LEGACY_PROPERTIES_(LONDON - Accounts

The directors present the strategic report for the year ended 31 December 2017.

This company heads up a UK group involved in commercial property investment and management. In January 2017, a facility of £8m was secured with an expiry date of 9 December 2019. This facility was redeemed in December 2018.

The risk implications of business decisions affecting all group companies are considered on a group level by the board of directors. Key operational management specific to particular property estates will also be involved in day to day management of their allocated properties. The directors re-assess these risks on a regular basis to ensure that any risks arising from changes in the group's operations or the external environment are identified and appropriately managed. The detailed individual risks have been categorised into the following areas:

- property investment and management;

- taxation;

- management;

- financing;

- economic climate;

- level of fixed overheads and variable revenues;

In order to provide relevant and timely information to the key operational managers and directors, the group has the following information systems which generate reports as follows:

- preparation of regular monthly and quarterly management accounts including analysis of material variances;

- regular reporting to the board of directors on financial and treasury matters;

- preparation of annual budgets, profit forecasts and cash flow projections for individual group companies and the group overall.

The nature of the specific risk areas and related controls are as follows:

Property investment and management risk

Principal risk

Property values may decline and returns not be optimised; uneconomic investments may be made or underperforming properties retained; the quality of tenants contributes to underpinning the value of the properties; significant tenant defaults may reduce income and property values; and property insurance may be inadequate.

Principal controls

These include regular reviews of current and future market potential; periodic reviews of property including internal and external assessments; consideration of current and future values and yield prospects; credit checks on tenants to minimise potential bad debts; general consideration of tenant mix and periodic reviews of insurance cover. Management work closely with tenants in financial difficulties, should this arise.

Taxation risk

The group is exposed to financial risks from increases in tax rates and changes to the basis of taxation including corporation tax, VAT and SDLT.

Principal controls

These include regular monitoring of legislative proposals and the engagement of experienced executives and the use of experienced sector-specific professional advisers to mitigate the impact of changes.

Management risk

The group is reliant on its small high calibre team of operational managers and board of directors.

Principal controls

The group recruits and develops high calibre employees, many of whom have been with the group for a number of years. The board have tried to ensure that the knowledge base of the operational management team is shared as much as possible throughout the group. The group also seeks the advise of external consultants who are experts in their field.

Financing risk

See Financial instruments.

Economic climate

The directors have identified and evaluated risks and uncertainties and have controls in place to mitigate these. Responsibility for management of each key risk is identified and delegated. The group is exposed to the risks of the current economic climate that could lower the group's revenues and operating results in the future. However, actions continue to be taken to maximise the group's performance.

High proportion of fixed overheads and variable revenues

A significant proportion of the cost base in some of the property companies remains constant notwithstanding changes to the level of revenues. Therefore, significant changes in the level of rental income could have a marked impact on the level of earnings and cash flows. The head office fixed cost base has been simplified and successfully reduced.

The directors believe that the mix of commercial property space between managed and serviced offices, retail and leisure uses, will continue to provide a resilient rental stream during the current economic climate whilst also representing a sound base for further income growth.

The directors consider that the group operates within acceptable key performance indicators relevant to the group as follows:

- capital growth in its investment property portfolio in the medium to long term;

- maintaining and monitoring its level of gearing and loan to value ratios as the group is heavily reliant on external funding;

- monitoring and controlling asset cover ratios;

- monitoring and controlling interest cover ratios;

- monitoring occupancy levels and rental streams across the property portfolios;

The group operates a centralised treasury function which is responsible for managing the liquidity and interest risks associated with the group's activities.

The group's principal financial instruments include derivative financial instruments, the purpose of which is to manage interest rate risks arising from the group's activities, and bank overdrafts and loans, the main purpose of which is to raise finance for the group's operations.

In addition, the group has various other financial assets and liabilities such as trade debtors and trade creditors arising directly from its operations. Derivative transactions which the group enters into principally comprise of interest rate swaps. In accordance with the group's treasury policy, derivative instruments are not entered into for speculative purposes. The main risks arising from the group's financial instruments are interest rate risk, liquidity risk and credit risk. The directors review and agree policies for managing each of these risks and they are summarised below.

Interest rate risk

The group finances its operations through bank and other borrowings. The group is exposed to fair value interest rate risk on its fixed rate borrowings and cash flow interest rate risk on floating rate deposits, bank overdrafts and loans. The group uses interest rate derivatives to manage the mix of fixed and variable rate debt so as to reduce its exposure to changes in interest rates. In particular, the group has entered into an interest rate protection agreement in respect of part of its senior debt bank borrowings, using interest rate swaps to generate the desired interest profile and thereby manage its exposure to interest rate fluctuations. At 31 December 2017, 73% (2016: 74%) of the UK group's borrowings were either hedged or at fixed rates and 27% (2016: 26%) were at variable rates.

Liquidity risk

The group's objective is to maintain a balance between continuity of funding and flexibility. The group seeks to control financial risk by managing its cash and borrowing requirements centrally to maximise interest income and minimise interest expense, whilst ensuring that it has sufficient liquid resources to meet its foreseeable operating needs. In this way the group invests its cash assets safely and profitably. The group finances its operations through bank borrowings and makes use of money market facilities where funds are available.

In April 2016 a restructure of the term facilities resulted in the group's bankers approving a new term loan facility of £110m and an additional available CAPEX facility of £5.4m expiring in December 2019. As at the year end the full available CAPEX facility had been drawdown.

