CRC.L Regulatory News (CRC)

Circle Property Plc

 +44 (0)207 930 8503

John Arnold, CEO

Edward Olins, COO

Cenkos Securities

+44 (0) 207 397 8900

Katy Birkin 

Mark Connelly

Radnor Capital

+44 (0) 203 897 1830

Joshua Cryer

Iain Daly

Camarco

+44 (0) 203 757 4992

Ginny Pulbrook

Tom Huddart

Consolidated statement of comprehensive income

for the year ended 31 March 2020

Note

1 April 2019 to 31 March 2020

1 April 2018 to 31 March 2019

£

£

Rental income

4

7,497,212

6,878,912

Other income

4

2,116,400

1,429,681

9,613,612

8,308,593

Property expenses

5

(2,374,556)

(1,844,798)

7,239,056

6,463,795

Administrative expenses

6

(2,944,109)

(2,794,124)

Operating profit

4,294,947

3,669,671

Gain on disposal of investment properties

235,729

471,177

Gains on revaluation of investment properties

12

2,514,049

12,609,968

Operating profit after revaluation of investment properties and goodwill

7,044,725

16,750,816

Finance income

8

1,531

2,717

Finance costs

9

(1,885,340)

(1,507,471)

Net finance costs

(1,883,809)

(1,504,754)

Profit for the year before taxation

5,160,916

15,246,062

Taxation

10

(1,641,410)

(291,142)

Total comprehensive income and profit for the year

3,519,506

14,954,920

Earnings per share

0.12

0.53

There is no comprehensive income other than that included in the profit for the year. All of the profit for the year is attributable to the owners of the Company.

All items in the above statement derive from continuing operations.

Consolidated statement of financial position

As at 31 March 2020

Note

31 March 2020

31 March 2019

£

£

Non-current assets

Investment properties

12

129,340,408

115,320,178

Right of use assets

13

108,043

-

Property, plant and equipment

62,263

59,865

Lease incentives

14

9,562,066

8,310,903

Deferred tax asset

10

1,078,007

1,603,918

140,150,787

125,294,864

Current assets

Trade and other receivables

14

2,398,119

1,553,699

Cash and cash equivalents

15

2,980,329

3,650,372

5,378,448

5,204,071

Total assets

145,529,235

130,498,935

Equity

Stated capital

18

42,542,179

42,542,179

Treasury share reserve

516,048

(79,344)

Retained earnings

37,623,126

35,971,206

Total equity

80,681,353

78,434,041

Non-current liabilities

Loan borrowings

16

60,721,840

49,039,681

Lease liabilities for right of use assets

13

69,327

-

Deferred tax liability

10

877,401

-

61,668,568

49,039,681

Current liabilities

Trade and other payables

17

3,134,816

3,025,213

Lease liabilities for right of use assets

13

44,498

-

3,179,314

3,025,213

Total liabilities

64,847,882

52,064,894

Total liabilities and equity

145,529,235

130,498,935

The consolidated financial statements were approved and authorised for issue by the Board of Directors on 24 September 2020 and signed on its behalf by:

Michael Farrow

Director

Consolidated statement of changes in equity

for the year ended 31 March 2020

Sharecapital

Treasury sharecapital

Share based payment reserve

Retained earnings

Total

£

£

£

£

£

As at 1 April 2018

42,162,178

380,001

(257,487)

22,714,092

64,998,784

Profit for the year

-

-

-

14,954,920

14,954,920

Share-based payments

-

-

178,143

-

178,143

Dividends

-

-

-

(1,697,806)

(1,697,806)

As at 31 March 2019

42,162,178

380,001

(79,344)

35,971,206

78,434,041

Profit for the year

-

-

-

3,519,506

3,519,506

Share-based payments

-

-

595,392

-

595,392

Dividends

-

-

-

(1,867,586)

(1,867,586)

As at 31 March 2020

42,162,178

380,001

516,048

37,623,126

80,681,353

Consolidated statement of cash flows

for the year ended 31 March 2020

1 April 2019 to 31 March 2020

1 April 2018 to 31 March 2019

£

£

Cash flows from operating activities

Profit for the year before taxation

5,160,916

15,246,062

Adjustments for:

Finance income

(1,531)

(2,717)

Finance costs

1,885,340

1,507,471

Depreciation

11,744

13,296

Amortisation of right of use assets

47,005

-

Gains on revaluation of investment properties

(2,466,035)

(12,609,968)

Gains on disposal of investment properties

(235,729)

(471,177)

Share based payments

595,392

178,143

Increase in receivables

(2,095,583)

(1,521,566)

Increase in payables

(179,700)

961,902

Cash generated from operating activities

2,721,819

3,301,446

Interest paid

(1,510,806)

(1,459,030)

Interest received

1,531

2,717

Taxation paid

(189,154)

-

Net cash from operating activities

1,023,390

1,845,133

Cash flows from investing activities

Net proceeds from disposal of investment properties

6,135,729

2,228,749

Cost of refurbishment of investment properties

(1,977,597)

(1,006,634)

Cost of acquisition of investment property

(15,412,420)

-

Cost of additions of property, plant and equipment

(14,143)

(16,874)

Net cash from investing activities

(11,268,431)

1,205,241

Cash flows from financing activities

Repayment of borrowings

(2,530,000)

(49,358,932)

Drawdown of borrowings

14,023,944

49,016,953

Payment of lease liabilities

(51,360)

-

Dividends paid

(1,867,586)

(1,697,806)

Net cash used in financing activities

9,574,998

(2,039,785)

Net (decrease) / increase in cash and cash equivalents

(670,043)

1,010,589

Cash and cash equivalents at the beginning of the year

3,650,372

2,639,783

Cash and cash equivalents at the end of the year

2,980,329

3,650,372

Notes to the consolidated financial statements

for the year ended 31 March 2020

1

General information

These financial statements are for Circle Property Plc ("the Company") and its subsidiary undertakings (together referred to as the "Group"). Notes in respect of the Company's subsidiary undertakings are outlined in note 23.

The Company's shares are admitted to trading on AIM, a market operated by the London Stock Exchange plc. The Company is domiciled and registered in Jersey, Channel Islands. The address of its registered office is 3rd Floor, Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2 4SZ.

The nature of the Company's operations and its principal activities are that of commercial property investment in the UK.

2

Principal accounting policies

The Group financial statements show a true and fair view and have been prepared on a going concern basis and in accordance with International Financial Reporting Standards as adopted by the EU (IFRS) and the Companies (Jersey) Law 1991. The financial statements have been prepared in pound sterling, which is the Group's functional currency, and under the historic cost convention as modified by the revaluation of investment property.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's Statement on pages 6 and 7 of the 2020 Annual Report & Accounts. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in these financial statements. In addition note 22 to the financial statements includes the Group's financial management objectives, details of its financial instruments and its exposures to credit, liquidity and market risk. The Group's policy for managing capital is included in note 20.

The Directors have assessed the Group's ability to continue as a going concern, including an assessment of the potential impact of Covid-19. In making their assessment the Directors have modelled the Group's cash forecasts based on the circumstances of each tenant on an individual basis. Rental collections have been monitored on a weekly basis with ongoing communication with tenants in respect of the collection of rental arrears. Loan covenants have been stress tested taking into consideration a potential reduction in the valuation of the Group's property portfolio. In addition the Group's progressive dividend policy has been reviewed in order to maintain liquidity within the Group and the declaration of a final dividend for the year has been reduced accordingly.

Based on these considerations the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they have adopted the going concern basis in preparing the financial statements.

Basis of consolidation

The financial statements incorporate the financial statements of the Company and its subsidiaries, as outlined in note 23.

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has variable returns from, its involvement with the entity and has the ability to affect those returns through its power over the entity. Intragroup balances and any unrealised gains and losses arising from intragroup transactions are eliminated in preparing the Financial Statements.

The results of subsidiaries acquired during the year are included from the effective date of acquisition, being the date on which the Group obtains control. They are deconsolidated on the date that control ceases.

If the consideration transferred for the acquisition of a subsidiary is more than the fair value of the assets and liabilities acquired, the difference is recognised as goodwill and is written off directly in the Consolidated Statement of Comprehensive Income if there is no future economic benefit associated with the goodwill.

