3 Apr 2019 07:02
Urban Exposure plc (UEX) Financial results for the period from 10 April 2018 (incorporation) to 31 December 2018 03-Apr-2019 / 07:00 GMT/BST Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. 3rd April 2019 Urban Exposure Plc
Solid start to a new growth phase Financial results for the period from 10 April 2018 (incorporation) to 31 December 2018 Urban Exposure Plc ("the Company") and its subsidiaries (together "the Group" or "Urban Exposure" or "we"), a specialist residential development financier and asset manager, today announces its audited Group financial results for the period from 10 April 2018 (the date of incorporation) to 31 December 2018 ("the Period"), following its admission to AIM on 9 May 2018 ("IPO" or "Admission"). The Group's financial year ends on 31 December each year. These results are being published in accordance with AIM Rule 19. Business Highlights Funding of £525 million was committed across 16 loans during the Period. The Group closed its first managed account, a partnership agreement with Kohlberg Kravis Roberts ("KKR") with exclusivity, and with a value of £165 million (of which the Group has committed to invest up to £15 million). The Group closed its first discretionary senior secure debt facility with UBS into the KKR partnership with a value of up to £165 million, increasing the lending capacity of the partnership to £330 million. Overall third-party Assets Under Management ("AUM") raised for the first eight months of operation totalled £371 million (excluding IPO proceeds).Financial Highlights Income for the Period was £3.9 million Operating loss for the Period before exceptional items was £1.1 million and the total loss for the Period was £1.7 million, including exceptional costs of £0.9 million and share-based expenses of £0.5 millionOperating costs before exceptional items were £5.0 million, representing 0.81% of total committed loans Dividend per share: 2.5p proposed final dividend of 1.67 pence per share (interim dividend of 0.83 pence per share) Basic loss per share: (1.18)p Adjusted loss per share*: (0.58)p Net asset value: £151m Net asset value per share: 95p
Operational Highlights New committed loans:£525m Deployed by the Group:£93m Projected aggregate income (on loan book over life of loans):£69m Projected aggregate income (the Group's share, on loan book over life of loans):£27m Guaranteed minimum income (on loan book over life of loans):£43m Guaranteed minimum income (the Group's share, on loan book over life of loans):£15m Weighted average LTGDV:67%Weighted average IRR (unlevered):10%*: Adjusted loss per share is the basic loss per share adjusted to exclude exceptional items of £0.9m (being £0.6m costs related to the IPO and £0.3m exceptional professional costs)
Randeesh Sandhu, Chief Executive Officer, commented: "In what has been a transformational year for the Group, we have made good progress towards achieving the long-term business plan set out at IPO. We have successfully provided facilities totalling £525m in less than eight months on competitive, flexible finance terms to some of the most highly regarded SME developers operating in the UK today. We have generated higher than expected projected aggregate income despite being uncompromising in maintaining the high level of credit quality on our loan book. "We have expanded and developed our asset management activities to increase the funds available for deployment, raising £371m of new capital in the Period, making great strides in building on our existing relationships. We also have a substantial live pipeline of £670m potential new loan transactions. "If ambitious government targets to build 300k new homes every year are to be realised, we estimate there is a lending opportunity of £394 billion over the next decade across the UK. Of this, the 'funding gap' equates to £237 billion of development finance opportunities. The very significant scale of this shortfall gives us confidence that, using our unique set of resources and expertise, we will be able to build our market share achieving revenue growth, profitability and long-term shareholder value." A copy of the Report will shortly be available on the Company's website at www.urbanexposureplc.com and hard copies will be sent to shareholders in due course. Enquiries:
This announcement is released by Urban Exposure Plc and contains information that qualified or may have qualified as inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 ("MAR"). For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is made by Randeesh Sandhu, Chief Executive Officer of Urban Exposure Plc. Notes to Editors Urban Exposure plc is a specialist residential development finance and asset manager that has been formed to provide finance for UK real estate development. The Group focuses on generating interest and fees from originating loans on its balance sheet, before moving the loans into asset management structures, from which origination and management fee income is generated from institutional investors. The Group therefore services two types of customer: borrowers and capital providers. For additional information, please visit Urban Exposure's website: www.urbanexposureplc.com and on twitter @UrbanExposureuk, LinkedIn: www.linkedin.com/company/urban-exposure/ and Facebook: www.facebook.com/UrbanExposureUK/
CEO'S REVIEW 2018 was a transformational year for the Group, during which we joined the AIM market. We have made a solid start to this new phase for the Group and laid firm foundations for the coming years. Trading and Dividend The reported loss of £1.7m covers a period of less than eight months. Overall, we have made solid progress, with a total of £525m in committed loans and £371m in new capital available through our partnership arrangements. Gross projected aggregate income on the loan book as a whole is £69m (with just under £43m as the guaranteed minimum amount). Our share of the projected aggregate income is £27 million, which will eventually translate to earnings in the financial statements over the life of the loans. Our share of the minimum income is £15 million. The weighted average LTGDV on the loan book is 67% and the weighted average IRR is 10% (unlevered), demonstrating excellent credit quality whilst delivering a strong IRR. While the raising of capital must occur alongside the commitment of new loans, the two are still distinct business activities and the business will one day manage capital in excess of its committed loan book. The Group 'warehouses' loans until capital raised via asset management strategies matches loan commitments. We call this period, estimated to be two to three years following the IPO, the 'ramp-up' period. Over time, as the assets under management grow, the Group will have the ability to grow its loan book without having to warehouse each loan temporarily. I will refer to this stage as the "steady state". The premium earnings multiple that asset managers' share prices trade at typically, as opposed to balance sheet lenders who often trade at a multiple of book value, shows that the market recognises and values this as higher quality earnings. Initially, given the time it can take to deploy capital into committed loans, we will value the business using a combination of both NAV and earnings. After the 'ramp-up' period, this valuation approach should gradually transition away from NAV towards earnings as the key measure. Key achievements For the Group, the eight months to 31 December have been full of significant milestones. Whilst the business today makes a loss, looking at this in isolation fails to paint a true picture of the business's achievements in 2018, some of which were exceptional. Shortly after the IPO, in July 2018, the Company entered into a partnership with KKR, with an initial size of £165m. A partnership with such an industry behemoth involved KKR undertaking a considerable degree of diligence on the Company, the competition and the sector. This is a clear demonstration of our profile and calibre, the size of the market opportunity and the extent of investor appetite in the sector. In December 2018, the partnership closed a first-of-its-kind, blind-pool discretionary loan-on-loan funding line with UBS, which provided the Group with a £165m facility on a portfolio basis. Additionally, the Group also secured an additional loan-on-loan funding line from Aviva Investors for a single loan within the partnership structure. The combined firepower of the KKR and UBS venture therefore currently provides circa £363m of development lending available to the Group. The Group also syndicated loans to other financial institutions during the Period. The total lending capacity raised in 2018 was £371m. The various relationships secured with high calibre investment partners will of course improve our routes to market, demonstrating our growing market stature improving and in turn, the quality of our capital base. These relationships also allow us to leverage