TIDMDVNO
RNS Number : 8481U
Develop North PLC
30 March 2023
To: RNS
From: Develop North PLC
LEI: 213800EXPWANYN3NEV68
Date: 30 March 2023
Subject: Annual Financial Report
Chairman's Statement
Highlights
-- Net Asset Value total return of 2.3% (2021: 4.8%)
-- Increase in earnings per share from 3.1p to 3.7p
-- Total dividends of 4 pence per share paid or payable for the year
-- Loan facility with Shawbrook Bank Limited renewed to May 2023
-- Change of name to reflect more accurately the nature of the Company's activities
INTRODUCTION
I am pleased to present the Company's results for the year ended
30 November 2022, during which the Company entered its sixth year
of trading. Key themes during 2022 have been rising interest rates,
soaring inflation, much of it driven by rising energy prices after
Russia's invasion of Ukraine and post-Covid supply chain issues. As
to the real estate sector in which Develop North operates,
potential property buyers are effectively being left with less
money in their pockets just as mortgage rates have begun to
rise.
Meanwhile building supplies and building energy costs have gone
up along with domestic product affecting the market place. Later in
the year, the destabilising effects of a government U-turn,
covering a broad range of policies from windfall tax to fracking
were reversed within weeks, which seriously unsettled business
confidence, including the financial and foreign exchange
markets.
This was the background against which Develop North continued to
go about its business during the year, adding new and strongly
financed project loans to the portfolio while managing older
projects as they gradually exited.
OBJECTIVE; MANAGERIAL ARRANGEMENTS; COMPANY NAME
The Company seeks to achieve its investment objective through a
diversified portfolio of fixed rate loans secured over land and/or
property in the UK.
During the financial year under review, the Company changed its
name to Develop North PLC. The change of name took effect on 4 May
2022. The London Stock Exchange stock ticker symbol, previously
PBLT, became DVNO with effect from 6 May 2022. The Company's ISIN,
SEDOL and LEI designations remain unchanged.
The Directors believe that the new name reflects the Company's
refreshed investment strategy, existing portfolio exposure and
regionally focused investment objective, while the underlying
investment policy remains unchanged.
PERFORMANCE; REVENUE AND DIVIDS
Despite the testing market conditions described above, the
Company has adhered to the dividend policy established in 2021,
namely to pay dividends at a rate of 1 penny per share per quarter,
equivalent to 4 pence per share per year in aggregate.
Depending upon the performance of the investment portfolio and
considering broader market conditions, a final balancing payment
may be made at the end
of the financial year to ensure that the Company continues to
comply with HMRC's investment trust qualification criteria.
Revenue for the year to 30 November 2022 increased to 3.68 pence
per share (2021: 3.09 pence). The Board has declared and paid three
quarterly interim dividends of 1.0 pence per share for the year
ended 30 November 2022 and I am pleased to report that a fourth
interim dividend of 1.0 pence per share has been declared. This
dividend will be paid on 31 March 2023 to shareholders on the
register at the close of business on 17 March 2023 (ex-dividend
date 16 March 2023).
NET ASSET VALUE
The Company's net asset value ('NAV') fell to 81.8 pence per
share as at 30 November 2022, having been 83.9 pence twelve months
earlier. Taking into account dividends paid and declared for the
period, this equates to a positive net asset value total return for
the financial year of approximately 2.3% and after an impairment
charge reflecting tougher economic conditions expected in the year
ahead.
This figure may be placed into context by comparison with the
total return figures over the same period of the Association of
Investment Companies' ('AIC') 'Property-Debt' sector, of which the
Company is a component member, of +5.2% and of the AIC's
'Debt-Loans' sector of +6.6% (Source: AIC).
GEARING
Loan facilities during the year consisted of a GBP6.5 million
credit facility with Shawbrook Bank Limited, with GBP4.0 million
drawn down at the financial year end and GBP0.5 million repaid
since the year end. The facility provided by Shawbrook Bank Limited
was renewed to May 2023. The Directors understand from discussions
with Shawbrook that the facility will be renewed and it is intended
that this will take place in advance of its expiry date.
INVESTMENT PORTFOLIO; NEW INVESTMENTS; PROJECT IMPAIRMENTS
The total value of the Company's portfolio now stands at
GBP25.5m, from 17 projects, an increase of GBP7.3m since last
year.
New Investments The Company agreed two new loans during the
year, including a GBP2.2 million, nine month facility to fund the
construction of four family homes in Morpeth, Northumberland, and a
GBP1.9 million facility to fund the construction of executive homes
across two sites in Darras Hall, Ponteland and Stocksfield,
Northumberland.
In addition, further funds were invested in facilities created
during the second half of the previous financial year. This has led
to a significant increase in the total size of the loan book which
will support portfolio revenues over future months and years. The
change in interest rate environment is also being reflected in the
net rates of interest on new and refinanced projects. This will
help to mitigate the higher interest and higher inflation that the
Company is facing.
Exits There were three portfolio exits, bringing total exits to
fifteen since inception. In addition, partial redemptions occurred
for six other projects in the portfolio.
Impairments As specified by the requirements of accountancy
standard IFRS 9, the Company has reflected the more uncertain
economic conditions resulting in an increased general provision at
year end.
All loans are written balancing risk and return, whereby
contingencies are put in place, typically in the form of
capital/equity in the projects subordinate to the Company's loan.
This arrangement protects the Company in the event that the
underlying properties being supported do not realise the full
expected value and/or that the return of capital could be delayed
by sales taking longer. The Board and the Investment Adviser
believe that this substantially mitigates the risks associated with
the downturn.
The Investment Adviser's Report provides more detail on
performance and the activity within the loan portfolio. This
includes information on deployment of capital, progress on projects
undertaken as well as any profit share received, impairments and
uplifts on loans and loan redemptions.
BOARD OF DIRECTORS
As described in last year's annual report, new and slightly
lower levels of remuneration for board members were put in place
during the financial year. The revised scheme was put before
shareholders at the 2022 Annual General Meeting ('AGM') and the
Resolution was approved.
In accordance with the requirements of the UK Corporate
Governance Code all Directors will stand for re-appointment at the
AGM.
CHANGE OF AUDITOR
The appointment by the Directors of MHA MacIntyre Hudson as the
Company's auditor last year was ratified at the 2022 AGM, together
with their reappointment this year.
ANNUAL GENERAL MEETING
The Company's AGM will be held at The Grey Street Hotel, 2-12
Grey Street, Newcastle on Thursday, 27 April 2023 at 12 noon.
The Board strongly encourages all shareholders to exercise their
votes in respect of the meeting in advance, by completing and
returning their proxy forms. This will ensure that the votes are
registered. In addition, shareholders are encouraged to raise any
questions in advance of the AGM with the Company Secretary via
email to cosec@MaitlandGroup.com or by post to the Company
Secretary at the address set out in the Annual Report. Any
questions received will be replied to by the Company after the
AGM.
OUTLOOK
While market conditions are clearly testing, there are signs on
the horizon of improving markets. The British Chamber of Commerce
('BCC') recently estimated that core inflation, which passed 11% in
the fourth quarter of 2022 should slow to 5% by the final quarter
of 2023 and, optimistically, the BCC suggests inflation will return
to the Bank of England's target of 2% per annum by late 2024.
Interest rates are also not expected to rise indefinitely.
According to the Office of Budgetary Responsibility, the Bank Rate
is expected to peak at 4.8% by the end of 2023 before falling
back.
While economic forecasts may remain challenging in the months
ahead, Develop North will continue to seek out investment
opportunities of the highest quality. We are pleased to have
successfully delivered on last year's aims of increasing deployment
and investment income and by reducing the risk within the loan
book. We expect more of the same in the year ahead.
John Newlands
Chairman
30 March 2023
Investment Adviser's RePORT:
REVIEW OF THE 12 MONTHS TO 30 NOVEMBER 2022
Investment Adviser's Highlights:
-- Investment interest increased by 8% to GBP1.8m.
-- GBP11m deployed into 6 projects, reflecting an increase of
40.9% in the size of the loan book by year end.
-- NAV Total Return of 2.3% and an annualised dividend yield of
4.7% resulting in GBP1.1m of income distributed to
shareholders.
-- Exits of three portfolio projects, bringing the number of exits since inception to fifteen.
