PNS Panther Securities Plc

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement, this information is now considered to be in the public domain.

Panther Securities P.L.C.

("the Company" or "the Group")

Financial results for the year ended 31 December 2023

CHAIRMAN'S STATEMENT

I am pleased to present the results for the year ended 31 December 2023 which show a profit before tax of £5,499,000 compared to a profit before tax of £22,902,000 for the previous year ended 31 December 2022.

Both of the above figures are substantially affected by the movement in our swap position amounting to a reduction of £1,962,000 in the swap value of the balance sheet for 2023.  Whilst the movement in our swap position affects our stated profitability, it is important to note that this is a non-cash item.     Even with this reduction during 2023, the swap liability we have carried on our balance sheet since 2008 continues to be an asset for the second year running   but reduced to £2,505,000.  The change is mainly due to the market expectation of lower interest rates, which are expected to be in place over the life of the instruments, as at 31 December 2023 compared to the position anticipated by the market as at 31 December 2022.  Our swap arrangements (detailed in the notes to the accounts) are very beneficial to our Group.

Rents Receivable

It is pleasing to see the rents receivable growing to approaching £14,500,000, almost a £1,050,000 increase.  This was due in some part to the acquisition of the Chorley Industrial Estate and the large Trowbridge factory, both acquired in 2022 with 2023 benefitting from a full year's income, but also benefitting from general growth in rentals.

Our profits were held back somewhat in 2023 by costs of repairs and both reconfigurations and conversions of some of the larger properties which will have helped to achieve re-lettings which are now taking place.  However, we also received about £750,000 from a number of dilapidation and surrender settlements which go a long way to cover the costs of these repairs and other works etc., which include monies being spent, and this is an ongoing programme, to comply with higher standards of energy performance certificate (EPC) requirements.

Disposal

Woodland Close, Torquay

A tired factory on a desirable industrial estate on the outskirts of Torquay which had been owned since August 2007 but vacant for some time, was sold to an adjoining owner at £950,000 which showed a good profit on its most recent valuation.  We retain the separate more modern factory almost adjoining this property which was purchased at the same time as the previous property, and which now shows an excellent return following a recent settlement of the rent review.

Property Revaluation

The entire portfolio was revalued to a total of £185,000,000 as at 31 December 2023 compared to £177,000,000 as at 31 December 2022.  The new figures include the purchase cost of a freehold vacant warehouse in Peterborough purchased for circa £3,000,000 which was let soon after, and a freehold double shop in Cliftonville already let to Boots Plc. This shows the pre-existing portfolio increasing in value by £5,500,000 after allowing for the sale of the Torquay freehold for £950,000.

Acquisitions

Cliftonville

A freehold double shop with large residential upper parts at 192/194 Northdown Road, Cliftonville, mainly let to Boots Plc at £25,000 pa, was purchased for £464,000 in March 2023.  This property adjoins the property we have long owned in this location, and both have large rear gardens which may provide some development potential in due course.

Peterborough

A 50,000 sq ft freehold single storey warehouse in Padholme Road East, Peterborough on a site of 3.84 acres was acquired vacant in October 2023 for £2,800,000 (including purchase costs) and soon after let for £345,000 pa to AHF trading as Fabb, a regional furniture retailer.  The Lessee was granted a 5-month rent free period and also a £120,000 capital contribution to upgrade the unit to the standard they required.  We understand the ingoing tenant spent circa £400,000 on the property on top of our contribution.  The letting was a related party transaction, as covered in note 32 to the accounts. 

Developments

Peterborough

The former Beales store in Peterborough was vacated by New Start 2020 Limited, trading as Beales, in February 2023.  The store was uneconomical for them due to high business rates applied to the trading area.  We had made a planning application for a mixed-use development of shops/offices and 124 residential units.  I am pleased to say full planning permission was granted on 18 July 2023.  The Section 106 has been agreed and signed.  The opportunity is on the market for sale.

Swindon

I have previously reported on our two planning permissions on this central Swindon site and the proposed new 250 year lease.  As a reminder, the first planning permission is for a leisure/restaurant two storey development and the second planning permission is a ground floor leisure/restaurant only but with a tower block with eight floors above, which would contain circa 68 residential units.  I thought full permission and a lease extension agreement was practically a 'fait accompli'.  It was, but the buffers appeared due to a new political council in control of the administration after council elections.  We awaited their proposals and due to their planning and legal departments' enormously slow delays to all communications, our lease extension was not completed and was delayed so long that the planning permission lapsed.  A new planning application, alongside other possibilities, is currently being considered.

