CHIEF EXECUTIVE'S LETTER

 

Dear Shareholder

 

I have pleasure in reporting to you on the progress of the Group for the year to 30 June 2024.

 

Our efforts over the last couple of years to restructure the balance sheet and to modernise and improve the standard of the property portfolio together with the introduction of the Cristal Apartments operating model, has resulted in the Group being well positioned to continue to drive growth from its existing assets.

 

Operational highlights -

 

§ Revenue for the financial year increased by 14% (to £1.80 million up from £1.58 million in 2023) - largely underpinned by the modernisation and improvement in the standard of the rental product offered combined with the introduction of the Cristal Apartments operating model at Coleherne Road and Deanery Court.

 

§ Portfolio level occupancy has remained strong over the financial year with rental increases continuing to be achieved at renewals / re-lettings. The introduction of the Cristal Apartments operating model has resulted in more volatility in occupancy levels within properties operated on this basis, however this is offset by substantially improved overall rental income being generated. The Cristal Apartments operating model inherently comes with more occupancy volatility levels; however this is compensated by the fact that it generates substantially more revenue.

 

§ Active focus on cost management resulted in administrative expenses reducing by 7% to £1.33 million (down from £1.43 million in 2023). Given the ongoing cost pressure across the business as a whole this is a particularly pleasing result. Costs continued to be tightly controlled and whilst the current underlying inflationary environment continues to present challenges, we continue to look for avenues to reduce or maintain costs at current levels.

 

§ Cash used in operations reduced by 81% to £75k (down from £387k in 2023). Whilst the business remains cash negative, the cash burn has reduced to the lowest level in the Company's history. After allowing for financing charges, net cash used in operating activities reduced by 29% to £659k (down from £934k in 2023).

 

 

The ongoing focus on improving operational performance and control of costs continues to minimise the cash burn from operating activities. Whilst the business has not yet achieved a cash neutral position, progress continues to be made in achieving this aim.

 

Deanery Court is expected to be a primary contributor to revenue growth over the course of the 2025 financial year as we continue to focus on improving performance from this asset. We will also be looking to achieve reductions in operating costs associated with this asset over the current financial year to enhance the net contribution from this asset.

 

 

Focus to drive value over the next financial year is:

 

§ optimising performance from existing assets by improving average occupancy under the Cristal Apartments operating model and ongoing focus on repricing rents as tenancies expire;

§ reducing operating costs associated with Deanery Court to further enhance the net contribution from this asset;

§ continuing to progress planning works at Ladbroke Grove;

§ control of core running costs with incremental reductions where possible; and

§ acquisitions to increase scale (subject to pricing / value drivers).

 

Progress continues to be made to create a stable platform that can be successfully scaled-up.

 

Property portfolio

 

Property transactions during the year

 

Acquisition opportunities were considered during the year, however, none were progressed. We continue to maintain a disciplined approach to acquisitions and will only pursue those that we believe will offer compelling value to shareholders. As outlined above, higher debt costs have made it challenging to support both the investment and capital raising that would be required to support any acquisitions.

 

Existing portfolio

 

KCR continues to focus on improving performance from its existing portfolio. The investment over recent years in improving the quality of the portfolio has continued to deliver revenue growth and we reasonably expect to continue to drive further growth from the existing assets over the course of the current financial year.

 

The conversion of Deanery Court to the Cristal Apartments operating model during the 2023 financial year has resulted in improved performance from this asset which has been a key contributor towards revenue growth during the 2024 financial year. This property is well positioned to continue to deliver further improvements in operational performance during the current financial year.  

 

We are continuing to progress our preferred planning outcome for the Ladbroke Grove properties and are considering testing the market with the completion of more substantive refurbishment works, as flats become vacant to test market acceptance of a repositioned product.   

 

As outlined in prior annual reports, KCR has created two operating lines, clearly identifiable by brand, property quality and letting strategy.   

