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URBAN EXPOSURE PLC Urban Exposure plc: Financial results for the year ended 31 December 2019

Directive transparence : information réglementée

26/06/2020 08:00

Urban Exposure plc (UEX)
Urban Exposure plc: Financial results for the year ended 31 December 2019

26-Jun-2020 / 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.


26 June 2020

 

Urban Exposure Plc

Financial results for the year ended 31 December 2019

 

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 year ended 31 December 2019.

 

The Group's financial year ends on 31 December each year. These results are being published in accordance with AIM Rule 19.

 

Business Highlights

 

  • After carrying out a strategic review, and in light of the impact of changing market conditions as a result of COVID-19, the Board has concluded that the Group will focus entirely on an orderly wind down of the loan book and return of capital to shareholders.
  • The Company believes that an orderly wind-down of the Company has the potential to produce net returns for Shareholders in a range of 70p to 83p per ordinary share on a fully diluted basis.  The Group estimates that 80% of proceeds should be returned to shareholders within 7 to 15 months. 
  • In light of the revised strategy and requirements of the Group there have been a number of changes to the Board with Randeesh Sandhu stepping down as Chief Executive Officer, William McKee retiring as Chairman (to be replaced by Graham Warner subject to appointment), Ravi Takhar leaving the business as a result of redundancy. 
  • Both Andrew Baddeley and Nigel Greenaway remain as Independent Non-Executive Directors and Sam Dobbyn has taken over as Chief Executive Officer.
  • Current committed loan book has a Weighted Average LTGDV of 68% (2018: 67%).
  • New committed loans during the year totaling £498m (2018: £525m). As a result of specific borrower performance post 31 December 2019 new committed loans now stand at £191m.

 

 

Financial Highlights

  • Revenue:

£11.1m (2018: £3.9m)

  • Operating costs (including exceptional costs of £0.5m and share-based expenses of £0.3m)

£10.8m (2018: £5.9m)

(2018: including exceptional costs of £0.9m and share-based expenses of £0.5m)

 

  • Profit after tax for the year:

£0.1m (2018: Loss £1.7m)

  • Basic profit/(loss) per share:

0.09p (2018: (1.18p))

  • Net tangible assets (*note 1)

£133.1m (2018: £137.8m)

  • Net tangible asset value per share:

84p (2018: 87p)

  • Cash and cash equivalents per share:

14p (2018: 29p)

  • Loans receivable and Investments per share:

70p (2018:586p)

 

*Note 1: Net tangible assets equates to total net assets excluding intangible assets.

Enquiries:

Urban Exposure plc                Tel: +44(0)207 408 0022

William McKee, Chairman

Sam Dobbyn, Chief Executive Officer

Liberum (NOMAD and Corporate Broker)   Tel: +44(0)203 100 2000

Neil Patel

Gillian Martin

Jonathan Wilkes-Green

Louis Davies

UrbanExposure@liberum.com

MHP Communications (Financial Public Relations)                    Tel: +44(0)203 128 8540/
                   +44(0)203 128 8731

Charlie Barker

Sophia Samaras

UrbanExposure@mhpc.com

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 Sam Dobbyn, Chief Executive Officer of Urban Exposure Plc.

 

Chief Executive Officer's Review

 

Trading and dividend

The Group reported an operating profit before exceptional items of £0.8m for the year (2018: loss of £1.1m). Overall, the Group reported a small profit after tax in its first full year of trading. The Group paid an interim dividend of 1.67 pence per share for the year ended 31 December 2019. Due to the impact of COVID-19 and the market uncertainty it has created the Board will not proceed with payment of the final instalment of the proposed 2019 dividend of 3.33 pence per share.

 

New Committed Loans and Pipeline

The real estate development finance industry is typically seasonal with a greater weighting of deals being completed in the last quarter of the year. This was very much the case in H2 2019, with uncertainty surrounding Brexit and the UK general election compounding the trend for transactions to close towards year end.

 

However, despite the market uncertainty experienced over the course of 2019, the Group was able to complete £498m of new committed loans (2018: £525m), of which £400m of new commitments were completed in H2 2019. Due to specific borrower performance these new committed loans were reduced to £191m post the year end.

 

The new committed loans, as reduced to £191m post year end, are expected to translate into £13.3m of projected aggregate income, which will eventually be recognised in earnings over the life of the loans.

 

Loan Credit Quality

The credit quality of underwritten loans is critical to any lender, however as a specialist real estate development provider we place additional emphasis on the importance of maintaining excellent underwriting standards.

 

Our focus on risk and loan portfolio quality, can be measured by the weighted average loan to gross development value (WA LTGDV), which was 68% at FY 2019 (2018: 67%). This represents a conservative position and is below our stated guidelines of a maximum WALTGDV of 75%.

 

A number of the residential schemes that we are supporting with a development loan also benefit from unit pre-sales. As these sales are secured with a deposit paid by the pre-purchaser, they help to reduce the overall sales-risk of the loans. In total pre-sold units (by value) account for 28% of the gross development value of residential schemes currently being funded.

 

It should also be noted that in addition to the underlying property security we will often obtain additional recourse, in the form of guarantees or cash on deposit, which further enhances the risk profile of the loans.

 

When viewed in conjunction with the Group's WA IRR of  11% (2018: 10%) and WA Money Multiple of 1.15x (FY 2018: 1.15x), it demonstrates our ability to generate attractive risk-adjusted returns on our loan portfolio.

 

Capital

Over the course of 2019 the Group managed to raise further capital for deployment into property development loans. Our senior secure debt facility with UBS into the Kohlberg Kravis Roberts ("KKR") partnership was increased from £165m to £300m, with the advance rate provided by UBS also increased.

 

Capital has also been raised from institutional investors to support individual loans. With co-funding agreements put in place in total raising £9.7m and a further £42.4m raised on two new loans early in 2020.

 

Sale to Honeycomb Holdings Limited ("HHL")

On March 2020 the Group announced the proposed the disposal of Urban Exposure Lendco Limited ("Lendco") to Honeycomb Holdings Limited ("HHL"). Lendco owns the Group's loan portfolio and its interest in the Group's partnership with KKR & Co. We believed at the time that this sale was in the best interest of shareholders given how the share price had performed during the year. This disposal was subject to shareholder approval which was obtained at a general meeting of the Group on 30 March 2020.

 

The Group received a purported notice of termination from HHL of the SPA between the Group, HHL and Urban Exposure Amco Limited ("Amco") dated 10 March 2020 for the purchase by HHL of the issued share capital of Lendco.  The Group and Amco consider that there was no valid basis for the purported termination of the SPA by HHL and that HHL has acted in repudiatory breach of the SPA.  The Group and Amco have accepted this repudiatory breach of contract by HHL and accordingly the Group and Amco consider themselves discharged from further performance of the SPA.  The Group and Amco are claiming damages against HHL for breach of contract.  In addition, the Group and Amco intend to seek relief from other entities within or connected to the Pollen Street Capital group, including Honeycomb Investment Trust plc, Shawbrook Bank Limited, Pollen Street Capital Limited and Pollen Street Capital Holdings Limited, for procuring or inducing the breach by HHL of the SPA, as well as reserving their position to take all other measures against and seek other relief from HHL and its connected entities in respect of HHL's breach of the SPA.

 

COVID-19

The welfare of our colleagues, clients and partners has been our priority since the outbreak of the COVID-19 pandemic. We have been in close communication with our client base in connection with their response to the advice of Government and health authorities to help prevent the spread of the virus, in particular in respect of Health & Safety measures on construction sites.

 

The Group continues to operate with its business continuity plan in place. Our workforce is now working remotely from home with the same functionality they would have in the office. Inevitably the business will be impacted by COVID-19 and the issues that it is causing across the real estate market, and beyond in the wider economy. Along with many other businesses, the Group has taken action to reduce costs and manage its cash flow to ensure the Group is well prepared for any possible further disruption from the impact of COVID-19.

 

The Group has conducted a comprehensive review of all loan facilities, insurances and contracts, and has conducted a detailed stress test of the loan portfolio. The Group believes that the loan portfolio is resilient in the face of the unprecedented market conditions.