Barry Parade, Peckham Rye

Our original attractive scheme for this site was eventually rejected at appeal.  Whilst this application was made at appeal, we also submitted a similar proposal with reduced residential units but higher commercial elements.  This is still going through planning and will be decided under delegated powers, hopefully ensuring a positive outcome in due course.  Currently, we are negotiating the S.106 agreement which will include an extortionate commuted sum in lieu of us providing affordable units (four affordable units out of a nine unit scheme) .  Due to the number of units and the layout of the scheme, we are already aware that no affordable housing providers would be interested, which is forcing us to pay the commuted sum.

Directors

We have two relatively new independent non-executive directors, the details for whom have been previously mentioned but some of our newer shareholders may have missed the earlier important announcements of their appointment.

Jonathan Rhodes - has over 35 years of experience in the property sector and is a RICS Registered Valuer. He is currently the National Head of Valuation at Cluttons LLP, having previously held the same position at GL Hearn.  Prior to these two roles he has been a valuation partner since the year 2000 at DTZ and Donaldsons, having previously worked at Chesterton and Colliers. He joined us in November 2022.

Paul Saunders - has over 40 years of experience at HSBC, predominately in investment and development within the real estate sector. His most recent role within HSBC was as a Director within the Real Estate Corporate Capital Origination team from 2014 until 2022.  He is an Associate of the Chartered Institute of Bankers (ACIB) and joined us in January 2023.

Both Jonathan Rhodes and Paul Saunders have a wealth of experience added to our Board, which should prove invaluable to our future growth, and their ideas and advice are already benefitting our Group.

Post Balance Sheet Events

Our new loan facility, for which negotiations commenced in March 2023 was completed as described below, of course, being most welcome as it removed a small degree of uncertainty.

Loans

I am pleased to confirm that on 28 March 2024, the Group refinanced by completing a new facility of £68 million, split between a £55 million term loan and a £13 million revolving facility. The new facility has a four-year term (with a further one-year option to extend subject to credit approval). The interest rate payable is 2.3 per cent over three-month SONIA with a ratchet that can take it to 2.5 per cent over three-month SONIA in certain circumstances (compared to the previous facility which was 2.7 per cent over SONIA).   HSBC and Santander remain as the joint providers of the new facility. £64,125,000 of the available facility is currently being utilised.

We are very pleased to continue our mutually beneficial 41 years and 14 year relationships with HSBC and Santander respectively which we hope will continue to grow.

The Group is in a fortunate position whereby it will continue to benefit from its existing interest rate swap arrangements, which provide effective fixed interest rate protection that is significantly below the current SONIA rates, in relation to £60 million of the £68 million new facility. The Group's interest rate swaps provide a fixed interest rate of 3.40 per cent. in relation to £35 million of the new facility and a fixed interest rate of 2.01 per cent. in relation to £25 million of the new facility. The durations of the Group's existing swaps are beyond the term of the new facility.

Future Progress

There is an election approaching which will probably bring change in a number of areas, but I foresee many exciting opportunities because of the mayhem that is caused by any change of political direction and different extra impositions on the property and investment sector.

Charitable Donations

We continue to support a number of charities, especially if they are in areas that we operate and have interests in.

Political Donations

At last year's AGM I proposed a resolution to donate £20,000 to the Reform UK political party and this was successfully passed with over two to one of those who voted, voting in favour.  As previously, I will abstain voting my personal holding.  This year, being an election year, I am proposing the donation be increased to £25,000.

The present Conservative government to my mind has lost the plot, i.e., the values that many people hold about preferring a massive reduction in immigration numbers. They also seem unable to provide low taxation or tax policies that encourage employment and investment not realising that some taxes being lowered will produce a larger tax take.

They have disallowed VAT rebates on expensive purchases by overseas tourists, whereby many of these high spending tourists go to other equally delightful major cities such as Paris, Milan or Barcelona for their shopping trips thus delivering a bonus of extra tax receipts to these countries via loss of other tourism spending on hotels etc., which is non-refundable.

The ridiculous inadequacies of the business rates that are currently charged when the original rules worked well, before the gerrymandering of subsequent governments.  The increases in property taxation by way of constant changes in stamp duty, thus creating complex advice needed for nearly every transaction, charging extra stamp duty on second homes, then second homes being charged double Council Tax for less services. Also having to suffer higher Capital Gains Tax compared to commercial Capital Gains Tax when profitably realised and yet they still have the cheek to call themselves a Conservative government.

Despite the highest level of taxation since the last world war, we receive bad and slow service from practically every bureaucratic department of government.  I can't stop my diatribe, so I have transferred some of my venom to my Ramblings.

We have for some time paid a trade subscription of £7,500 to The Taxpayers Alliance who are an independent association that watches over government expenditure looking for waste and self-aggrandisement amongst the myriad of council executives who are forever claiming council poverty and putting up council tax charges but at the same time increasing their senior employees' pay by unreasonable amounts.  This was recently exposed by most national newspapers via information researched and supplied by The Taxpayers Alliance.  Their website is taxpayersalliance.com.  I recommend shareholders who can, donate to this independent organisation who are looking out for the interests of all taxpayers by helping to make wasteful expenditure and unreasonable costs to become publicly known. 

