheel of Support continued to play a critical role in encouraging engagement and supporting our shopping centres to prioritise areas of impact. We set out nine KPI targets to align with our Wheel of Support. Improving from 2021, we saw an 11% increase in the number of charities supported, a 15% increase in volunteering hours and a 9% increase in charitable fundraising.

To account for local needs, our shopping centres are given the responsibility and autonomy to run their own fundraising events. In 2022, we hosted a total of 244 events, collectively supporting 187 charities and volunteering more than 1,300 hours of employees' time to important community causes.

Snozone

Snozone recorded a significant improvement in EBITDA for the year to £1.4 million (December 2021: £0.8 million) as it returned to a more normalised trading year. Total revenue for 2022 increased to £13.0 million (2021: £6.8 million), although trading in the early part of 2022 was still heavily impacted by the Omicron variant, with revenue in the key month of January down 20% on pre-pandemic levels. From mid-February 2022, Snozone has been able to offer guests its full offering in contrast to 2021 when the UK venues were shut for the first four months of the year due to government restrictions. As the impact of the Omicron variant subsided, Snozone made a good recovery and revenues generally exceeded the equivalent levels in 2019 although some key revenue streams such as corporate activities and food and beverage have not yet returned to pre-pandemic levels. 

EBITDA in 2021 was supported by the receipt of a £2.5 million insurance payment under a pandemic insurance policy that the business has maintained since 2017.

The integration of the operations of the ski slope in the Xanadú shopping centre in Madrid, which was acquired in February 2021 for a nominal value, has progressed well with revenues increasing 65% to £3.5 million (2021: £2.1 million). The impact of significant increases in government-controlled electricity prices to £1.2 million (2021: £0.7 million) has latterly been mitigated by the installation of solar panels which became operational in November 2022.

Snozone's Group IFRS profit for the period, which includes the notional IFRS 16 interest charge on the occupational leases, was £0.1 million (December 2021: Loss of £0.3 million). The prior year benefited from £1.4 million of VAT rebate received in addition to the £2.5 million insurance payment.

Snozone ESG

Snozone's pathway to net zero strategy is underpinned by a cyclical four-year plan for capital investment into new plant and machinery which we are now halfway through. Nine units of blast coolers have been replaced at the Milton Keynes venue which will save 214,000 kWh per year. In addition, given the significant increase in government-controlled electricity pricing in Madrid, solar panels were fitted to the roof of our venue and were fully operational as of November 2022.

These two initiatives helped deliver a 6% reduction in electricity utility consumption in 2022 versus the 2019 base year and a 23% reduction in gas. There was an overall reduction in carbon tonnage by 8% to 2,633 tonnes versus 2,857 tonnes in 2019. All of Snozone's electricity is 100% renewable and is sourced from wind and solar power.

New supplier deals have been agreed for Snozone's restaurants. All coffee, non-alcoholic and alcoholic beverages are supplied in 100% recycled glass, recycled aluminium cans or compostable boxes. Snozone's shop merchandise and clothing provider also delivers all products 100% free of plastic packaging.

Snozone maintained its partnership with Tree Nation last year, planting trees when guests rebook certain activities or join as members to offset their emissions of visitation. These trees are planted in areas of the world where biodiversity and reforestation are most needed. Over 11,500 trees to date have now been planted in Africa with over 9,000 planted in 2022 - offsetting over 1,400 tonnes of C02 and now reforesting over 14 hectares of land.

Snozone's other social KPIs include an increase in disability snow sports participation by 29% versus 2021 and Snozone is the only European indoor centre to own and operate its own disability snow school. In addition, Snozone was once again voted Best Sporting Venue for children learning outside the classroom at the School Travel Awards, beating such illustrious businesses as The London Stadium, Manchester United, Silverstone, Twickenham Stadium and the UK Sailing Academy. Snozone was also voted partner of the year by Sense, the charity for deafblind adults and children for the awareness its team has drawn to the charity, as well as its many fundraising activities.

Refocus, Restructure and Recapitalise

The Group's actions over the last 18 months have significantly reshaped the business and reduced debt to sustainable levels. Following on from the transaction to restructure the Group's largest facility, The Mall, and the £30m capital raise which completed in November 2021, a number of other key initiatives were completed during 2022:

Ilford loan amendment

In May 2022, the Group signed a package of amendments to its £39 million secured loan facility in respect of The Exchange Centre, Ilford, to facilitate the investment of more than £10 million for the creation of the new community healthcare centre and anchor unit for TK Maxx. The amendments include a conditional extension option that can be triggered by the Company at the end of 2023 to extend the loan maturity by 18 months from March 2024 until September 2025. They also provide a combination of covenant waivers and improvements to existing covenant terms that apply through to the end of 2024. 