 

Furthermore, our funding facilities and partnership arrangements remain in place, and our balance sheet has no debt against it. We are working closely with our funding partners to continue to assess and mitigate any risks that may arise in the future.

 

UK Housing Market

Despite the resilience of the sector, it is clear that the uncertainty created by Brexit and the UK general election cast a shadow on the UK housing market for much of 2019.

 

As the uncertainty dissipated, a resurgence in confidence saw the housing market steadily gather momentum in the opening months of 2020. Activity levels and price growth were edging up thanks to continued robust labour market conditions, low borrowing costs and a more stable political backdrop.

 

The Covid-19 pandemic has however no doubt had an impact on the UK housing market. In March we saw lenders reduce the availability of mortgages and would be purchasers/vendors unable to transact due to the social distancing measures put in place by the UK government. Whilst we have since seen an improvement in mortgage lending, with some lenders reverting back to previous upper LTVs, we expect the ability of parties to transact on property sales to remain limited until social distancing measures are eased.

 

Whilst the impact of the pandemic on the value of UK residential property is yet to be fully determined, we do feel that sales rates and prices may face downward pressure in the near term. Although, to date we have been encouraged by borrowers reporting the completion of existing sales at pre-agreed prices and new sales being made with no material discount to marketed prices. Government measures to further support the housing market if necessary are also widely being discussed by commentators including the extension of the Government Help to Buy scheme plus possible Stamp Duty Land Tax reforms.

 

Looking forward

Following the strategic review, the Group has decided to focus entirely on the management of its existing loan portfolio to maturity in order to maximise the returns from the portfolio and return capital to the shareholders. To that end we believe that an orderly wind-down of the Group has the potential to produce net returns to shareholders in a range of 70p to 83p per ordinary share on a fully diluted basis.  The Company estimates that 80% of proceeds should be returned to shareholders within 7 to 15 months. The Group will update shareholders on this at our half-yearly results announcement later in 2020.

 

The Strategic Report includes the Business Model, Market Review, Strategic Framework, Key Performance Indicators, Chairman's Statement, Chief Executive Officer's Review, Finance Review, Principal Risks and Uncertainties and Corporate Social Responsibility and has been reviewed by the Board and signed on its behalf by:

 

 

Sam Dobbyn

 

Chief Executive Officer

 

Financial Review

 

The Group's operating profit before exceptional items was £0.8m (2018: loss of £1.1m) and total reported profit after tax was £0.1m (2018: loss of £1.7m). This was primarily driven by an increase in income to £11.1m (2018: £3.9m) as both lending on balance sheet and the drawdown of loans increased on the prior Period. A full year's run rate versus the shorter comparative period also contributed to the increases in both income and operating costs.

 

The headline financial results for the year ended 31 December 2019 and the comparatives for the period from incorporation on 10 April 2018 to 31 December 2018 are presented below:

 

Income

 

 

 

 

 

 

£'m

 

 

 

 

Year ended

31 December 2019

Period ended

31 December 2018

Income

 

 

 

 

                  11.1

                  3.9

Operating costs

 

 

 

(10.3)

(5.0)

Operating profit/(loss)

before exceptional items

 

               0.8

(1.1)

 

 

 

 

 

 

 

Exceptional items

 

 

 

(0.5)

(0.9)

Finance costs

 

 

 

(0.1)

0.0

 

 

 

 

 

 

 

Profit/(loss) before taxation

 

0.2

(2.0)

 

 

 

 

 

 

 

Taxation

 

 

 

 

                  (0.1)

                  0.3

 

 

 

 

 

 

 

Profit/(loss) after taxation

 

 

0.1

(1.7)

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

0.09p

(1.18p)

Diluted EPS

 

 

 

0.09p

(1.18p)

Dividend per share

 

 

 

1.67p

0.83p

 

Capital

 

 

 

 

 

 

£'m

 

 

 

 

Year ended

31 December 2019

Period ended

31 December 2018

Committed loan capital

 

 

 

918.9

524.5

Funds raised

 

 

 

144.7

371.0

Cash and cash equivalents

 

 

22.8

46.8

Tangible net assets

 

 

 

133.1

137.8

Tangible NAV per share - pence

 

 

84p

87p

Number of shares in issue (millions)

 

 

165.0

165.0

Number of shares in issue

(excluding treasury shares) (millions)

158.5

158.5

 

Income

Income for the year was £11.1m (2018: £3.9m) including income from legacy contract receivables for the year of £0.1m (2018: £0.7m). Income includes £10.2m (2018: £3.2m) fair value income from loan receivables in the Group's balance sheet as result of a greater utilisation of the balance sheet as loans were deployed during the year.

 

Income from management fees and other income was £0.8m (2018: £nil) principally from fees earned on the Group's partnership with KKR. The increase in fees resulted from the deployment and draw down of loans throughout the year. A fair value loss of £0.2m was reported for the co-investment stake in this vehicle, which amounted to £6.7m at the year end. The fair value loss recognises the fact that the partnership incurred up front set up costs.

 

PAI for 2019's additional committed loans were £21.2m, which has been subsequently revised down to £13.3m post year end due to the cancellation of loan commitments (2018: £26.9m). The decrease in PAI compared to 2018 was as a result of lower lending as well as a greater proportion of that lending being completed through an asset management structure, for which the Group earns management fees. The 2018 PAI of £26.9m is now expected to increase to £33.6m as the loans written in 2018 have spent a greater proportion of time on balance sheet, earning interest and fees, than previously expected.

 

Operating expenses

The Group adopted a strategy for 2019 to invest significantly in its operations so that it had the capabilities to meet the growing demand for real estate development finance over the medium term. At the year end, total operating costs excluding exceptional items were £10.3m (2018: £5.0m) of which £4.9m represented staff costs and share based payments (2018: £3.6m) and £2.1m related to the fair value reduction of contract assets (2018:£nil). Costs on a like for like basis (adjusted for the impact of the shorter 2018 comparative period) decreased due to a reduction in variable compensation. Post the year end, the Group took the decision to reduce the bonus pool to £0.3m in response to the growing COVID-19 pandemic. It was noted that whilst the metrics set for 2019 had been partially met, given the current market uncertainties that are being experienced as a result of COVID-19, it would not be appropriate to make bonus payments at this time.

 

Exceptional items

Exceptional items of £0.5m for the year related to costs incurred in relation to the postponed retail bond of £0.3m and £0.4m cost to settle a legal dispute, offset by a recovery of £0.2m exceptional legal and professional fees in respect of the set-up of the KKR arrangement.

 

Exceptional costs for 2018 were in relation to the Group 's IPO costs of £0.6m plus one-off professional fees of £0.3m.

 

Earnings per share

The basic profit per share for the year is 0.09p (2018: basic loss per share 1.18p) and the diluted profit per share is 0.09p (2018: diluted loss per share 1.18p), based on a weighted average number of shares in issue of 158,494,130 (2018: 145,793,865) and weighted average number of diluted shares in issue of 159,769,744 (2018: 145,793,865).

 

Dividends

During the year, the final dividend for 2018 of 1.67 pence was approved at the AGM and paid in May. The Board approved an interim dividend for the period ended 30 June 2019 of 1.67 pence per ordinary share which was paid October 2019. The Board is not recommending a final dividend for the year given the nature of the current COVID-19 pandemic and the market uncertainty it has created.