-- Loan to Value (LTV) has dropped to 66.8% from 71%, delivering
on our strategy to build risk resilience and improve the credit
quality of our loan book.
-- 68% of funds deployed in North East England reflecting the
Company's ongoing commitment to focus operations on our chosen
regional markets.
This Annual Report and Accounts covers the fifth full year of
performance and sixth audit review of the Company since its listing
in January 2017.
The Company's investment objective is to provide debt finance to
the property sector. The Company also benefits from a small number
of equity positions attained at nil cost in six of the borrowing
entities which it supports. In addition, the Company benefits from
exit fees on redemption of other projects that additionally
contributes to the Senior and Profit lending type.
This financial year has seen the base rate increase above 1% for
the first time since the global financial crisis of 2008. Market
expectations see these increases continuing into 2023 with a peak
of between 4% and 5%. These rises are the Bank of England's
response to the return of inflation in the UK which reached double
digit percentages during 2022. As a result, the UK economy is
likely to go into recession during 2023, but that is forecast to be
shallower yet longer than initially feared prior to the November
2022 government Autumn statement.
2022 saw house prices in the UK grow sharply with the forecast
for 2023 to be a reversal of some of those increases before a
return to moderate price rises from 2024 onwards. Build cost
inflation and labour shortages in the construction sector have
placed significant strain on development budgets and project
profitability. Build costs are expected to return to more stable
levels in 2023 which will relieve some of the challenges developers
are facing.
We expect the changes in the economy to provide challenges and
opportunities for the Company over the next twelve months and
beyond. Interest rate rises will increase the weighted average cost
of capital of the Company but we are already taking the opportunity
to increase the net income by charging higher rates on new loans
and to the existing loan book. The high street banks have withdrawn
further from development finance and the Company is taking the
opportunity to win further business by providing finance to
experienced developers with strong track records.
Deployment
Despite the ongoing uncertainties faced, we are pleased to
report an active year for new transactions, deployments to existing
projects together with full and partial exits.
The Company agreed two new facilities during the year:
-- Fairmoor, North East England - GBP2.2m 9-month facility
-- Moor Lane, North East England - GBP1.9m 18-month facility
During the year a total of GBP11.0m was deployed into six
projects including the two new projects mentioned above.
At the year-end, fund deployment totalled GBP25.5m, with 10.0%
headroom for net growth. The quality of the underlying loan book
continues to improve with the Loan to Value moving from 70.9% at 30
November 2021 to 66.8% at year end.
Portfolio Exits
Three loans were repaid during the year, bringing the number of
exits in the portfolio to fifteen since inception.
Partial Redemptions
During the year there were GBP3.5m of partial redemptions across
seven of the portfolio projects, including the three exits in the
year.
Impairments
In accordance with IFRS 9, the Company recognises the gross
interest receivable on all its loans and then recognises an
impairment charge if that interest is not paid by the borrower and
there is not a clear expectation that this can be recovered
subsequently. During the year, there were two projects unable to
meet their interest requirements in full.
IFRS 9 also requires the Company to consider various credit loss
scenarios and assign a risk weighting to these. This calculation
generates a provision which is taken as a further impairment for
the year. In this period the Company has increased the provision to
GBP114,000 from the GBP33,000 that was in place at 30 November
2021. This provision is based on forward looking scenarios to
withstand market-related shocks reflecting current economic
uncertainties.
Gearing
In May 2022, the Company renewed its committed revolving credit
facility with Shawbrook Bank for a further year. Again, the key
driver was headroom and liquidity and its renewal for a fifth year
demonstrates the support that the Company has from its lender, and
the growing confidence in future deployment given the current
strength of pipeline. As noted in the Chairman's Statement on page
5, it is intended that the facility will be renewed in advance of
its expiry.
PROFIT SHARE PROJECTS
There are currently six Profit Share projects in the portfolio
(November 2021: six).
REBRAND
In May 2022 the Company changed its name to Develop North PLC.
The Investment Adviser supports the view that the new name reflects
the Company's refreshed investment strategy, existing asset base
exposures and regionally focused investment objective.
OUTLOOK
Economic Outlook
Residential
As at 30 November 2022, 70.4% of deployed funds were invested
across 12 projects with a residential focus, with a further GBP0.3m
committed to live projects.
The housing market has seen considerable increases over the past
12 months but the outlook from Savills is a reduction in house
prices by some 8.5% in the North East and 9% in Scotland in 2023,
ahead of growing 20% and 19% in the four years thereafter. That
immediate decline is both lower than the UK average and is seen as
a correction of steep rises in the post-Covid period, with house
prices remaining significantly ahead of their 2016 to 2019
average.
Mortgage availability and affordability is also important to
consider. There was significant disruption and uncertainty during
September and October 2022 as the markets reacted to the short
premiership of the then new prime minister. Stability quickly
returned by the year end, rates dropped and there is no evidence of
a contraction in bank liquidity or in mortgage lenders seeking to
exit the market in the North. Our view, based on experience from
within the portfolio, is that the mortgage market is still robust.
It is worth noting that around 50% of house transactions
nationally, according to Nationwide, were bought with either cash
or mortgages at less than 50% LTV suggesting limited pressure on
affordability of mortgages.
Turning to cost pressures, construction cost increases have been
the biggest threat in the sector, with significant price rises
absorbed by developers and contractors in the post-Covid recovery
period across 2021 and 2022. Going forward, cost increases will
remain, but at lower levels with BCIS forecasts for both materials
and labour being far closer to the Bank of England target inflation
rate of 2% in each of the next 5 years.
The Company's residential exposure is predominantly in the North
East (90.5%). This will continue to be a key focus as this region
continues to offer affordability for house buyers, despite the
recent increase in prices. Projects are appraised using the views
of market experts for sales values, build cost and delivery, with
all assumptions stress tested.
Commercial
As at 30 November 2022, 29.6% of deployed funds were invested
across five projects with a commercial focus.
The new investment strategy implemented in 2021 allows the
Company to be more selective in the level of exposure to commercial
developments. We believe that a selective approach to the Company's
deployment in the commercial property sector will continue to
create shareholder value. The sectors within the commercial
property space that the Company currently has exposure to are:
-- bereavement (crematorium);
-- strategic land; and
-- shared office space.
Each of the above sub-sectors offer downside protection in the
current uncertain economic times. Our current pipeline offers
further opportunities to increase our exposure to other sectors
that we anticipate will be similarly resilient. We will continue to
identify and support professional, experienced and reliable
management teams who have a clear vision and robust plan.
PIPELINE
There is currently GBP2.5m at various stages of deployment
across three projects with 47.0% in the North East.
The quality and experience of each management team that we are
in discussions with will continue to enhance the Company's
portfolio and strengthen its reputation in the market. This should
lead to the creation of shareholder value that is sustainable in
the longer term.
With input cost stability predicted to emerge, relative
confidence in property as an asset class, a continuing shortage in
housing and an increasing ability to compete in debt markets, we
are looking forward to growing fund deployment post the year
end.
Ian McElroy
Tier One Capital Ltd
30 March 2023
THE INVESTMENT PORTFOLIO AS AT 30 NOVEMBER 2022
Sector % of LTV* Loan Value LTV* Loan Value
Portfolio (Nov 22) (Nov 22) (Nov 21) (Nov 21)
GBP'000s GBP'000s
Residential 67.8% 69.0% 17,111 73.7% 10,480
----------- ---------- ----------- ---------- -----------
Commercial 29.7% 61.9% 7,508 66.7% 7,043
----------- ---------- ----------- ---------- -----------
Cash 2.5% - 638 - 4,545
----------- ---------- ----------- ---------- -----------
General Impairment - - (114) - (33)
----------- ---------- ----------- ---------- -----------
Total/Weighted Average 100.0% 66.8% 25,143 70.9% 22,035
----------- ---------- ----------- ---------- -----------
*LTV has been calculated using the carrying value of the loans
as at the balance sheet date
PRINCIPAL AND EMERGING RISKS
The Board of Directors has overall responsibility for risk
management and internal control within the context of achieving the
Company's objectives.
The Directors confirm that they have carried out a robust
assessment of the principal and emerging risks facing the Company,
including those that would threaten its business model, future
performance, solvency or liquidity, as they operated during the
year and up to the approval of the Annual Report.