Credit risk

All customers who wish to trade on credit terms are subject to credit verification procedures. The management monitor credit risk closely and consider that its current policy of credit checks meets its objectives of managing exposure to credit risk. In addition, trade debtor balances are monitored on an ongoing basis and provision is made for doubtful debts where necessary. The directors do not believe that the group's exposure to bad and doubtful debts is significant.

Price risk

The directors consider that the group's exposure to changing market prices on the values of financial instruments does not have a significant impact on the carrying value of financial assets and liabilities. As such, no specific policies are applied currently, although the directors will continue to monitor the level of price risk and manage its exposure should the need occur.

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 December 2017.

The principal activity of the company continued to be that of a holding company for entities involved in property investment and management in the commercial property sector.

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

The results for the year are set out on page 9.

No ordinary dividends were paid. The directors do not recommend payment of a final dividend.

The auditor, Gerald Edelman, is deemed to be reappointed under section 487(2) of the Companies Act 2006.

The directors are responsible for preparing the annual report and the 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 United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and accounting estimates that are reasonable and prudent;

•     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

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. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company’s auditor is aware of that information.

Having reviewed the company and group's financial forecasts and expected future cash flows, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus the going concern basis has been adopted in preparing the financial statements for the year ended 31 December 2017.

Qualified Opinion

We have audited the financial statements of Legacy Properties (London) Limited (the 'company') for the year ended 31 December 2017 which comprise the Profit and Loss Account, the Statement of Comprehensive Income, the Balance Sheet, the Statement of Changes in Equity, the Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph the financial statements:

•     give a true and fair view of the state of the company's affairs as at 31 December 2017 and of its loss for the year then ended;

•     have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•     have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for qualified opinion

The financial statements contain information about Legacy Properties (London) Limited as an individual company and do not contain consolidated financial information as the parent company of a group. This is contrary to the requirements of section 399 of the Companies Act 2006 and section 9 of Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' which requires consolidated financial statements to be prepared by a company which heads up a medium sized group. We draw your attention to the disclosures made under note 1 to the financial statements.

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, except for the effects of the matter described in the Basis for qualified opinion paragraph; based on the work undertaken in the course of our audit:

• the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report and the Directors' Report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

•     adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

•     the financial statements are not in agreement with the accounting records and returns; or

•     certain disclosures of directors' remuneration specified by law are not made; or

•     we have not received all the information and explanations we require for our audit.

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

The profit and loss account has been prepared on the basis that all operations are continuing operations.

Legacy Properties (London) Limited is a private company limited by shares incorporated in England and Wales. The registered office is Edelman House, 1238 High Road, Whetstone, London, N20 OLH.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.

The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.

The financial statements contain information about Legacy Properties (London) Limited as an individual company and do not contain consolidated financial information as the UK parent of a medium sized group. This does not comply with the requirements of the Companies Act 2006 or section 9 of FRS 102. Group financial statements are prepared by its subsidiary undertaking, Happybadge Projects Limited. Those financial statements contain full information on the UK group's results and financial position. Group financial statements prepared by this company would disclose identical figures other than an additional £688,293 of costs for the year, disclosures on a new £8m loan facility and an additional amount due from its ultimate parent undertaking of £3,958,891. Consolidated financial statements are not required by this company as part of the facility agreements with group financiers.

These financial statements have been prepared on a going concern basis which assumes that the company will continue in operational existence for the foreseeable future. The validity of this assumption is dependent upon the continued support from the company's financiers and certain fellow subsidiary companies of Zinzendorf Holdings Limited. If the company were unable to trade, adjustments would have to be made to reduce the value of the assets to their recoverable amounts and to provide for further liabilities that might arise.

Interests in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in the profit and loss account.

A subsidiary is an entity controlled by the company. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

An associate is an entity, being neither a subsidiary nor a joint venture, in which the company holds a long-term interest and where the company has significant influence. The company considers that it has significant influence where it has the power to participate in the financial and operating decisions of the associate.

Cash at bank and in hand are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

The company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the company's balance sheet when the company becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

Financial assets, other than those held at fair value through the profit and loss account, are assessed for indicators of impairment at each reporting end date.

Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in the profit and loss account.

If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in the profit and loss account.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.

Basic financial liabilities, including creditors and a loan facility that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.

Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.

In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods. There are no areas of these financial statements which contain material estimates.

An analysis of the company's turnover is as follows:

The actual charge for the year can be reconciled to the expected (credit)/charge for the year based on the profit or loss and the standard rate of tax as follows:

Details of the company's subsidiaries at 31 December 2017 are as follows:

In January 2017, Legacy Properties (London) Limited, secured an £8m term loan facility expiring in December 2019. Interest is charged at a rate of 8.5% per annum. The facility was redeemed in December 2018.

At 31 December 2017, the total secured creditors for the company amounted to £8m (2016: £nil).

The facility was secured by a first fixed legal charge over assets held by the company from time to time and a charge over the shares in Legacy Properties (London) Limited.

The company has taken advantage of the exemption in FRS 102 from the requirement to disclose transactions and balances with wholly-owned group companies.

The immediate and ultimate parent company is Zinzendorf Holdings Limited, a company registered at Palm Grove House, PO Box 438 Road Town, Tortola, British Virgin Islands.

During the year, the ultimate controlling party was R A Bourne by virtue of his beneficial interest in the ultimate parent undertaking.