 

Balance sheet

 

 

£'m

At 31 December 2019

At 31 December 2018

Non-current asset

22.8

18.9

Fair value of loans

103.6

89.5

Contract assets

0.3

3.2

Cash and cash equivalents

22.8

46.8

Other assets and liabilities

(3.9)

(7.9)

Net assets

145.6

150.5

Cash flow

 

 

£'m

Year ended

31 December 2019

Period ended

31 December 2018

Operating cash flows before movement in

working capital

3.2

(1.4)

Change in working capital

(20.2)

(89.5)

Net cash outflow from operating activities

(17.0)

(90.9)

Capital expenditure

(0.1)

(0.4)

Net cash outflow from investing activities

(0.1)

(0.4)

 

 

 

Proceeds from issue of share capital

-

150.0

Share issue expenses

-

(6.7)

Share buyback

-

(5.2)

Lease liabilities paid

(0.3)

-

Dividends paid

(6.6)

-

Net cash (outflow) / inflow from financing activities

(6.9)

138.1

Net (decrease) / increase in cash and cash equivalents

(24.0)

46.8

Cash and cash equivalents brought forward

46.8

0.0

Cash and cash equivalents carried forward

22.8

46.8

 

 

Investments

During the year our investment in the partnership with KKR increased to £6.7m from £1.9m at 31 December 2018. This includes investments of £4.8m for the year offset by a fair value loss of £0.2m (2018: £nil).

 

To date £74.0m has been invested by the partnership to fund loan drawdowns of which the Group has a 9.1% share.

 

Loans receivable

The fair value of loans at the year end was £103.6m (2018: £89.5m). As at the year end none of these loans had credit issues impacting fair values. Due to the impact of COVID-19 it is possible that the fair values of some of these loans may be adversely affected in future periods.

 

Tangible fixed assets

The Group had tangible fixed assets of £3.7m at the year end (2018: £4.3m) of which £3.2m (2018: £3.8m) represents the right of use leasehold asset for the Group's offices. The remaining £0.5m (2018: £0.4m) represents furniture, fixtures and fittings and computer equipment.

 

Cash flow

The operating cash flows before movement in working capital of £3.2m (2018: negative £1.4m) reflects the fact that the Group's made an operating profit before a £2.1m (2018: £nil) non cash reduction in the fair value of contract assets.  This was as a result of a reduction in the expected returns, due to delays to the project, and lower expected market values related to the project.

 

The change in working capital reflects the increase in funds advanced on loans and other receivables as well an increase in fair values of £14..2m (2018: £89.7m) as well as the increase in investment in the KKR partnership of £4.8m (2018: £1.9m).

 

Other notable cash movements for 2019 include the payment of the interim and final dividend for 2018 of 2.5 pence per share plus the payment of the 2019 interim dividend of 1.67 pence per share.  Total dividend outflow in the year was £6.6m (2018: £nil).

 

The net outflow of cash for the year was £24.0m (2018: net inflow of £46.8m) resulting in cash and cash equivalents at year end of £22.8m (2018: £46.8m).

 

 

 

Sam Dobbyn

 

Chief Executive Officer

 

 

Consolidated Statement of Comprehensive Income

 

For the Year Ended 31 December 2019

 

 

Year ended

31 December 2019

Period ended

31 December 2018

 

Note

£000

£000

 

 

 

 

Income

5

11,072

3,903

 

 

 

 

Operating costs before exceptional items

 

(10,337)

(5,011)

Operating costs - Exceptional items

9

(474)

(869)

Operating costs - Total

7

(10,811)

(5,880)

 

 

 

 

Operating profit / (loss)

6

261

(1,977)

 

 

 

 

Finance costs

10

(94)

(12)

 

 

 

 

Profit/(loss) before taxation

 

167

(1,989)

 

 

 

 

Taxation

11

(23)

273

 

 

 

 

Profit/(loss) after taxation and total comprehensive income

 

144

(1,716)

 

 

 

 

EARNINGS PER SHARE

 

 

 

Basic EPS

12

0.09p

(1.18p)

Diluted EPS

12

0.09p

(1.18p)

         

 

All activities derive from the continuing operations of the Group.

 

The comparatives are for the period from incorporation on 10 April 2018 to 31 December 2018.

 

The notes form an integral part of this financial information.

 

Consolidated Statement of Financial Position

 

As at 31 December 2019

 

 

 

31 December 2019

31 December 2018

 

 

£000

£000

Non-current assets

Note

 

 

Intangible assets

14

12,488

12,674

Tangible assets

15

3,702

4,276

Investments

16

6,570

1,949

Total non-current assets

 

22,760

18,899

 

 

 

 

Current Assets

 

 

 

Loans receivable

18

103,630

89,544

Trade and other receivables

19

1,745

3,693

Cash and cash equivalents

20

22,787

46,806

Total current assets

 

128,162

140,043

 

 

 

 

Total assets

 

150,922

158,942

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

21

1,829

3,217

Lease liabilities

22

295

229

Dividends payable

13

-

1,316

Total current liabilities

 

2,124

4,762

 

 

 

 

Total Assets less Current liabilities

 

148,798

154,180

 

 

 

 

Non-current liabilities

 

 

 

Lease liabilities

22

3,068

3,576

Deferred tax

23

107

83

Total non-current liabilities

 

3,175

3,659

 

 

 

 

Net assets

 

145,623

150,521

 

 

 

 

Equity and reserves

 

 

 

Share capital

24

1,700

1,700

Retained earnings

 

143,923

148,821

Total equity and reserves

 

145,623

150,521

 

The comparatives are for the period from incorporation on 10 April 2018 to 31 December 2018.

 

The notes form an integral part of this financial information.  The Company Registration Number is 11302859.

 

 

Consolidated Statement of Changes in Equity

 

For the year ended 31 December 2019

 

 

Note

Share capital

Share premium

Retained earnings

Total equity

 

£000

£000

£000

£000

 

 

 

 

 

 

Balance brought forward 1 January 2019

 

1,700

-

148,821

150,521

Profit for the year

 

-

-

144

144

Share-based payments

26

-

-

252

252

Dividends payable

13

-

-

 

-

Dividends paid

13

-

-

(5,294)

(5,294)

Balance at 31 December 2019

 

1,700

-

143,923

145,623

 

 

 

 

 

 

On incorporation at 10 April 2018

 

-

-

-

-

Loss for the Period

 

-

-

(1,716)

(1,716)

Share-based payments

26

-

-

480

480

Dividends payable

13

-

-

(1,316)

(1,316)

Issue of share capital

24

1,700

163,300

-

165,000

IPO costs related to equity issue

 

-

(6,722)

-

(6,722)

Capital reduction

25

-

(156,578)

156,578

-

Share buyback

25

-

-

(5,205)

(5,205)

Balance at 31 December 2018

 

1,700

-

148,821

150,521

 

The comparatives are for the period from incorporation on 10 April 2018 to 31 December 2018.

 

The notes form an integral part of this financial information.

 

Consolidated Cash Flow Statement

 

For the year ended December 2019

 

 

 

Year ended

31 December 2019

Period to

31 December 2018

 

Note

£000

£000

Cash flows from operating activities

 

 

 

Profit / (loss) for the year/Period after taxation

 

144

(1,716)

Adjustments for non-cash items:

 

 

 

Amortisation of intangible assets

6

186

122

Depreciation of tangible assets

6

442

-

Fair value reduction in contract assets

6

2,095

-

Share-based payments

7

252

480

Finance costs

10

94

12

Deferred tax charge / (credit) for year / Period

11

23

(273)

 

 

3,236

(1,375)

Changes in working capital

 

 

 

(Decrease) / increase in payables

 

(1,386)

2,160

Increase trade investments

 

(4,621)

(1,949)

Increase in receivables

 

(14,234)

(89,693)

Net cash outflow from operating activities

 

(17,005)

(90,857)

 

 

 

 

Cash flows from investing activities

 

 

 

Payments for purchase of tangible assets

15

(97)

(410)

Net cash outflow from investing activities

 

(97)

(410)

Cash flows from financing activities

 

 

 

Proceeds from the issue of share capital

24

-

150,000

Share issue expenses

25

-

(6,722)

Share buyback

 

-

(5,205)

Payments of lease liabilities

22

(307)

-

Dividends paid

 

(6,610)

-

Net cash (outflow) / inflow from financing activities

(6,917)

138,073

Net (decrease) / increase in cash and cash equivalents

(24,019)

46,806

Cash and cash equivalents brought forward

 

46,806

-

Cash and cash equivalents at 31 December 2019

20

22,787

46,806

 

The comparatives are for the period from incorporation on 10 April 2018 to 31 December 2018.

 

The notes form an integral part of this financial information.