Dividends

The Directors have recommended a payment of a final dividend for the year ended 31 December 2023 of 6p per share, following the special dividend which was paid on 10 February 2023 of 10p per share, and an interim dividend which was paid on 27 October 2023 of 6p per share.  This year's final dividend of 6p per share will be payable on 17 July 2024 to shareholders on the register at the close of business on 28 June 2024 (ex-dividend on 27 June 2024).

The full dividends for the year ended 31 December 2023 are therefore anticipated to be 22p per share, subject to shareholder approval, being the 6p interim per share paid, 10p special per share paid and the recommended final dividend of 6p per share.

Finally, I repeat my thanks to our small but dedicated team of staff, growing team of financial advisers, legal advisers, agents and accountants for all their hard work during the past year. 

Special thanks and good wishes are in order for our tenants many of whom are comparatively small entrepreneurial businesses and I hope they are able to continue to manage through the present troubled environment and make profitable progress.

Andrew S Perloff

CHAIRMAN

16 May 2024

Most people will have seen the TV production of Mr Bates vs The Post Office which explains in much detail how the Post Office, led from the top, prosecuted about 700 Post Office business owners for allegedly falsifying their newly installed computer's records to defraud the Post Office and came to favourable settlements for the Post Office with others by threats.

The initial owners sued said it was the computer making errors and changing the figures.  The Post Office experts denied this possibility and initially told the first few complainants that they were the only case.    The programme implied that this was not true,  but those in the hierarchy insisted the PO franchisees were prosecuted  with many going to prison.

One Post Office owner, Mr Bates, persisted in arguing that the computer system was not only working wrongly but was capable of being interfered with by I.T. specialists in Head Office who could adjust individual calculations the machine made.

Some years later a sharp TV producer saw the merit in the stories and made a TV series which collated the events in such a way as to seem to make it obvious that there had been a massive cover up at the Post Office which managed to send hundreds of Post Office owners to prison.

Besides showing our justice system's failure in a bad light, it caused disastrous financial circumstances for hundreds of Post Office owners and their families which has only just started to be remedied, if that is at all possible.  This story of the mendaciousness of some of our bureaucratic masters is not yet over and will run for some time.

Individual Post Office managers/owners are entrepreneurs which are so essential to any country.  The United Kingdom is particularly lucky to have so many working for themselves or in partnerships to make our country so full of thriving businesses that are entrepreneurial organisations.

I was once asked to define an entrepreneur and, of course, I have a story to suit.

One morning, as I was midway in my early swimming exercises, when I approached the side of the pool, I saw a small spider (I shall call Henry) struggling in the water.  It was a type commonly called a 'money spider'.  Feeling sorry for Henry's predicament, I carefully cupped him in my hands and deposited him about one foot away from the side of the pool.

I left Henry to dry out and expected him to run away thankful for his narrow escape.  I continued my swim and on my return to that side of the pool I saw Henry struggling again in the pool.  Obviously, he was still disorientated so once again I picked him up and put him on the side.

When I returned from my next width to width, Henry was again struggling in the water.  Wondering why he could be so foolish I again put him on the side but decided to stay and watch what happened.  After about 30 seconds Henry shook himself, then wandered to the very edge of the pool, bent all eight of his tiny legs and to my surprise positively jumped into the pool.

I then realised that Henry was a new type of money spider, an 'entrepreneurial spider'.  Henry had realised that other insects will be caught in the water and as Henry being a swimmer, could catch extra meal tickets, floating in what to him was a vast expanse of food opportunities caught in the water.

This spider was an entrepreneur as it will try and try and try again until he is successful in his aims to find food and is obviously prepared to take risks to do so.

Food Banks

A month or so ago on the way to my office, whilst delayed at some traffic lights, I noticed a long queue of people outside our local library.  I was not close enough to see exactly what attraction was on offer, but I suspected it was a food bank.

My curiosity had been aroused so the next week whilst passing I noticed that although no queue was outside, there were a few people inside.  Being a naturally 'nosey parker' I stopped and went and found half of the former library is now a charity shop and that for two days a week they provided a full, free food bank service, which was of course the cause of the huge queue I had seen previously.  I was informed that food was on offer free to all comers, no questions asked.  The food was provided by retail food companies from end of date 'best before' labelled goods.

At the time of my inspection, they only had a small selection of foods, but I noticed bags of attractive looking bread rolls at the front and a small selection of various other food staples.

I certainly could not recall that the large queue of people I had previously seen outside the charity shop contained any malnourished individuals, in fact, quite the reverse.