If the consideration transferred for the acquisition of a subsidiary is less than the fair value of the assets and liabilities acquired, the difference is recognised as negative goodwill and is reflected directly in the Consolidated Statement of Comprehensive Income.

Acquisition-related costs are expensed as incurred.

Adoption of new and revised IFRSs

New and amended standards and interpretations

The Group has adopted all new standards, amendments to standards and interpretations which came in to effect for the Group's accounting period starting on 1 April 2019. These changes have not had a significant impact on the preparation of these financial statements.

The Group adopted for the first time the following standard during the year:

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.

Transition

The Group has applied IFRS16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4. of adoption for IFRS 16 with no material impact on the Group results.

On initial application, the Group has elected to record right of use assets based on the corresponding lease liability. Right of use assets and lease obligations of £155,047 were recorded as of 1 April 2019, with no net impact on retained earnings. When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at 1 April 2019. The weighted-average rate applied is 2.852%.

Right of use assets

Right of use assets are the Group's right to use an asset over the life of asset lease. The asset is calculated as the initial amount of the lease liability, plus any lease payments made to the lessor before the lease commencement date, plus any initial direct costs incurred, minus any lease incentives received. Depreciation of a right-of-use asset is on a straight line basis over the term useful life of the asset lease.

Lease liabilities

The lease liability is initially measured at the present value of outstanding lease payments, discounted using the Group's incremental borrowing rate.

The lease liability is measured at amortised cost using the effective interest method and is remeasured when there is a change in future lease payments arising from a change in an index or rate or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. A corresponding adjustment is made to the carrying amount of the right-of use asset with any excess over the carrying amount of the asset being recognised in profit or loss. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

New Accounting Requirements not yet adopted

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

-

Amendments to IFRS 3 (Business Combinations) is effective for financial years commencing on or after 1 January 2020. The amendment relates to changes in the criteria for determining whether an acquisition is a business combination or an asset acquisition.

-

Amendments to IFRS 9 (Financial Instruments) is effective for financial years commencing on or after 1 January 2020. The amendments offer relief in meeting the criteria for hedge accounting on the transition from LIBOR to IBOR.

-

Amendments to References to the Conceptual Framework are effect for financial years commencing on or after 1 January 2020.

-

Amendments to IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors) are also effective for financial years commencing on or after 1 January 2020.

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. The Group does not intend to apply any of these pronouncements early.

Estimates and judgements

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenue and expenses during the period. The nature of the estimation means that actual outcomes could differ from those estimates. Estimates and judgements are continually evaluated and are based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised prospectively.

Significant estimates

Fair value of investment property

Investments in property are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date. The Directors employed professional valuers Savills (UK) Limited ("Savills") to perform valuations of the investment property using Royal Institute of Chartered Surveyors ("RICS") valuation standards as at 31 March 2020. In arriving at their estimate of market value the valuers used their market knowledge and professional judgement and did not rely solely on comparable historical transactions. There is an inherent degree of uncertainty when using professional judgement in estimating the market values of investment property.

Due to COVID-19 the 31 March 2020 valuation prepared by Savills is subject to the following material uncertainty disclosure:

Our valuation is reported on the basis of 'material valuation uncertainty' as per VPS 3 and VPGA 10 of the RICS RedBook Global. Consequently, less certainty, and a higher degree of caution, should be attached to our valuation than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market we recommend that the valuation of the properties are kept under frequent review.

The significant methods and assumptions used by the valuers in estimating the fair value of investment property are set out in note 12.

Significant judgements

Operating lease commitments - Group as lessor

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined that it retains all the significant risks and rewards of ownership of these properties and therefore accounts for them as operating leases.

Revenue recognition

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the lease. The term of the lease is the full lease period where there is a reasonable expectation at the inception of the lease that the tenant will not utilise the lease break clause. Lease incentives granted are spread evenly over the term of the lease with the lease incentive recognised as a receivable at the year end.

Deferred income

Where tenant invoices relate to a period after the Group's year-end deferred income is recognised for the difference between revenue recognised and amounts billed for that contract.