 

 

Notes to the Consolidated Financial Information

 

For the year ended 31 December 2019

 

1. General Information and Basis of Preparation

 

General information

Urban Exposure Plc is a public limited Company in England and Wales with Company registration number 11302859. The Company's Ordinary Shares are traded on the Alternative Investment Market ("AIM"), operated by the London Stock Exchange.

 

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.

 

Year of account and Comparative Period of account

The condensed Group Financial Statements are in respect of the year ended 31 December 2019.

The comparatives are for the period ("the Period") from incorporation on 10 April 2018 to 31 December 2018.

 

Basis of preparation

The condensed Group financial statements for the year ended 31 December 2019 included in this report do not constitute the Group's statutory accounts for the year ended 31 December 2019 but are derived from those accounts.  The auditor has reported on those accounts; their report was unqualified, but drew attention to by way of emphasis of matter 1) post balance sheet events in relation to the decision to realise the Group's loan book through an orderly wind down and to subsequently return capital to shareholders and the post balance sheet impact of Covid-19; and 2) the transaction with a related party undertaken without the prior approval of shareholders and therefore in contravention of Section 200 of the Companies Act 2006 and Rule 13 of the AIM Rules for Companies.  Their report and did not contain statements under s498(2) or (3) Companies Act 2006 or equivalent preceding legislation.

While the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs.

The condensed Group Financial Information has been prepared on a basis consistent with that adopted in the previous year's published financial statements and in accordance with IFRSs.

The Group expects to publish statutory financial statements for the year ended 31 December 2019 that comply with both IFRSs as adopted for use in the European Union and IFRSs as compliant with the Companies Act 2006 based on the information presented in this announcement.

The condensed Financial Information in this report was approved by the Board on 25 June 2020.

Audited statutory accounts for the period ended 31 December 2018 have been delivered to the registrar of companies. The Independent Auditors' Report on the Annual Report and Financial Statements for 2018 was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under s498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation.

The financial statements of Urban Exposure Plc for the year ended 31 December 2019 were authorised for issue by the Board of Directors on 25 June 2020and the balance sheet was signed on behalf of the Board by Sam Dobbyn, Chief Executive Officer. 

 

The financial information presented in the 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 year ended 31 December 2019 and the comparative Period.  

 

The consolidated Financial Information of the Group comprise 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 IFRSs as issued by the International Accounting Standards Board ("IASB") and as adopted by the European Union.

 

The 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 3. 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

In preparing this Financial Information, the Directors have considered the uncertainty created by COVID-19. Whilst there are many unknowns at the time of writing, it is clear that the extent and nature of the impacts to the Group will be determined by both the number of people infected, national and individual responses as well as our own business continuity actions.

 

The Group has successfully activated its business continuity plans to minimise the risk of disruption to business operations, considering Government advice and the need to safeguard the health of its employees as well as its borrowers.

 

The Directors have performed cash flow forecasts for a period of at least twelve months from the date of approval of the Financial Information which take account of reasonably possible downsides in relation to the timing and recovery of Loan Receivables. They have also considered the Group's latest budget and forecasts, current and forecast cash balances, and the results of sensitivity analysis and stress testing.

 

Consequently, the Directors are confident that the Group will have sufficient funds to continue to meet its liabilities as they fall due for at least twelve months from the date of approval of the financial statements and therefore have prepared the Financial Information on a going concern basis. As a result of the impact of COVID-19 and the non-completion of the proposed Transaction with HHL the Group carried out a strategic review of its options in April 2020. Having completed the review, the Board took the decision to realise the value of the loan book through an orderly wind down and to subsequently return capital to shareholders. These actions may have an impact on the carrying value of the Group's assets which may require impairment although it is not possible for the Group to estimate this impact with a high degree of certainty.

 

New standards, interpretations and amendments effective from the beginning of the year

New standards, interpretations and amendments effective from 1 January 2019

* IFRIC 23 Uncertainty over Income Tax Treatments (IFRIC 23)

 

The taxation accounting policy reflects the amended Group policy. Note 3 gives further details the estimates and assumptions regarding current tax. There is no significant impact as a result of the implementation of this interpretation.

 

Other new and amended standards and Interpretations issued by the IASB that will apply for the first time in the next annual financial statements are not expected to impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

 

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 in future accounting periods that the group has decided not to adopt early.

 

The following amendments are effective for the period beginning 1 January 2020:

 

* IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Definition of Material)

* IFRS 3 Business Combinations (Amendment - Definition of Business)

* Revised Conceptual Framework for Financial Reporting

 

Urban Exposure Plc does not expect these new accounting standards and amendments will have a material impact on the Group.

 

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 2019. Subsidiaries are all entities over which the Company has control. The Company controls an investee when:

 

1. It has power over the investee

2. Is exposed, or has rights to variable returns from, its involvement with the investee; and

3. 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 year 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 Statements 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 income 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. Fees are chargeable based on the value of assets under management and are assessed and invoiced on a monthly basis.

 

The Group receives carried interest from 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 period of the loan), the income 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 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 Fair Value Through Profit and Loss ("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 and contract assets 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 financial assets. On acquisition these are recognised by discounting the estimated future cash flows at a rate reflecting the risk associated with the cash flows. These assets are subsequently measured at fair value with changes in fair value recorded in the income statement. 

 

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 Unit's (CGU's) expected to benefit from the synergies of the business combination. The CGUs to which goodwill have 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

Leases are recognised when the Group enters 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 Company'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. If 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

 

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 Statements 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.

 

When there is uncertainty concerning the Group's filing position regarding the tax bases of assets or liabilities, the taxability of certain transactions or other tax-related assumptions, then the Group:

 

  • Considers whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution.
  • Determines if it is probable that the tax authorities will accept the uncertain tax treatment; and
  • If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty.

 

This measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all related information when making those examinations.

 

Earnings per share

Basic earnings per share is 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 attached 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, equipment and motor vehicles are stated at cost less accumulated depreciation and any recognised impairment loss.

 

Depreciation is provided on all tangible fixed 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 years 

 

The 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 payments are 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 Statements. Post year-end events that are not adjusting events are disclosed in the notes, where material.

 

3.  Significant Accounting Judgements, Estimates and Assumptions

 

The preparation of the Group's Financial Information requires management to make judgements, 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.

 

Judgements and estimates

In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the Consolidated Financial Statements:

 

(a) Determination of fair values

 

A number of assets and liabilities included in the Group's Financial Statements 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 Statements, 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) 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 judgement 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.

 

(c) 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 as it falls due, breach of loan covenants, construction cost over-runs or significant reductions in gross development values.

 

(d) Current tax

 

During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Group recognises tax liabilities based on estimates of whether additional taxes and interest will be due.

 

The Group believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law.

 

No material uncertain tax positions exist as at 31 December 2019. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such determination is made.

 

(e) Deferred tax

 

In determining the quantum of deferred tax balances to be recognised, judgement 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 the 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

 

 

 

Carrying amount

At 31 December 2019

Note

FVTPL

Amortised cost

Total

 

 

£000

£000

£000

Financial assets

 

 

 

 

Investments

16

6,570

 

6,570

Loan receivables

18

103,630

 

103,630

Contract assets

19

306

 

306

Trade and other receivables

19

 

1,292

1,292

Cash and cash equivalents

20

 

22,787

22,787

Total financial assets

 

110,506

24,079

134,585

 

 

 

 

 

Financial liabilities

 

 

 

 

Trade and other payables

21

 

1,829

1,829

Total financial liabilities

 

-

1,829

1,829

 

 

 

 

 

 

 

Carrying amount

At 31 December 2018

Note

FVTPL

Amortised cost

Total

 

 

£000

£000

£000

Financial assets

 

 

 

 

Investments

16

1,949

-

1,949

Loan receivables

18

89,544

-

89,544

Contract assets

19

3,154

-

3,154

Trade and other receivables

19

-

454

454

Cash and cash equivalents

20

-

46,806

46,806

Total financial assets

 

94,647

47,260

141,907

 

 

 

 

 

Financial liabilities

 

 

 

 

Trade and other payables

21

-

3,217

3,217

Total financial liabilities

 

-

3,217

3,217

 

(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.