 

1.   Cristal Apartments.  Residential apartments, finished to a high modern specification, furnished and let on a Walk-In-Walk-Out (WIWO) basis (utilities subject to fair usage caps, internet, furniture, and TV licence included in the rental agreement) for a frictionless and flexible letting experience.  Rental contracts may be from a week to multi-year.

 

2.   Osprey Retirement Living.  4* retirement living property rented on the same basis as above, with optionality on furniture.  Rental contracts via standard AST (six months plus).

 

1.     Cristal Apartments (WIWO letting strategy)

 

The Coleherne Road and Deanery Court properties are both branded and operated under the Cristal Apartments brand. Both have delivered substantially improved performance following the repositioning of the rental product offered and conversion to the WIWO operating model.

 

·    The property at Coleherne Road, held within K&C (Coleherne) Limited, comprises ten studio and one-bedroom flats.  KCR has completed a whole-building refurbishment of the property to a significantly higher standard.  The new apartments have produced strong rental uplifts and occupancy levels since letting commenced during the December 2021 quarter.

 

·    The Ladbroke Grove portfolio (owned by KCR (Kite) Limited) consists of 16 studio, one and two-bedroom flats in three buildings which remain 100% occupied. Units are being lightly refurbished as tenants leave and are then re-let in the private market.  Planning works continue to be progressed and options for this property evaluated, but progress is slow. Consideration is being given to testing market for repositioned product by completing a more holistic refurbishment if a flat becomes available.

 

 

·    The Southampton block of 27 residential units at Deanery Court, Chapel Riverside (owned by KCR (Southampton) Limited) has been converted to the WIWO operating model and has been a key driver of growth over the 2024 financial year. We believe this asset will continue to be a key driver of growth over the current financial year as we focus on continuing to optimise performance of this asset.  

 

2.     Osprey Retirement Living (4* retirement apartments)

 

The Osprey portfolio (K&C (Osprey) Limited) consists of 153 flats and 13 houses let on long leases in six locations, together with an estate consisting of 30 freehold cottages in Marlborough, where Osprey delivers estate management and sales services.

 

Whilst there remains some uncertainty over the future value of ground rents, this makes up a minor part of the overall portfolio valuation. Heathside at Golders Green remains the most substantive asset within the portfolio and the Company's strategy remains to continue to acquire flats within this property. The ten flats now owned within Heathside are delivering strong rental returns on cost and have assisted in supporting Group revenue growth. We continue to focus on unlocking value via completion of lease extensions on the shorter dated long leasehold flats.  

 

Heathside situated at Golders Green represents 75% of the Osprey portfolio value, where 27 of the 37 residential units are held on a long leasehold basis.  The strategy continues to be to selectively acquire (subject to pricing) long-leasehold units in the block, refurbish them to a high standard and let them in the open market under assured shorthold tenancies. This strategy continues to provide strong rental returns for the Group. Since successfully taking back management of this property from the RTM Co in 2022, a substantive upgrade to all of the interior common parts and a large component of the exterior has been completed. The works programme has enhanced both the aesthetics and liveability of the property for the benefit of residents and is considered positive for both future capital values and achievable rentals for the apartments owned within the freehold.

 

Financial

 

The current financial year reflects continued solid growth in gross revenue and further improved operating performance.  following the refurbishment works and asset repositioning programme that has been implemented together with the  ongoing focus on cost control of core operating overheads.  Negative impact of fair value movements following deterioration in market conditions largely reversed prior year valuation gains. KCR has recorded an operating loss of £555k after a non-cash revaluation loss of £679k before separately disclosed items.

 

As at the year end the Group had approximately £932k in cash and cash equivalents (2023: £981k). Further details regarding the financial performance of the Group can be found in the Strategic Report

 

 

Prospects

 

KCR continues to make progress towards becoming cashflow positive.  We continue to work on achieving this and look forward to delivering further improved performance from the existing portfolio over the current financial year.

 

I am pleased by the ongoing progress made this year towards achieving a cash positive position which will provide the  Company with a stable operating base from which to grow.