Restructuring of The Marlowes Centre, Hemel Hempstead debt

Also in May 2022, the Group completed the buyback of the loan facility of the Marlowes centre in Hemel Hempstead. The Group paid £11.8 million in order to settle the loan and associated debt liabilities of c. £24.0 million, representing a discount of approximately 51%. The transaction increased the Group's Net Asset Value by approximately £12.5 million or 7.4%. The asset was reclassified to the Group's Investment Assets as of 11 April 2022, being the date the transaction was agreed, and NRI from the asset is included from that date. 

To partially fund the transaction, the Group subsequently drew down a new £4.0 million loan facility in July 2022, which was provided by BC Invest, a subsidiary of the Group's strategic residential partner Far East Consortium. The new non-recourse secured debt is for an initial period of three years at a margin of 5.95% over SONIA. 

Proposed sale of The Mall, Luton

The Group has been working closely with the respective lender on the proposed disposal of the Group's investment in The Mall, Luton. The disposal is expected to complete imminently. As part of the agreement to run a consensual sale process, changes to the constitution of the Luton entities were made in May 2022 including the appointment of an independent director with specific rights regarding the sale process. The effective change of control that these amendments triggered resulted in the Group deconsolidating its interest in Luton from that date. This has increased the Group's Net Asset Value by £6.8 million being the net liabilities at the point of deconsolidation. Given the Group's interest in Luton has been deconsolidated the sale will not result in any profit or loss on disposal. The Group's involvement as Property and Asset Manager, for which it generated fees of £1.4 million in 2022, will cease upon disposal.

Sale of The Mall, Blackburn

In May 2022, the Group exchanged contracts for the sale of The Mall, Blackburn to the retail arm of the Adhan Group of Companies for £40 million, representing a premium to the £38.2 million December 2021 valuation. The sale completed in August 2022 delivering net cash proceeds of £39 million. The sale alone reduced the Group's Net Loan to Value ratio by approximately 600 basis points.

Walthamstow residential

In July 2022, the Group completed the sale of land for residential development at its 17&Central community shopping centre in Walthamstow to Long Harbour for £21.6 million. The Group had secured planning consent at the end of 2021 for a residential-led, mixed use development, incorporating a new Victoria Line tube station entrance and new public space including a new park. Construction work is now underway on the first phase of the development which will see the creation of 495 Build to Rent residential apartments in two residential towers. Completion is scheduled for 2025.

£52.9 million of the combined c. £60 million received from the Blackburn and Walthamstow transactions was utilised for repayment of the debt on the Group's Mall loan facility. This reduced the outstanding amount to £140 million and repaid in full the remainder of the £35 million Facility B tranche that was drawn to help fund the repurchase of £100 million of debt in November 2021. The combined impact of the above transactions has helped further reduce the Group's Net Loan to Value ratio from 49% at 30 December 2021 (and 72% at 30 June 2021) to 41% at 30 December 2022.

Financial review

1 2021 comparative figures have been restated for a prior year adjustment to the treatment of rent concessions due to an IASB IFRS interpretation issued in October 2022 as detailed in Note 1 to the condensed financial statements. The amendment stipulates that losses which were incurred on granting rent concessions, which for the Group occurred during the Covid-19 pandemic, should be charged to the income statement in the year they are granted. 2021 revenue has also been impacted by the reclassification of Luton as a Discontinued Operation. The adjustment for the treatment of rent concessions reduced revenue and Adjusted Profit in 2021 by £1.6 million, with a corresponding reduction in the loss on revaluation of investment properties. The Adjusted Profit for 2022 is £0.3 million higher than it would have been without this adjustment to rent concessions. The reclassification of Luton as a Discontinued Operation reduced revenue in 2021 by £13.8 million.

2 Adjusted Profit is as defined in the Glossary. A reconciliation to the statutory result is provided further below. EPRA figures and a reconciliation to EPRA EPS are shown in Note 5 to the Financial Statements. The calculation of EPRA cost ratio is provided in the EPRA performance measures section.