As it happens, on the opposite side of the road to the library is the local job centre. There was no queue for that building.  In fact, no one went in whilst I was in the area!  A giant Tesco was about 300 yards away but I was popping into our large local Morrissons about one mile away - not surprisingly it was not busy.

I wonder if these 'food banks' are having some adverse side effects not yet fully recognised.

Another story of our time.

For several years my private company used to own Beales Department Stores, having survived for over 120 years.  It failed eventually, almost entirely due to the £4,000,000 a year business rates payable.  Its losses were about £2,000,000 a year.  Before purchasing the group, we had calculated that the upcoming rating revaluation should reduce rates payable by about £2,000,000 if the then current values were assessed for taxation.  However, reductions were only allowed at 5% per annum after new rules were brought in allowing inflation increases of 3% per annum, i.e. a negligible deduction of about 2% in overall cost.  The result was inevitable after a further year or two of subsidising the company we sold it to the management backed by a company with deeper pockets and other potential benefits.  Covid arrived soon after and even they gave up.

This ramble is not the main reason for Beales stores inclusion, but it was a pleasure to own the company.  Most of the 2,000 people who worked in the stores were happy, good workers and had made friends of their colleagues including them in their social lives.  It was mostly not strenuous work and many were not well paid but liked being part of what many thought was a club atmosphere.

Obviously, with a store card the group had records of those who were their best customers and made sure they were alerted to any special offers or new 'sensations' coming to the store.  These bigger spenders were known to the managers and would usually be given special treatment whenever they arrived at their local store.

For some years, one special treat was a well-presented fashion show which all the special customers were invited to.  This went down very well and was successful for the business.

Our governments have no idea about running any business and thus they do the exact opposite of cossetting their best customers who are of course the top 10% of taxpayers who provide about 60% of income tax receipts.  They frighten them abroad by excessive levels of top rate tax to people and families who are easily mobile if they wish to move to financially more inviting countries, thus our government receives less funds in total.

The tax office knows how much they are losing by their political gestures but I consider that they  mislead the population who only see the very selective information released.  It is so much easier to say they are raising the rate of tax the rich pay and fail to tell us how many rich and successful taxpayers leave the country and our country's income loss, so many people are misinformed.

In my year end 31 December 2018 Ramblings, I included a diatribe against excessive business rates and included a cartoon showing Great Britain as a high street graveyard listing many companies that failed, mainly because of excessive tax on retail property.  It is now updated with the additional failures in red as after six years the problems have not been addressed as they have no idea what to do.  Out of 10 grim reapers shown, only one has been slightly amended (PAYE insurance reductions) but insufficiently to make much difference.

Perhaps it is something to do with the 9.5 million people of working age who are not working, of whom a large part exist on the beneficence of the state who are of course supported by people who are working and thus obligatory taxpayers and, in particular, the higher earners funded by those working people who have not yet moved to a more favourable tax climate.

I believe that a significant proportion of the economically inactive people are gaming the system .  It is also regularly reported that our defence abilities are sadly lacking in weapons and experienced soldiers.  Perhaps young people between 20 & 30 years old who have not had a job and receiving state benefits for over one year should perform National service as reservists  in  one of the Armed Forces and be trained for six months sufficient to be considered useful fighting reserves and be called up if an emergency arises.  A 200,000 person a year call up would have a double effect as many people would suddenly decide to find fulfilling jobs in the private sector.  All reservists would be paid, receive a good conduct medal and certificate of qualifications, if deserved, and would then be welcomed into private sector employment knowing that the reservists had been trained in punctuality, neatness, ingenuity and made mentally fitter and healthier by rigorous training.  This would also make many of them happier knowing they are useful, important and admired citizens of merit.

Yours

Andrew S Perloff

Chairman

16 May 2024

GROUP STRATEGIC REPORT

About the Group

Panther Securities PLC ("the Company" or "the Group") is a property investment company quoted on the AIM market (AIM) since 2013.  Prior to this the Company was fully listed and included in the FTSE fledgling index, first being fully listed as a public company in 1934.  The Group currently owns and manages over 900 individual property units within over 120 separately designated buildings over the mainland United Kingdom.  The Group specialises in mainly commercial property investing in good secondary retail, industrial units and offices, and also owns and manages many residential flats in several town centre locations.  The Group is a generalist investor, not specialising in any sector or location in the UK and does the majority of its own management and lettings in-house.  The Group takes an entrepreneurial approach to property investing assessing each opportunity on its merits as they arise.

Strategic objective

The primary objective of the Group is to maximise long-term returns for our shareholders by stable growth in net asset value and dividend per share, mainly via a consistent and sustainable rental income stream.  The Group also seeks out exceptional returns within its property portfolio and through acquisitions looking for value adding opportunities.