 

Strong underlying rental growth was outstripped by the expansion in capitalisation rates / yields reflecting the higher interest rate environment and softer residential property market conditions. This resulted in a non cash fair value loss being recorded which largely unwound last year's valuation gains. This is considered to be cyclical in nature rather than a permanent loss of value. Residential property market conditions are expected to continue to fluctuate over time, however there remains a structural undersupply across the United Kingdom which is viewed as positive for both future rental levels and capital values.

Russell Naylor
Executive Director

 

GROUP STRATEGIC REPORT

 

The Directors present the strategic report of KCR Residential REIT plc ('KCR' or the 'Company') and its subsidiaries (together, the 'Group') for the year ended 30 June 2024. 

PRINCIPAL ACTIVITY

The Group carries on the business of acquiring, developing and managing residential property predominantly for letting to third parties on long and short leases.  At the year-end, the Group consisted of the Company, which is a public company limited by shares, and its wholly owned subsidiaries:

1.           K&C (Coleherne) Limited owns a freehold residential property in Chelsea, London containing ten studio and one bedroom flats;

2.           K&C (Osprey) Limited owns ten freehold apartments and the freehold of several retirement properties let on long leases to residents and provides management services in respect of these properties and to third-party landlords;

3.           KCR (Kite) Limited owns three freehold residential properties in Ladbroke Grove, London (16 flats);

4.           KCR (Southampton) Limited owns a long leasehold block of 27 two-bedroom apartments at Chapel Riverside, Southampton. The lease is a 999 lease for which the Company pays a peppercorn rent; and

5.           K&C (Newbury) Limited owns no property and is now effectively dormant.

Throughout the year the Company remained a REIT and has complied with REIT rules throughout the period and since the balance sheet date.

GROUP STRATEGY

The Directors intend to build a significant presence in the residential letting market, primarily through the acquisition of existing residential property. Consideration will also be given to the acquisition of land with planning permission that will be developed into residential property. Assets are predominantly acquired with the purpose of letting to third parties.

RESULTS

The Group reports a consolidated loss of £1,186,075 for the year to 30 June 2024 (2023: a consolidated loss of £166,136). 

REVIEW OF BUSINESS AND FINANCIAL PERFORMANCE

The Board has reviewed whether the Annual Report, taken as a whole, presents a fair, balanced and understandable summary of the Group's position and prospects, and believes that it provides the information necessary for shareholders to assess the Group's position, performance, and strategy.

 

In reporting financial information, KCR presents alternative performance measures, "APMs", which are not defined or specified under the requirements of IFRS.  For example, portfolio occupancy and percentage of rent arrears.  The Company believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional helpful information on the performance of the business.  The Board reminds readers that these APMs are not GAAP measures, are not intended as a substitute for those measures, and that other companies may use different measures.

 

 

Revenue in this financial year increased by 14% to £1,796,106 (2023: £1,575,482). Core portfolio revenue (relating to rentals) was the primary contributor to revenue growth with the Deanery Court property being a key driver.  

 

The Cristal Apartments operational model is expected to result in lower levels of occupancy but enhanced revenue. We will be revisiting the APM in respect of occupancy given this.

 

The Group recorded an operating loss before separately disclosed items of £554,677 (compared to an operating profit of £718,546 in 2023). Deterioration against the prior year was due to a reversal of prior year valuation gains with a negative revaluation movement of £679,000 (compared to a positive contribution of £831,800 in 2023). After allowing for separately disclosed items and finance costs, the loss before taxation was £1,186,075 (2023: loss of £166,136). The negative fair value movement and separately disclosed items relating to financing accounted for the majority of the loss before taxation in the 2024 financial year. The Group reports the operating result both before and after separately disclosed items as the costs associated with refurbishment works is expected to vary significantly year-on-year.

 

Total assets at 30 June 2024 decreased to £26,711,116 (2023: £27,239,937). This decrease was mainly due to a reduction in the valuation of the investment properties of £679,000.

 

Net assets decreased to £12,323,126 (2023: £13,509,201) and net asset value per share decreased to 29.57p (2023: 32.42p).