our partners' market standing and experience, by, for example, securing more favourable terms on facilities utilised to enhance returns. Capital raising We have a strong institutional investor network and deep-rooted relationships from the management team's 16 years in the industry, initially as principal developers and then, after the global financial crisis, as a non-bank, specialist development finance lender in the UK. The nature of the asset class, and the technical expertise required in underwriting and managing development loans, requires a specialist team to operate in the space. The Group's platform provides institutional investors with the ideal opportunity to gain exposure to the sector with the benefit of our robust mitigation of various risks alongside return protection mechanisms, demonstrated by our lending and asset management track record. Investor appetite and capital inflows into the sector are strong and demonstrable through our market partnerships announced in 2018, from large private equity funds and financial institutions to development finance providers. Asset management opportunities are prioritised on the basis of i) increasing the Group's capacity to lend with sufficient operational flexibility to allow us to transact on loans in a timely manner; ii) being secured at rates which are sufficiently competitive to enable us to deploy the funds effectively into the marketplace; (iii) being accretive to our total returns. Managing discretionary pools of capital, both public and private, as well as raising additional managed accounts and loan-on-loan debt lines, achieves these objectives for the Group. Loan credit quality At 31 December 2018, the Group had executed 16 loans with commitments totalling £525m with some of the most highly regarded and experienced real estate developers in the UK, including the Galliard Group, Mace Group and Strawberry Star. Our ability to approach loan structuring with a solutions-based focus, incorporating flexibility and ingenuity, has seen a marked increase in the quality of enquiries from both the developer and broker communities. We employ robust credit guidelines, rigorous deal appraisal and stringent policies and procedures to mitigate market risk in our lending and operations. The Group has pursued a strategy of geographical diversification, executing funding in regional cities such as Birmingham and Manchester. Residential developments in certain regional locations appeal to the domestic owner-occupier market as well as the investor market and, whilst affordability in London remains challenging, these locations offer relatively affordable accommodation and are supported by strong demand-side factors. The Group negotiates levels of pre-sales prior to initial drawdown of particular loans. Demand at many schemes is strong, and our stringent pre-sale requirements are often surpassed, both in terms of sales velocity and prices achieved. An increased quality of counterparty often results in lower leverage requirements due to higher equity contributions from borrowers. Lower leverage doesn't just reduce lender risk through the larger equity buffer, it also disproportionately diminishes the construction risk. The majority of the build risk is typically within the ground and, in the very early stages of construction, more cash equity up front from the developer means this risk can be significantly reduced prior to the Group advancing any funds. Our loan book exhibits this at a number of projects. We also seek to mitigate cost overrun risk through a combination of fixed price contracts, performance bonds and guarantees from appropriately capitalised entities. The corollary to securing higher levels of equity up front from the borrower is that the Group defers its own income due to loan drawdowns occurring later. However, we protect against this risk, including the risk of early prepayment, through Minimum Income Clauses in our loan contracts. This allows us to lend against highly de-risked assets, knowing that a minimum level of income will still be received regardless of the final drawdown profile. Investing for the future As we commence 2019, the increased operational budget includes nine additional employees, larger office space to accommodate the growing team, and investment in the technological automation of the business. At 0.81% of the c. £620m of total committed loan book, we are comfortable this represents a good investment for the Group and should generate a strong ROE within three years. We continue to focus on seeking benefits for our customers through digitising our business processes, providing our clients with an online interface to manage their dealings with us. This project will also improve internal efficiencies through streamlining the origination, underwriting, management and syndication of existing loans, and the servicing of asset management relationships. Market outlook We constantly monitor the macro economic and political environment in the UK, the housing market, and the capital markets. The outlook remains positive in the medium term, despite the uncertainties associated with the UK's exit path from the European Union. Looking forward In 2019, our strategy is to build on the positive foundations laid in 2018, to service our borrower clients through competitively priced and modestly geared loans, and to continue to raise deep and diverse pools of institutional capital to finance these loans by servicing the needs of our capital providers. The Group enters 2019 with a substantial live pipeline of new loan transactions and ongoing asset management relationships, some of which are of considerable size and calibre. We are focused on ensuring the growth in our loan book and assets under management will translate into profit and total shareholder return over the medium term. We continue to recognise that our business is, and always will be, a work in progress, constantly growing and refining itself as we strive to achieve our vision. 2019 is going to be an exciting year for us as we continue to build on what we do best, and what we can do better.
Randeesh Sandhu Chief Executive Officer
Finance Review Since the IPO, the Group has made good progress in the development of the asset management business, although this is not yet reflected in the reported earnings. Overview The Group's operating loss before exceptional items was £1.1m, and total reported loss after tax was £1.7m. This was primarily driven by the Group's strategic objective to grow its asset management business, with a focus on building a sustainable platform with predictable and recurring income streams, profitability and therefore total shareholder return, at the expense of short-term profits. A high-quality loan book, with more equity from developers and consequently slower drawdown of funds, also had an adverse impact on short-term income. The projected aggregate income generated by the existing loan book is in line with expectations and the Group expects to expand its lending capacity through its fund-raising activities. The reported loss includes exceptional one-off costs of £0.9m and share-based expenses of £0.5m. The headline financial results for the period from 10 April 2018 to 31 December 2018 are presented in this Finance Review. Income recognition In furtherance of the Group's strategic objective to grow its asset management business, the loans originated by the Group are sold or syndicated to third parties, which delays the recognition of income. All loans and investments in partnership vehicles are accounted for on a fair value basis under the requirements of IFRS 9. The structure of our business model is such that loans are typically on balance sheet at origination but are thereafter transferred into an asset management structure, whilst maintaining a portion of the capital commitment. This structure allows the Group to continue its participation in the loans by virtue of its co-investment, and to free up capital to originate new loans to borrowers. Each loan originated by the Group includes a Minimum Income Clause ('MIC'). MICs set a floor on the income from each loan originated by the Group, regardless of the drawdown profile or an early refinancing of the debt. Projected aggregate income from each loan represents all interest and other connected revenue streams earned over the life of the loan and always exceeds the level of any MIC. Income
Capital
Income that is generated from capital committed by the Group (before subsequently being transferred to the asset management business) or from asset management fees can only be recognised once committed loans are drawn down. If there is a delay in the drawdown of loans by a developer, due for example to the developer committing more equity to the development, there will be a delay in the recognition of income in the income statement. Income recognised in the Period is therefore lower than expected due to some loans being drawn down later than forecast. The total projected aggregate income due to the Group is £27m. This projected aggregate income will be recognised in the income statement over the life of the loans. Our forecast earnings profile for this income is:
Going forward, as the Group grows its AUM and the time between closing a loan and moving it into an asset management structure is accelerated, the forecast earnings for new loans is more likely to adopt the following profile:
This can be applied to new loans originated in 2019 and onwards. In 2019, the Group expects to commit to new lending of between £700-900 million. This would result in additional projected aggregate income of £32-42 million. Financing During the Period, the Group raised a total of £371m of third-party funds, mainly from its first managed account, a partnership agreement with Kohlberg Kravis Roberts (£150m excluding the Group's investment of £15m) plus an associated loan-on-loan credit line from UBS which will facilitate up to an additional £165m of lending. The commercial terms of asset management fees and performance fees agreed in connection with this are in line with the business plan. The performance fees will crystallise at the end of the agreement's life, once each of the loans is fully redeemed. Operating costs The Group has invested significantly in its inaugural Period, with higher than expected operating costs amounting to £5m (excluding exceptional costs of £0.9m). The key area of investment during this 'ramp-up' period was additional resource, with staff numbers increasing from 16 to 25 since IPO. Salaries and benefits (including bonus provisions) totalled £3.1m, with £0.5m of share-based expenses, relating to the costs of the Long-Term Incentive Plan. Although costs are higher than previously expected, they should be seen in the context of the size of the total committed loan book, with the cost base representing just 0.81% of the loan book. In 2019, in line with investing in the growth of the business during the 'ramp-up' phase, the Group envisages total operating costs to be approximately £12.5 million. Exceptional items Exceptional items relate to costs incurred in relation to the IPO amounting to £0.6m plus one-off professional fees of £0.3m. Earnings per share Basic loss per share for the Period is 1.18p and adjusted loss per share (after exceptional costs) is 0.58p, based on a weighted average number of shares of 145,793,865. Dividends In accordance with our dividend policy: the Board approved a total dividend for the Period ended 31 December 2018 of 2.5p per Ordinary Share one third was paid as an interim dividend which was declared on 17 December 2018 at 0.83p per Ordinary Share the balance of 1.67p per Ordinary Share is expected to be declared as a final dividend for the period ended 31 December 2018 at the Group's AGM a dividend of 5.0p per Ordinary Share is expected for 2019 The Group will have a progressive dividend policy thereafter.
Investments In the Period, £2m was invested in the partnership with Kohlberg Kravis Roberts (KKR), being the Group's 9.1% share of £21.4m total invested by the partners. This was primarily to fund loan drawdowns, and the Group will earn asset management fees on its share of these drawdowns. The investment is accounted for at fair value through profit and loss. Shares At year end, there were 165,000,000 ordinary shares issued, including 6,505,870 Ordinary Shares held in treasury, which were purchased by the Company on 14 November 2018. Tangible assets Group capital expenditure was £0.4m, invested predominantly in new office premises. Loans receivable The fair value of loans as at 31 December 2018 was £89.5m. These are held on the balance sheet with the intention of being transferred to third-party management structures, thereby growing asset management revenues and freeing up capital to deploy into new committed loans. Cash flow Operating cash outflows before movement in working capital of £1.4m reflect the loss for the period less net adjustments for non-cash items. The large working capital movement of £89.5m reflects the increase in receivables, being predominantly the deployment of cash into loans. After investment and financing activities (described above and including £6.7m of share issue costs), the net increase in cash and cash equivalents was £46.8m.
Trevor DaCosta Finance Director
Consolidated statement of comprehensive income for the Period from 10 April 2018 to 31 December 2018
All activities derive from the continuing operations of the Group.
There are no comparatives as the Company was incorporated on 10 April 2018. The notes form an integral part of this financial Information.
Consolidated statement of financial positionas at 31 December 2018
There are no comparatives as the Company was incorporated on 10 April 2018. The Company Registration Number is 11302859. The notes form an integral part of this Financial Information.
Consolidated statement of changes in equity
for the Period from 10 April 2018 to 31 December 2018
There are no comparatives as the Company was incorporated on 10 April 2018.
Consolidated cash flow statement
for the Period from 10 April 2018 to 31 December 2018
There are no comparatives as the Company was incorporated on 10 April 2018.
Notes to the consolidated financial information
for the Period from 10 April 2018 to 31 December 2018 1. General information and basis of preparation
General information Urban Exposure 1 Plc was incorporated on 10 April 2018 as a public limited Company in England and Wales with Company registration number 11302859. The Company changed its name to Urban Exposure Plc on 27 April 2018 and its Ordinary Shares were admitted to trading on the Alternative Investment Market ('AIM'), operated by the London Stock Exchange, on 9 May 2018.
The registered office of the Company is 6 Duke Street, St. James's, London SW1Y 6BN. The Group's principal activity is the underwriting and management of loans to UK residential developers.
The financial information set out above does not constitute statutory accounts within the meaning of section 435(1) and (2) of the Companies Act 2006 or contain sufficient information to comply with the disclosure requirements of International Financial Standards ("IFRS"). The auditors have reported on these accounts and their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain any statements under section 498 (2) or (3) of the Companies Act 2006.
The financial statements of Urban Exposure Plc for the Period ended 31 December 2018 were authorised for issue by the Board of Directors on 2 April 2019 and the balance sheet was signed on behalf of the Board by Randeesh Sandhu, Chief Executive Officer.
The financial information presented in this document has been prepared in accordance with International Financial Reporting Standards ("IFRSs") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations as adopted by the European Union as they apply to the financial statements of the Group for the period from 10 April to 31 December 2018. There are no comparatives as the Company was incorporated on 10 April 2018.
Period of account The Consolidated Financial Information of the Group is in respect of the reporting Period ('the Period') from 10 April 2018 to 31 December 2018.
Basis of preparation The Consolidated Financial Information of the Group for the Period comprises the results of Urban Exposure Plc (the 'Company') and its subsidiaries (together, the 'Group'). This Financial Information has been prepared on a going concern basis and in accordance with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board ('IASB') and as adopted by the European Union.
This Financial Information has been prepared on the historical cost basis, except for the trade investments and loan receivables held at fair value at the end of each reporting period, as explained in the accounting policies and in note 4. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
The functional and presentational currency of the Group is Sterling.
Going concern The Directors have, at the time of approving the Financial Information, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Board is, therefore, of the opinion that the going concern basis of accounting adopted in the preparation of the Annual Report is appropriate for at least 12 months from the date of approval of the Annual Report.
The Directors have made this assessment after reviewing the Group's latest forecasts for a period of 12 months from the reporting date.
New standards, interpretations and amendments effective from the beginning of the Period New standards impacting the Group which have been adopted in the Financial Information for the Period ended 31 December 2018 are: * IFRS 9 Financial Instruments * IFRS 15 Revenue from contracts with customers * IFRS 16 Leases
IFRS 9 Financial instruments In the current year, the Group has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRS Standards that are effective for an annual period that begins on or after 1 January 2018.