The Board agrees the strategy of the Company, taking into
consideration the Company's risk appetite. With the assistance of
the Investment Adviser, the Board has drawn up a risk matrix, which
identifies the key risks to the Company, as well as emerging risks.
In assessing the risks and how they can be mitigated, the Board has
given particular attention to those risks that might threaten the
viability of the Company. These key risks fall broadly under the
following categories:
-- Investment and strategy risk
The Company's targeted returns are targets only and are based on
estimates and assumptions about a variety of factors including,
without limitation, yield and performance of the Company's
investments, which are inherently subject to significant business,
economic and market uncertainties and contingencies, all of which
are beyond the Company's control and which may adversely affect the
Company's ability to achieve its targeted returns. Accordingly, the
actual rate of return achieved may be materially lower than the
targeted returns, or may result in a partial or total loss, which
could have a material adverse effect on the Company's
profitability, the Net Asset Value and the price of Ordinary
shares.
Borrowers under the loans in which the Company invests may not
fulfil their payment obligations in full, or at all, and/or may
cause, or fail to rectify, other events of default under the
loans.
The Board is responsible for setting the investment strategy to
achieve the targeted returns and for monitoring the performance of
the Investment Adviser and the implementation of the agreed
strategy.
An inappropriate strategy could lead to poor capital performance
and lower than targeted income yields.
This risk is mitigated through regular reviews and updates with
the Investment Adviser, monitoring of the portfolio sectors against
the investment restrictions on a quarterly basis and tracking of
loan to value ratios of the underlying property projects.
-- Market risk
The Company's investment strategy relies in part upon local
credit and real estate market conditions. Adverse conditions may
prevent the Company from making investments that it might otherwise
have made leading to a reduction in yield and an increase in the
default rate. The Board has considered and continues to keep under
review the political, economic and investment risks to the Company
associated with the UK's withdrawal from the EU at the beginning of
2021 and the UK's future relations with the EU. This withdrawal
might lead to a reduced or increased demand for the Company's
shares as a result of investor sentiment which may be reflected in
a widening or narrowing of the discount.
The Company holds 100% of its assets in the United Kingdom.
To mitigate the market risks, the Board receives quarterly
updates from the Investment Adviser containing information on the
local market conditions and trends. This information is reviewed
alongside the sector split of the portfolio to ensure the portfolio
is aligned to meet future challenges.
-- Financial risk
The Company's activities expose it to a variety of financial
risks that include interest rate risk, liquidity risk and credit
risk. Further details on these risks and the way in which they are
mitigated are disclosed in the notes to the financial
statements.
-- Operational risk
The Company has no employees and relies upon the services
provided by third parties. It is primarily dependent on the control
systems of the Investment Adviser and Administrator who
respectively maintain the assets and accounting records.
Failure by any service provider to carry out its obligation in
accordance with the terms of their appointment could have a
detrimental effect on the Company.
To mitigate these risks, the Board reviews the overall
performance of the Investment Adviser and all other third party
service providers on a regular basis and has the ability to
terminate agreements if necessary. The business continuity plans of
key third parties are subject to Board scrutiny.
-- Legal and Regulatory risk
In order to qualify as an investment trust, the Company must
comply with section 1158 of the Corporation Tax Act 2010. The
Company has been approved by HM Revenue & Customs as an
investment trust. The Company is listed on the London Stock
Exchange. Non--compliance with the taxes act or a breach of listing
rules could lead to financial penalties and reputational loss.
These risks are mitigated by the Board's review of quarterly
financial information and the compliance with the relevant
rules.
Management Report and Directors' Responsibility Statement
Management report
Listed companies are required by the DTRs to include a
management report in their Financial Statements. The information is
included in the Strategic Report (together with the sections of the
Annual Report and Accounts incorporated by reference) and the
Directors' Report within the Annual Report. Therefore, a separate
management report has not been included.
Directors' responsibility statement
The Directors are responsible for preparing the Annual Report
and Financial Statements, in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
UK adopted International Financial Reporting Standards ("UK adopted
IFRS") and with the Companies Act 2006, as applicable to companies
reporting under international accounting standards.
Under Company law the Directors must not approve the financial
statements unless they are satisfied that, taken as a whole, they
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy and that they give a true
and fair view of the state of affairs of the Company and of the
total return or loss of the Company for that period. In order to
provide these confirmations and in preparing these financial
statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable UK adopted IFRS have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business and the Directors confirm that they have done
so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006, where
applicable. They are responsible for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
The financial statements are published on www.DevelopNorth.co.uk
which is a website maintained by the Company's Investment Adviser.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company's
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Under applicable UK law and regulations, the Directors are also
responsible for preparing a Strategic Report, a Directors' Report,
Statement of Corporate Governance and Directors' Remuneration
Report that complies with that law and those regulations.
Directors' confirmation statement
Each of the Directors, whose names and functions appear in the
Annual Report, confirm that to the best of their knowledge:
-- the financial statements, prepared in accordance with UK
adopted IFRS and with the Companies Act 2006, as applicable to
companies reporting under international accounting standards, give
a true and fair view of the assets, liabilities and financial
position and total return or loss of the Company; and
-- The Management Report, referred to herein, which comprises
the Chairman's Statement, the Investment Adviser's Report,
Strategic Report (including risk factors) and note 17 of the
Financial Statements includes a fair review of the development and
performance of the business and position of the Company, together
with the principal risks and uncertainties that it faces.
The Directors consider that the Annual Report and Accounts taken
as a whole, is fair, balanced and understandable and it provides
the information necessary to assess the Company's position and
performance, business model and strategy.
On Behalf of the Board
John Newlands, Chairman
30 March 2023
INCOME STATEMENT
Year ending Year ending
30 November 2022 30 November 2021
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ------ --------- --------- --------- --------- --------- ---------
REVENUE
Investment interest 2 1,787 - 1,787 1,643 - 1,643
------------------------------------ ------ --------- --------- --------- --------- --------- ---------
Total revenue 1,787 - 1,787 1,643 - 1,643
------------------------------------ ------ --------- --------- --------- --------- --------- ---------
(Losses)/gains on investments
held at fair value through profit
or loss 4, 8 (36) (342) (378) (136) 190 54
------------------------------------ ------ --------- --------- --------- --------- --------- ---------
Total net income 1,751 (342) 1,409 1,507 190 1,697
------------------------------------ ------ --------- --------- --------- --------- --------- ---------
Expenditure
Investment adviser fee 3 (67) - (67) (68) - (68)
Impairments on investments held
at amortised cost 4, 9 (12) (136) (148) (139) (69) (208)
Other expenses 4 (548) - (548) (467) (24) (491)
------------------------------------ ------ --------- --------- --------- --------- --------- ---------
Total expenditure (627) (136) (763) (674) (93) (767)
------------------------------------ ------ --------- --------- --------- --------- --------- ---------
Profit/(loss) before finance
costs and taxation 1,124 (478) 646 833 97 930
------------------------------------ ------ --------- --------- --------- --------- --------- ---------
Finance costs
Interest payable (132) - (132) (1) - (1)
------------------------------------ ------ --------- --------- --------- --------- --------- ---------
Profit/(loss) before taxation 992 (478) 514 832 97 929
------------------------------------ ------ --------- --------- --------- --------- --------- ---------
Taxation 5 - - - - - -
------------------------------------ ------ --------- --------- --------- --------- --------- ---------
Profit/(loss) for the year 992 (478) 514 832 97 929
------------------------------------ ------ --------- --------- --------- --------- --------- ---------
Basic earnings per share 7 3.68p (1.78)p 1.90p 3.09p 0.36p 3.45p
The total column of this statement represents the Company's
Income Statement, prepared in accordance with UK adopted IFRS. The
supplementary revenue return and capital return columns are both
prepared under guidance published by the Association of Investment
Companies.
All revenue and capital items in the above statement derive from
continuing operations.
There is no other comprehensive income as all income is recorded
in the statement above.