3 Represents dividends declared post period end but related to the period in question.

4 Assuming exercise of all extension options.

Use of Alternative Performance Measures (APMs)

Throughout the results statement we use a range of financial and non-financial measures to assess our performance. The significant measures are as follows:

Profitability

Components of Adjusted Profit and reconciliation to IFRS Profit

1 EPRA figures and a reconciliation to EPRA EPS are shown in Note 5 to the condensed Financial Statements.

2 2021 comparative figures have been restated for a prior year adjustment to the treatment of rent concessions due to an IASB IFRS interpretation issued in October 2022 as detailed in Note 1 to the condensed financial statements. The amendment stipulates that losses which were incurred on granting rent concessions, which for the Group occurred during the Covid-19 pandemic, should be charged to the income statement in the year they are granted. 2021 revenue has also been impacted by the reclassification of Luton as a Discontinued Operation. The adjustment for the treatment of rent concessions reduced revenue and Adjusted Profit in 2021 by £1.6 million, with a corresponding reduction in the loss on revaluation of investment properties. The Adjusted Profit for 2022 is £0.3 million higher than it would have been without this adjustment to rent concessions. The reclassification of Luton as a Discontinued Operation reduced revenue in 2021 by £13.8 million.

Adjusted Profit - 30 December 2022: £10.3 million (30 December 2021: £6.5 million)

Net Rental Income (NRI) improved to £23.5 million (30 December 2021 - £20.1 million). This reflects improved occupancy and rent collection levels, the latter enabling the net release of approximately £1.4 million of provisions during the period. 

The balance includes £0.5 million from Hemel Hempstead being the NRI from 11 April 2022, being the date the transaction was agreed and hence the asset was reclassified to Investment Assets, having been in Managed Assets NRI in the prior year. The £23.2 million includes £2.7 million from Blackburn, the sale of which completed in August 2022. 

Interest payable has fallen from the prior year reflecting primarily the restructuring and reduction of debt in The Mall loan facility that completed in November 2021. The Mall debt was further reduced by £7.1 million in January 2022 from the proceeds of the sale of Maidstone House and then by £52.9 million in the second half of the year from the combined proceeds of the Walthamstow residential receipt and Blackburn disposal. The full year interest saving benefit of the latter repayments will see interest in 2023 reduce by approximately £1.8 million.

Managed Assets Contribution is no longer included within Adjusted Profit following the reclassification of what were deemed Managed Assets as Held for Sale from 30 December 2021. As noted, the results of Hemel Hempstead have been included within Adjusted Profit from 11 April 2022. The results from Luton have been excluded from Adjusted Profit in 2022 as it was Held for Sale until 23 May 2022 and then deconsolidated from the Group as at that date.

Snozone EBITDA at £1.4 million (30 December 2021 - £0.8 million) reflected a return to a more normalised trading year although the peak first trading quarter in 2022 was still significantly impacted by concerns over the Omicron variant. The result in 2021 was supported by a £2.5 million business continuity insurance receipt mitigating the impact of the operations being required to shut for most of the first half of 2021 due to Government Covid restrictions.

External Management Fees of £3.3 million break down between Asset and Property Management fees on external properties (Redditch and in 2022, Luton) of £2.1 million and Property Management fees on the Group's Investment Assets of £1.2 million (as these are charged to the Service Charge). The increase from the prior year relates to the inclusion of Asset Management fees on Luton as these were previously being eliminated on consolidation. Sale processes remain ongoing for both Luton and Redditch, where we act as property and asset manager, which will see the Group's involvement as manager cease. These are expected to complete imminently. 

Central operating costs at £7.0 million (30 December 12021 - £7.0 million) have been maintained at the same level as 2021. We are targeting annualised cost savings in 2023 of approximately 10%, with a reduction in the Group's underlying cost base, reflecting the lower number of assets under management, offsetting the impact of inflation. 

Variable overheads of £1.6 million (30 December 2022 - £0.9 million) have increased due to a £0.6 million increase in the charge for the one-off Executive retention awards issued in November 2021 which run through until September 2023.

Adjusted Earnings per Share for the period were 6.2 pence (30 December 2021: 5.4 pence) reflecting the improvement in Adjusted Profit, partially offset by the higher number of shares in issue from the £30 million capital raise which completed in November 2021. 

We expect 2023 to be a partly transitional year with the loss of income from the sale of Blackburn, the absence of the one-off benefit from bad debt provision releases and likely reduction in management fee income offset by underlying improvement in NRI, the reduction in interest costs as a result of the £52.9 million of repayments made in the second half of 2022, a further recovery in Snozone and reduced central costs. 

In the medium term there is potential for Adjusted Profit to increase by more than 20%, driven primarily by further recovery in occupancy rates post-pandemic, car park income and Snozone, alongside beginning to realise the benefit of the Capex projects currently underway, most prominently the TK Maxx and NHS community healthcare centre units at Ilford, introduction of new catering units to the bridge link, the remerchandising of the WH Smith's unit at Wood Green and the new Crate food hall at Walthamstow.