IFRS 9 introduces new requirements for: The classification and measurement of financial assets and liabilities The impairment of financial assets, and General hedge accounting.
IFRS 9 Financial instruments As this is the first Period since incorporation, the standard has been applied from the beginning of the Period.
All recognised financial assets that are within the scope of IFRS 9 are required to be measured subsequently at amortised cost or fair value on the basis of the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.
Specifically: * For trade investments and loan receivables, the Group has reviewed the business model within which each financial asset is managed and concluded that all the loans from primary operating activities and equity investments should be measured at the Fair Value Through Profit and Loss ('FVTPL'). At initial recognition, the Group measures trade investments and loan receivables at fair value and any transaction costs are expensed to the income statement. Following initial recognition, these financial assets are subsequently valued at fair value on a recurring basis, with gains or losses arising from changes in fair value recognised through finance income in the income statement. * Contract assets are those assets held to collect contractual cash flows. The contract assets which were acquired as part of the business combination are originated credit-impaired assets. These assets are monitored for changes in credit risk, and impairment provisions are adjusted accordingly. * Financial liabilities being trade payables and other payables are initially recognised at fair value, and subsequently carried at amortised cost using the effective interest rate method.
IFRS 15 Revenue from contracts with customers In the current period, the Group has applied IFRS 15 Revenue from contracts with customers (as amended in April 2016) which is effective from 1 January 2018. IFRS 15 introduces a five-step approach to revenue recognition. Prescriptive guidance has been added to IFRS 15 to deal with specific scenarios.
IFRS 15 uses the term 'contract assets' and 'contract liabilities' to describe what might commonly be known as 'accrued income' and 'deferred income'. The Group has adopted the terminology used in IFRS 15 to describe such balances. The term 'income' is in respect of management fees, performance fees and movement in contract assets.
The Group's accounting policies for its income streams are disclosed in detail in note 2.
IFRS 16 Leases In addition, the Group has early adopted IFRS 16 and has included the right-of-use assets and lease liabilities in accordance with IFRS 16 from the beginning of the Period.
The change in the definition of a lease mainly relates to the concept of control. IFRS 16 distinguishes between leases and service contracts on the basis of whether the use of an identified asset is controlled by the customer. Control is considered to exist if the customer has: * the right to obtain substantially all the economic benefits from the use of an identifiable asset; and * the right to direct the use of the asset. New standards, interpretations and amendments not yet effective There are a number of standards, amendments to standards and interpretations which have been issued by the IASB that are effective for future accounting periods that the Group has decided not to adopt early. The most significant of these is: * IFRIC Uncertainty over Income Tax positions (effective 1 January 2019). It is expected that this will not have a material effect. 2. Significant accounting policies
Basis of consolidation The Consolidated Financial Information comprise the Financial Information of the Company and entities controlled by the Company (its subsidiaries) as at 31 December 2018. Subsidiaries are all entities over which the Company has control. The Company controls an investee when: it has power over the investee; is exposed to, or has rights to variable returns from, its involvement with the investee; and has the ability to affect those returns through its power over the investee.The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control as stated above.
When the Company has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the ability to direct the relevant activities of the investee.
Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the period are included in the income statement from the date the Company gains control until the date when the Company ceases to control the subsidiary.
Where necessary, adjustments are made to the Financial Information of subsidiaries to bring the accounting policies used into line with the Group's accounting policies.
All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation.
Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of assets transferred by the Group, liabilities incurred by the Group and the equity interest issued by the Group in exchange for control of the business or assets and liabilities. Acquisition-related costs are recognised in the income statement as incurred.
The identifiable assets acquired and liabilities assumed are recognised at their fair values at the acquisition date.
Goodwill is measured as the excess of the fair value of the consideration transferred over the fair value of the acquired assets less liabilities assumed at the acquisition date. If the fair value of the net assets acquired exceeds the fair value of the consideration transferred by the Group, this excess is recognised immediately in the income statement as a bargain investment gain.
Income recognition The majority of the Group's revenue arises from movements in the fair value of loans receivable and trade investments which are held at fair value through profit and loss.
Asset management fees received from third parties for managing loan facilities are recognised in the income statement when the related service has been performed.
The Group receives carried interest from the third-party loans it manages once those loans exceed a performance target. The recognition of variable consideration arising in relation to carried interest has been constrained in order that it is highly probable that there will not be a future reversal in the amount of revenue recognised when the final carried interest is calculated.
Where there is a significant financing component included in the transaction price (for example where fees are payable at the termination of a loan for services provided at inception or during the term of the loan), the revenue recognised is calculated by discounting the future cash flows at the interest rate implicit in the loan.
Financial instruments Financial assets and liabilities are recognised on the Group's statement of financial position when the Group has become a party to the contractual provision of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities through profit and loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through the income statement are recognised immediately in the income statement.
Financial assets Under IFRS 9, the Group is required to classify and measure financial assets according to the business model within which they are managed and the contractual terms of the cash flows. Financial assets are measured at amortised cost if they are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and their contractual cash flows represent solely payments of principal and interest. The Group has determined that contract assets, trade and other receivables, and cash and cash equivalents are financial assets which are measured at amortised cost.
Financial assets are measured at Fair Value Through Other Comprehensive Income ('FVTOCI') if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and their contractual cash flows represent solely payments of principal and interest. Other financial assets are measured at FVTPL.
The Group has reviewed the business model within which each financial asset is managed and concluded that loan receivables from primary operating activities should be measured at the FVTPL. The Group has also determined that certain trade investments meet the criteria for IFRS 9 and should be measured at FVTPL. For assets measured at FVTPL, at initial recognition, the Group measures the financial asset at its fair value and any transaction costs are expensed to the income statement. Following initial recognition, assets are subsequently valued at fair value on a recurring basis with gains or losses arising from changes in fair value recognised in the income statement.
Contract assets Contract assets are purchased or originated credit-impaired financial assets. For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated by discounting the estimated future cash flows, including expected credit losses, to the amortised cost of the debt instrument on initial recognition.
The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between the initial amount and the maturity amount, adjusted for any loss allowance. These assets are subsequently monitored for changes in credit risk, and impairment provisions are adjusted accordingly.
De-recognition of financial assets A financial asset is derecognised when either the contractual rights to the cash flows expire, or the asset is transferred. The Group holds loan receivables until a suitable institutional capital provider gains control and assumes the risks and rewards of the loan receivable. At that point, the transfer is recorded at the transfer value. This proportion of the loan qualifies for de-recognition. The proportion of the loan which is not transferred will remain as a loan receivable and continue to be valued at fair value.
Financial liabilities Trade payables and other short-term monetary liabilities are initially recognised at fair value, and subsequently carried at amortised cost using the effective interest rate method.