 

(iv) Financial instruments measured at fair value

 

The fair value hierarchy of financial instruments measured at fair value is provided below.

 

 

 

2019

2018

 

 

Fair value

Fair value

At 31 December

 

Level 3

Level 3

 

 

£000

£000

Financial assets

 

 

 

Investments

 

6,570

1,949

Loan receivables

 

103,630

89,544

Contract assets

 

306

3,154

Total financial assets

 

110,506

94,647

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.

 

Financial instrument

Valuation techniques used

Significant unobservable inputs

(Level 3 only)

Inter-relationship between key unobservable inputs and fair value (Level 3 only)

As at

31 December 2019

As at

31 December 2018

 

 

 

 

£000

£000

Loan receivables

Initial transaction costs plus pro-rata share of fees plus accrued interest adjusted for changes in credit risks or market movements.

 

Profile and timing of loan drawdowns. Assumption that loan can be syndicated to third parties at the fair value.

The earlier the timing of the drawdowns and the higher the values of the drawdown the higher the fair value of the loan receivables

103,630

89,544

Equity investments

 

Initial transaction costs subsequently value at fair value based on projected future earnings discounted at an appropriate discount rate.

 

Profile and timing of loan drawdowns which determine profile and timing of investment and return on investment.

The earlier the timing of the drawdowns and the higher the values of the drawdown the higher the fair value of the investment.

6,570

1,949

Contract assets

 

Discounting the estimated future cash flows at a rate reflecting the risk associated with the cash flows.

Expected future cash receipts and risk adjusted discount rate.

The higher the cash flows the greater the valuation. A higher discount rate results in a lower valuation.

306

3,154

 

 

 

Total financial assets

110,506

94,647

 

The reconciliation of the opening and closing fair value balance of Level 3 financial instruments is provided below:

 

 

 

Movement to 31 December 2019

Reconciliation of fair value balances  - Level 3

Loan receivables

Investments

Contract assets

 

 

£'000

£'000

£'000

Balance at 1 January 2019

        89,544

          1,949

          3,154

New loans advanced during year

        59,033

          4,777

                -  

Loan Repayments / Contract asset receipts

 

       (47,020)

                -  

           (887)

Loan Sold to Asset Management structures

         (8,227)

                -  

                -  

Fair value reduction in contract assets

                -  

                -  

        (2,095)

Fair value through income statement

        10,300

            (156)

             134

Balance at 31 December 2019

    103,630

         6,570

            306

 

 

 

 

 

 

 

 

 

 

 

 

Movement to 31 December 2018

Reconciliation of fair value balances  - Level 3

Loan receivables

Investments

Contract assets

 

 

£'000

£'000

£'000

Balance at 10 April 2018

 

                -  

                -  

                -  

New loans/investments advanced during Period

      104,823

          1,949

          -

Contract assets acquired at fair value during Period

      -

-

          3,544

Loan Repayments / Contract asset receipts

        (7,010)

                -  

        (1,069)

Loan Sold to Asset Management structures

      (11,488)

                -  

                -  

Fair value through income statement

          3,219

                -  

             679

Balance at 31 December 2018

       89,544

         1,949

         3,154

 

 

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 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.

 

The maximum exposure to credit risk for financial assets by geographic region was as follows:

 

 

At 31 December 2019

 

Analysis by Geographic Region

Loan receivables

Investments

Contract assets

Trade and other receivables

Cash and cash equivalents

Total

£'000

£'000

£'000

£'000

£'000

£'000

Greater London

          23,168

                 -  

                 -  

            1,204

          22,787

          47,159

East of England

            6,228

                 -  

                 -  

                 -  

                 -  

            6,228

Midlands

            1,214

                 -  

                 -  

                 -  

                 -  

            1,214

South East

          39,348

                 -  

                 -  

                 -  

                 -  

          39,348

South West

          13,579

                 -  

               225

                 -  

                 -  

          13,804

North West

            2,097

                 -  

                 81

                 -  

                 -  

            2,178

Wales

          17,996

                 -  

                 -  

                 -  

                 -  

          17,996

Outside of UK

                 -  

            6,570

                 -  

                 88

                 -  

            6,658

 

      103,630

          6,570

              306

          1,292

        22,787

      134,585

 

 

 

 

 

 

 

 

As at 31 December 2018

 

Analysis by Geographic Region

Loan receivables

Investments

Contract assets

Trade and other receivables

Cash and cash equivalents

Total

£'000

£'000

£'000

£'000

£'000

£'000

Greater London

            1,222

                 -  

            2,180

               454

          46,806

          50,662

East of England

          39,121

                 -  

                 -  

                 -  

                 -  

          39,121

Midlands

                 -  

                 -  

               463

                 -  

                 -  

               463

South East

          21,826

                 -  

               237

                 -  

                 -  

          22,063

South West

            7,469

                 -  

               197

                 -  

                 -  

            7,666

North West

            1,419

                 -  

                 77

                 -  

                 -  

            1,496

Wales

          18,487

                 -  

                 -  

                 -  

                 -  

          18,487

Outside of UK

                 -  

            1,949

                 -  

                 -  

                 -  

            1,949

 

        89,544

          1,949

          3,154

              454

        46,806

      141,907

 

Four loan receivables represented £70,501,000 (2018: £72,330,000) of the loan receivable 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 £22,787,000 (2018: £46,806,000) are held with a Regulated Bank given an A-1 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:

 

 

 

At 31 December 2019

 

 

0-1 month

1-3 months

3-6 months

Total

 

 

£000

£000

£000

£000

Trade and other payables

640

669

520

1,829

 

 

640

669

520

1,829

 

 

 

 

 

 

 

 

At 31 December 2018

 

 

0-1 month

1-3 months

3-6 months

Total

 

 

£000

£000

£000

£000

Trade and other payables

873

367

1,977

3,217

 

 

873

367

1,977

3,217

 

The Board receives cash flow projections on a monthly basis as well as information regarding cash balances. At the end of the year 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:

 

 

 

At 31 December 2019

 

 

Fixed and Floating

interest rate

Floating interest rate

Non-Interest bearing

Total

 

 

£000

£000

£000

£000

Financial assets

 

 

 

 

 

Investments

 

6,570

 

 

6,570

Loan receivables

 

103,630

 

 

103,630

Contract assets

 

 

306

306

Trade and other receivables

 

 

1,292

1,292

Cash and cash equivalents

 

22,787

 

22,787

Total financial assets

 

110,200

22,787

1,598

134,585

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

Trade and other payables

 

 

1,829

1,829

Total financial liabilities

 

-

-

1,829

1,829

 

 

 

 

 

 

 

 

 

At 31 December 2018

 

 

Fixed and Floating interest rate

Floating interest rate

Non-Interest bearing

Total

 

 

£000

£000

£000

£000

Financial assets

 

 

 

 

 

Investments

 

1,949

 

 

1,949

Loan receivables

 

89,544

 

 

89,544

Contract assets

 

 

3,154

3,154

Trade and other receivables

 

 

454

454

Cash and cash equivalents

 

46,806

-

46,806

Total financial assets

 

91,493

46,806

3,608

141,907

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

Trade and other payables

 

 

3,217

3,217

Total financial liabilities

 

-

-

3,217

3,217

 

The investments and loan receivables are valued at fair value 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 Group are reviewing alternative interest rate benchmarks to LIBOR in preparation to transition to an alternative benchmark before the end of 2021. The impact of this change is uncertain at this stage but it is not expected to have a significant impact.

 

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 interest rates are changed by 1% whilst all other variables were held constant.