Statement of Financial Position
As at As at
30 November 2022 30 November 2021
----------------------------------------------- ------ ------------------ ------------------
Notes GBP'000 GBP'000
Non-current assets
Loans at amortised cost 9 12,659 7,929
----------------------------------------------- ------ ------------------ ------------------
12,659 7,929
----------------------------------------------- ------ ------------------ ------------------
Current assets
Investments held at fair value through profit
or loss 8 4,874 7,589
Loans at amortised cost 9 7,948 2,629
Other receivables and prepayments 10 11 27
Cash and cash equivalents 638 4,545
----------------------------------------------- ------ ------------------ ------------------
13,471 14,790
----------------------------------------------- ------ ------------------ ------------------
Total assets 26,130 22,719
----------------------------------------------- ------ ------------------ ------------------
Current liabilities
Loan facility 11 (4,000) -
Other payables and accrued expenses 12 (109) (135)
----------------------------------------------- ------ ------------------ ------------------
Total liabilities (4,109) (135)
----------------------------------------------- ------ ------------------ ------------------
Net assets 22,021 22,584
----------------------------------------------- ------ ------------------ ------------------
Share capital and reserves
Share capital 13 269 269
Share premium 9,094 9,094
Special distributable reserve 12,849 13,093
Capital reserve (644) (166)
Revenue reserve 453 294
----------------------------------------------- ------ ------------------ ------------------
Equity shareholders' funds 22,021 22,584
----------------------------------------------- ------ ------------------ ------------------
Net asset value per ordinary share 81.79p 83.88p
The notes below form an integral part of the financial
statements.
These financial statements were approved by the Board of
Directors of Develop North PLC (a public limited company
incorporated in England and Wales with company number 10395804) and
authorised for issue on 30 March 2023. They were signed on its
behalf by:
John Newlands
Chairman
Statement of Changes in Equity
Special
For the year ending 30 Share Share distributable Capital Revenue
November 2022 capital premium reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- --------- --------------- --------- --------- --------
At beginning of the year 269 9,094 13,093 (166) 294 22,584
Total comprehensive profit
for the year:
Profit for the year - - - (478) 992 514
Transactions with owners
recognised directly in
equity:
Dividends paid - - (244) - (833) (1,077)
---------------------------- --------- --------- --------------- --------- --------- --------
At 30 November 2022 269 9,094 12,849 (644) 453 22,021
Special
For the year ending 30 Share Share distributable Capital Revenue
November 2021 capital premium reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- --------- --------------- --------- --------- --------
At beginning of the year 269 9,094 13,497 (263) - 22,597
Total comprehensive profit
for the year:
Profit for the year - - - 97 832 929
Transactions with owners
recognised directly in
equity:
Dividends paid - - (404) - (538) (942)
---------------------------- --------- --------- --------------- --------- --------- --------
At 30 November 2021 269 9,094 13,093 (166) 294 22,584
Cash Flow Statement
Year ending Year ending
30 November 30 November
2022 2021
------------------------------------------ ------ ------------- -------------
Notes GBP'000 GBP'000
Operating activities
Profit before taxation 514 929
Losses on investments held at fair
value through profit and loss 342 152
Impairments on loans at amortised
cost 136 542
Gains on investments held at fair
value through profit and loss - (342)
Uplifts on loans at amortised cost - (473)
(Increase)/decrease in loan interest
receivable on investments held
at fair value through profit and
loss (147) 30
Increase in loan interest receivable
on loans at amortised cost (249) (156)
Interest expense 132 1
Changes in working capital
Decrease/(increase) in other receivables 16 (6)
(Decrease)/(increase) in other
payables (26) 4
------------------------------------------ ------ ------------- -------------
Net cash inflow from operating
activities after taxation 718 681
------------------------------------------ ------ ------------- -------------
Investing activities
Loans given (10,986) (8,266)
Loans repaid 3,570 13,221
------------------------------------------ ------ ------------- -------------
Net cash (OUTFLOW)/inflow from
investing activities (7,416) 4,955
------------------------------------------ ------ ------------- -------------
Financing
Equity dividends paid (1,077) (942)
Bank loan drawn down 14 4,251 -
Repayment of bank loan 14 (251) (1,150)
Interest paid (132) (1)
------------------------------------------ ------ ------------- -------------
Net cash INFLOW/(outflow) from
financing 2,791 (2,093)
------------------------------------------ ------ ------------- -------------
(DECREASE)/Increase in cash and
cash equivalents (3,907) 3,543
Cash and cash equivalents at the
start of the year 4,545 1,002
------------------------------------------ ------ ------------- -------------
Cash and cash equivalents at the
end of the year 638 4,545
------------------------------------------ ------ ------------- -------------
Notes to the Financial Statements
1. Accounting Policies
Significant Accounting Policies
(a) Basis of Preparation
The financial statements of Develop North plc have been prepared
in accordance with UK adopted International Financial Reporting
Standards ("UK adopted IFRS") and with the Companies Act 2006, as
applicable to companies reporting under international accounting
standards. The financial statements were also prepared in
accordance with the Statement of Recommended Practice, Financial
Statements of Investment Trust Companies and Venture Capital Trusts
("SORP") issued by the AIC (as issued in July 2022), where this
guidance is consistent with UK adopted IFRS.
The financial statements have been prepared on a going concern
basis under the historical cost convention, except for certain
investment valuations which are measured at fair value.
The notes and financial statements are presented in pounds
sterling (being the functional currency and presentational currency
for the Company) and are rounded to the nearest thousand except
where otherwise indicated.
The Company reviews forthcoming changes to UK adopted IFRS and
does not anticipate material changes as a result of these.
NEW STANDARDS OR AMMENTS FOR 2022 FOR FORTHCOMING
REQUIREMENTS
New standards, interpretations and amendments issued which are
not yet effective and applicable for the periods beginning on or
after 1 December 2022:
IAS 1 Amendments to improve accounting policies disclosure
Effective date accounting periods on or after 1 January 2023
IAS 12 Amendments to deferred tax related assets and liabilities
arising from a single transaction
Effective date accounting periods on or after 1 January 2023
New standards, interpretations and amendments issued which are
not yet effective and not applicable for the periods beginning on
or after 1 December 2022
IFRS 17 Replacing IFRS 4 - Insurance contracts Effective date
accounting periods on or after 1 January 2023
IFRS 16 Amendment to the accounting for the sale of leases and
leaseback transactions
Effective date accounting periods on or after 1 January 2024
IAS 1 Amendments to accounting for non-current liabilities with
covenants
Effective date accounting periods on or after 1 January 2024
GOING CONCERN
The financial statements have been prepared on a going concern
basis. The disclosures on going concern set out in the Directors'
Report within the Annual Report form part of these financial
statements.
INTEREST INCOME
For financial instruments measured at amortised cost, the
effective interest rate method is used to measure the carrying
value of a financial asset or liability and to allocate associated
interest income or expense over the relevant period. The effective
interest rate is the rate that discounts estimated future cash
payments or receipts over the expected life of the financial
instrument or, when appropriate, a shorter period, to the net
carrying amount of the financial asset or financial liability. In
calculating the effective interest rate, the cash flows are
estimated considering all contractual terms of the financial
instrument but does not consider expected credit losses. The
calculation includes all fees received and paid and costs borne
that are an integral part of the effective interest rate.
On an ongoing basis the Investment Adviser assesses whether
there is evidence that a financial asset is impaired. The basis of
calculating interest income on the three stages of impairment
(detailed below) are as follows:
Stage 1 Interest is calculated on the gross outstanding
principal
Stage 2 Interest is calculated on the gross outstanding
principal
Stage 3 Interest is calculated on the principal amount less
impairment
EXPENSES
Expenses are accounted for on an accruals basis. The Company's
administration fees, finance costs and all other expenses are
charged through the Income Statement and are charged to revenue.
Fees incurred in relation to operational costs of the loan
portfolio, such as legal fees, are charged through the Income
Statement and are charged to capital.
DIVIDS TO SHAREHOLDERS
Interim dividends declared during the year are recognised when
they are paid. Any final dividends declared are recognised when
they are approved by the Shareholders at the Annual General
Meeting.
TAXATION
Taxation on the profit or loss for the period comprises current
and deferred tax. Taxation is recognised in profit or loss except
to the extent that it relates to items recognised in other
comprehensive income or directly in equity, in which case it is
also recognised in other comprehensive income or directly in equity
respectively.
Current tax is the expected tax payable on the taxable income
for the period, using tax rates and laws enacted or substantively
enacted at the reporting date.