Intangible assets Goodwill Goodwill arising on the acquisition of subsidiaries or following a business combination is determined as detailed in the business combination accounting policy.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to the Group's Cash Generating Units (CGUs) expected to benefit from the synergies of the business combination. The CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that a unit may be impaired. If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit and recognised as an impairment in the income statement. Once an impairment loss is recognised, it cannot be reversed in a subsequent period.
On disposal of a CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal of that unit.
Other intangible assets Intangible assets with finite lives are acquired separately at cost less accumulated amortisation and accumulated impairment losses. The Group's intangible assets comprise of the brand name acquired by the Group.
Amortisation is calculated to write off the cost of intangible assets less their estimated residual value using the straight-line method over their estimated useful lives, and is recognised as a charge in the income statement. Amortisation methods, useful lives and residual values are reviewed at each reporting date, and are adjusted where appropriate.
The estimated useful economic lives for the intangible assets are as follows: Brands: 10 years
Leased assets The Group has applied IFRS 16 Leases.
Leases are recognised when the Group enters into a contractual lease which conveys the right to control the use of identifiable assets for a period of time in exchange for consideration.
Upon lease commencement, a lessee recognises a right-of-use asset. If the right-of-use asset is an investment property, it is valued at fair value. Where the asset is property, plant or equipment, it is valued at the present value of the lease payment within tangible assets and separately identified as a right-of-use tangible asset. Where the lease provides for variable elements, such as a rent review or rate increases linked to a specific index, the lease payments are initially measured at current rates. When the rate varies, this is a re-measuring event and the lease asset and liability is re-measured and treated as an adjustment to the right-of-use asset and lease liability.
The lease liability is initially measured at the present value of the lease payments payable over the lease term and discounted at the rate implicit in the lease if this can be readily determined. Where this cannot be readily determined, the Group's incremental borrowing rate is estimated and used to arrive at the present value of the lease payments. When a re-measurement event occurs, the lease liability is re-measured at this time.
The Group has elected not to apply IFRS 16 to leases with a lease term of less than 12 months or where the underlying asset has a low value when new. In such circumstances, the lease payments are expensed to the income statement as incurred and disclosed in the operating profit note.
Cash and cash equivalents Cash and cash equivalents comprise cash in hand, deposits held at call with banks, and other short-term highly liquid investments with a maturity of three months or less at the date of acquisition. The carrying value of these assets approximates their fair value.
Employee benefits Share-based payments The Group issues compensation to its employees under equity-settled share-based Long-Term Incentive Plans ('LTIP'). The fair value of equity-settled share-based payment arrangements granted to employees is recognised as an expense, with a corresponding increase in equity and spread over the vesting period of the plan on a straight-line basis. The total amount to be expensed is determined by reference to the fair value of the awards made at the grant date, and is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest as a result of non-market based vesting conditions. It recognises the impact of the revision to the original estimates, if any, in the income statement with a corresponding adjustment to equity over the remaining vesting period.
Market vesting conditions are factored into the fair value of the options granted. The fair value of the awards and ultimate expense are not adjusted on a change in market vesting conditions during the vesting period. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.
Defined contribution plans Obligations for contributions to defined contribution plans are expensed as the related service is provided.
Equity For the purpose of preparing the consolidated Financial Information of the Group, the share capital represents the nominal value of the issued share capital of Urban Exposure Plc.
Treasury Shares Where the Company purchases its own share capital (Treasury Shares), the consideration paid is set off against share premium. Where the share premium is nil, consideration above the nominal value of shares is debited against retained earnings. The proceeds from the sale of own shares held increase equity. Neither the purchase, cancellation nor sale of own shares leads to a gain or loss being recognised in the income statement.
Dividend and capital distributions Dividend and capital distributions to the shareholders are recognised in the Group's Financial Information in the period in which they are declared and appropriately approved. Once approved, dividends are recognised as a liability and as a deduction from equity.
Taxation Tax expense comprises current and deferred tax.
Current tax Current Income Tax assets and liabilities are measured at the amount expected to be recovered or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted.
Deferred tax Deferred tax is provided on the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the deferred tax asset can be utilised.
Deferred tax assets and liabilities are measured at the rates that are expected to apply in the Period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.
Earnings per share Basic earnings per share are calculated by dividing profit after tax attributable to equity shareholders of the parent Company by the weighted average number of Ordinary Shares in issue during the period.
Diluted earnings per share requires that the weighted average number of Ordinary Shares in issue is adjusted to assume conversion of all dilutive potential Ordinary Shares. These arise from awards made under share-based incentive schemes. Share awards with performance conditions attaching to them are not considered to be dilutive if the share price on their exercise is above market price.
Provisions and contingencies Provisions are liabilities with uncertainties in the amount or timing of payments. Provisions are recognised if there is a present obligation as a result of past events, if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and if a reliable estimate of the amount of the obligation can be made at the date of the Statement of Financial Position.
A contingent liability is a possible obligation that arises from past events or a present obligation that is not recognised as it is not probable that an outflow of resources will be required to settle the obligation or the amount of obligation cannot be measured with sufficient reliability. A contingent liability is disclosed but not recognised.
IPO expenses Qualifying costs attributable to the primary issuance of shares are debited directly to equity. They include incremental costs that are directly attributable to issuing the primary shares, such as advisory and underwriting fees.
All other non-qualifying costs are taken to the Statement of Comprehensive Income.
Tangible assets Leasehold assets, furniture, fixtures and fittings, and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is provided on all tangible assets at rates calculated to write off the cost, less estimated residual value based on prices prevailing at the date of acquisition of each asset, on a straight-line basis over its expected useful life as follows:
Right-of-use assets are depreciated over their expected useful life based on the relevant lease term. Where a break clause is contained within the lease, an assessment is made as to whether this is likely to be exercised or not and the lease is depreciated based on the expected lease term. The useful lives and depreciation rates applicable are as follows: Right-of-use leasehold:10 years Fixtures and fittings:10 years Furniture and office equipment:5 years Computer equipment:5 yearsThe gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.
Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year, otherwise they are classified as non-current liabilities.
The directors consider that the carrying amount of trade payables approximates to their fair value.
Segmental reporting Under IFRS 8, operating segments are required to be determined based upon the Group's internal organisation and management structure and the primary way in which the Chief Operating Decision Maker (CODM) is provided with financial information. In the case of the Group, the CODM is considered to be the Executive Committee.
The Executive Committee reviews the activities of the Group as a single operating segment.
The Group operates only in the United Kingdom and, as a result, no geographical segments are reported. The Group does not rely on any individual customer and so no additional customer information is reported.
The Group's Executive Committee is of the opinion that the Group is engaged in a single segment of the business and the operations of the Group are wholly within the United Kingdom.
Events after the balance sheet date Post year-end events that provide additional information about the Group's position at the balance sheet date and are adjusting events are reflected in the Financial Information. Post year-end events that are not adjusting events are disclosed in the notes when material. 3. Significant accounting judgments, estimates and assumptions
The preparation of the Group's Financial Information requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.