 

KEY PERFORMANCE INDICATORS

The Directors and management team monitor key performance indicators relevant to each of the subsidiaries to improve Group performance. Management reports to the Board if data shows significant variances against expected outcomes and proposes mitigation action as necessary.

 

Examples of the KPIs used to monitor aspects of performance include:

1.    At property level:

1.1.      Vacancy rate in terms of number of units available and potential rental income

Target occupancy of at least 90% achieved for the non walk in walk out apartments; and

1.2.      Outstanding rents as a percentage of rental income

Target debtor balance of less than 10% of rental revenue achieved.

Now that Deanery Court is being operated under the Cristal Apartments operating model, target vacancy rate for this property will be reviewed over the course of the current financial year. Deanery Court achieved an average occupancy rate of 61% over the 2024 financial year which is considered a solid result for its first full year of operation under the Cristal Apartments operating model.  

2.    At Group level:

Near term focus continues to be on reducing costs, enhancing revenue and growing the business to achieve a cash break-even position (before separately disclosed capital expenditure), to provide a stable base from which to grow. Good progress in this respect is being made. In order to achieve this, the Group is focusing on optimising performance from the existing assets and incremental acquisitions where they make sense.

 

RISKS AND UNCERTAINTIES

The Board regularly reviews the risks to which the Group is exposed and ensures through its meetings and its regular reporting that these risks are minimised as far as possible.

The principal risks and uncertainties facing the Group at this stage in its development are:

·           Financing and liquidity risk

The Company has an ongoing requirement to fund its activities through the equity markets and in the future to obtain finance for property acquisition and development. Although there is no certainty that such funds will be available when needed, the Company believes it would be able to access further funding for the Directors to continue to focus on selectively growing the Group's asset base;

·           Financial instruments

Details of risks associated with the Group's financial instruments are given in note 20 to the financial statements. The Directors seek to mitigate these risks in manners appropriate to the risk; and

·           Valuations

The valuation of the investment property portfolio is inherently subjective as it is made on the basis of assumptions made by the valuer or the Directors, that may not prove to be accurate. The outcome of this judgment is significant to the Group in terms of its investment decisions and results. The Directors, who have long experience of property and valuation principles, seek to mitigate this risk by employing independent valuation experts to complete periodic valuations of the assets in the portfolio. Valuation assumptions are reviewed and considered by the Directors for reasonableness.

 

                   Directors' duty to promote the success of the Company under Section 172 Companies Act 2006

Section 172 (1) of the Companies Act 2006 requires Directors to act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of shareholders as a whole, and in doing so having regard to a diverse group of stakeholders.

 

The Directors continue to have regard to the impact of decisions made on all stakeholders and are aware of their responsibilities to promote the success of the Company, in accordance with section 172 of the Companies Act 2006.

 

We aim to work responsibly with our stakeholders and outline below the key Board decisions made during the 2024 financial year:

 

Key Decision	Stakeholders	Action and Impact
Governance Policies	Regulators / Shareholders	The Board periodically reviews governance policies for the Company and terms of reference for established committees to ensure they remain appropriate for the Group.   A robust governance framework is an integral part of how the Company operates and ensures compliance with its AIM quotation and regulatory requirements, including compliance with REIT regulations. The Company considers that the confidence provided to all stakeholders from a robust governance framework is an important component for ongoing stakeholder support of the Company.
Strategy Implementation	Tenants / Shareholders	The Company continued to take actions to implement the strategy outlined in last year's Annual Report.   Primary focus was - § Optimising revenue from Deanery Court  following the transition to the Cristal Apartments operating model.   § Progressing incremental refurbishment works to enhance the quality of the rental product provided.   § Progressing planning works to enhance value within the existing portfolio.   § Successful implementation of strategy is expected to result in continued improved financial performance of the Company.   Improving the quality of the standard of rental accommodation provides tenants with an enhanced and hassle-free rental experience. For shareholders, the investment in improving the quality and standard of the rental product is a primary driver of improved financial performance for the Company.   Within the Residential portfolio, completion of extensive  works on the central internal areas and the external fabric of the buildings, particularly at Heathside and Challoner Court, provided benefit to the residents in 2024 and moving forward.

