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BLUE COAST CAPITAL PROPERTIES LIMITED

Group strategic report for the year ended 31 December 2020

The directors present their strategic report on the group for the year ended 31 December 2020.

Principal activities

The parent company co-ordinates and manages the activities of its subsidiaries and administers group investments.

The principal activities of the group comprise:

  • Hotel operations and ownership
  • Property development, trading and investment
  • Investment and finance

Results for the year
The results for the group for the year are set out on page 13. The overall result after tax changed from a profit of £13.4 million to a loss of £19.0 million. The consolidated statement of financial position shows a net asset position of £567.6 million (2019: £587.0 million).

Future developments
The group will endeavour to seek opportunities to expand all its major divisions. The group sees organic growth in its major markets as its core strategy.

During 2020 UKI Cambridge Limited was dissolved.

The directors are optimistic about the future development of the group, as set out in the financial review below.

Dividends
A dividend of £nil (2019: £nil) was paid during the year.

Financial review
Hotel operations and ownership
US

During 2020, the division operated two hotels, the largest of which is a 309 room, five-star, five diamond luxury resort in Palm Beach, Florida. However, the hotels closed in March 2020 as a result of the Covid-19 pandemic and did not reopen until June and July 2020.

Divisional turnover decreased from £52.2 million in 2019 to £30.2 million as a result of the impact of the Covid-19 pandemic whereby the hotels were closed for a large part of the year. This was broadly in line with expectations.

Property investment and development
The UK managed property division, which trades under the name Blue Coast Capital, owns, manages and develops property assets in the UK, Europe, US, the Caribbean and Thailand.

The division progressed with a number of development projects over the year including residential developments in the UK, US, Spain and Barbados. During the Covid-19 pandemic the business paused many of its active projects but saw development activity return by the end of 2020. Asset management of the investment portfolio focused on rent collection, on reducing vacancy, improving income and value.

The business acquired new assets in the year including one UK Commercial property as well as making further investments in its Paris commercial, UK Senior Housing and US Medical Office funds.

The US property division includes three projects which continued to stabilise in the year, encompassing multifamily and senior living. The business continues to sell assets selectively in line with individual asset business plans.

The main external risks affecting this division are; changing property values, changing investor and occupier demand and tenant default. Risk is mitigated by a diverse portfolio across sectors and geographies together with maintaining a strong credit worthy tenant mix. Divisional management also maintains tight controls over operating costs.

Financial instruments and principal risks and uncertainties of the group
The objectives, policies and strategies applied by the group with respect to management of commercial and financial risks are determined at both group and divisional levels. The principal financial instruments used by the group to finance its operations are cash generated from retained earnings and loans.

  • Foreign currency risk
    The group’s reporting currency is sterling, but it operates in different parts of the world in different currencies. Foreign currency risk is managed by the ultimate group parent.
  • Interest rate risk
    The group’s exposure to interest rate fluctuations is constantly monitored; there is no formal policy on bank loans, but a variety of methods are used to control interest costs, including obtaining a balance between fixed and floating rates, and between secured and unsecured loans. In addition, the ultimate group parent enters into interest rate swap transactions in order to hedge its exposure.
  • Liquidity risk
    The group’s divisions monitor cash flow as part of their day to day control procedures. The group prepares cash flow projections on a monthly basis, allowing an assessment of the cash requirements of the group to manage liquidity risk. Surplus funds are invested in high quality short term liquid investments. Cash is placed with several counterparties in order to spread the risk in the event of bank failure. Since 2014, the group’s policy is to hold a substantial proportion of cash equivalents in Treasury Bills due to potential volatility in the banking system, and the group continues to monitor the situation closely.
  • Credit risk
    The majority of the group’s trade debtors are represented by amounts due from commercial property tenants, whose credit ratings are checked before entering into transactions with them. No significant credit risk is perceived. Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. All amounts owed by the group are considered recoverable.

L51N LIMITED

Group strategic report for the year ended 31 December 2020

The directors present their strategic report on the group for the year ended 31 December 2020.

Principal activities
The parent company co-ordinates and manages the activities of its subsidiaries and administers group investments.