Progress indicators

Progress will be measured mainly through financial results, and the Board considers the business successful if it can increase shareholder return and asset value in the long-term, whilst keeping acceptable levels of risk by ensuring gearing covenants are well maintained.

Key ratios and measures

* As reported to the Lenders - based on charged property rents, borrowed funds and bank valuations as appropriate.

** Based on those declared for the year.

Business review

The overall year was a good year for the Group with earnings being just over 25p per share fully covering the exception dividend paid in 2023.  Growth was driven by increased property values, being a £5.5 million increase, as well as by rental growth (£1 million increase in annual turnover) but we saw the valuations of the financial derivatives decrease by £2 million which had substantially improved over the last two years (2022- £19.7 million and, 2021 - £16.8 million). 

As mentioned above the Group's turnover grew in 2023 by £1,046,000, the big increase here relates to Maldon, our largest letting by annual income at £800,000 pa, it was only let for three quarters of 2022, so in 2023 we received an extra £200,000.   The increase also relates to  the Chorley and Trowbridge investment properties bought in 2022, but we did not benefit from a full year's income, so in 2023 on these two properties we received an extra circa £445,000 of income.  The rest of the increase of circa £400,000 was driven through lettings of previous vacant space and rent reviews. 

Disappointingly the overall gross profits were held back, as in 2022, by higher costs, we still believe many of these items are non-recurring, which should not be repeated, and we anticipate 2024 will be a more profitable year due to lower costs.  The Group cannot avoid all the rising costs that have affected most organisations and individuals but at least the income has been improved to compensate.  

The finance costs even though consistent over the two comparison years, 2023 and 2022, it is worth noticing the split on the income statement, between interest payable on the floating loan and the income back on our financial derivatives (swaps).  This financial income generated by our financial derivatives (swaps) is quite considerable and expected to increase in 2024 and the ongoing benefit is shown as a £2.5 million asset on the balance sheet. 

The consolidated statement of cash flows in 2023, shows that cash improved by £0.7 million in the year, pleasingly the cash flow from operating activities (the trading) showed a £2.3 million cash contribution, after more normal changes in working capital (than in 2022) - and this cash was generated with what we believe to be higher than normal costs (as mentioned above). 

In terms of the statement of financial position (balance sheet), the Group saw its asset value pretty much stay static with the net asset value per share now being 640p per share (2022 - 637p per share). The reason the asset value did not improve further was that most of the profits for the year were paid out as dividends due to the special dividend paid early in 2023.  The Group currently shows a very large discount when comparing its prevailing share price to its current net asset value, and the board believes this is mainly due to a lack of transactions in its shares.    

Through the many downward economic cycles, such as the COVID-19 pandemic and the more recent inflationary/ interest rate hike cycle (as a result of the various things including the Ukraine war) being examples, the most important plank within the Group's business plan is the balance within the portfolio between different asset classes and the resulting diverse, resilient, income streams these investments provide.  Over the last five years industrial properties and the secondary "local" retail investments have performed the best in terms of growth in values and have shown resilient income collection.  We also benefit from having properties with residential elements or planning potential - which provide back up value.  Certain post COVID-19 changes have stuck with many more people still working from home which has benefited our secondary retail with additional local footfall. 

It is still our view, that secondary retail properties (which is a large part of our portfolio - over half by value) will be less affected by the seismic change in shoppers' habits.  The average secondary retail parade has a higher proportion of businesses which are providing non-retail offerings, even though they are shops. 

Our retail parades often include service providers, restaurants or take away use, or convenience offerings, which are by their very nature less affected than pure destination retail, or by ever changing consumer habits.  In many instances, the Web even provides additional opportunities i.e. being able to offer take away services via Just Eat etc.  Even our more traditional high street or pure retail positions are mainly large blocks in the centre of towns - which we believe will benefit from longer-term regeneration plans from the Government and local councils for town centres.  As such, if and when some retail locations become less viable, we believe we can create value from these sites with planning permission to eventually give them other uses or purposes.  In the meantime, they continue in the most part to be strong cash contributors providing high returns on initial investment.

Going forward

We are experiencing rental growth, some of this is from renting long-term vacant properties and the rest from improved rental terms.  Going forward over the next couple of years we still foresee the biggest issue being controlling the holding and maintenance costs of our properties. In response to this, we have brought in further controls and look to phase our works programmes.  However if we can control and/ or phase our costs more effectively we have the ability with long term income rental streams and fixed interest rate costs to be very profitable. 

We still anticipate some potential additional costs of improving the energy efficiency of our buildings to keep them in line, or even ahead of the EPC ("energy performance certificate") regime requirements which is constantly being updated.  However, we have negotiated no loan amortisation on our most recent loan (completed in March 2024), for the first two years, which will help give us an extra £500,000 cash flow in each year, to fund any changes required. 