FORWARD-LOOKING STATEMENTS

This Annual Report contains certain forward-looking statements which have been made by the Directors in good faith, based on the information available at the time of the approval of the Annual Report and financial statements. By their nature, such forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results may differ from those expressed in such statements.

OUTLOOK

Whilst the near-term focus remains on improving the operational performance of the existing assets and containing or reducing costs, the Group is continuing to investigate the purchase of residential property assets that are capable of supporting an increasing income yield. It may be necessary for the Group to raise more capital in order to achieve this objective.

ON BEHALF OF THE BOARD:

 

Russell Naylor
Executive Director

 

CORPORATE GOVERNANCE STATEMENT

 

Compliance with the QCA code

During the year to 30 June 2024 KCR Residential REIT plc, while an AIM quoted Company, was operating with four directors and four employees. In September 2018, it adopted the QCA Code but with such a tightly controlled operational and risk environment was not able to, in all areas, fully comply with the principles. During the current year, the Directors have continued to work towards compliance and updating the website to comply as far as possible with the following QCA Code principles, noting areas where the small scope of operations limits their ability to fully comply:

 

Principle 1: Establish a strategy and business model which promotes long-term value for shareholders

 

The Company's objective is to build a substantial property portfolio predominantly in the residential sector that generates both secure income flow from rents and increasing net asset value for shareholders. The Company owns, acquires or develops blocks of studio, one, two and three-bed apartments that are close to transport links, shopping and leisure, predominantly in London, its surrounds and the South East. These blocks are focused on attracting tenants seeking affordable rental accommodation.

 

The Company brings its property corporate finance expertise to the identification and execution of these acquisitions.

 

The Company looks to acquire properties at below market value to improve yield on cost and enhance net asset value. It aims to achieve this through acquisition strategies including:

 

·      using the REIT's inherent tax advantages; acquiring properties in corporate structures with embedded capital appreciation and deferred tax liabilities which are reduced to zero as the corporate becomes part of the REIT group; and

·      acquiring permitted land, funding the development process and retaining the developer's profit.

 

Over the medium to long term, the Company expects rental and property values to increase in line with inflation. These increases, coupled with new acquisitions, are designed to enable the Company, once it has reached sufficient scale, to pay dividends from cash flow generated by rents and to deliver net asset value increases through positive property revaluations. Active asset management of the properties may also deliver value increases. The Company, as a REIT, is required to distribute 90% of its rental profits.

 

It is the Company's paramount intention to conduct its activities in a professional and responsible manner for the benefit of its shareholders, its employees, and the communities in which it operates.

 

Further detail on the key challenges that the Board addresses are set out under Risks and Uncertainties in the Strategic Report.

 

Principle 2: Seek to understand and meet shareholder needs and expectations

 

The Company remains committed to engaging with its shareholders to ensure its strategy and performance are clearly understood. Feedback from investors is obtained through direct interaction between the Executive Director and shareholders following the Company's full and half year results and certain other ad hoc meetings between executive management and shareholders that take place during the year.

 

The Company seeks to communicate with its shareholders on a timely and transparent basis at all times. Announcements through Regulatory News Services ('RNS') are as comprehensive as possible. As part of the Company's repositioning, the speed of reporting of the interim and full year results to shareholders has substantially improved.

 

The Chief Executive attends and presents at investor forums from time to time, as well as holding discussions with analysts, shareholders and investment managers on an ad hoc basis.

It is apparent from such interaction that shareholders have several concerns, including:

 

·       How do the Directors propose to expand operations without dilution to existing shareholdings?

 

         Since property companies are capital-intensive, the Company will raise equity over time to fund the acquisition of new properties. Torchlight Fund LP exercising its option rights as accepted and approved by shareholders was dilutive to shareholders. Going forward, the Board will aim to maximise the issuance price of any additional equity offerings such that issuances are accretive or, if that is not possible, they will aim to offer all shareholders the opportunity to participate in the offering on a pre-emptive basis.