The principal activities of the group comprise:

  • Hotel operations and ownership
  • Property development, trading and investment
  • Investment management

Results for the year
The results for the group for the year are set out on page 13. The overall result after tax changed from a profit of £51.4 million to a loss of £12.7 million. The consolidated statement of financial position shows a net asset position of £933.8 million (2019: £931.0 million).

Future developments
The group will endeavour to seek opportunities to expand all its major divisions. The group sees organic growth in its major markets as its core strategy.

The directors are optimistic about the future development of the group, as set out in the financial review below.

Dividends
Dividends of £0.6 million (2019: £0.6 million) were paid to the holders of income access shares in LFS Access Limited.

Financial review
Hotel operations and ownership
US

During 2020 the division operated two hotels, the largest of which is a 309 room, five-star, five diamond luxury resort in Palm Beach, Florida.

Divisional turnover decreased from £52.2 million in 2019 to £30.2 million as a result of the impact of the Covid-19 pandemic whereby the hotels were closed for a large part of the year. This was broadly in line with expectations.

Property investment and development
The UK managed property division, which trades under the name Blue Coast Capital, owns, manages and develops property assets in the UK, Europe, US, the Caribbean and Thailand.

The division progressed with a number of development projects over the year including residential developments in the UK, US, Spain and Barbados. During the Covid-19 pandemic the business paused many of its active projects but saw development activity return by the end of 2020. Asset management of the investment portfolio focused on rent collection, on reducing vacancy, improving income and value.

The business acquired new assets in the year including one UK Commercial property as well as making further investments in its Paris commercial, UK Senior Housing and US Medical Office funds.

The US property division includes three projects which continued to stabilise in the year, encompassing multifamily and senior living. The business continues to sell assets selectively in line with individual asset business plans.

The main external risks affecting this division are; changing property values, changing investor and occupier demand and tenant default. Risk is mitigated by a diverse portfolio across sectors and geographies together with maintaining a strong credit worthy tenant mix. Divisional management also maintains tight controls over operating costs.

Investment management
The group commits to private equity funds and invests directly into private companies. No material addition or sale was made during 2020, while existing investments performed in line with expectations.

The group statement of financial position has current asset investments totalling £15.4 million (2019: £0.7 million) which are stated at market value.

During the year, Cavendish Asset Management Ltd, disposed of the majority of its investment management services business to Stonehage Fleming Investment Management Limited in return for shares. As a result of the transaction, the group has recognised a profit on disposal of £9.2 million. The funds under management reduced to £nil at the end of December 2020 (2019: £1,633.9 million) excluding cash.

Financial instruments and principal risks and uncertainties of the group
The objectives, policies and strategies applied by the group with respect to management of commercial and financial risks are determined at both group and divisional levels. The principal financial instruments used by the group to finance its operations are cash generated from retained earnings and loans.

  • Foreign currency risk
    The group’s reporting currency is sterling, but it operates in different parts of the world in different currencies. Foreign currency risk is managed by the ultimate group parent.
  • Interest rate risk
    The group’s exposure to interest rate fluctuations is constantly monitored; there is no formal policy on bank loans, but a variety of methods are used to control interest costs, including obtaining a balance between fixed and floating rates, and between secured and unsecured loans.
  • Liquidity risk
    The group’s divisions monitor cash flow as part of their day to day control procedures. The group prepares cash flow projections on a monthly basis, allowing an assessment of the cash requirements of the group to manage liquidity risk. Surplus funds are invested in high quality short term liquid investments. Cash is placed with several counterparties in order to spread the risk in the event of bank failure. Since 2014, the group’s policy is to hold a substantial proportion of cash equivalents in Treasury Bills due to potential volatility in the banking system, and the group continues to monitor the situation closely.
  • Credit risk
    The majority of the group’s trade debtors are represented by amounts due from commercial property tenants, whose credit ratings are checked before entering into transactions with them. No significant credit risk is perceived. Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. All amounts owed by the group are considered recoverable.

Group's net debt position

  Cash and cash equivalents
£million
Borrowings
£million
Total
£million
At 1 January 2020 136.1 (198.6) (62.5)
Cash flow (45.2) (44.6) (89.8)
Exchange movements 1.1 3.2 4.3
At 31 December 2020 92.0 (240.0) (148.0)

Comprising:

  2020
£million
2019
£million
Cash at bank and in hand 91.5 134.2
Cash on deposit 0.3 1.2
Restricted cash 0.2 0.7
Cash and cash equivalents 92.0 136.1
Other current liabilities (79.8) (46.3)
Non current liabilities (160.2) (152.3)
Total (148.0) (62.5)

Key performance indicators
The directors monitor group performance on both weekly and periodic (four-weekly) cycles using a wide range of financial and non-financial indicators.