IFRS profit for the period - 30 December 2022: £12.1 million (30 December 2021: Loss of £26.4 million)

The Group has returned to profitability in 2022. Aside from the Adjusted Profit of £10.3 million the key elements in the result were:

The profit for the period has resulted in growth of both NAV by 6.3% to £179.1 million and EPRA Net Tangible Assets of 5.3% to £177.4 million compared to December 2021 amounts of £168.4 million for both measures. Basic NAV per share and EPRA NTA per share were 106p and 103p respectively, representing increases of 4p and 1p respectively (December 2021: 102p for both measures).

Having obtained shareholder support at the Company's Annual General Meeting on 19 May 2022, the Group completed a Capital Reduction which resulted in the creation of distributable reserves. The Group has maintained provision for any potential shortfall in the event that the minimum PID requirement for the 2021 financial year once finalised was not met by the distributions made in 2022 and/or alternative arrangements are not agreed with HMRC.

Property portfolio valuation

The valuation of the portfolio at 30 December 2022 was £322.75 million. On a like for like basis, adjusting for the impact of the Walthamstow residential receipt, the portfolio fell by 3.6% over the year. This broke down between a 1.5% increase in the first half of the year and a 5.0% decline in the second half. The latter was driven by the general expansion of yields across the property sector in response to the resetting of interest and gilt rates despite valued rent and valuers ERV increasing in the second half of the year by 0.6% and 1.5% respectively.

1 At 30 December 2021 Walthamstow valuation included £17.7 million in respect of the residential opportunity that was removed from the valuation following the receipt of £21.6 million in July 2022.

Financing

The Group has taken a series of important actions in the last 18 months enabling it to successfully bring down debt levels. This has involved a series of steps:

The combined result of all of the above actions has been the continued reduction in the Group's Net Loan to Value ratio from 72% as at 30 June 2021 and 49% at 30 December 2021 to 41% at 30 December 2022.

The Group's debt position as at 30 December 2022 is summarised in the table below:

1 Excluding unamortised issue costs.

2 Excluding cash beneficially owned by tenants.

3 Debt and net debt divided by investment property at valuation.

The Mall

Following the £60 million of repayments made during the year the Mall facility as at 30 December 2022 consisted of a single £140 million fixed rate loan at 3.45%, held with TIAA.

The loan matures in January 2027 but has a one-year conditional extension option. 

As part of the November 2021 restructuring of the facility TIAA provided a waiver of all financial covenants for two years until November 2023. The facility is currently compliant with all covenants.

Hemel Hempstead

On 7 July 2022, the Group drew down a new £4 million facility with BC Invest, a subsidiary of the Group's strategic residential partner, Far East Consortium. The new debt has been provided for an initial period of three years at a margin of 5.95% over SONIA. It is secured on the Marlowes Centre on a non-recourse basis. 

Ilford

The Group has a £39 million facility secured on the Ilford Exchange shopping centre with Dekabank Deutsche Girozentrale that is due to mature in March 2024. 

In May 2022, the Group signed a package of amendments to facilitate the investment of approximately £10 million for the creation of the new NHS community healthcare centre and anchor unit for TK Maxx. The amendment provides an 18-month conditional extension option that can be triggered at the end of 2023 to extend the loan maturity from March 2024 until September 2025 subject to meeting a debt yield and net loan to value covenant test. The cost of debt is hedged until the date or original maturity (March 2024) via an interest rate swap.

The amendments also provide for a waiver of covenants that ran until January 2023 and improvements to existing covenant terms to apply from January 2023 until the end of 2024.  The all-in cost of the current loan is 3.51%. 

Going Concern

Under the UK Corporate Governance Code the Board needs to report whether the business is a going concern. In making its assessment of Going Concern, the Group has considered the general risk environment and the specific risks that relate to the Group and its sector. This has incorporated considering the current macro-economic inflationary pressures as well as the ongoing impacts and speed of recovery from Covid-19 as well as the structural trends that were already under way in the retail industry.

At 30 December 2022, the Group had total cash at bank on balance sheet of £52.1 million. Of the £52.1 million there was £28 million held centrally outside of secured loan arrangements. This provides a significant cash contingency to cover any reasonable disruption to operations in both the base and reasonable worst case scenarios that have been modelled for at least the period of the next 18 months that is considered for going concern purposes.

As part of the restructure of The Mall debt facility that completed in November 2021, the lender provided covenant waivers that run until November 2023 and modifications to cash trap provisions that run until May 2023. The Group is currently compliant with all covenant tests on the facility and hence not reliant on the waivers or modifications. On the Ilford facility, as noted, the Group had covenant waivers that ran until January 2023 and has improved covenant terms that extend beyond the end of 2024. The Mall loan facility matures in January 2027 with a one-year conditional extension option. The Ilford loan matures in March 2024 with an 18-month conditional extension option dependent upon meeting a debt yield and net loan to value covenant test in Q4 of 2023. 