Property service charges

Service charges and other such receipts arising from expenses recharged to tenants are as stated in Notes 4 and 5. Notwithstanding that the funds are held on behalf of the occupiers, the ultimate risk for paying and recovering these costs rests with the Group.

In the prior year the Group had considered that it was acting in the capacity of an agent in respect of service charge collection and therefore service charges receivable from tenants and the related costs were not recognised by the Group. Following a reassessment in the year, the Group now considers itself to be acting as principal and the amounts recharged to tenants and the related costs have been represented for the prior year in Notes 4 and 5. This change has no net impact on the 2019 total comprehensive income and profit for the year or the Group's total and net assets as at the 31 March 2019.

Administrative fees, listing costs and other expenses

Administrative and other expenses are recognised in profit or loss in the period in which they are incurred.

Finance income and finance costs

Finance income comprises bank interest income. Finance costs predominantly comprises of interest expense on borrowings. Finance income and finance costs are recognised on an effective interest rate basis.

Investment property

Property that is held for long-term rental yields or for capital appreciation or both, is classified as investment property in accordance with IAS 40 'Investment Property'.

Investment properties, including properties under development, are initially recognised at cost, being the fair value of consideration given, including associated transaction costs. Any subsequent qualifying capital expenditure incurred in improving investment properties is capitalised in the period in which the expenditure is incurred and included in the book cost of the properties.

After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised the consolidated statement of comprehensive income. The fair value is based on valuations provided by Savills at the balance sheet date using recognised valuation techniques.

An investment property shall be derecognised on disposal or at a time that no benefit is expected from future use or disposal. Any gain or loss is determined as the difference between the net disposal proceeds and the carrying amount and is recognised in the statement of comprehensive income.

Recognition and derecognition occurs on the completion of a sale between a willing buyer and a willing seller. Any investment properties on which contracts for sale have been exchanged but which had not completed at the year end are disclosed as properties held for sale and stated at fair value. At 31 March 2020 and 31 March 2019 there were no properties classified as held for sale.

In accordance with IAS 40 'Investment Property' property that is being constructed or developed for future use as investment property is classified as investment property during its construction or development. At 31 March 2020 and 31 March 2019 there were no properties under construction or development.

Technique used for valuing investment properties

The traditional method converts anticipated future cash flow benefits in the form of rental income into present value. This approach requires careful estimation of future benefits and application of investor yield or return requirements. One approach to value the property on this basis is to capitalise net rental income on the basis of an Initial Yield, generally referred to as the 'All Risks Yield' approach or 'Net Initial Yield' approach.

These fair values are based on comparable market prices where possible, adjusted if necessary, for any difference in the nature, location or condition of the specific assets and factors not included in net rental income such as vacancies and lease incentives.

The fair value of investment properties is measured based on each property's highest and best use from a market participant's perspective and considers the potential uses of the property that are physically possible, legally permissible and financially feasible.

Operating leases

Properties leased out under operating leases, where the Group is the lessor, are included in investment property in the consolidated statement of financial position. Please refer to revenue recognition for the discussion of recognition of rental income.

Financial instruments

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of 3 months or less. These are carried at cost, which in the opinion of the Directors is a reasonable approximation of fair value.

Trade and other receivables

Trade and other receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, trade and other and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Trade and other receivables are derecognised where the rights to receive cash flows have expired and substantially all risks and rewards of the asset have been transferred.

Trade and other payables

Trade and other payables are not interest bearing and are recognised initially at fair value. Subsequent to initial recognition trade and other payables are measured at amortised cost which approximates their fair value.

Loan borrowings

Loan borrowings are recorded initially at fair value, net of direct issue costs incurred. Loan borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised, within finance costs, in the statement of comprehensive income over the term of the borrowings using the effective interest rate method.

The Group derecognises a financial liability when the obligation under the liability is discharged, cancelled or expired.

Impairment

The Group recognises expected credit loss ("ECL") on financial assets measured at amortised cost. The Group measures loss allowance as an amount equal to the lifetime ECL, except for bank balances for which credit risk (i.e. risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

An impairment loss is calculated as the difference between an asset's carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss.