Judgments and estimates In the process of applying the Group's accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognised in the Consolidated Financial Information:
(a) Determination of fair values A number of assets and liabilities included in the Group's Financial Information require measurement at, and/or disclosure of, fair value. Fair value is the amount for which an asset could be exchanged, or liability settled, between knowledgeable, willing parties in an arm's-length transaction at the measurement date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these Consolidated Financial Information, is determined on such a basis, except for share-based payments that are within the scope of IFRS 2, leasing transactions that are within the scope of IFRS 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.
For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: * Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; * Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and * Level 3 inputs are unobservable inputs for the asset or liability. The classification of an item into the above levels is based on the lowest level of the inputs that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period in which they occur. Further details of fair values are given in note 4.
(b) Business combinations The Group identifies whether an acquisition is a business combination or the acquisition of assets and liabilities. The Group will then consider the carrying value of the assets and liabilities acquired in the case of a business combination and will need to assess whether fair value adjustments are required, and determine which factors impact on those valuations. The Group is also required to use judgment in determining the valuation of any non-cash consideration exchanged in the business combination. Details of the business combinations in the Period are included in note 27.
(c) Share-based payments The Group operates two employee compensation schemes, settled in equity. The fair value of equity-settled share-based payment arrangements requires significant judgment in the determination of the valuation of options, or the assumptions regarding vesting conditions being met, which will affect the expense recognised during the period. These assumptions include the future volatility of the Company's share price, future dividend yield and the rate at which awards will lapse or be forfeited. These assumptions are then applied to a recognised valuation model in order to calculate the fair value of the awards. The fair value attributed to the awards and hence the charge made to the income statement could be materially affected should different assumptions be made to those applied by the Group. Details of these assumptions are set out in note 26. The Group uses a professional valuer in the determination of the fair value of options at grant date.
(d) Valuation adjustments The Credit Committee reviews each financial asset in the Group's portfolio. Assets which are underperforming are assessed for credit valuation adjustments. Typical events include, but are not limited to, non-payment of cash interest, breach of loan covenants, construction cost over-runs or significant reductions in gross development values.
(e) Deferred tax In determining the quantum of deferred tax balances to be recognised, judgment is required in assessing the extent to which it is probable that future taxable profit will arise in the companies concerned and the timing of transactions. 4. Financial instruments - fair values and risk management The Group is exposed through its operations to the following financial risks: * credit risk * liquidity risk * market risk In common with other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these Financial Information.
The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise the effect on the Group's financial performance. Risk management is carried out by the Board of Directors. It identifies, evaluates and mitigates financial risks. The Board provides written policies for credit risk and liquidity risk.
(i) Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: * Loan receivables * Investments * Trade and other receivables * Cash and cash equivalents * Trade and other payables (ii) Financial instruments by category
(iii) Financial instruments not measured at fair value Financial instruments not measured at fair value include cash and cash equivalents, trade and other receivables and trade and other payables. The carrying value of the trade assets and other receivables has been amortised to estimated net recoverable value where there are circumstances indicating that the full value will not be recovered. Due to the short-term nature of cash and cash equivalents and trade and other payables, the Directors consider that their carrying value approximates to their fair value.
The valuation techniques and significant unobservable inputs used in determining the fair value measurement at Level 2 and Level 3 financial instruments, as well as the inter-relationship between key unobservable inputs and fair value, are set out in the table below.
Risk management framework The Board has overall responsibility for the determination of the Group's risk management framework and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Chief Risk Officer ('CRO'). The Board receives regular updates from the CRO through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The Executive Committee also reviews the risk management policies and processes and reports its findings to the Audit Committee.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness or flexibility.
The Audit Committee oversees how management monitors compliance with the Group's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.
Further details regarding the Group's risk management policies are set out below:
(a) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit losses if borrowers are unable to repay loans and outstanding interest and fees. The Group has stringent underwriting criteria which include third-party valuations and a full legal documentation pack for each loan written by the Group.
At 31 December 2018, the maximum exposure to credit risk for financial assets by geographic region was as follows:
Four loan receivables represented £72,330,000 of the loan receivables balance. However, risk is mitigated on all loans as property assets relating to those loans plus other securities and guarantees are provided against all loans.
The cash and cash equivalents balances of £46,806,000 are held with a Regulated Bank given an A-2 rating by Standard & Poor's.
(b) Liquidity risk Liquidity risk is the risk the Group will not be able to meet its financial obligations as they fall due. The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. In order to manage liquidity risk, the Group prepares short-term and medium-term cash flow forecasts. These forecasts are reviewed centrally to ensure the Group has sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
The maturity analysis of the trade and other payables is given as below:
The Board receives cash flow projections on a monthly basis as well as information regarding cash balances. At the end of the Period, these projections indicated that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances.
The Group does not commit to any loan to a borrower without clearly identifying how the loan will be funded over its life. The Group maintains a minimum level of liquidity to ensure that its projected operational costs are fully funded for 12 months.
(c) Market risk Market risk is the risk that a change in the Group's bank funding rates will impact its return from lending. It is the risk that the fair value or future cash flows of loans will fluctuate because of changes in interest rates (interest rate risk).
The Group's financial assets and liabilities have interest rates applied as follows:
The investments and loan receivables are valued at fair values determined by a number of factors including contractual interest rates applicable to loan receivables which are generally at a fixed % rate above LIBOR, which is variable.
The Group manages interest rate risk by ensuring that all loans are subject to a floor interest rate and move with changes in bank funding costs, or are appropriately hedged.
The following table shows the sensitivity of fair values grouped in Level 3 to changes in interest rates, for a selection of the largest financial assets. It is assumed that the interest rates were changed by 1% whilst all other variables were held constant.
The fair values are subject to interest rate risk where there is a change in the market, including a change in LIBOR and the underlying bank base rate, or a change in the credit rating of the borrower. (d) Capital management The Group monitors capital which comprises all components of equity (i.e. share capital, share premium, treasury capital and retained earnings). The Group's objective when managing capital is to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders.
The Group's objective is also to provide an adequate return to shareholders by maintaining an optimum capital structure to reduce the cost of capital.
The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividends paid, return capital to shareholders, issue new shares or sell assets to reduce debt.
Consistent with others in the industry, the Group monitors capital on the basis of debt to capital. During the Period, the Group did not have any loans and borrowing, and therefore the debt to capital ratio is 0%. The capital at the Period end is £150,521,000. 5. Income The Group income for the Period was derived as follows:
The Group operating loss for the Period is stated after charging:
Amounts payable to BDO inclusive of VAT in respect of audit and non-audit services are disclosed in the table above.
Although the right-of-use leasehold asset was acquired on 20 November 2018, it was not in a condition available for use until January 2019 and so it has not been depreciated in the Period.
