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

Azhic Basirov

Katy Birkin 

Radnor Capital

+44 (0) 203 897 1830

Joshua Cryer

Iain Daly

Camarco

+44 (0) 203 757 4980

Ginny Pulbrook

Tom Huddart

Circle Property Plc

Consolidated statement of comprehensive income

for the year ended 31 March 2019

Note

1 April 2018 to 31 March 2019

1 April 2017 to 31 March 2018

£

£

Rental income

4

6,878,912

6,211,820

Other income

4

224,323

142,585

7,103,235

6,354,405

Property expenses

5

(639,440)

(831,189)

6,463,795

5,523,216

Administrative expenses

6

(2,794,124)

(2,368,220)

Operating profit

3,669,671

3,154,996

Gain on disposal of investment properties

471,177

1,497

Gains on revaluation of investment properties

12

12,609,968

11,980,810

Operating profit after revaluation of investment properties and goodwill

16,750,816

15,137,303

Finance income

8

2,717

3,620

Finance costs

9

(1,507,471)

(1,149,720)

Net finance costs

(1,504,754)

(1,146,100)

Profit for the year before taxation

15,246,062

13,991,203

Taxation

10

(291,142)

534,864

Total comprehensive income and profit for the year

14,954,920

14,526,067

Earnings per share

0.53

0.51

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.

The Company's loss for the year (non-consolidated) was £1,774,702 (2018: loss £646,617).

Circle Property Plc

Consolidated statement of financial position

As at 31 March 2019

Note

31 March 2019

31 March 2018

£

£

Non-current assets

Investment properties

12

115,320,178

106,372,636

Property, plant and equipment

59,865

56,287

Trade and other receivables

13

8,310,903

7,201,845

Deferred tax

10

1,603,918

1,727,959

125,294,864

115,358,727

Current assets

Trade and other receivables

13

1,553,699

1,141,191

Cash and cash equivalents

14

3,650,372

2,639,783

5,204,071

3,780,974

Total assets

130,498,935

119,139,701

Equity

Stated capital

17

42,542,179

42,542,179

Treasury share reserve

(79,344)

(257,487)

Retained earnings

35,971,206

22,714,092

Total equity

78,434,041

64,998,784

Non-current liabilities

Loan borrowings

15

49,039,681

51,815,616

49,039,681

51,815,616

Current liabilities

Trade and other payables

16

3,025,213

2,325,301

3,025,213

2,325,301

Total liabilities

52,064,894

54,140,917

Total liabilities and equity

130,498,935

119,139,701

The consolidated financial statements were approved and authorised for issue by the Board of Directors on 9 July 2019 and signed on its behalf by:

Michael Farrow

Director

Circle Property Plc

Consolidated statement of changes in equity

for the year ended 31 March 2019

Share capital

Treasury share capital

Treasury shares reserve

Retained earnings

Total

£

£

£

£

£

As at 1 April 2017

42,162,178

380,001

(380,001)

9,659,457

51,821,635

Profit for the year

-

-

-

14,526,067

14,526,067

Share-based payments

-

-

122,514

-

122,514

Dividends

-

-

-

(1,471,432)

(1,471,432)

As at 31 March 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

Circle Property Plc

Consolidated statement of cash flows

for the year ended 31 March 2019

1 April 2018 to 31 March 2019

1 April 2017 to 31 March 2018

£

£

Cash flows from operating activities

Profit for the year before taxation

15,246,062

13,991,203

Adjustments for:

Finance income

(2,717)

(3,620)

Finance costs

1,507,471

1,149,720

Depreciation

13,296

7,405

Gains on revaluation of investment properties

(12,609,968)

(11,980,810)

Gains on disposal of investment properties

(471,177)

(1,497)

Share based payments

178,143

122,514

Fair value movement on interest rate swaps

-

710

Increase in trade and other receivables

(1,521,566)

(293,097)

Increase in trade and other payables

961,902

141,050

Cash generated from operating activities

3,301,446

3,133,578

Interest paid

(1,459,030)

(1,072,403)

Interest received

2,717

3,620

Net cash from operating activities

1,845,133

2,064,795

Cash flows from investing activities

Net proceeds from disposal of investment properties

2,228,749

1,497

Cost of refurbishment of investment properties

(1,006,634)

(4,528,703)

Cost of acquisition of investment property

-

(4,466,652)

Cost of additions of property, plant and equipment

(16,874)

(34,534)

Net cash from investing activities

1,205,241

(9,028,392)

Cash flows from financing activities

Repayment of borrowings

(49,358,932)

-

Drawdown of borrowings

49,016,953

6,181,005

Dividends paid

(1,697,806)

(1,471,432)

Net cash used in financing activities

(2,039,785)

4,709,573

Net increase / (decrease) in cash and cash equivalents

1,010,589

(2,254,024)

Cash and cash equivalents at the beginning of the year

2,639,783

4,893,807

Cash and cash equivalents at the end of the year

3,650,372

2,639,783

Circle Property Plc

Notes to the consolidated financial statements

for the year ended 31 March 2019

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 21.

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 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 and derivative financial instruments which are measured at fair value.