We believe there are still further opportunities to unlock value within our portfolio, some of this achieved in 2023, both in terms of letting more of the vacant properties, through repurposing and some from planning schemes to rebuild.

The economy is now in a higher interest rate environment but it looks like inflation is finally under control.  The Group has fixed its interest rate swaps which will protect us from interest rate increases for many years to come.  The nature of property companies, gives us a natural hedge over inflation, as property investments tend to increase in line with inflation, whilst the real value of loans utilised effectively decreases.

There are always uncertainties which can affect property prices in the short term, however the Board continues to believe we are protected by our portfolio's diversity, experienced management team, ability to adapt and by having access to funds.  We have low gearing levels, supportive lenders and cash reserves.

The Board is confident about the business going forward.

Financing

At the year end the Group's facilities were due to be repaid in July 2024 as can be seen on the Statement of Financial Position. 

After the year end in March 2024, the Group completed a new facility of £68 million, split between a £55 million term loan and a £13 million revolving facility. The new facility has a four-year term (with a further one-year option to extend subject to credit approval). The interest rate payable is 2.3 per cent. over three month SONIA with a ratchet that can take it to 2.5 per cent over three month SONIA in certain circumstances, although both rates within the agreement represent an improvement compared to the previous facility. The Group is providing very similar covenants to the previous facility.  HSBC and Santander remain as the joint providers of the new facility.

The Group at the year end had £5.15 million of cash funds, and in April 2024 it had the ability to draw an additional £4.35 million available within the loan facility.

Financial derivative

The Group is in a fortunate position whereby it will continue to benefit from existing interest rate swap arrangements, which provide effective fixed interest rate protection that is significantly below the current SONIA rates, in relation to £60 million of the £68 million new facility. The Group's interest rate swaps provide a fixed interest rate of 3.40 per cent. in relation to £35 million of the new facility and a fixed interest rate of 2.01 per cent. in relation to £25 million of the new facility. The durations of the Group's existing swaps are beyond the term of the new facility.

We have seen a fair value loss (of a non-cash nature) in our long term liability on derivative financial instruments of £1.96 million (2022: a gain of £19.72 million).  Following this loss the total financial derivative balance is still an asset on our Consolidated Statement of Financial Position of £2.5 million (2022: £4.5 million asset). 

In February 2021 the Company paid £5,000,000 to vary a long-term swap agreement.  The agreement varied was an interest rate swap fixed at 5.06% until 31 August 2038 on a nominal value of £35 million and had circa 17.5 years remaining.  Following the variation, the Group's fixed rate dropped on 1 September 2023 to 3.40% saving the Group £581,000 p.a. in cash flow until the end point of the instrument. We will see the full benefit of this annual change in 2024.

These financial instruments (shown in note 27) are interest rate swaps that were entered into to remove the cash flow risk of interest rates increasing by fixing our interest costs.  We have seen that in uncertain economic times there can be large swings in the accounting valuations. 

Small movements in the expectation of future interest rates can have a significant impact on the fair value of these interest rate swaps; this is partly due to their long dated nature.     

Financial risk management

The Company and Group's operations expose it to a variety of financial risks, the main two being the effects of changes in the credit risk of tenants and interest rate movement exposure on borrowings.  The Company and Group have in place a risk management programme that seeks to limit the adverse effects on the financial performance of the Company and Group by monitoring and managing levels of debt finance and the related finance costs. The Company and Group also use interest rate swaps to protect against adverse interest rate movements with no hedge accounting applied.  Mark-to-market valuations on our financial instruments have been historically erratic due to current low market interest rates and due to their long term nature. These large mark-to-market movements are shown within the Income Statement. 

However, the actual cash outlay effect is nil when considered alongside the term loan, as the instruments have been used to fix the risk of further cash outlays due to interest rate rises or can be considered as a method of locking in returns (the difference between rent yield and interest paid at a fixed rate).

Given the size of the Company and Group, the Directors have not delegated the responsibility of monitoring financial risk management to a sub-committee of the Board.  The policies set by the Board of Directors are implemented by the Company and Group's finance department. 

Credit risk

The Company and Group have implemented policies that require appropriate credit checks on potential tenants before lettings are agreed.  In many cases a deposit is requested unless the tenant can provide a strong personal or other guarantee. The amount of exposure to any individual counterparty is subject to a limit, which is reassessed annually by the Board. Exposure is reduced significantly due to the Group having a large spread of tenants who operate in different industries.

Price risk

The Company and Group are exposed to price risk due to normal inflationary increases in the purchase price of the goods and services it purchases in the UK.  The exposure of the Company and Group to inflation is considered low due to the low cost base of the Group and natural hedge we have from owning "real" assets.  Price risk on income is protected by the rent review clauses contained within our tenancy agreements and often secured by medium or long-term leases.