On Hemel Hempstead, the Group drew down on a new £4 million loan facility in early July 2022. The Group's forecasts demonstrate a reasonable level of covenant headroom on the Loan to Value and Projected Interest Cover Ratio tests that are relevant to the new agreement.

All of the Group's asset backed loan facilities are ring-fenced within their own SPV structures with no recourse to Capital & Regional plc and no cross-default provisions. The Group continues to work with the lenders on its Luton loan facility on a disposal of the investment. While this is likely to realise less than the value of the net debt outstanding, due to the ring-fenced SPV structure, the net liability of Capital & Regional plc is effectively capped at nil.

In making its assessment of Going Concern, the Group has run updated forecasts on both a base case and downside basis. In the latter, the Group has sensitised rent collection to 90% collection, reduced car park and ancillary income by 10% and removed any contribution from Snozone to reflect how a downturn in expected trading, such as might be caused by a further wave of Government restrictions, could impact cashflows. The Group has also considered a 15% reduction in property valuations. The Group's headroom on The Mall and Hemel Hempstead is sufficient to withstand this level of decline. 

On Ilford, such a decline would breach the LTV covenant level however the cash earmarked for capital expenditure investment into the asset would be sufficient to theoretically cure although in such a scenario the Group would seek to agree with the lender to invest the funds to develop the asset. The same position applies in respect of the LTV condition that is required in order to trigger the 18-month extension to the loan's maturity. Ultimately given the ring-fenced nature of the loan facility if the Group decided not to cure any breach and could not agree a compromise with the lender it could, in extremis, effectively surrender the asset and not face any recourse to the Group. The Group's cashflow forecasts over the period considered for Going Concern purposes assume it is a net investor into Ilford to fund the masterplan initiatives and hence such a scenario would not reduce the amount of cash available to the Group.

In coming to its Going Concern conclusion, the Group has also considered, but not relied upon, other options available to generate or conserve additional cash, to reduce debt levels and to fund value accretive capital expenditure and letting initiatives. These include but are not limited to: the potential disposal of assets either in whole or part; the opportunity to reduce or suspend dividend payments (or offer a Scrip alternative); and the potential raising of additional funds.

Having due regard to all of the above matters and after making appropriate enquiries, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. Therefore, the Board continues to adopt the Going Concern basis in preparing the financial statements.

Viability Statement

In accordance with the 2018 revision of the UK Corporate Governance Code, the Directors have assessed the prospect of the Company over a longer period than the 12 months required by the "Going Concern" provision.

The Board conducted this review for a two-year period to December 2024. The two-year period is covered by the Group's annual budget and business planning process. It includes sensitivity analysis to consider adverse scenarios, that could be caused by the principal risks and uncertainties outlined in the Managing Risk section below. This incorporated the impact on cash and covenant compliance of further significant falls in property valuations or property income. Ilford is the only one of the Group's loan facilities that is due to mature during the period but has a conditional 18-month extension option available to the Group which would extend maturity to September 2025. The Group has considered forecasts of the debt yield and LTV covenant tests that are necessary to meet the conditions of the extension in Q4 2023 and factored this into its analysis including the ability to support the LTV test by injecting cash into the structure if necessary.

The considerations made by the Directors in concluding on viability mirror those considered within the Going Concern conclusion as documented above. Based on this and the resources and actions available the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to December 2024.

Dividend

Reflecting the stabilisation of operational results from the impacts of Covid-19, the substantial progress made in reducing debt levels and the Board's confidence in the future prospects, the Group resumed dividend payments with the payment of an interim dividend of 2.5 pence per share on 7 October 2022. 

The Directors recommend a final dividend of 2.75 pence per share, making a total distribution for the year ended 30 December 2022 of 5.25 pence per share (2021: nil). This satisfies the Group's policy of paying a dividend of at least 90% of the Group's EPRA profits. The dividend will be paid entirely as a Property Income Distribution (PID) and a Scrip dividend option will be offered.

Subject to approval of shareholders at the Annual General Meeting (AGM) to be held on 25 May 2023, the final dividend will be paid on Friday, 2 June 2023. The key dates proposed are set out below:

South African shareholders are advised that the dividend will be regarded as a foreign dividend. Further details relating to Withholding Tax for shareholders on the South African register will be provided within the announcement detailing the currency conversion rate on 31 March 2023. Share certificates on the South African register may not be dematerialised or rematerialised between 12 April 2023 and 14 April 2023, both dates inclusive. Transfers between the UK and South African registers may not take place between 31 March 2023 and 14 April 2023, both dates inclusive.