The main key performance indicators that are reviewed according to the market sector are as follows:

Hotel – occupancy ratios and revenue per available room.
Property – yields and market value year on year, together with growth in market sectors.
Private equity – EBITDA growth across the portfolio and comparative prices in the quoted market.
Quoted equities – private equity growth, earnings per share, economic performance in major regions, general economic outlook and total return on individual holdings.

Various productivity ratios are monitored to ensure that the group is maximising the use of its assets.

Anti-bribery and anti-corruption
Bribery is the acceptance or giving of a payment or other advantage as an inducement which is illegal, a breach of trust, unethical or amounts to some other improper performance. Bribery is a criminal offence in many countries of the world.

Bribery can occur at any stage of a transaction – in advance, during or after the achievement of it.

The group’s policy is to conduct business with integrity, honourably and without the use of bribery or other corrupt practices for unfair advantage. The Board operates a “zero-tolerance” approach to any act of bribery or corruption undertaken by any Director, official, team member, franchisee or third-party acting on the group’s behalf. Any breach is likely to result in disciplinary or contractual consequences.

Director’s Duties
Section 172 of the Companies Act 2006 (the “Act”) requires directors to take into consideration the interests of stakeholders and other matters in their decision making. The directors of the Company continue to have regard to the interests of the Company’s employees and other stakeholders, such as customers and suppliers, and the impact of its activities on the community, the environment, and the Company’s reputation for good business conduct when making decisions.

The directors are fully aware of their responsibilities to promote the success of the Company in accordance with Section 172 of the Act and the Company Secretary ensures sufficient consideration is given to issues relating to matters set out in s172(1)(a)-(f).

Principal Decisions
The Company operates under a bespoke governance framework which was developed to take into account the importance of both strategic and operational oversight at the parent level and an operating framework for all subsidiary companies to operate on a day to day basis at a divisional level, to promote and enhance the success of the group as a whole.

In this context, acting in good faith and fairly, the Directors consider what is most likely to promote the success of the Company for its members in the long term.

Within the context of the Company’s governance practices, the Company has autonomy to operate and make decisions it feels are appropriate for its own operational requirements and to enhance its business, the welfare of its employees, the wider group and the community. All Principal Decisions are made under the consideration of the director’s duties under s172(1)(a)-(f) of the Act.

Engaging with Employees
The Company does not have any employees itself, however at a sub-group level the sub-group operates with a flat structure, which enables the sub-group to engage with employees more easily, more constructively, and at a personal level.

Alongside a dedicated HR function, the business has implemented an employee handbook and intranet system to address a variety of personnel issues and provide guidance to employees on how the business will engage with them, and how they can engage with the business. The business also provides a number of additional benefits for its employees and access to a number of support services, including mental and physical health and well-being initiatives.

The sub-group is committed to providing equal opportunities in employment for all employees, and we believe in the importance of developing our people and enabling them to grow, both professionally and personally.

2020 was a challenging year for the sub-group’s employees as the business and its staff navigated the Covid-19 pandemic. In line with Government directives, the business closed its offices at certain points through the year and all staff were asked to work from home for a period of time. Full support for technical issues was provided for staff during periods of lockdown, alongside personal support to ensure staff’s physical and mental wellbeing was also cared for.

The business set up a dedicated staff support helpline and regular one-to-one communications were carried out alongside group-wide updates and information sharing. Following the reopening of the office, under strict health and safety measures, the business encouraged people to blend home and office working to suit them individually and continues to provide support for those members of staff who require it.

Engaging with Shareholders
As a family owned business, the Company has a direct relationship with its shareholders. The business maintains regular dialogue with shareholders and holds regular business updates directly with its shareholder base. The business has also implemented a dedicated communication and governance platform for engaging directly with shareholders.

During 2020, communication with shareholders was increased to ensure that shareholders were aware of the impact Covid-19 was having on the business and how the directors were tackling these challenges.

The business has also established a shareholder committee to further improve communication, transparency, and information sharing.