 

·       When will the Company become profitable?

 

         Historically the Company has advised that it may become profitable and cash flow positive once it has approximately £50m of investments generating satisfactory rental income. In view of the improved operational performance and cost reductions, it is now considered likely that the Company may become profitable with less than £50m of income generating investments. Executive management is focused on achieving this objective as soon as possible. This is naturally dependent on the availability of suitable transactions and the ability to complete the acquisitions either via additional equity capital or debt.

 

Shareholder liaison is managed though Russell Naylor Russell.Naylor@kcrreit.com.

 

Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-term success

 

The Company currently operates in the UK. It identifies the main stakeholders in the UK as being investors, tenants, and suppliers of services (accountant, nominated adviser, broker, lawyers), employees, directors, third-party property managers, banks and other debt providers and property agents introducing investment opportunities.

 

The Company has an important social responsibility in its role as a landlord of residential housing. We commit to delivering great service to our tenants, which includes providing safe and high-quality residential units, at market prices, managed in a professional way.

 

Treating all our stakeholders well, and in particular our key customers - our tenants, is key to growing a sustainable business that will have long-term success.

 

Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organisation

 

The Board is responsible for setting the risk framework within which the Company operates and ensuring that suitable risk-management controls and reporting structures are in place throughout the Group.

 

The Board seeks to minimise risk in the management of its operations. The Company uses third-party advisers to address specific issues that arise during operations where they bring complementary expertise and experience.

 

Principle 5: Maintain the board as a well-functioning, balanced team led by the chair

 

The Board comprises a balance of independent and non-independent Directors with collective, specific and complementary skills that enable the Company to manage and direct its affairs in a professional manner, with embedded corporate governance procedures that are fit for purpose.

Full Board meetings are generally held on a quarterly basis and all necessary documentation is provided to the Board in advance, so that they can understand the issues under review and make well-considered decisions. During the year, between full Board meetings, the Board convenes whenever necessary to consider and, if appropriate, approve the execution and completion by executive management of key matters that fall within the Board's defined remit as set out below.

The Board has audit and remuneration sub-committees that are chaired by non-executive directors.

All of the Directors devote such time to the Company's affairs as the Board considers appropriate.

KCR believes that a board of four members is appropriate for a business of its size and is in line with its efforts to reduce operating costs, assisting with its drive to profitability. Following the resignation of Dominic White and subsequent appointment of Gordon Robinson on 1 April 2024, the Company has two Independent Non-Executive Directors.

Principle 6: Ensure that between them, the Directors have the necessary up-to-date experience, skills and capabilities

 

The Board maintains up-to-date skills, knowledge and experience to enable it to direct and manage the Company's operations, finances and its interface with investors, the public markets and its other stakeholders.

The Board takes great care to appoint managers and staff with the appropriate skills and experience, and is aware of the importance of encouraging diversity among its workforce.

The Board works as a team and regularly reviews its procedures and composition.

The relevant experience and skills of the current Directors are set out under About Us / The Board on the Company's website. Each Director is involved in other organisations which keep their professional skills up to date.

Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continual improvement

 

The Board of KCR comprises:

Name	Role	Appointed	Status
Russell Naylor	Executive Director	06 August 2019	Non-independent
James Thornton	Non-Executive Chairman	06 August 2019	Independent
Richard Boon	Non-Executive Director	06 August 2019	Non-independent
Gordon Robinson	Non-Executive Director	01 April 2024	Independent

 

In accordance with its obligations under the QCA Code, the Board will review internally its collective performance, and the performance of its committees and Board members. At this stage of its evolution and in view of the size of the Board, the Directors do not believe that it is practical to undertake an external or a wide-ranging evaluation of the performance of Board members. The primary tasks of the Executive Director, Russell Naylor, have been and will continue to be to grow the Company's asset base and revenue through the delivery of additional assets to the portfolio. This has included developing capital and asset partnerships and finding ways to raise appropriately priced and structured debt finance to support transactions and equity capital in an uncertain equity market. He is a key point of contact for the capital markets.