Liquidity risk

The Company and Group actively manage liquidity by maintaining a long-term finance facility, strong relationships with many banks and holding cash reserves.  This ensures that the Company and Group have sufficient available funds for operations and planned expansion or the ability to arrange such.

Interest rate risk

The Company and Group have both interest bearing assets and interest bearing liabilities.  Interest bearing assets consist of cash balances which earn interest at fixed rate when placed on deposit.  The Company and Group have a policy of only borrowing debt to finance the purchase of cash generating assets (or assets with the potential to generate cash).  We also use financial derivatives (swaps) where appropriate to manage interest rate risk.  The Directors revisit the appropriateness of this policy annually.

Principal risks and uncertainties of the Group

The successful management of risk is something the Board takes very seriously as it is essential for the Group to achieve long-term growth in rental income, profitability and value.  The Group invests in long term assets and seeks a suitable balance between minimising or avoiding risk and gaining from strategic opportunities.  The Group's principal risks and uncertainties are all very much connected as market strength will affect property values, as well as rental terms and the Group's finance, or term loan, whose security is derived primarily from the property assets of the business.   The financial health of the Group is checked against covenants that measure the value of the property, as a proportion of the loan, as well as income tests. 

The two measures of the Group's finances are to check if the Group can support the interest costs (income tests) and also the ability to repay (valuation covenants).

The Group has a successful strategy to deal with these risks, primarily its long lasting business model and strong management.  This meant the Group has had little or no issues as it navigated the many economic shocks it has had to deal with over the last two decades including the 2008 banking crisis, Brexit, the COVID-19 crisis, the high interest rate/ high inflationary effect post covid-19/ Ukraine war consequences.  The Group currently sits with low gearing compared to historic levels.

Market risk

If we want to buy, sell or let properties there is a market that governs the prices or rents achieved.  A property company can get caught out if it borrows too heavily on property at the wrong time in the market, affecting its loan covenants.  If loan covenants are broken, the Company may have to sell properties at non-optimum times (or worse) which could decrease shareholder value.  Property markets are very cyclical and we in effect have three strategies to deal with or mitigate the risk, but also take advantage of this opportunity:

1) Strong, experienced management means when the market is strong we look to dispose of assets and when it is weak we try and source bargains i.e. an emergent strategy also called an entrepreneurial approach. 

2) The Group has a diversified property portfolio and maintains a spread of sectors over retail, industrial, office and residential.  The other diversification is having a spread regionally, of the different classes of property over the UK.  Often in a cycle not all sectors or locations are affected evenly, meaning that one or more sectors could be performing stronger, maybe even booming, whilst others are struggling.  The stronger performing investment sectors provide the Group with opportunities that can be used to support slower sectors through sales or income.

3) We invest in good secondary property, which tends to be lower value/cost, meaning we can be better diversified than is possible with the equivalent funds invested in prime property.  There are not many property companies of our size that have over 900 individual units and over 120 buildings/ locations.  Secondary property also, very importantly, is much higher yielding which generally means the investment generates better interest cover and its value is less sensitive to market changes in rent or loss of tenants.

Property risk

As mentioned above, we invest in most sectors in the market to assist with diversification.  Many commentators consider the retail sector to be in period of severe flux, considerably affected by changing consumer habits such as internet shopping as well as a preference for experiences over products.  Of the Group's investment portfolio, retail makes up the largest sector being circa 60 to 65% by income generation.  However, the retail sector is affected to lesser degrees in what we would describe as neighbourhood parades, as opposed to traditional shopping high streets.  The large part of our retail portfolio is in these neighbourhood parades, meaning we are less affected by consumer habits and even benefit from some of the changes.  Neighbourhood parades provide more leisure, services and convenience retail.

For example we have undertaken a few lettings to local or smaller store formats, to big supermarket chains, which would not have taken place many years ago.  Block policy is another key mitigating force within our property risks.  Block policy means we tend to buy a block rather than one off properties, giving us more scope to change or get substantial planning permission if our type of asset is no longer lettable.  The obvious example is turning redundant regional offices into residential.  In addition by having a row of shops, we can increase or reduce the size of retail units to meet the current requirements of retailers. 

Finance risk

The final principal risk, which ties together the other principal risks and uncertainties, is that if there are adverse market or property risks then these will ultimately affect our financing, making our lenders either force the Group to sell assets at non-optimal times, or take possession of the Group's assets.  The management, business model and diversification factors described above help mitigate against property and market risks, which as a consequence mitigate our finance risk. 