7. Operating costs
The Group's operating costs are stated after charging:
Exceptional items are detailed in note 9. 8. Employee and key management emolumentsThe employee and director costs during the Period were as follows:
The average number of employees (including Directors) during the Period was as follows:
Key management personnel compensation Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the directors of the Company listed within this report.
9. Exceptional items The following costs were identified as exceptional during the Period:
Urban Exposure Plc's Ordinary Shares were admitted to trading on AIM on 9 May 2018. Costs of £613,000 related to the IPO were expensed as a one-off non-recurring cost.
Legal and professional costs incurred in setting up the syndication agreement with KKR. The set-up costs are an exceptional one-off cost in defining the arrangement between the parties and are considered exceptional in size.
10. Finance costs
The standard current rate of tax for the Period ended 31 December 2018 is 19%.
Deferred tax has been accounted for at the substantively enacted Corporation Tax rate of 19%.
The tax for the Period is based on the loss before taxation and is computed as follows:
12. Earnings per share (EPS) Basic earnings/loss per share (EPS) has been calculated based on the loss for the Period as shown in the Consolidated Statement of Comprehensive Income divided by the weighted average number of Ordinary Shares in issue.
Diluted EPS has been calculated based on the loss for the Period as shown in the Consolidated Statement of Comprehensive Income divided by the weighted average number of Ordinary Shares. Although 3,150,000 share options were in issue, as these would have an anti-dilutive effect they have not been included in the calculation of 'Weighted average number of shares for diluted earnings per share'. In the future, when a profit is generated, these will have a dilutive impact.
13. Dividend
The Board approved an interim dividend of 0.83p per share on 17 December 2018 which was paid on 21 January 2019. This has been recognised as a liability at 31 December 2018.
A final dividend of 1.67p per share is proposed, payable to all shareholders on the Register of Members on 12 April 2019.
The proposed final dividend is subject to approval at the Annual General Meeting and has not been recognised as a liability at 31 December 2018. The payment of this dividend will not have any tax consequences for the Group.
14. Intangible assets
The Group acquired the goodwill and the brand on acquisition of the business of Urban Exposure Investment Management LLP on 9 May 2018, as detailed in note 27.
Brands are amortised on a straight-line basis over their useful economic lives, currently estimated at 10 years.
Goodwill The Group tests annually for impairment, or more frequently if there are indications that goodwill may be impaired.
The carrying amount of goodwill is allocated to CGUs. The directors consider that the goodwill is allocated to the overall business of Urban Exposure Plc as one CGU.
The recoverable amount is determined based on the value in use calculation. The use of this method requires the estimation of future cash flows and the determination of a discount rate to calculate the present value of the cash flow.
The basis on which the CGU's recoverable amount has been determined is the value in use of the asset over a five-year period, discounted at 5.45%, and assumes growth of the loans, primarily through asset management. The Group has conducted an analysis of the sensitivity of the impairment testing to changes in the key assumptions used to determine the recoverable amount of the CGU to which goodwill is allocated. The directors believe that any reasonable change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the CGU.
A 10% underperformance against forecast income would reduce the headroom but would show an aggregate value in excess of the carrying value of goodwill and hence would not result in an impairment charge. An increase in the discount applied to the cash flows of 5%, to 10.45%, would reduce the headroom but would show an aggregate value in excess of the carrying value of goodwill and hence would not result in an impairment charge.
15. Tangible assets
A right-of-use short leasehold was acquired on 20 November 2018 and has been recognised as an asset in accordance with IFRS 16. The leasehold was not in a condition available for occupation and was not occupied until January 2019. The furniture, fixtures and fittings and computer equipment were acquired for the new office. As the date of first use of all the assets is January 2019, there was no depreciation charge for the Period ended 31 December 2018. 16. Investments
The Group entered into a partnership agreement with Kohlberg Kravis Roberts (KKR) in which the Group has a 9.1% interest. The purpose of the agreement is to make loans to real estate developers in the United Kingdom for the development of residential and mixed-use properties. Under this agreement, KKR will invest up to £150m and Urban Exposure Plc will invest up to £15m in assets under management, with each party contributing as directed under the partnership agreement, as and when required. At 31 December 2018, the Group had invested £1,949,000 under this agreement and considers this to be the fair value as at that date.
The investments are classified as a trade investment under IFRS 9. Accordingly, they are financial assets measured at FVTPL. See note 4 for further disclosures. 17. Subsidiaries The principal subsidiaries of Urban Exposure Plc, all of which have been included in these Consolidated Financial Information, are:
Indirectly held by a subsidiary All the subsidiaries are registered at 6 Duke Street, St. James's, London SW1Y 6BN.
UE SFA 1 Limited (formerly Urban Exposure Security Agent Limited) was incorporated on 3 May 2018. Urban Exposure Holdings Limited, Urban Exposure Lendco Limited and Urban Exposure Amco Limited were acquired by Urban Exposure Plc on 9 May 2018. Further details are given in note 27.
18. Loan receivables
19. Trade and other receivables
The carrying value of trade and other receivables classified at amortised cost approximates to fair value.
Contract assets relate to receivables acquired on the business combination and are secured by a charge on the assets being developed and are repayable based on the expected sales of those assets. There is no movement in the impairment provision in the Period.
Included within trade receivables is a contract asset of £254,000 which is expected to be repaid after more than one year.
Included within other receivables is a deposit of £422,000 for the right-of-use lease asset which is repayable within five years subject to meeting certain criteria. 20. Cash and cash equivalents
All the cash and cash equivalents are held in Sterling.
The directors consider that the carrying amount of cash and cash equivalents approximates to their fair values. 21. Trade and other payables
The carrying value of trade and other payables is measured at cost which approximates to fair value. Note 4 gives further disclosures and a maturity analysis of the financial liabilities. All trade and other payables are payable within one year. 22. Lease liabilities
The lease liabilities, as measured at present value, mature as follows:
The lease liabilities are in respect of the right-of-use leasehold premises acquired towards the end of the Period for the new head office to facilitate the Group as it grows.
The leasehold agreement is for 10 years with a five-year tenant-only break clause. The Group anticipates that this will not be exercised and has measured the right-of-use leasehold asset and lease liabilities on this basis.
The lease agreement includes a variable annual service cost which has a maximum value linked to the RPI. The lease is subject to a rent review after five years. Both variations will be measured as and when they occur.
Deferred tax has been accounted for at the substantively enacted Corporation Tax rate of 19%. 24. Share capitalShare capital for the Period has been issued as follows:
The movement in the number of shares during the Period is shown as below:
The Company was incorporated on 10 April 2018. On incorporation, the Company issued 1 Ordinary Share of £1 at par value. On 16 April 2018, the Company issued another 49,999 shares of £1 each.