Managing Risk

Risk management approach

The Audit Committee is delegated the authority for overseeing the effectiveness of the risk management process by the Board and is accountable for reporting on the identification of principle and emerging risks to the business. Ultimate responsibility for the oversight of risk management within the Group remains with the Board. The Board defines the risk appetite of the Group, establishes a risk management strategy and is responsible for maintaining a robust internal controls system. The Board formally reviews and signs off the Group's risk register on a six monthly basis. Emerging risks are considered as part of this process or on an ad hoc basis in instances such as the outbreak of the Covid-19 pandemic where the risk is of sufficient significance to require a separate discussion.

Risk management process

There are a number of risks and uncertainties which could have a material impact on the Group's future performance and could cause results to differ significantly from expectations.

At every half year and year end, the members of senior leadership undertake a comprehensive risk and controls review involving interviews with relevant management teams. This considers a review of both the existing identified risks and any new or emerging risks that may have been identified during the period. The output of this process is an updated risk map and internal control matrix for each component of the business, which is then amalgamated into the Group risk map and matrix that is reviewed by the senior leadership team. Formal submission is then made to the Audit Committee for review, before going to the Board for final sign off. The process for the half year and full year 2022 review forms the basis for the disclosures made below. 

This process clearly outlines the principal risks, considers their potential impact on the business, the likelihood of them occurring and the actions being taken to manage, and the individual(s) responsible for managing, those risks to the desired level.

This risk matrix is also used in performing our annual assessment of the material financial, operational and compliance controls that mitigate the key risks identified. Each control is assessed or tested for evidence of its effectiveness. The review concluded that all such material controls were operating effectively during 2022.

Principal risks at 30 December 2022

A review was carried out for the 30 December 2022 year end. Amongst the main factors considered were the impact of the current inflationary pressures being experienced by consumers within the UK exacerbated by the impact that the tragic war in Ukraine has had upon energy and commodity costs. Other matters considered were the ongoing impact of, and speed of recovery from, the Covid-19 pandemic and the continuing structural changes to UK retail although in the case of this latter point it was noted that there is growing evidence of online retail having begun to plateau in many areas. 

The review concluded that while as a result of these combined factors the profile of some risks, including economic environment, property investment market risks and Treasury risks had changed, the ultimate nature of them had not and therefore the principal risks to the Group broadly remain unchanged at 30 December 2022. 

The risks noted do not comprise all those potentially faced by the Group and are not intended to be presented in any order of priority. Additional risks and uncertainties currently unknown to the Group, or which the Group currently deems immaterial, may also have an adverse effect on the financial condition or business of the Group in the future. These issues are kept under constant review to allow the Group to react in an appropriate and timely manner to help mitigate the impact of such risks.

12021 comparative figures have been restated to present discontinued operations separately. Discontinued operations are discussed in Note 10. 2021 comparative figures have also been restated for a prior year adjustment to the treatment of rent concessions as explained in Note 1.

The results for the current and preceding year are fully attributable to equity shareholders.

The EPRA alternative performance measures used throughout this report are industry best practice performance measures established by the European Public Real Estate Association (EPRA). They are defined in the Glossary to the Financial Statements. EPRA Earnings and EPRA EPS are shown in Note 5 to the Condensed Financial Statements. EPRA net reinstatement value (NRV), net tangible assets (NTA) and net disposal value (NDV) are shown in Note 13 to the Condensed Financial Statements. We consider EPRA NTA to be the most relevant measure for our business.

12021 comparative figures have been restated for a prior year adjustment to the treatment of rent concessions as explained in Note 1.

Notes:

1 These reserves are not distributable.

2 The merger reserve of £60.3 million arose on the Group's capital raising in 2009 which was structured so as to allow the Company to claim merger relief under section 612 of the Companies Act 2006 on the issue of ordinary shares. The merger reserve is available for distribution to shareholders.

3 Own shares relate to shares purchased out of distributable profits and therefore reduce reserves available for distribution.

4 In June 2022 a capital reduction was completed transferring the remaining reserves from share premium and the capital redemption reserve to retained earnings. 

Notes to the unaudited preliminary financial statements

For the year to 30 December 2022

1 Significant Accounting Policies

General information

Capital & Regional plc is a public company limited by shares domiciled and incorporated in England, United Kingdom under the Companies Act 2006.