The main mitigating factor is to maintain conservative levels of borrowing, or headroom to absorb downward movements in either valuation or income cover. The other key mitigating factor is to maintain strong, honest and open relationships with our lenders and good relationships with their key competitors.  This means that if issues arise, there will be enough goodwill for the Group to stay in control and for the issues to resolve themselves and hopefully

remedy the situation.  As a Group we also hold uncharged properties and cash resources, which can be used to rectify any breaches of covenants. 

Other non-financial risks

The Directors consider that the following are potentially material non-financial risks:

Section 172(1) statement

This is a reporting requirement and relates to companies defined as large by the Companies Act 2006, this includes public companies as otherwise the Group would not be considered large.

Each individual Director must act in the way he considers, in good faith, would be the most likely to promote the success of the company for benefit of its members as a whole, and in doing so the Directors have had regard to the matters set out in section 172(1) (a) to (f) when performing their duty under section 172. 

The matters set out are:

(a) the likely consequences of any decision in the long term;

The longer term decisions are made at Board level ensuring a wealth of experience and a breadth of skills.  The value creation in the business is mainly generated by buying the investments at the right time in the financial cycles, whilst reducing risk by choosing assets that have alternative or back up values to the current use, as well as initial values. It is also key that long term decisions are made in respect of ensuring that property assets are maintained, where economically viable.  Other areas to ensure decisions are in tune with long term consideration are making sure the best possible financing of the Group to match the requirements of the long-term nature of property ownership.  The Board and management makes long term decisions such as keeping a vigilant review of the changing nature of property usage and tries where possible to diversify its income streams.  Chorley and Trowbridge are more recent purchases which are good examples of long-term decision making, i.e. both industrial property investments - giving protection against changing consumer habits within retail (which is a larger component of the current portfolio) through diversification/ rebalancing the portfolio.   

(b) the interests of the company's employees;

The Company makes investment in and the development of talent of its employees, including paying for professional development, providing in house updates and encouraging knowledge sharing.  The Group has a strong track record of promoting from within the business and in 2020 two surveyors were promoted to Joint Head of Property both becoming RICS qualified whilst employed at the firm with one of those getting qualified in May 2023, the Group fully supported all of the training.  In 2021 the Finance Director was promoted to Chief Executive.  The Group undertakes team building activities to encourage cohesion and working together.

(c) the need to foster the company's business relationships with suppliers, customers and others;

Being in the property industry the business is used to dealing with many types of businesses as tenants from large multi-national businesses to small sole traders - keeping good sound relationships with both is key.  We also use many small operators and suppliers and we ensure prompt payment, paying within 30 days in most instances to again foster good working relations.  We maintain weekly payment runs to support small suppliers.

(d) the impact of the company's operations on the community and the environment;

The Group's investments by their very nature often have a significant impact on local communities, providing services and convenience businesses, or places for local enterprise or employment.  By owning a parade of shops, we can ensure where possible that these are viable locations by encouraging a variety of offerings.  The Group maintains and upkeeps its investment properties to a viable level which benefits the local communities they provide accommodation for, or seeks improvements in planning permission which can enhance local areas.  In 2023 a historic listed building in Liverpool was brought back into use after many years of not being utilised, now being used by a leisure operator.   In 2024 we have brought in DocuSign for leases and other agreements dealt with inhouse which will have a beneficial environmental impact with less paper and carbon being produced on the delivery of the documents.  We also ensure we upgrade our units to the required EPC levels which by its very nature reduces the longer term environmental impact of the use of these units.

(e) the desirability of the company maintaining a reputation for high standards of business conduct;

The Group maintains an appropriate level of Corporate Governance that is documented within its own section within these Financial Statements and on the Company's website.  With a relatively small management team it is easier to monitor and assess the culture and encourage the appropriate standards.  The Board strives to delegate and empower its management teams to ensure the high standards are maintained at all levels within the business.  In 2022 and 2023 we strengthened the Board the appointments of two non-executive directors with current relevant external knowledge of banking and surveying/ valuation.

(f) the need to act fairly as between members of the company.

The Group has excellent communication with its members, actively encouraging participation and discussion at its AGMs and also circulating letters of our announcements to ensure older members or those not accessing the financial news can keep up to date with relevant information.  Our Chairman is unpaid, his benefit or income from the Company is received via dividends pro-rata the same as all members including minority shareholders.

The Group Strategic Report set out on the above pages, also includes the Chairman's Statement shown earlier in these accounts and was approved and authorised for issue by the Board and signed on its behalf by:

S. J. Peters

Company Secretary

Unicorn House

Station Close

Potters Bar

Hertfordshire EN6 1TL                                                          16 May 2024

The accounts were approved by the Board of Directors and authorised for issue on 16 May 2024. They were signed on its behalf by:

A.S. Perloff, Chairman

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2023

* Of this balance £954,000 (2022: £4,000) is restricted by the Group's lenders i.e. it can only be used for purchase of investment property.

** Shares in listed and/or unlisted companies.