annington annual rep 2019-web - Page 23

Strategic report | Financial review
Principal risks and uncertainties
The Group’s significant accounting
policies are set out in the notes to the
financial statements. A summary of the
Group’s financial position at 31 March
2019 and the cash flows of the Group for
the year is set out below.
The Group’s total assets amounted to
£7,840.7 million (2018: £7,285.9 million).
All the Group’s investment properties
are located in England and Wales.
The fair value of these properties is
reassessed annually, with the Group’s
total investment properties carried at
£7,659.1 million at 31 March 2019 (2018:
£7,104.9 million). The Group’s share of
its joint ventures totalled £6.0 million
(2018: £14.2 million) and the Group held
£175.0 million (2018: £162.9 million)
of current assets, excluding investment
property held for sale, mainly comprising
cash and other short-term investments.
The Group’s combined liabilities totalled
£4,162.9 million (2018: £4,065.7 million),
comprising a mixture of long-term debt
and exposure to deferred tax, mostly
arising on the revaluation of investment
properties. The Group’s long-term
funding is arranged through AFP in the
form of bonds and a term loan.
Aside from debt service costs of
£108.3 million (2018: £171.0 million),
the major cash outflow during the year
related to the Group’s expansion into
PRS. Payments for acquisitions totalled
£86.5 million, on top of the £39.4 million
spent in 2018. Due to the decrease in
sales, the cash inflow from property sales
decreased to £14.3 million
(2018: £37.5 million).
The table below outlines the principal risks and uncertainties:
Area of potential uncertainty
The Group is dependent on rental
income from leases entered into
with the MoD for a substantial
proportion of the Group’s
The revenue from rent payments by the MoD for
the MQE accounts for 91.9% (2018: 92.5%) of the
Group’s rental income.
The refinancing that took place
in July 2017 gives the Group
significant operational flexibility
to diversify the business and
pursue a growth strategy in the
private residential sector or other
areas to mitigate the risk of the
negative potential outcomes.
The Group expects to continue to rely primarily
on the MoD, the Group’s sole tenant in respect
of the Retained Estate, however, there can be
no assurance that circumstances will remain
unchanged. The Rent Review could be
unfavourable, and the MoD could fail to pay rent on
time, all of which could adversely affect the Group’s
business and create the risk that the debt service
obligations would not be able to be met.
The UK housing market may be
significantly affected by changes
in general and local economic
conditions, including “Brexit”.
22 | Annington Limited Annual Report & Accounts 2019
Anticipated rental income is a significant factor in
the calculation of the Group’s projected revenue
and the estimated fair value of the Group’s
properties is dependent on the Rent Review
process. The five-year gap between each tranche’s
successive Rent Reviews may prevent the Group
from capturing and benefitting from interim rental
market improvements but also protects the Group
from interim market detriment.
The Group has entered into
a revolving credit facility, with
£300m available and currently
undrawn, that provides liquidity
to the Group were any rental
income to be received after its
due date.
The property market has a history of experiencing
periods of rising values followed by a slowdown in
growth rates and even falling values. The realisable
value of the Group’s property portfolio at any given
time can be affected by many factors outside the
Group’s control.
The Board reviews the capital
values and rental levels achieved
and considers any changes that
have occurred to the expected
levels alongside prevailing
market conditions.
During periods of low demand, low prices and
poor sales rates, land and properties may become
particularly illiquid, which could lead the Group to
experience difficulty in successfully disposing of
properties in a timely fashion, without extensive
marketing efforts, or without reducing the price of
the properties.
Where deviations are noted,
these will be incorporated into
future appraisals to ensure
realistic and rational forecasting
which forms the basis for all
business decisions.
In unfavourable conditions where
chosen sales strategies may be
difficult to execute, the Group
could implement alternative
strategies, including renting
units on a short-term basis until
market conditions become more
Annington Limited Annual Report & Accounts 2019 | 23


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