In these tasks, Russell Naylor will be supported by the Non-Executive Directors advising on matters such as internal financial controls, financial management, capital planning and overseeing the preparation of financial reports to shareholders.

 

The primary task of the Chairman, James Thornton, is to ensure that the Board has performed its role correctly, that governance is adhered to, and that the Company works towards delivering value to shareholders in accordance with the Company's strategy. He is also a point of contact with the Company's shareholders and professional advisers.

 

Succession planning remains an important issue for the Board, and in particular the Chairman.

 

 

Principle 8: Promote a corporate culture that is based on ethical values and behaviours

 

The Board strives to promote a corporate culture based on sound ethical values and behaviours.

 

The Company has adopted a code for Directors' and employees' dealings in securities, which is appropriate for a company whose securities are traded on AIM. The code is in accordance with the requirements of the Market Abuse Regulation that came into effect in 2016.

 

The Board is also aware that the tone and culture it sets will greatly impact all aspects of the Company and the way that employees behave, as well as the achievement of corporate objectives. A significant part of the Company's activities is centred upon an open dialogue with shareholders, employees and other stakeholders. Therefore, the importance of sound ethical values and behaviour is crucial to the ability of the Company to successfully achieve its corporate objectives.

 

 

Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board

 

The Board is committed to high standards of corporate governance. No system of internal control can completely eliminate the risk of process or individual failures. To an extent, the corporate governance structures which the Company is able to operate are limited by the size of the executive management team and the small number of executive directors, which is itself dictated by the current size of the Company's operations. Within this limitation necessitated by the current small size of the business, the Board is dedicated to having strong internal control systems in place to enable it to maintain the highest possible standards of governance and probity.

 

The Chairman, James Thornton:

· leads the Board and is primarily responsible for the effective working of the Board;

· in consultation with the Board, ensures good corporate governance and sets clear expectations with regards to Company culture, values and behaviour;

· sets the Board's agenda and ensures that all Directors are encouraged to participate fully in the activities and decision-making process of the Board;

· takes responsibility for relationships with the Company's professional advisers and major shareholders.

The Executive Director, Russell Naylor:

· is primarily responsible for developing the Company's strategy in consultation with the Board, for its implementation and for the operational management of the business;

· is primarily responsible for new projects and expansion;

· runs the Company on a day-to-day basis;

· implements the decisions of the Board;

· monitors, reviews and manages key risks;

· is the Company's primary spokesperson, communicating with external audiences, such as investors, analysts and the media;

· is primarily responsible for the systems of financial controls in operation for the Company and each of its subsidiaries;

· is primarily responsible for all financial management and financial planning matters;

· monitors, reviews and manages key risks as they relate to financial impact; and

· implements the financial and internal control decisions of the Board.

The Remuneration Committee is chaired by Richard Boon, Non-Independent Non-Executive Director, and also comprises Richard Boon, James Thornton and Gordon Robinson, both Independent Non-Executive Directors. The remuneration committee meets on an ad hoc basis when required.

The Audit and Risk Committee is chaired by James Thornton, Chairman and Independent Non-Executive Director, and also comprises James Thornton, Gordon Robinson (both Independent Non-Executive Directors) and Richard Boon, Non-Independent Non-Executive Director. Russell Naylor is invited to attend as appropriate. It meets at least three times each financial year to consider the interim and final results. In the latter case, the auditors are present and the meeting considers and takes action on any matters raised by the auditors arising from their audit.

The chair of each of the Committees may invite executive management and Board members to attend any meeting.

Matters reserved for the Board include:

· vision and strategy;

· review of budgets, asset plans and trading results;

· approving financial statements;

· financing strategy, including debt strategy;

· business planning relating to acquisitions, divestments and major refurbishments not already agreed in the strategy and asset plans;

· capital expenditure in excess of agreed budgets;

· corporate governance and compliance;

· risk management and internal controls;

· appointments and succession plans at senior management level; and

· Directors' remuneration.