On 30 April 2018, the entire share capital of 50,000 Ordinary Shares was sub-divided into 5,000,000 Ordinary Shares of £0.01 each and re-organised into 50,000 Ordinary Shares of £0.01 each and 4,950,000 Deferred Shares of £0.01 each.
On 9 May 2018, the Company entered into a legacy receivables share exchange agreement with Urban Exposure Holding Company (Jersey) Limited and as a result 7,151,300 Ordinary Shares of £0.01 each were issued for a consideration of £7,151,300.
On 9 May 2018, the Company entered into another share exchange agreement with the members of Urban Exposure Investment Management LLP and issued 7,798,700 shares of £0.01 each for a consideration of £7,848,700.
On 9 May 2018, the Company listed on AIM and issued 150,000,000 of £0.01 each at an issue price of £1.
On 14 November 2018, the Company re-purchased 6,505,870 £0.01 Ordinary Shares for a consideration of £0.80 per share through a share buyback. All the shares re-purchased are held as Treasury Shares.
The Ordinary Shares have full voting, dividend and capital distribution rights (including on a winding up). The Ordinary Shares do not confer any rights of redemption.
The Deferred Shares have no rights to dividends and no right to partake in a capital distribution (including on a winding up) before all other shareholders, neither do they confer any right to attend or vote at a general meeting of the Company. 25. Share premium
At 31 May 2018, a resolution was passed authorising, conditional on admission, the amount standing to the credit of the share premium account of the Company (less any issue expenses set off against the share premium account) to be cancelled and the amount of the share premium account so cancelled to be credited to retained earnings.
An application was made to the High Court to cancel the share premium account and judgment was obtained by Order of the High Court of Justice, Chancery Division, to approve the application and the share premium of £156,578,000 was cancelled and credited to retained earnings.
The SH19 form was submitted to Companies House with a copy of the Court Order on 24 July 2018. 26. Share-based payments
Following the IPO, the Group established equity-settled employee share schemes under which shares or share options are granted to employees or directors subject to the terms of the schemes:
There are two share option schemes in operation, and both were set up during the Period.
The Long-Term Incentive Plan ('LTIP') The LTIP enables the participants to acquire 'A' Ordinary Shares in Urban Exposure Holdings Limited ('A Ordinary Shares') as awards. On or after vesting, the participants may require the Company to acquire the A Ordinary Shares in exchange for the issue of Ordinary Shares in the Company. The acquisition price for the A Ordinary Shares shall be the nominal value of the shares.
The LTIP also grants share options to the participants with a nominal value exercise price. On exercise, the participants will be issued Ordinary Shares in the Company. The A Ordinary Shares and the share options will combine to deliver a maximum number of Ordinary Shares in the Company.
The options vest based on achievement of three separate measures for each of the periods ended 31 December 2018, 31 December 2019 and 31 December 2020, with a maximum of 550,000 shares available to vest in each period and a maximum number of 1,650,000 in total.
Measures: 1. Total shareholder return 2. Annualised return on equity 3. Annualised principal amount of committed loans made or arranged by the Company
Up to one ninth of the total LTIP share options will vest for achieving and exceeding each measure on an annual basis. Therefore 183,333 options are available for achieving each measure at each of the three period ends from 31 December 2018 to 31 December 2020.
The awards granted are subject to rigorous, stretching performance conditions as set by the Remuneration Committee on an annual basis.
Management Share Options ('MSO') The MSO enables the participants to acquire A Ordinary Shares in Urban Exposure Holdings Limited as awards. On or after vesting, the participants may require the Company to acquire the A Ordinary Shares in exchange for the issue of Ordinary Shares in the Company. The acquisition price for the A Ordinary Shares shall be the nominal value of the shares.
The MSO also granted share options to senior management at the date of the IPO with an exercise price of 100p. On vesting, the participants will be issued Ordinary Shares in the Company.
Under the scheme, 1,500,000 share options were granted with an exercise price of 100p. The only vesting condition is that the holders remain within the employment of the Group. The options will vest on 9 May 2021.
The share-based payments for the Period included in operating costs comprise:
26. Share-based payments continued
The following table illustrates the number and movement in share options during the Period:
The fair value of the share-based payments for the LTIP and the MSO has been calculated based on the Black Scholes Pricing model with the following assumptions:
27. Business combinations On 9 May 2018, Urban Exposure Amco Limited, a 100% subsidiary of Urban Exposure Plc, acquired the business of Urban Exposure Investment Management LLP in exchange for 15,000,000 Ordinary Shares of £1.
The primary reason for the acquisition was to acquire the original Urban Exposure business as a going concern including the goodwill, business information, IT system, the business name, business intellectual property rights, records and all other property, rights and assets used or intended to be used in connection with the business and it is these assets which represent the goodwill. The Company also acquired the rights to revenues in respect of contract assets which are included in trade and other receivables.
All assets and liabilities were valued at fair value at the date of acquisition. The book value of the contract assets acquired were £7,151,000 and these were adjusted to fair value of £3,798,000 at the date of acquisition. 28. Capital and financial commitments As at 31 December 2018, there were no capital commitments for the Group.
The Group has £325 million of undrawn committed loan capital payable over the next four years. These commitments will be significantly reduced as and when they are syndicated to other lenders, or as and when the Group enters into co-lending arrangements with institutional investors.
The Group has entered into a partnership agreement with KKR with a commitment of up to £15 million and has made payments of £1,949,000 under this agreement during the Period. This leaves an outstanding financial commitment relating to the agreement of £13,051,000. See note 16 for further details. 29. Related party transactionsDuring the Period, the Group companies entered into the following transactions with related parties which are not members of the Group:
Payroll and other operating costs were incurred on behalf of the Group and recharged at cost by the companies shown above. Details of the directors' emoluments and of directors' interests are contained in the Remuneration Committee Report. There were loan balances outstanding from the directors at the Period end of £6,000. Dividends of £73,000 were paid to the directors and key managers of Urban Exposure Plc in respect of the interim dividend for 2018. In addition, the following investments were acquired from related parties: On 2 May 2018, Urban Exposure Plc acquired £100 Ordinary Shares in Urban Exposure Holdings Limited from R. Sandhu, a Company Director, for a consideration of £100.
On 9 May 2018, Urban Exposure Amco Limited issued 7,848,700 £1 shares to acquire the business assets of Urban Exposure Investment Management LLP in a share exchange with the members.
On 9 May 2018, Urban Exposure Plc acquired contract assets of £7,151,300 from Urban Exposure Holding Company (Jersey) Limited in exchange for 7,151,300 shares issued at a value of £1 each. 30. Post balance sheet events The Group had no significant post balance sheet events requiring adjustment or disclosure.
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| ISIN: | GB00BFNSQ303 |
| Category Code: | FR |
| TIDM: | UEX |
| LEI Code: | 213800Q7WLHGIHUFBT43 |
| Sequence No.: | 8055 |
| EQS News ID: | 795139 |
| End of Announcement | EQS News Service |
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