 

 

 

At 31st December 2019

 

 

Value in Financial Statement

+ 1% change in interest rate

- 1% change in interest rate

 

 

£000

£000

£000

 

 

 

 

 

Investments

 

6,570

6,847

6,299

Loan receivables

 

103,630

104,181

103,084

Contract assets

 

306

312

299

Balance at 31 December 2019

110,506

111,340

109,682

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2018

 

 

Value in Financial Statement

+ 1% change in interest rate

- 1% change in interest rate

 

 

£000

£'000

£'000

 

 

 

 

 

Investments

 

1,949

1,949

1,949

Loan receivables

 

89,544

89,709

89,379

Contract assets

 

3,154

3,178

3,130

Balance at 31 December 2018

94,647

94,836

94,458

 

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 year, the Group did not have any loans and borrowings, therefore the debt to capital ratio is 0%. The capital at the year-end is £145,623,000 (2018: £150,521,000).

 

5. Income

 

The Group income was derived as follows:

 

 

For the year ended 31 December 2019

For the period ended 31 December 2018

 

£000

£000

Fair value income from loan receivables

10,242

3,219

Income from contract assets

134

679

Fair value decrease

(152)

-

Management Fees

790

5

Other income

58

-

Total Fees Income

11,072

3,903

 

6. Operating Profit / (Loss) for the Year / Period

 

The Group operating profit / (loss) is stated after charging:

 

 

For the year ended 31 December 2019

For the period ended 31 December 2018

 

£000

£000

Amortisation of intangible assets

186

122

Depreciation of right-of-use leasehold

386

-

Depreciation of tangible assets

56

-

Fair value reduction in contract assets

2,095

-

Exceptional items (note 9)

474

869

 

 

 

Auditors remuneration comprises:

 

 

Fees payable to the auditor for the Group audit

75

112

Fees payable to the auditor for the audit of the subsidiaries

55

17

 

130

129

Fees payable to the auditor and its related entities for other services:

 

 

Audit related assurance services

34

61

Tax compliance services

24

24

Tax advisory services

13

118

Other services

-

14

Fees for Corporate Services related to transactions

88

210

Fees included within administrative expenses

289

556

Fees for corporate finance services related to the IPO charged to the share premium

-

120

Total Fees payable to auditor

289

676

 

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 20 November 2018, it was not in a condition available for use until January 2019 hence amortisation and depreciation of fixed assets related to the leasehold asset is charged from 2019 onwards.

 

 

7. Operating Costs

 

The Group's operating costs are stated after charging:

 

 

For the year ended 31 December 2019

 

Before

Exceptional

items

Exceptional items

Total

 

£000

£000

£000

Staff costs

4,693

-

4,693

Share based payments

252

-

252

Rent, rates and office costs

476

-

476

Marketing

544

-

544

Audit & Accountancy

153

-

153

Legal & Professional Fees

739

474

1,213

IPO costs

-

-

-

Amortisation & Depreciation

628

-

628

Fair value reduction in contract assets

2,095

-

2,095

Other overheads

757

-

757

 

10,337

474

10,811

 

 

 

 

 

For the period ended 31 December 2018

 

Before Exceptional items

Exceptional items

Total

 

£000

£000

£000

Staff costs

3,122

-

3,122

Share based payments

480

-

480

Rent, rates and office costs

115

-

115

Marketing

113

-

113

Audit & Accountancy

128

-

128

Legal & Professional Fees

332

256

588

IPO costs

-

613

613

Amortisation & Depreciation

122

-

122

Other overheads

599

-

599

 

5,011

869

5,880

           

 

Exceptional items are detailed in note 9.

 

8. Employee and Key Management Emoluments

 

The employee and Directors costs were as follows:

 

 

For the year ended 31 December 2019

For the period ended 31 December 2018

 

£000

£000

 

 

 

Salaries

4,208

2,740

Social security costs

457

374

Contributions to defined contribution pension schemes

28

8

 

4,693

3,122

Share based payment (note 26)

252

480

 

4,945

3,602

 

 

 

 

 

 

The average monthly number of employees (including Directors) during the year/Period was as follows:

 

 

 

 

 

 

Number

Number

Management

7

6

Administrative

11

6

Sales & Risk assessment

12

9

 

30

21

         

 

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.

 

 

For the year ended

31 December 2019

For the period ended 31 December 2018

Key management Emoluments

£000

£000

Salary

1,865

1,399

Other benefits

20

22

Social security costs

260

201

Pension costs to defined contributions schemes

9

4

Emoluments before share-based payment charges

2,154

1,626

Share based payment charges

-

270

 

2,154

1,896

 

9. Exceptional Items

 

The following costs were identified as exceptional:

 

 

 For the year ended

31 December 2019

 For the period ended

31 December 2018

 

 £000

 £000

Bond issue costs

                       289

                         -  

Settlement of dispute

                       400

                         -  

Exceptional legal and professional costs related to investments and syndication of loans

                     (215)

                       256

IPO costs

                         -  

                       613

Exceptional items before taxation

                      474

 

869

 

 

 

 

Taxation impact of exceptional items

                     (131)

                      -

 

 

 

Exceptional items after taxation

                      343

                      869

 

During the year, the group incurred one-off exceptional legal and professional costs of £289,000 relating to the proposed issue of 6.5% secured sterling bonds due 2026. A decision was subsequently made not to proceed with the Proposed Issue due to adverse market conditions during the offer period.

 

During the year, the Group reached a legal settlement with Jones Lang LaSalle Corporate Finance Limited ('JLL') in respect of a historic introduction arrangement of £400,000 as a full and final settlement.

Exceptional legal and professional costs of £215,000 incurred in setting up the syndication agreement with KKR in 2018 were repaid by KKR during the year. In 2018, exceptional set-up costs of £256,000 were incurred in defining the arrangement between the parties.

 

In 2018, costs of £613,000 related to the IPO and were expensed as a one-off non-recurring cost.

 

 

10. Finance Costs

 

 

For the year ended

31 December 2019

For the period ended

31 December 2018

 

£000

£000

 

 

 

Interest expense for right-of-use leased assets

94

12

 

94

12

 

11. Taxation

 

 

 For the year ended

31 December 2019

 For the period ended

31 December 2018

 

 £000

 £000

Current tax

                         -

                           -

Deferred tax

23

(273)

Taxation charge/(credit) for the year/Period

23

(273)

 

The standard current rate of tax for the year ended 31 December 2019 is 19% (2018: 19%).

 

Deferred tax has been accounted for at the substantively enacted Corporation Tax rate of 19%. (2018:19%).

 

The tax for the year/ Period is computed as follows:

 

 

 For the year ended 31 December 2019

 For the period ended 31 December 2018

 

 £000

 £000

Profit / (loss) before taxation

                      167

         (1,989)

 

 

 

 

 £000

 £000

Based on profit / (loss) at tax rate of 19%

                         32

                     (378)

Expenses not deductible for tax purposes

                           3

                       105

Adjustments for (over) provision in prior years

                       (12)

                         -  

Taxation charge / (credit) for the year / Period

                        23

(273)

 

12. Earnings Per Share (EPS)

 

Basic earnings/loss per share (EPS) has been calculated based on the profit / (loss) for the year / 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 profit/(loss) for the year / Period as shown in the Consolidated Statement of Comprehensive Income divided by the weighted average number of Ordinary Shares. For 2019, 2,783,334 share options were in issue of which 1,275,614 are dilutive. As minimum value conditions had not been met for the 1,500,000 management share options, they have been excluded as they would not have a dilutive effect. The dilutive effect is shown in the table below.

 

For 2018, although 3,150,000 share options were in issue, as these would have had an anti-dilutive effect were not included in the calculation of 'Weighted average number of shares for diluted earnings per share'.