Principle 10: Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

The Company's website sets out the principal approach of the Company to governance. It contains all relevant documents and information for shareholders, including all RNS announcements, financial reports, shareholder circulars, and the Company's articles.

Shareholders are additionally encouraged to participate at the Annual General Meeting ('AGM'), to ensure that there is a high level of accountability and identification with the Group's strategy and goals.

Audit & Risk Committee Report

The Audit & Risk Committee is a Board committee delegated with responsibility to oversee and review financial and internal controls in accordance with its Terms of Reference. The Committee also makes recommendations to the Board on payment of dividends or otherwise. The Committee is also responsible for setting and agreeing audit fees and overseeing the process for auditor appointment.

The Audit & Risk Committee is chaired by Independent Non-Executive Chairman, James Thornton, with a quorum of a minimum of two Non-Executive Directors. There are three Non-Executive Director members; James Thornton, Gordon Robinson and Richard Boon.

During the 2024 financial year the Audit & Risk Committee met four times to review and recommend the interim and year-end financial statements and separately in 2023 and 2024 to review risk issues and regulatory and governance matters.

Remuneration Committee Report

The Remuneration Committee is a Board committee of Non-Executive Directors acting within its terms of reference to execute its responsibility for the review and approval of salary and bonuses of Board members and senior management personnel and related employment matters.

During 2024, the Remuneration Committee met to review and approve senior management salaries and bonus structure for staff.

It is the Company's policy that the remuneration of Directors should be commensurate with the services provided by them to the Company and should take account of published data on reasonable market comparable groups, where available. Details of the Directors' remuneration are set out in the Report of the Directors.

 

REPORT OF THE DIRECTORS

The Directors present their report with the financial statements of the Company and the Group for the year ended 30 June 2024.

A review of the business, risks and uncertainties and future developments is included in the Chairman's Letter, the Chief Executive's Letter, the Group Strategic Report, and in note 20 to the financial statements.

DIVIDENDS

The Directors do not recommend payment of a dividend for the year (2023: £nil).

POLITICAL DONATIONS

The Group made no political donations during the year (2023: £nil).

DIRECTORS

The following Directors served during the year to 30 June 2024 and up to the date of approval of this Annual Report:

Name
James Thornton
Russell Naylor
Richard Boon
Dominic White	Resigned 1 April 2024
Gordon Robinson	Appointed 1 April 2024

 

The beneficial interests of the Directors holding office at 30 June 2024 in the issued share capital of the Company were as follows:

		Ordinary Shares
		At 30 June 2023	Issued in the  year	At 30 June 2024
Name		No.	No.	No.
James Thornton		22,222	--	22,222

The beneficial interests of the directors holding office at 18 September 2024 in the issued share capital of the Company were as follows:

	At 30 June 2024	Issued in the period	At 18 September 2024
Name	No.	No.	No.
James Thornton	22,222	-	22,222

 

SUBSTANTIAL SHAREHOLDINGS

As at 18 September 2024, the Directors had been notified that the following shareholders owned a disclosable interest of three percent or more in the Ordinary Shares of the Company:

Name		Interest %
Torchlight Fund LP		55.44%
Acuity RM Group Plc		5.85%
Moore House Holding Ltd		5.66%
Poole Investments Ltd		4.32%
Venaglass Ltd		3.80%

DIRECTORS' REMUNERATION

The Directors received the following remuneration for their services during the year:

	2024	2023
Name	Remuneration   £	Remuneration   £
Dominic White	13,500	18,000
Russell Naylor*	115,000	115,000
James Thornton	30,000	30,000
Richard Boon	30,000	30,000
Gordon Robinson	4,500	--
	193,000	193,000

* The remuneration paid to Russell Naylor included fees of £48,000 charged by Naylor Partners, a business in which Russell Naylor is a director (2023 - £48,000).

INTERNAL CONTROLS AND RISK MANAGEMENT

The Directors are responsible for the Group's system of internal control.  Although no system of internal control can provide absolute assurance against material misstatement or loss, the Group's system is designed to provide reasonable assurance that problems are identified on a timely basis and dealt with appropriately.