Deferred income taxes are calculated using rates and laws that
are enacted or substantivity are expected to apply as or when the
associated temporary differences reverse. Deferred income tax is
provided using the liability method on all temporary differences at
the reporting date between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes.
Deferred income tax assets are recognised only to the extent that
it is probable that taxable profit will be available against which
deductible temporary differences, carried forward tax credits or
tax losses can be utilised. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities. Deferred income is
recognised in profit or loss unless it relates to a transaction
recorded in other comprehensive income or equity, in which case it
is also recognised in other comprehensive income or directly in
equity respectively.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The financial assets and financial liabilities are classified at
inception into the following categories:
Amortised cost:
Financial assets that are held for collection of contractual
cash flows where those cash flows represent SPPI ("solely payment
of principal and interest") and that are not designated at fair
value through profit and loss are measured at amortised cost. The
carrying amount of these assets is adjusted by any expected credit
loss allowance as described in the impairment note below.
The Company's cash and cash equivalents, other receivables,
other payables and accruals, and the Company's loan facility are
included within this category.
Fair value through profit and loss:
The Company has a number of borrower facilities in which it
received a minority equity stake or exit fee mechanism in
conjunction with providing those loan facilities. These loans are
recognised at fair value through profit and loss. The fair value of
the contracts is monitored and reviewed quarterly using discounted
cash flow forecasts based on the estimated cash flows that will
flow through from the underlying development project. A sensitivity
analysis is included in note 16.
IMPAIRMENT
At initial recognition, an impairment allowance is required for
expected credit losses ('ECL') resulting from possible default
events within the next 12 months. When an event occurs that
increases the credit risk, an allowance is required for ECL for
possible defaults over the term of the financial instrument.
The key inputs into the measurement of ECL are probability of
default ('PD'), loss given default ('LGD'), and exposure at default
('EAD'). These inputs are then considered and applied against
residential and commercial facilities in the loan book. ECL are
calculated by multiplying the PD by LGD and EAD.
PD has been determined by considering the local market where the
underlying assets are situated, economic indicators including
inflationary pressures on build costs, government policy, and
market sentiment. For residential loans this has been further
broken down into two scenarios; where only sales risk is still
present, and where both construction risk and sales risk still
exist. LGD is the magnitude of the likely loss if there is a
default. The LGD models consider the structure, collateral,
seniority of the claim, and recovery costs of any collateral that
is integral to the financial asset. LTV ratios are a key parameter
in determining LGD. LGD estimates are recalibrated for different
economic scenarios and, for lending collateralised by property, to
reflect possible changes in property prices. EAD represents the
expected exposure in the event of a default. The Company derives
the EAD from the current exposure to the borrower. The EAD of a
financial asset is its gross carrying amount at the time of
default. EAD for residential facilities has been further broken
down into two scenarios; where the build is complete, and where
construction is ongoing.
A financial asset is credit-impaired when one or more events
that have occurred have a significant impact on the expected future
cash flows of the financial asset. It includes observable data that
has come to our attention regarding one or more of the following
events:
-- delinquency in contractual payments of principal and interest;
-- cash flow difficulties experienced by the borrower;
-- initiation of bankruptcy proceedings;
-- the borrower being granted a concession that would otherwise not be considered;
-- observable data indicating that there is a measurable
decrease in the estimated future cash flows from a portfolio of
assets since the initial recognition of those assets, although the
decrease cannot yet be identified with the individual financial
assets in the portfolio; and
-- a significant decrease in assets values held as security.
Impairment of financial assets is recognised on a loan-by-loan
basis in stages:
-- Stage 1: A general impairment covering what may happen within
the next 12 months, based on the adoption of BIS standards as
outlined below.
-- Stage 2: Significant increase in credit risk, where the
borrower is in default, potentially in arrears, where full
repayment is expected and the underlying asset value remains
robust. The ECL calculation recognises the lifetime of the
loan.
-- Stage 3: Credit impaired, where the borrower is in default of
their loan contract, in arrears, full loan repayment is uncertain
and there is a shortfall in underlying asset value. The ECL
calculation recognises likely failure of the borrower.
As at 30 November 2022, there were sixteen loans in the
portfolio. Four of those projects supported included either an
equity stake of 25.1% for the Company or an exit fee mechanism.
Please see note 8 for details on these six projects.
The Board has deemed that five projects (2021: five); are
currently impaired and specific additional provisions have been
made against these facilities in these financial statements.
The other twelve loans have been assessed as not impaired.
The Company's response to IFRS 9 requirements has been based on
the Bank for International Settlements (BIS) Basel Supervisory
Committee liquidity risk tool recommendations.
FAIR VALUE HIERARCHY
Accounting standards recognise a hierarchy of fair value
measurements for financial instruments which gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3). The classification of financial
instruments depends on the lowest significant applicable input, as
follows:
-- Level 1 - Unadjusted, fully accessible and current quoted
prices in active markets for identical assets or liabilities.
Examples of such instruments would be investments listed or quoted
on any recognised stock exchange.
-- Level 2 - Quoted prices for similar assets or liabilities, or
other directly or indirectly observable inputs which exist for the
duration of the period of investment. Examples of such instruments
would be forward exchange contracts and certain other derivative
instruments.
-- Level 3 - External inputs are unobservable. Value is the
Directors' best estimate, based on advice from relevant
knowledgeable experts, use of recognised valuation techniques and
on assumptions as to what inputs other market participants would
apply in pricing the same or similar instrument.
All loans are considered Level 3.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in hand and short-term
deposits in banks with an original maturity of three months or less
from inception.
OTHER RECEIVABLES
Other receivables do not carry interest and are short-term in
nature. There were no irrecoverable amounts accounted for at the
year end or the prior period end.
RESERVES
SHARE PREMIUM
The surplus of net proceeds received from the issuance of new
shares over their par value is credited to this account and the
related issue costs are deducted from this account.
CAPITAL RESERVE
The following are accounted for in the capital reserve:
-- Capital charges;
-- Increases and decreases in the fair value of and impairments
of loan capital held at the year end.
As at year end the Capital Reserve comprises only unrealised
gains and losses and so does not contain distributable
reserves.
REVENUE RESERVE
The net profit/(loss) arising in the revenue column of the
Income Statement is added to or deducted from this reserve which is
available for paying dividends.
SPECIAL DISTRIBUTABLE RESERVE
Created from the Court of Session cancellation of the initial
launch share premium account and is available for paying
dividends.
SEGMENTAL REPORTING
The Chief Operating Decision Maker is the Board of Directors.
The Directors are of the opinion that the Company is engaged in a
single segment of business, being the investment of the Company's
capital in financial assets comprising loans. All loan income is
derived from the UK. The Company derived revenue totalling
GBP978,000 (2021: GBP488,000) where the amounts four (2021: two)
individual borrowers each exceeded 10% or more of the Company's
revenue. The individual amounts were GBP282,000, GBP256,000,
GBP243,000 and GBP196,000 (2021: GBP260,000, GBP228,000).
USE OF SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND
ASSUMPTIONS
The preparation of financial statements requires management to
make estimates and assumptions that affect the amounts reported for
assets and liabilities as at the reporting date and the amounts
reported for revenue and expenses during the year. The nature of
the estimation means that actual outcomes could differ from those
estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimates are revised and in any future
periods affected.
The key driver to determine whether loans are classified as fair
value through profit or loss or amortised cost is if the facility
has an exit fee or equity stake attached. Where these are present
the loan is classified as fair value through profit or loss.
The following are areas of particular significance to the
Company's financial statements and include the use of estimates or
the application of judgement:
CRITICAL JUDGEMENTS AND ESTIMATES IN APPLYING THE COMPANY'S
ACCOUNTING POLICIES - INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR
LOSS:
The Company owns profit share holdings or has exit fees
mechanism in relation to 6 of the borrowers in place as at the year
end. The loans held have been designated at fair value through
profit and loss. The determination of the fair value requires the
use of estimates. A sensitivity analysis is included in note 16.
The key uncertainties are around the timings and amounts of both
drawdown and repayments as these are determined by construction
progress and the timing of sales.