The financial information set out in this announcement does not constitute the Company's statutory financial statements for the years ended 30 December 2022 or 2021. The financial information for the year ended 30 December 2021 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditor reported on those accounts: their report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The audit of the statutory accounts for the year ended 30 December 2022 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The address of the registered office is 22 Chapter Street, London, SW1P 4NP. The Group is a specialist real estate investor and asset manager, focused on dominant in-town community shopping centres. Further information on the Group's operations is disclosed in Note 2a and the operating and financial reviews.

Basis of accounting

These unaudited preliminary consolidated annual financial statements of C&R are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the United Kingdom. 

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in April 2023.

Accounting developments and changes

The accounting policies used in these financial statements are consistent with those applied in the last annual financial statements, as amended where relevant to reflect the adoption of new standards, amendments and interpretations which became effective during the year.

In October 2022, the IASB finalised the agenda decision approved by the IFRS Interpretation Committee (IFRS IC) on 'Lessor Forgiveness of Lease Payments (IFRS 9 and IFRS 16)'. The agenda decision addresses the accounting from the perspective of the lessor, and whether to apply the derecognition requirements in IFRS 9 or the lease modification requirements in IFRS 16 when accounting for the rent concession.

When the lease payments are forgiven, the Committee concluded that the lessor should apply the derecognition requirements in IFRS 9 to the operating lease receivables and apply the lease modification requirements in IFRS 16 to future lease payments, including accrued lease payments, as discussed further below.

In applying the requirements in IFRS 9, the lessor should derecognise the operating lease receivable, including any associated ECL allowance.

1 Significant Accounting Policies (continued)

Accounting developments and changes (continued)

In adopting the above treatment the Group has restated the 2021 results for a prior year adjustment. This restatement derecognises the rent free debtor associated with rent concessions granted specifically relating to Covid 19, which has an associated knock-on impact on the investment properties balance, given valuations are adjusted for such amounts. The following table summarises the impact of the change in policy on the financial statements of the Group. The total impact on net assets and profit for the period is £nil.

New and revised standards issued but not yet effective

At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS Standards that have been issued but are not yet effective:

IFRS 17 Insurance Contracts including Amendments to IFRS 17

Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures-Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

Amendments to IFRS 3-References to the Conceptual Framework

Amendments to IAS 16-Property, Plant and Equipment-Proceeds before Intended Use

Amendments to IAS 37-Onerous Contracts-Cost of Fulfilling a Contract

Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 Annual Improvements to IFRS Standards 2018-2020

Amendments to IAS 1-Classification of Liabilities as Current or Non-current including Classification of Liabilities as Current or Non-current

Amendments to IAS 12-Deferred Tax related to Assets and Liabilities arising from a Single Transaction

Amendments to IAS 1 and IFRS Practice Statement 2-Disclosure of Accounting Policies

Amendments to IAS 8-Definition of Accounting Estimates

None of these standards are anticipated to have a material impact upon the Group's results.

Critical accounting judgements

The preparation of financial statements requires the Directors to make the following judgement that may affect the application of accounting policies.

Going concern

Under the UK Corporate Governance Code the Board needs to report whether the business is a going concern. In making its assessment of Going Concern, the Group has considered the general risk environment and the specific risks that relate to the Group and its sector. This has incorporated considering the current macro-economic inflationary pressures as well as the ongoing impacts and speed of recovery from Covid-19 as well as the structural trends that were already under way in the retail industry.

At 30 December 2022, the Group had total cash at bank on balance sheet of £52.1 million. Of the £52.1 million there was £28 million held centrally outside of secured loan arrangements. This provides a significant cash contingency to cover any reasonable disruption to operations in both the base and reasonable worst case scenarios that have been modelled for at least the period of the next 18 months that is considered for going concern purposes.

As part of the restructure of The Mall debt facility that completed in November 2021, the lender provided covenant waivers that run until November 2023 and modifications to cash trap provisions that run until May 2023. The Group is currently compliant with all covenant tests on the facility and hence not reliant on the waivers or modifications. On the Ilford facility, as noted, the Group had covenant waivers that ran until January 2023 and has improved covenant terms that extend beyond the end of 2024. The Mall loan facility matures in January 2027 with a one-year conditional extension option. The Ilford loan matures in March 2024 with an 18-month conditional extension option dependent upon meeting a debt yield and net loan to value covenant test in Q4 of 2023. 

On Hemel Hempstead, the Group drew down on a new £4 million loan facility in early July 2022. The Group's forecasts demonstrate a reasonable level of covenant headroom on the Loan to Value and Projected Interest Cover Ratio tests that are relevant to the new agreement.