 

 

 For the year ended

31 December 2019

For the period ended 31 December 2018

 

 £000

 £000

Profit / (loss) for the year / Period

                         144

                  (1,716)

Profit / (loss) for the year / Period excluding exceptional items

                       528

                     (847)

 

 

 

 

 Number of shares

 Number of shares

Weighted average number of shares for basic EPS

         158,494,130

         145,793,865

Dilutive effect of share options

             1,275,614

                         -  

Weighted average number of shares for diluted EPS

         159,769,774

         145,793,865

 

 

 

 

 For the year ended

31 December 2019

 For the period ended 31 December 2018

Basic profit / (loss) per share

 0.09p

 (1.18p)

Diluted profit / (loss) per share

 0.09p

 (1.18p)

Adjusted basic profit / (loss) per share

 0.33p

 (0.58p)

Adjusted diluted profit / (loss) per share

 0.33p

 (0.58p)

 

13. Dividends

 

 For the year ended 31 December 2019

 For the period ended 31 December 2018

 

 £000

 £000

Final dividend of 1.67 pence (2018: nil) per Ordinary share proposed and paid during the year relating to the previous Period's result

                    2,647

                         -  

 

 

 

Interim dividend of 1.67 pence (2018: 0.83 pence) per Ordinary share paid during the year / Period

                  2,647

                    1,316

 

The Board do not propose payment of a final dividend for the year (2018: 1.67 pence per share proposed).

 

14. Intangible Assets

 

 

 

For the year to 31 December 2019

 

 

Goodwill

Brand

Total

 

 £000

 £000

 £000

Cost

 

 

 

At 1 January 2019

            10,922

              1,874

            12,796

Acquired during the year

                   -  

                   -  

                   -  

Cost at 31 December 2019

            10,922

              1,874

            12,796

 

 

 

 

Amortisation

 

 

 

At 1 January 2019

                   -  

                 122

                 122

Charge for the year

                   -  

                 186

                 186

Amortisation at 31 December 2019

                   -  

                 308

                 308

Net Book value at 31 December 2019

10,922

1,566

12,488

 

 

 

 

 

 

For the period to 31 December 2018

 

 

Goodwill

Brand

Total

 

 £000

 £000

 £000

Cost

 

 

 

At 10 April 2018

                   -  

                   -  

                   -  

Acquired during the Period

            10,922

              1,874

            12,796

Cost at 31 December 2018

            10,922

              1,874

            12,796

 

 

 

 

Amortisation

 

 

 

At 10 April 2018

                   -  

                   -  

                   -  

Charge for the Period

                   -  

                 122

                 122

Amortisation at 31 December 2018

                   -  

                 122

                 122

Net Book value at 31 December 2018

10,922

1,752

12,674

             

 

There were no new acquisitions in the year.

 

Brands are amortised on a straight-line basis over their useful economic lives, currently estimated at 10 years.

 

The Group acquired the goodwill and the brands on acquisition of the business of Urban Exposure

Investment Management LLP on 9 May 2018, as detailed in note 27.

 

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 cash generating units. The directors consider that the goodwill is allocated to the overall business of Urban Exposure Plc as one cash generating unit (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. A discount rate of 11.0% was used.

 

The basis on which the unit's recoverable amount has been determined is the value in use of the asset over a five year period, discounted at 11.0%, the estimated weighted average cost of capital to the business over the next 5 years and assumes growth of the loans, primarily through asset management.

 

The Group has conducted an analysis of the sensitivity of the impairment test to changes in the key assumptions used to determine the recoverable 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 20% 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 9% 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

 

For the year ended 31 December 2019

 

 

Right-of-use short leasehold

Furniture, fixtures & fittings

Computer Equipment

Total

 

£000

£000

£000

£000

Cost

 

 

 

 

At 1 January 2019

3,839

418

19

4,276

Additions during the year

22

74

23

119

Remeasure of leasehold assets

(251)

-

-

(251)

Cost at 31 December 2019

3,610

492

42

4,144

 

 

 

 

 

Depreciation

 

 

 

 

At 1 January 2019

-

-

-

-

Charge for the year

386

49

7

442

Depreciation at 31 December 2019

386

49

7

442

 

 

 

 

 

Net Book value at 31 December 2019

3,224

443

35

3,702

           

 

 

 

 

 

 

 

 

For the period ended 31 December 2018

 

Right-of-use short leasehold

Furniture, fixtures & fittings

Computer Equipment

Total

 

£000

£000

£000

£000

Cost

 

 

 

 

At 10 April 2018

-

-

-

-

Acquired during the Period

3,839

418

19

4,276

Cost at 31 December 2018

3,839

418

19

4,276

 

 

 

 

 

Depreciation

 

 

 

 

At 10 April 2018

-

-

-

-

Charge for the Period

-

-

-

-

Depreciation at 31 December 2018

-

-

-

-

 

 

 

 

 

Net Book value at 31 December 2018

3,839

418

19

4,276

 

 

 

 

 

At 10 April 2018

-

-

-

-

                 

 

A right-of-use short leasehold was acquired 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. The date of first use of all the assets is January 2019, hence there was no depreciation charge for 2018.

 

16. Investments

 

Trade Investments under IFRS 9

 

 £000

Valuation

 

At 1 January 2019

                       1,949

Acquired during the year

                       4,777

Fair value adjustment during year

                        (156)

Valuation at 31 December 2019

                     6,570

 

 

Valuation

 £000

On incorporation at 10 April 2018

                            -  

Investment during the Period

                       1,949

Fair value adjustment during the Period

                            -  

Valuation at 31 December 2018

                     1,949

 

The Group invested £6,726,000 (2018: £1,949,000) and have reduced this to £6,570,000 (2018: £1,949,000) as this represents the valuation of the equity investment on a discounted cash flow basis.

 

The Group entered into a partnership agreement with KKR in which the Group has a 9% 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.

 

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 the Consolidated Financial Information, are:

 

Name of company

 Country of Incorporation and Principal place of business

 Proportion of ownership interest at 31 December 2019

 Principal Activity

 

 

 

 

Urban Exposure Holdings Limited

United Kingdom

100%

Holding company

Urban Exposure Finance Plc

United Kingdom

100% *

Dormant

Urban Exposure Lendco Limited

United Kingdom

100% *

Development finance

UE SFA 1 Limited

United Kingdom

100% *

Asset management

Urban Exposure Amco Limited

United Kingdom

100% *

Support services

LW UE (Davies Street) Limited

United Kingdom

100% *

Support services

UEIM Limited

United Kingdom

100% *

Dormant

 

All the subsidiaries are registered at 6 Duke Street St. James's, London SW1Y 6BN.

 

During the year, UEIM Limited was incorporated on 17 January 2019 and Urban Exposure Finance plc was incorporated on 3 July 2019.

 

In 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.

 

LW UE (Davies Street) Limited was incorporated 5 October 2018.

 

18. Loan Receivables

 

At 31 December 2019

At 31 December 2018

 

£000

£000

 

 

 

Loan receivables

103,630

89,544

 

See note 4 for further disclosures relating to financial assets.

 

19. Trade and Other Receivables

 

 

At 31 December 2019

At 31 December 2018

 

£000

£000

Trade receivables

88

-

Contract assets

306

3,154

Other receivables

1,204

454

Total financial assets

1,598

3,608

Prepayments

147

85

Total trade and other receivables

1,745

3,693

Less: Non-current portion of trade receivables

-

(254)

Less: Non-current portion of other receivables

(421)

(422)

Current portion

1,324

3,017

 

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 are secured by a charge on the assets being developed and are repayable based on the expected sales of those assets. The contract assets were reduced by a fair value decrease of £2,095,000 in the year (2018:£nil).

 

Included within trade receivables is a contract asset of £ nil (2018: £254,000) which is expected to be repaid after more than one year.

 

Included within other receivables is a deposit of £422,000 (2018: £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

 

 

At 31 December 2019

At 31 December 2018

 

£000

£000

 

 

 

Cash and cash equivalents - unrestricted

22,787

46,806

 

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

 

 

At 31 December 2019

At 31 December 2018

 

£000

£000

Trade payables

739

1,096

Other creditors

589

117

Accruals

501

2,004

 

1,829

3,217

 

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:

 

 

At 31 December 2019

 

Total

Within 1 year

After more than 1 year

 

 

£000

£000

£000

 

Payable within 1 year

295

295

-

 

Payable between 1-2 years

413

-

413

 

Payable between 2-5 years

892

-

892

 

Payable after more than 5 years

1,763

-

1,763

 

 

3,363

295

3,068

 

 

 

 

 

 

At 31 December 2018

 

Total

Within 1 year

After more than 1 year

 

 

£000

£000

£000

 

Payable within 1 year

229

229

-

 

Payable between 1-2 years

325

-

325

 

Payable between 2-5 years

1,220

-

1220

 

Payable after more than 5 years

2,031

-

2031

 

 

3,805

229

3,576

 
             

 

The lease liabilities are in respect of the right-of-use leasehold premises acquired in the prior Period for the head office premises.