CRITICAL JUDGEMENTS AND ESTIMATES IN APPLYING THE COMPANY'S
ACCOUNTING POLICIES - LOANS AMORTISED COST CLASSIFICATION AND
IMPAIRMENTS:
The Company uses critical judgements to determine whether it
accounts for its loans at either amortised cost using the effective
interest rate method less impairment provisions or at fair value
through profit and loss. The determination of the required
impairment adjustment requires the use of estimates. The key
uncertainties are around the timings and amounts of both drawdown
and repayments as these are determined by construction progress and
the timing of sales. See notes 8 and 9 for further details.
2. INCOME
30 November 30 November
2022 2021
GBP'000 GBP'000
--------------- ------------ ------------
Interest from
loans 1,787 1,643
--------------- ------------ ------------
Total income 1,787 1,643
--------------- ------------ ------------
3. Investment Adviser's Fees
Investment Adviser
In its role as the Investment Adviser, Tier One Capital Ltd is
entitled to receive from the Company an investment adviser fee
which is calculated and paid quarterly in arrears at an annual rate
of 0.25 per cent. per annum of the prevailing Net Asset Value if
less than GBP100m; or 0.50 per cent. per annum of the prevailing
Net Asset Value if GBP100m or more.
There is no balance accrued for the Investment Adviser for the
period ended 30 November 2022 (year to 30 November 2021:
GBPnil).
There are no performance fees payable.
30 November 30 November
2022 2021
GBP'000 GBP'000
-------------------- ------------ ------------
Investment Adviser
fee 67 68
4. Operating expenses
30 November 2022 30 November 2021
Revenue Capital Revenue Capital
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- --------- -------- --------- --------
Legal & professional 13 - 28 24
Directors' fees 85 - 90 -
Audit fees related to the audit of the financial
statements 57 - 41 -
Fund Administration and Company Secretarial 85 - 82 -
Brokers' fees 30 - 30 -
Marketing fees 18 - - -
AIFM fee 17 - (12) -
Impairments on loans amortised at cost* 12 136 139 542
Uplifts on loans amortised at cost* - - - (473)
Losses/(gains) on investments held at fair
value through profit or loss 36 342 136 (190)
Other expenses 243 - 208 -
-------------------------------------------------- --------- -------- --------- --------
Total other expenses 596 478 742 97
-------------------------------------------------- --------- -------- --------- --------
*Loan impairments consist of impairments to interest on loans of
GBP48,000 (2021: GBP275,000) and a capital impairment on the loan
of GBP478,000 (2021: GBP542,000). Loan uplifts consist of a capital
uplift on the loans of GBPnil (2021: GBP663,000).
All expenses are inclusive of VAT where applicable. Further
details on Directors' fees can be found in the Directors'
Remuneration Report within the Annual Report.
5. Taxation
As an investment trust the Company is exempt from corporation
tax on capital gains. The Company's revenue income from loans is
subject to tax, but offset by any interest distribution paid, which
has the effect of reducing the corporation tax. The interest
distribution may be taxable in the hands of the Company's
shareholders.
30 November 30 November
2022 2021
GBP'000 GBP'000
------------------------------------------ ------------ ------------
Current corporation tax at 19% (2021:19%) - -
Deferred taxation - -
------------------------------------------ ------------ ------------
Tax on profit on ordinary activities - -
------------------------------------------ ------------ ------------
Reconciliation of tax charge
Profit on ordinary activities before
taxation 514 929
Taxation at standard corporation tax
rate 19% (2021: 19%) 98 176
Effects of:
Income not subject to tax 91 (18)
Interest distributions (205) (153)
Utilisation of losses not recognised
for deferred tax purposes 16 (5)
------------------------------------------ ------------ ------------
Tax charge for the year - -
------------------------------------------ ------------ ------------
There is an unrecognised deferred tax asset on losses of
GBP230,408 (2021: GBP135,727) calculated at the relevant deferred
tax rate of 25%.
6. Ordinary dividends
30 November 2022 30 November 2021
Pence Pence
per per
share GBP'000 share GBP'000
--------------------------------------- ------- ---------- --------- -----------
Dividends paid in the year relating to
previous year:
Interim dividend for the quarter ended
August, paid in December 1.0 269 - -
Interim dividend for the quarter ended
November, paid in April 1.0 269 1.5 404
Dividends paid during and relating to
the year:
Interim dividend for the quarter ended
February, paid in June 1.0 269 1.0 269
Interim dividend for the quarter ended
May, paid in September 1.0 270 1.0 269
--------------------------------------- ------- ---------- --------- -----------
Total dividends paid in the year 1,077 942
Of the dividends paid in the year, GBP244,000 has been paid from
the Special Distributable reserve.
The Company intends to distribute at least 85% of its
distributable income earned in each financial year by way of
interest distribution. A third interim dividend of 1.00 pence per
share was declared on 17 November 2022, payable on 29 December
2022. On 9 March 2023, the Company declared an interim dividend of
1.0 pence per share for the quarter ended 30 November 2022, payable
on 31 March 2023.
7. Earnings per share
The revenue, capital and total return per ordinary share is
based on each of the profit after tax and on 26,924,063 ordinary
shares, being the weighted average number of ordinary shares in
issue throughout the year. During the year there were no dilutive
instruments held, therefore the basic and diluted earnings per
share are the same.
8. Investments held at fair value through profit or loss
The Company's investment held at fair value through profit or
loss represents its profit share arrangements whereby the Company
owns 25.1% or has an exit fee mechanism for four companies.
30 November 30 November
2022 2021
GBP'000 GBP'000
------------------------------------------------- ------------ ------------
Opening Balance 7,589 16,809
Loans deployed 80 904
Principal repayments (2,600) (10,284)
Movements in interest receivable 183 106
Unrealised gains/(losses) on investments
held at fair value through profit or loss (378) 54
------------------------------------------------- ------------ ------------
Total investments held at fair value through
profit and loss 4,874 7,589
------------------------------------------------- ------------ ------------
Split:
Non-current assets: Investments held at - -
fair value through profit and loss due
for repayment after one year
Current assets: Investments held at fair
value through profit and loss due for repayment
under one year 4,874 7,589
Please refer to note 16 for details of the approach to valuation and
sensitivity analysis.
9. Loans at amortised cost
30 November 30 November
2022 2021
GBP'000 GBP'000
---------------------------------------- ------------ ------------
Opening balance 10,558 6,046
Loans deployed 10,906 7,362
Principal repayments (970) (2,937)
Movements in interest receivable 261 295
Movement in impairments (148) (208)
---------------------------------------- ------------ ------------
Total loans at amortised cost 20,607 10,558
---------------------------------------- ------------ ------------
Split:
Non-current assets: Loans at amortised
cost due for repayment after one year 12,659 7,929
Current assets: Loans at amortised
cost due for repayment
under one year 7,948 2,629
The Company's loans held at amortised cost are accounted for
using the effective interest method. The carrying value of each
loan is determined after taking into consideration any requirement
for impairment provisions during the year, allowances for
impairment losses amounted to GBP148,000 (2021: GBP208,000).
Further details on impairment can be found within the accounting
policies note above.
Movements in allowances for impairment losses in the year
Nominal value
GBP'000
--------------------------------------- --------------
at 1 December 2021 3,090
Provisions for impairment losses 137
--------------------------------------- --------------
at 30 November 2022 3,227
--------------------------------------- --------------
Stage 1 provisions at 1 December 2021 33
Provisions for impairment losses 81
--------------------------------------- --------------
Stage 1 provisions at 30 November 2022 114
--------------------------------------- --------------
Stage 2 provisions at 1 December 2021 -
Provisions for impairment losses -
--------------------------------------- --------------
Stage 2 provisions at 30 November 2022 -
--------------------------------------- --------------
Stage 3 provisions at 1 December 2021 3,057
Provisions for impairment losses 56
--------------------------------------- --------------
Stage 3 provisions at 30 November 2022 3,113
--------------------------------------- --------------
Stage 1, 2, and 3 are referenced in more detail below.
10. Receivables
30 November 30 November
2022 2021
GBP'000 GBP'000
------------------ ------------ ------------
Prepayments 11 27
------------------ ------------ ------------
Total receivables 11 27
------------------ ------------ ------------
11. loan facility
30 November 30 November
2020 2021
GBP'000 GBP'000
--------- ------------ ------------
Bank loan 4,000 -
On 27 May 2022 the Company entered into a GBP6.5m committed
revolving facility with Shawbrook Bank Limited, expiring on 26 May
2023. GBP4.0m was drawn down at the year end, at an interest rate
of 7.31%. The facility is secured against a debenture over the
assets of the Company.