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. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in these financial statements. In addition, note 20 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 18.

The Group has adequate financial resources together with long term rental contracts with a wide range of tenants. As a consequence, the Directors believe that the Group is well placed to manage its business risks.

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 and business combinations

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries, as outlined in note 21.

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 Consolidated 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 2018. These changes have not had a significant impact on the preparation of these financial statements.

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

IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities and replaces most of the guidance in IAS 39.

IFRS 9 requires financial assets to be classified into the following measurement categories: (i) those measured at fair value through profit or loss; (ii) those measured at fair value through other comprehensive income; and, (iii) those measured at amortised cost. The determination is made at initial recognition. Unless the option to designate a financial asset as measured at fair value through profit or loss is applicable, the classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.

IFRS 9 also replaces the "incurred loss" model in IAS 39 with an "expected credit loss" model for the measurement of impairment loss. The new model applies to financial assets that are not measured at fair value through profit or loss.

For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch.

In the Directors' opinion IFRS 9 does not have material impact on the recognition, measurement or disclosures relating to its financial instruments.

IFRS 15, 'Revenue from contracts with customers'

IFRS 15 is a new standard that introduces the following requirements:

• A five-step model is applied to determine when to recognise revenue, and at what amount.

• Revenue is recognised when (or as) a company transfers control of goods or services to a customer at the amount to which the company expects to be entitled.

• Depending on whether certain criteria are met, revenue is recognised either over time, in a manner that best reflects the company's performance, or at a point in time, when control of the goods or services is transferred to the customer.

In the Directors' opinion, adoption of IFRS 15 had no material impact on the recognition, measurement or disclosures relating to its financial statements, as the only contracts are leases with tenants, which are out of scope of the new standard.

New Accounting Requirements not yet adopted

A number of new standards and amendments to standards and interpretations will become effective for future accounting periods and have not been applied in preparing these consolidated financial statements. The most significant changes are noted below. Other changes are not expected to have a significant impact on the Group.

IFRS 16, 'Leases' was issued in January 2016. For lessees, it will result in almost all leases being recognised on the statement of financial position, as the distinction between operating and finance leases will be removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low value leases. The accounting for lessors will not significantly change. The standard is effective for annual periods beginning on or after 1 January 2019 and earlier application is permitted. In the Directors' opinion, IFRS 16 will have no material impact on the recognition, measurement or disclosures in the Group's financial statements.

IFRIC 23 "Uncertainty over income tax treatments" clarifies application and measurement requirements in IAS 12 Income taxes when there is uncertainty over income tax treatments. IRFIC 23 will be effective for annual periods beginning on or after 1 January 2019 and may be applicable to the Group.

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 and property-related assets 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 to perform valuations of the investment property using Royal Institute of Chartered Surveyors ("RICS") valuation standards as at 31 March 2019. 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.

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.

Property service charges

The properties' tenants bear the service charge costs under the terms of their lease and therefore the Group considers that it is acting in the capacity of an agent. Service charges receivable from tenants and related costs are not recognised by the Group. Service charge costs in relation to void areas are recognised within property expenses on an accruals basis.

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 comprise 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 in profit or loss in the consolidated statement of comprehensive income. The fair value is based on valuations provided by Savills (UK) Limited 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 profit or loss in the consolidated 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 2019 and 31 March 2018 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 2019 and 31 March 2018 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.

The 'Brexit' process initiated in 2017 consequent to the 2016 referendum, by which the United Kingdom is due to leave the European Union, continues to create economic and other uncertainties about both the process and its consequences which are risks that affect the real estate industry, particularly market values of investment property which are reliant on a pool of investors and availability of financing. Although there is no evidence to 31 March 2019 that Brexit has adversely affected the Group's activities, as the exit date approaches, and the lack of a "Brexit deal" to date, the uncertainty in relation to the impact on the UK and EU economies as a result of a no deal Brexit increases and this may impact the valuation of the Group's investment.

Brexit is one of a number of market factors which the independent valuers have taken into consideration in determining their valuations. The valuations are not qualified with regard to Brexit. The Company has 54 tenants with varying degrees of exposure to Brexit. The Board has considered reasonable sensitivities, including potential falls in property valuations arising from, inter alia, Brexit, including that it will remain a going concern for a period of not less than twelve months from the date of the approval of the financial statements.

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

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. 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 payables are not interest bearing and are recognised initially at fair value. Subsequent to initial recognition trade and other payables are measured at amortised costs 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 income statement 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.

Derivative financial instruments

The Group uses derivative financial instruments to hedge its risk associated with interest rate fluctuations. The Group's policy is not to trade in derivative instruments. The Group does not apply hedge accounting.

Recognition of the derivative financial instruments takes place on the date at which a derivative contract is entered into. Such derivative financial instruments are measured initially and subsequently at fair value; transaction costs are included as incurred in the statement of comprehensive income under finance costs. Gains or losses on derivatives are recognised in the statement of comprehensive income in net gain or loss from financial instruments at fair value through profit or loss. Interest expenses on derivative financial liabilities are included as incurred in the statement of comprehensive income in finance costs.

Impairment