 

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.

 

An analysis in the movement of lease liabilities is given below:

 

 

At 31 December 2019

At 31 December 2018

 

£000

£000

Balance brought forward

3,806

-

Addition

22

3,794

Interest expense

94

12

Remeasure of variable lease charges

(252)

-

Lease payments

(307)

-

 

3,363

3,806

 

23. Deferred Tax

 

The net deferred tax movement is as follows:

 

 

At 31 December 2019

 

Brand

Accelerated capital allowances

Other temporary timing differences

Losses carried forward

Total

 

 

£000

£000

£000

£000

£000

 

Balance at 1 January 2019

(333)

(37)

98

189

(83)

 

Credit/(charge) to income statement in year

36

(8)

40

(92)

(24)

 

Deferred tax liability at

31 December 2019

(297)

(45)

138

97

(107)

 
               

 

 

 

 

 

 

 

 

At 31 December 2018

 

 

Brand

Accelerated capital allowances

Other temporary timing differences

Losses carried forward

Total

 

 

£000

£000

£000

£000

£000

 

Balance at 10 April 2018

-

-

-

-

-

 

Deferred tax on intangible asset acquired (note 27)

(356)

-

-

-

(356)

 

Credit/(charge) to income statement in Period

23

(37)

98

189

273

 

Deferred tax liability at

31 December 2018

(333)

(37)

98

189

(83)

 
                       

 

Deferred tax has been accounted for at the substantively enacted Corporation Tax rate of 19%.

 

 

24. Share Capital

 

Share capital has been issued as follows:

 

 

 

Value per share

Ordinary Shares

Deferred Shares

Total

 

Number

£

£000

£000

£000

Issued at 10 April 18 on incorporation

1

1.00

-

 

-

 

Issued at 16 April 2018

49,999

1.00

50

 

50

 

Shares as at 30th April 2018

50,000

 

50

-

50

 

 

 

 

 

 

 

 

Sub-division of 50,000 £1 shares converted to 5,000,000 1p shares at 30 April 2018

5,000,000

0.01

50

 

50

 

Shares re-organised into Ordinary and Deferred shares at 30 April 2018

 

0.01

(50)

50

-

 

Issued in share exchange 9 May 2018

14,950,000

0.01

150

 

150

 

Issued at IPO 9 May 2018

150,000,000

0.01

1,500

 

1,500

 

Balance at 31 December 2018

169,950,000

 

1,650

50

1,700

 

Movement to 31 December 2019

-

 

-

-

-

 

Balance at 31 December 2019

169,950,000

 

1,650

50

1,700

 
                       

 

The movement in the number of shares issued is shown as below:

 

 

Ordinary Shares No.

Deferred Shares

Treasury Shares

Total

 

Number

Number

Number

Number

Issued 10 April 18 on incorporation

1

 

 

1

Issued at 16 April 2018

49,999

 

 

49,999

Shares as at 30 April 2018

50,000

-

-

50,000

Subdivision 50,000 £1 shares converted to 5,000,000 1p shares at 30 April 2018

5,000,000

 

 

5,000,000

Shares re-organised into Ordinary and Deferred Shares 30 April 2018

(4,950,000)

4,950,000

 

-

Issued in share exchange 9 May 2018

14,950,000

 

 

14,950,000

Issued at IPO 9 May 2018

150,000,000

 

 

150,000,000

Shares re-purchased as Treasury shares 14 November 2018

(6,505,870)

-

6,505,870

-

Balance at 31 December 2018

158,494,130

4,950,000

6,505,870

169,950,000

Movement to 31 December 2019

-

-

-

-

Balance at 31 December 2019

158,494,130

4,950,000

6,505,870

169,950,000

 

There was no movement in share capital during the year.

 

The following movements in share capital occurred during the prior Period:

 

On incorporation on 10 April 2018, the Company issued 1 Ordinary Shares of £1 each 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 subdivided 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 of Deferred Shares of £0.01 each.

 

On 9 May 2018, the Company entered 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 a 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

 

 

Share premium

 

£000

Balance at 10 April 2018

-

Share premium arising on Ordinary Shares issued

163,300

Share issue costs

(6,722)

Transfer to retained earnings

(156,578)

Balance at 31 December 2018

-

Movement to 31 December 2019

-

Balance at 31 December 2019

-

 

There was no movement in share premium during the year.

 

The following movements in share premium occurred during the prior Period:

 

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 judgement 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

 

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, both were set up during the prior 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 ("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 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 included in operating costs comprises:

 

 

For the year to

31 December 2019

For the period to

31 December 2018

 

£000

£000

Total share-based payment

                   252

                     480

 

The following table illustrates the number and movement in share options during the year.

 

 

For the year ended 31 December 2019

Description of Share Options

Number of options

Weighted average Exercised price (pence)

Grant date/ (Lapsed date)

 Vesting date

Weighted average remaining contractual life (years)

 

LTIP share option issued

183,334

1

09/05/2018

31/12/2018

9 years

 

LTIP share option issued

550,000

1

09/05/2018

31/12/2019

9 years

 

LTIP share option issued

550,000

1

09/05/2018

31/12/2020

9 years

 

MSO issued

1,500,000

100

09/05/2018

09/05/2021

9 years

 

Brought forward at

1 January 2019

2,783,334

 

 

 

 

 

Forfeited in year

(19,736)

 

 

 

 

 

Lapsed in year

(550,000)

 

 

 

 

 

 

2,213,598

 

 

 

 

 

Analysed as:

 

 

 

 

 

 

Share options exercisable

163,598

 

 

 

 

 

Share options not exercisable

2,050,000

 

 

 

 

 

 

2,213,598

 

 

 

 

 
               

 

 

 

The following table illustrates the number and movement in share options during the prior Period.

 

 

For the period ended 31 December 2018

Description of Share Options

Number of options

Weighted average Exercised price (pence)

Grant date/ (Lapsed date)

 Vesting date

Weighted average remaining contractual life (years)

As at 10 April 2018

-

 

 

 

 

Issued in Period

 

 

 

 

 

LTIP share option issued

550,000

1

09/05/2018

31/12/2018

10 years

LTIP share option issued

550,000

1

09/05/2018

31/12/2019

10 years

LTIP share option issued

550,000

1

09/05/2018

31/12/2020

10 years

MSO issued

1,500,000

100

09/05/2018

09/05/2021

10 years

LTIP share options lapsed in period

(366,666)

 

31/12/2018

 

 

 

2,783,334

 

 

 

 

Analysed as:

 

 

 

 

 

Share options exercisable

183,333

 

 

 

 

Share options not exercisable

2,600,001

 

 

 

 

 

2,783,334

 

 

 

 

 

The fair value of the share-based payments for the LTIP and the MSO at the date of their issue was calculated based on the Black Scholes Pricing model with the following assumptions:

 

 

LTIP

MSO

Share price at issue date(p)

100

100

Exercise price (p)

1

100

Risk-free rate of return

1.03%

1.03%

Volatility

24.23%

24.23%

Expected life of option (years)

5

5

Value per option (p)

76.93

11.10

 

27. Business Combinations

 

There were no business combinations in the year.

 

In the prior year, 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 each.

 

As stated last year, 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 Group 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 £7,072,000 and these were adjusted to fair value of £3,798,000 at the date of acquisition. During the measurement period following acquisition, a review of the tax basis for the contract assets acquired resulted in a further adjustment of £254,000.

 

Details of the (restated) fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

 

 

For the period to 31 December 2018

 

Original Fair Value

Measurement adjustment

Restated Fair Value

 

£000

£000

£000

Fair value of consideration

 

 

 

15,000,000 shares of £1 each

15,000

-

15,000

 

 

 

 

The following assets and liabilities were acquired:

£000

£000