12. Other Payables
30 November 30 November
2022 2021
GBP'000 GBP'000
--------------------- ------------ ------------
Accruals 109 135
--------------------- ------------ ------------
Total other payables 109 135
--------------------- ------------ ------------
13. Share Capital
Nominal value Number of
GBP'000 Ordinary shares
of 1p
---------------------------------------- -------------- -----------------
At 30 November 2021 269 26,924,063
---------------------------------------- -------------- -----------------
Issued and fully paid as at 30 November
2022 269 26,924,063
---------------------------------------- -------------- -----------------
The ordinary shares are eligible to vote and have the right to
participate in either an interest distribution or participate in a
capital distribution (on a winding up).
14. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING
ACTIVITIES
At 30 November Cash Non-cash At 30 November
2021 flows flows 2022
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ---------------- --------- --------- ---------------
Short term borrowings - 4,000 - 4,000
--------------------------------- ---------------- --------- --------- ---------------
Total liabilities from financing
activities - 4,000 - 4,000
--------------------------------- ---------------- --------- --------- ---------------
At 30 November Cash Non-cash At 30 November
2020 flows flows 2021
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- --------------- --------- --------- ---------------
Short term borrowings 1,150 (1,150) - -
--------------------------------- --------------- --------- --------- ---------------
Total liabilities from financing
activities 1,150 (1,150) - -
--------------------------------- --------------- --------- --------- ---------------
15. Related Parties
The Directors are considered to be related parties. No Director
has an interest in any transactions which are, or were, unusual in
their nature or significant to the nature of the Company.
The Directors of the Company received GBP85,000 fees for their
services during the year to 30 November 2022 (30 November 2021:
GBP90,000). GBPnil was payable at the year end (30 November 2021:
GBPnil).
Ian McElroy is Chief Executive of Tier One Capital Ltd and is a
founding shareholder and director of the firm.
Tier One Capital Ltd received GBP67,000 investment adviser's fee
during the year (30 November 2021: GBP68,000) and GBPnil was
payable at the year end (30 November 2021: GBPnil). Tier One
Capital Ltd receives up to a 20% margin and arrangement fee for all
loans it facilitates.
There are various related party relationships in place with the
borrowers as below:
The following related parties arise due to the opportunity taken
to advance the profit share contracts:
-- Gatsby Homes
The Company owns 25.1% of the borrower Gatsby Homes Ltd which
was disposed of during the year. The loan amount outstanding as at
30 November 2022 was GBPnil (30 November 2021: GBP468,000).
Transactions in relation to loans repaid during the year amounted
to GBP441,000 (30 November 2021: GBP797,000). Interest due to be
received as at 30 November 2022 was GBPnil (30 November 2021:
GBPnil). Interest received during the year amounted to GBP36,000
(30 November 2021: GBP136,000).
-- Thursby Homes (Springs)
The Company owns 25.1% of the borrower Thursby Homes (Springs)
Ltd. The loan amount outstanding as at 30 November 2022 was GBP1.3m
(30 November 2021: GBP2.4m). Transactions in relation to loans
repaid during the year amounted to GBP918,000 (30 November 2021:
GBP502,000). Interest due to be received as at 30 November 2022 was
GBP213,000 (30 November 2021: GBP209,000). Interest received during
the year amounted to GBP157,000 (30 November 2021: GBP261,000).
-- Northumberland
The Company owns 25.1% of the borrower Northumberland Ltd. The
loan amount outstanding as at 30 November 2022 was GBP356,000 (30
November 2021: GBP1.3m). Transactions in relation to loans repaid
during the year amounted to GBP911,000 (30 November 2021:
GBP683,000). Interest due to be received as at 30 November 2022 was
GBP3,000 (30 November 2021: GBP10,000). Interest received during
the year amounted to GBP32,000 (30 November 2021: GBP123,000).
-- Coalsnaughton
The Company owns 40.17% (30 November 2021: 25.1%) of the
borrower Kudos Partnership. The loan amount outstanding as at 30
November 2022 was GBP2.2m (30 November 2021: GBP2.3m). Transactions
in relation to loans issued during the year amounted to GBP80,000
(30 November 2021: GBP404,000). Interest due to be received as at
30 November 2022 was GBP324,000 (30 November 2021: GBP170,000).
Interest received during the year amounted to GBP196,000 (30
November 2021: GBP228,000).
-- Oswald Street
The Company owns 25.1% of the Riverfront Property Limited
Partnership. The loan amount outstanding as at 30 November 2022 was
GBP388,000 (30 November 2021: GBP408,000). Transactions in relation
to loans made during the year amounted to GBPnil (30 November 2021:
GBPnil). Interest due to be received as at 30 November 2022 was
GBP5,000 (30 November 2021: GBP5,000). Interest received during the
year amounted to GBP31,000 (30 November 2021: GBP31,000).
16. Financial Instruments
Consistent with its objective, the Company holds a diversified
portfolio of fixed rate loans secured with collateral in the form
of; land or property in the UK, charges held over bank accounts and
personal or corporate guarantees. The benefit of a related profit
share or exit fee mechanism may also be agreed. In addition, the
Company's financial instruments comprise cash and receivables and
payables that arise directly from its operations. The Company does
not have exposure to any derivative instruments.
The Company is exposed to various types of risk that are
associated with financial instruments. The most important types are
credit risk, liquidity risk, interest rate risk and market price
risk. There is no foreign currency risk as all assets and
liabilities of the Company are maintained in pounds sterling.
The Board reviews and agrees policies for managing the Company's
risk exposure. These policies are summarised below:
CREDIT RISK
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company.
In the event of default by a borrower if it is in financial
difficulty or otherwise unable to meet its obligations under the
agreement, the Company will suffer an interest shortfall and
potentially a loss of capital. This potentially will have a
material adverse impact on the financial condition and performance
of the Company and/or the level of dividend cover. The Board
receives regular reports on concentrations of risk and the
performance of the projects underlying the loans, using loan to
value percentages to help monitor the level of risk. The Investment
Adviser monitors such reports in order to anticipate, and minimise
the impact of, default.
There were financial assets which were considered impaired at 30
November 2022, with impairments amounting to GBP148,000 (30
November 2021: GBP208,000). Our maximum exposure to credit risk as
at 30 November 2022 was GBP26,130,000 (30 November 2021:
GBP22,719,000).
All of the Company's cash is placed with financial institutions
with a long-term credit rating of A or better. Bankruptcy or
insolvency of such financial institutions may cause the Company's
ability to access cash placed on deposit to be delayed or limited.
Should the credit quality or the financial position of the banks
currently employed significantly deteriorate, cash holdings would
be moved to another bank.
Further details on the exposure to, and management of, credit
risk by the Company is included in both the Investment Advisor's
Report above and the Strategic Report in the Annual Report.
Loans held at amortised cost as at 30 November 2022
Total
GBP'000
------------------------- ---------------------------
Stage 1 20,000
Stage 2 378
Stage 3 229
------------------------- ---------------------------
20,607
------------------------- ---------------------------
Loans held at amortised cost as at 30 November 2021
Total
GBP'000
------------------------- ---------------------------
Stage 1 9,456
Stage 2 378
Stage 3 724
------------------------- ---------------------------
10,558
------------------------- ---------------------------
LIQUIDITY RISK
Liquidity risk is the risk that the Company will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments. The Company's investments comprise
loans.
Property and property-related assets in which the Company
invests via loans are not traded in an organised public market and
are relatively illiquid assets, requiring individual attention to
sell in an orderly way. As a result, the Company may not be able to
liquidate quickly its investments in these loans at an amount close
to their fair value in order to meet its liquidity
requirements.