Taxation

The Company, Circle Property Unit Trust ("CPUT") and Circle Property (Milton Keynes) Limited ("CPMK") are registered in Jersey, Channel Islands. The Company and CPMK are taxed at the Jersey company standard rate of 0%. CPUT is not subject to tax in Jersey.

The Company is registered under the Non-Resident Landlord Scheme and is liable to United Kingdom taxation at a rate of 20% on net rental income from its investment properties.

The Finance (No 3) Bill published in November 2018 set out a number of significant changes to the taxation of UK real estate which came into effect in 2019 and 2020. Capital gains arising on the disposal of UK commercial property held in non-UK resident structures were previously exempt from tax. Following the implementation of the Finance (No 3) Bill UK corporation tax is applicable to all gains arising on UK commercial property from 6 April 2019 and from April 2020 non-resident corporate landlords are subject to UK corporation tax rather than income tax. On 24 March 2020 CPUT made a transparency election under paragraph 8 of Schedule 5AAA TCGA with the effect of property disposals being taxed on the Company and chargeable to UK corporation tax by reference to the higher of the April 2019 valuation or historic cost.

Deferred taxation

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in profit or loss, except when it relates to items charged or credited directly to other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

Share capital

Ordinary share capital is classified as equity. Dividends are recognised as a liability in the year in which they are approved.

Treasury shares

Treasury shares are ordinary shares of the Company held for the purpose of awarding shares in the Circle Property 2016 Long Term Incentive Plan ("LTIP"). The shares are recorded at cost and are deducted from equity.

Share based payments

The Group has applied the requirements of IFRS 2 Share-Based Payment to share options granted under the LTIP. The fair value of the share options are determined at the grant date and are expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost.

3

Operating segments

The Group has adopted IFRS 8 "Operating segments" which requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker ("CODM") to allocate resources to the segments and to assess their performance. For the purposes of IFRS 8 the CODM takes the form of the two executive Directors of the Company. The financial information used for decision making purposes is based on the Group's financial statements.

The CODM considers that there is only one geographical segment, which is the United Kingdom, and one reporting segment, which is investment in commercial property. Therefore no segmental reporting is required.

4

Revenue

1 April 2019 to 31 March 2020

1 April 2018 to 31 March 2019

£

£

Rental income

6,715,456

6,390,514

Lease incentives adjustment

781,756

488,398

7,497,212

6,878,912

Service charge income

1,697,533

1,205,358

Insurance recovery

144,874

130,323

Other income

273,993

94,000

9,613,612

8,308,593

5

Property expenses

1 April 2019 to 31 March 2020

1 April 2018 to 31 March 2019

£

£

Void property service charges

246,737

271,493

Void property rates

175,700

118,037

Other void property costs

28,331

76,229

Property repairs and maintenance costs

59,260

24,788

Property insurance

166,995

148,893

Recoverable service charge costs

1,697,533

1,205,358

2,374,556

1,844,798

6

Administrative expenses

1 April 2019 to 31 March 2020

1 April 2018 to 31 March 2019

Note

£

£

Staff costs

7

1,593,790

1,403,844

Administration and accountancy fees

305,250

321,013

Legal and professional fees

749,233

788,994

Audit fees

62,673

57,084

Accountancy fees

7,778

7,164

Rent, rates and other office costs

26,334

68,521

Other overheads

140,302

134,208

Depreciation of tangible fixed assets

11,744

13,296

Amortisation of right of use assets

47,005

-

2,944,109

2,794,124

7

Employees and Directors' Remuneration

1 April 2019 to 31 March 2020

1 April 2018 to 31 March 2019

£

£

Staff costs during the year were as follows:

Non-executive directors' fees

166,563

180,000

Wages and salaries

648,090

838,475

Share-based payments

595,392

178,143

National insurance costs

104,435

131,580

Pension contributions

37,911

36,850

Other employment costs

41,399

38,796

1,593,790

1,403,844

8

Finance income

1 April 2019 to 31 March 2020

1 April 2018 to 31 March 2019

£

£

Bank interest

1,531

2,717

1,531

2,717

9

Finance costs

1 April 2019 to 31 March 2020

1 April 2018 to 31 March 2019

£

£