All of the Group's asset backed loan facilities are ring-fenced within their own SPV structures with no recourse to Capital & Regional plc and no cross-default provisions. The Group continues to work with the lenders on its Luton loan facility on a disposal of the investment. While this is likely to realise less than the value of the net debt outstanding, due to the ring-fenced SPV structure, the net liability of Capital & Regional plc is effectively capped at nil.

1 Significant Accounting Policies (continued)

Going concern (continued)

In making its assessment of Going Concern, the Group has run updated forecasts on both a base case and downside basis. In the latter, the Group has sensitised rent collection to 90% collection, reduced car park and ancillary income by 10% and removed any contribution from Snozone to reflect how a downturn in expected trading, such as might be caused by a further wave of Government restrictions, could impact cashflows. The Group has also considered a 15% reduction in property valuations. The Group's headroom on The Mall and Hemel Hempstead is sufficient to withstand this level of decline. 

On Ilford, such a decline would breach the LTV covenant level however the cash earmarked for capital expenditure investment into the asset would be sufficient to theoretically cure although in such a scenario the Group would seek to agree with the lender to invest the funds to develop the asset. The same position applies in respect of the LTV condition that is required in order to trigger the 18-month extension to the loan's maturity. Ultimately given the ring-fenced nature of the loan facility if the Group decided not to cure any breach and could not agree a compromise with the lender it could, in extremis, effectively surrender the asset and not face any recourse to the Group. The Group's cashflow forecasts over the period considered for Going Concern purposes assume it is a net investor into Ilford to fund the masterplan initiatives and hence such a scenario would not reduce the amount of cash available to the Group.

In coming to its Going Concern conclusion, the Group has also considered, but not relied upon, other options available to generate or conserve additional cash, to reduce debt levels and to fund value accretive capital expenditure and letting initiatives. These include but are not limited to: the potential disposal of assets either in whole or part; the opportunity to reduce or suspend dividend payments (or offer a Scrip alternative); and the potential raising of additional funds.

Having due regard to all of the above matters and after making appropriate enquiries, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. Therefore, the Board continues to adopt the Going Concern basis in preparing the financial statements.

Operating segments

Following the reclassification of Hemel Hempstead and Luton as 'Held for Sale' as at 30 December 2021 the segment of Shopping Centres - Managed Assets that included those assets in the prior year is no longer relevant. As a consequence the Group's operating segments are now Shopping Centres, Snozone and Group/Central. Shopping Centres includes the results of the Group's centres at Ilford and Hemel Hempstead (from 11 April 2022 being the date an agreement to buy back its loan was reached) and those centres within The Mall loan facility, namely Blackburn (until it was sold on 9 August 2022), Maidstone, Walthamstow and Wood Green. The Group deconsolidated its interest in Luton on 20 May 2022 reflecting changes that took place on that date to constitution of the Luton entities including the appointment of an independent director with specific rights regarding the proposed sale process for the asset. 

Group/Central includes management fee income, Group overheads incurred by Capital & Regional plc, Capital & Regional Property Management and other subsidiaries and the interest expense on the Group's central borrowing facility.

The Shopping Centres segments derive their revenue from the rental of investment properties. The Snozone and Group/Central segments derive their revenue from the operation of indoor ski slopes and the management of property funds or schemes respectively. The split of revenue between these classifications satisfies the requirement of IFRS 8 to report revenues from different products and services. Depreciation and charges in respect of share-based payments represent the only significant non-cash expenses. Prior period comparatives have also been restated as a result.

Adjusted Profit

Adjusted Profit is the total of Contribution from wholly-owned assets, the profit from Snozone and property management fees less central costs (including interest, excluding non-cash charges in respect of share-based payments) after tax. Adjusted Profit excludes revaluation of properties, profit or loss on disposal of properties or investments, gains or losses on financial instruments and adjusting one-off items for example gains from debt repurchase. Results from Discontinued Operations are included in adjusted profit up until the point of disposal or reclassification as held for sale. Further detail on the use of Adjusted Profit and other Alternative Performance Measures is provided within the Financial Review.

Adjusted profit within Snozone is EBITDA. Snozone EBITDA is an alternative performance measure for the Snozone business. It excludes Depreciation, Amortisation, (notional) Interest, Tax and non-operational one-off items. It includes rent expense, based on contractual payments adjusted for rent free periods. This provides a measure of Snozone trading performance which removes the profiling impact of IFRS 16 that would otherwise see a significantly higher charge in early years of a lease and significantly lower net charge in later years.

A reconciliation of Adjusted Profit to the statutory result is provided in Note 2a and, on a per share basis, in Note 5, where EPRA earnings figures are also provided.

 2a Operating segments