The Company's liquidity risk is managed on an ongoing basis by
the Investment Adviser and monitored on a quarterly basis by the
Board. In order to mitigate liquidity risk the Company has a
comprehensive three-year cash flow forecast that aims to have
sufficient cash balances, taking into account projected drawdowns
on the live facilities to meet its obligations for a period of at
least 12 months. At the reporting date, the maturity of the
financial assets and liabilities was:
Financial assets as at 30 November 2022
In two or more
In one year years Total
GBP'000 GBP'000 GBP'000
--------------------------- ----------- -------------- --------
Cash and cash equivalents 638 - 638
Loans at amortised cost 7,948 12,659 20,607
Investments held at fair
value 4,874 - 4,874
--------------------------- ----------- -------------- --------
Total 13,460 12,659 26,119
--------------------------- ----------- -------------- --------
Financial assets as at 30 November 2021
In two or more
In one year years Total
GBP'000 GBP'000 GBP'000
--------------------------- ----------- -------------- --------
Cash and cash equivalents 4,545 - 4,545
Loans at amortised cost 2,629 7,929 10,558
Investments held at fair
value 7,589 7,589
--------------------------- ----------- -------------- --------
Total 14,763 7,929 22,692
--------------------------- ----------- -------------- --------
Financial liabilities as at 30 November 2022
In two or more
In one year years Total
GBP'000 GBP'000 GBP'000
------------ ----------- -------------- --------
Bank loan 4,000 - 4,000
------------ ----------- -------------- --------
Total 4,000 - 4,000
------------ ----------- -------------- --------
Financial liabilities as at 30 November 2021
In two or more
In one year years Total
GBP'000 GBP'000 GBP'000
----------- ----------- -------------- --------
Bank loan - - -
----------- ----------- -------------- --------
Total - - -
----------- ----------- -------------- --------
INTEREST RATE RISK
The interest rate profile of the Company was as follows:
as at 30 November 2022
Financial net Variable
assets on which Fixed rate rate financial
no interest Financial net assets Total
is paid Assets GBP'000 GBP'000
GBP'000 GBP'000
---------------------------------- ----------------- ------------- ---------------- ----------
Other receivables and prepayments 11 - - 11
Loan Interest receivable 976 - - 976
Other payables and accrued
expenses (109) - - (109)
Cash and cash equivalents - - 638 638
Loan facility - - (4,000) (4,000)
Investments held at fair
value through profit and
loss - 4,329 - 4.329
Loans at amortised cost - 20,176 - 20,176
---------------------------------- ----------------- ------------- ---------------- ----------
Total 878 24,505 (3,362) 22,021
---------------------------------- ----------------- ------------- ---------------- ----------
as at 30 November 2021
Financial net Variable
assets on which Fixed rate rate financial
no interest Financial net assets Total
is paid Assets GBP'000 GBP'000
GBP'000 GBP'000
---------------------------------- ----------------- ------------- ---------------- ----------
Other receivables and prepayments 27 - - 27
Loan Interest receivable 657 - - 657
Other payables and accrued
expenses (135) - - (135)
Cash and cash equivalents - - 4,545 4,545
Loan facility - - - -
Investments held at fair
value through profit and
loss - 7,191 - 7,191
Loans at amortised cost - 10,299 - 10,299
---------------------------------- ----------------- ------------- ---------------- ----------
Total 549 17,490 4,545 22,584
---------------------------------- ----------------- ------------- ---------------- ----------
Shawbrook provide a working capital facility which is capped at
30% of the Net Asset value of the Company. Using forward looking
SONIA figures as at November 2022, the forecast increases in
interest rates will see an additional GBP188k of finance costs over
the next twelve months assuming an average drawn balance of GBP3.6m
in the year. These additional costs are and will be mitigated by an
increase in the rates charged on new facilities written and a
repricing of the back book. Since year end, the outlook for
interest rate rises has eased.
Sensitising the equity discount rate has immaterial impact on
the loans held at fair value.
Market Price Risk
The management of market price risk is part of the investment
management process and is typical of an investment company. The
portfolio is managed with an awareness of the effects of adverse
valuation movements through detailed and continuing analysis, with
an objective of maximising overall returns to shareholders.
Investments in property and property-related assets are inherently
difficult to value due to the individual nature of each property.
As a result, valuations are subject to substantial uncertainty.
There is no assurance that the estimates resulting from the
valuation process will reflect the actual sales price even where
such sales occur shortly after the valuation date. Such risk is
minimised through the appointment of external property valuers. The
basis of valuation of the loan portfolio is set out in detail in
the accounting policies. The inputs into the DCF models are the
forecast monthly cashflows including sales values and build costs,
the discount rate which is the imputed interest rate at the time
the facility was entered into adjusted for any movements in the
risk free rate as at current year end, and a 30% (2021: 30%)
discount rate for the equity element to reflect the higher level of
uncertainty. Any changes in market conditions will directly affect
the profit and loss reported through the Income Statement. Details
of the Company's investment portfolio held at the balance sheet
date are disclosed in the Investment Adviser's Review. A 10% fall
in the sales value of the residential development projects and a
10% reduction in asset value of commercial and investment property
assets for those loans held at fair value would have resulted in a
further impairment to the portfolio of GBP330,000 as at 30 November
2022 (30 November 2021: GBP387,907). The calculations are based on
the property valuations at the respective balance sheet date and
are not representative of the year as a whole, nor reflective of
future market conditions.
VALUATION OF FINANCIAL INSTRUMENTS
Accounting standards recognise a hierarchy of fair value
measurements for financial instruments which gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3). The classification of financial
instruments depends on the lowest significant applicable input, as
follows:
-- Level 1 - Unadjusted, fully accessible and current quoted
prices in active markets for identical assets or liabilities.
Examples of such instruments would be investments listed or quoted
on any recognised stock exchange.
-- Level 2 - Quoted prices for similar assets or liabilities, or
other directly or indirectly observable inputs which exist for the
duration of the period of investment. Examples of such instruments
would be forward exchange contracts and certain other derivative
instruments.
-- Level 3 - External inputs are unobservable. Value is the
Directors' best estimate, based on advice from relevant
knowledgeable experts, use of recognised valuation techniques and
on assumptions as to what inputs other market participants would
apply in pricing the same or similar instrument.
30 November 2022
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---------- ---------- --------- ---------
Investments held at fair
value - - 4,874 4,874
-------------------------- ---------- ---------- --------- ---------
Total - - 4,874 4,874
-------------------------- ---------- ---------- --------- ---------
30 November 2021
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---------- ---------- --------- ---------
Investments held at fair
value - - 7,589 7,589
-------------------------- ---------- ---------- --------- ---------
Total - - 7,589 7,589
-------------------------- ---------- ---------- --------- ---------
A reconciliation of fair value measurements in Level 3 is set
out in the following table:
30 November 2022 30 November 2021
GBP'000 GBP'000
-------------------------------------------- ----------------- -----------------
Opening Balance 7,589 16,809
Loans deployed 80 904
Principal repayments (2,600) (10,284)
Movements in interest receivable 183 106
Unrealised (losses)/gains on investments
held at fair value through profit or loss (378) 54
-------------------------------------------- ----------------- -----------------
Closing Balance 4,874 7,589
-------------------------------------------- ----------------- -----------------
17. CAPITAL MANAGEMENT
The Company's capital is represented by the Ordinary Shares,
share premium, capital reserves, revenue reserve and special
distributable reserve. The Company is not subject to any externally
imposed capital requirements.
The capital of the Company is managed in accordance with its
investment policy, in pursuit of its investment objective. Capital
management activities may include the allotment of new shares, the
buy back or re-issuance of shares from treasury, the management of
the Company's discount to net asset value and consideration of the
Company's net gearing level .
18. Post Balance Sheet Events
On 26 January 2023, a new loan was Issued to Modnarway 2 Ltd
with an initial drawdown of GBP1.13m.
For further information regarding the Company (Ticker: DVNO)
(LEI: 213800EXPWANYN3NEV68) please call:
Tier One Capital Ltd (Investment Adviser) +44 (0) 191 222
Ian McElroy/Brendan O'Grady 0099
finnCap Ltd (Financial Adviser and Broker) +44 (0) 207 220
William Marle 0500
Maitland Administration Services Limited
(Secretary) +44 (0) 1245 398950
ENDS
Annual Report and Financial Statements
The Annual Report and Financial Statements will be posted to
shareholders and will shortly be available on the Company's website
( www.DevelopNorth.co.uk ) or in hard copy format from the
Company's Registered Office.
A copy of the annual report will be submitted to the FCA's
National Storage Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
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END
FR JMMRTMTBJBFJ
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March 30, 2023 13:29 ET (17:29 GMT)
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