GLE Group. Report and Financial Statements 2013-2014

GLE Group Report and Financial Statements 2013-2014

Contents Strategic Report 1 Directors Report 5 Corporate Governance Framework 10 Report on Directors Remuneration 14 Independent Auditor s Report 17 Group Income Statement 18 Group Statement of Comprehensive Income 19 Group Balance Sheet 20 Group Statement of Changes in Equity 21 Group Cash Flow Statement 22 Notes to the Consolidated Financial Statements 23 Company Balance Sheet 51 Notes to the Parent Company Financial Statements 52 Country of incorporation of parent Company: Great Britain Directors P G Collis CB M G Large P Thackwray OBE J Crook Cllr M A Loveday S Tye M Dobney A K Manning-Jones M B Walsh M I Edmond Cllr G Nicholson (Chair) A M Watts CBE P A Hendrick Sir E Peacock Secretary and registered office: M B Walsh, 5th Floor, Valiant Building, 14 South Parade, Leeds, West Yorkshire, LS15QS Company number 1653116 Auditors BDO LLP, 55 Baker Street, London, W1U 7EU GLE Group ( the Group ) comprises Greater London Enterprise Limited, the holding company and its subsidiaries. The Group brings innovative and commercial approaches to economic growth, successfully unlocking the potential of people and growing businesses. As a leading provider of business finance, accommodation, consulting services and enterprise development, the Group continues to build on its commercial success and track record in lending, borrowing, investing and managing the funds and assets that underpin physical, economic and social regeneration. GLE Group Report and Financial Statements 2013-14 I Contents

Strategic Report The Directors present their strategic report on the Group for the year ended 31 March 2014. 1. Introduction The Greater London Enterprise (GLE) Group is a leading Small to Medium Enterprise (SME) specialist with over thirty years experience of: delivering finance, expertise and innovation; growing businesses, encouraging enterprise and generating growth; creating places for businesses and people. 2. Business Review The year to March 2014 has been another very good year for the GLE Group with all business areas performing in line with, or ahead of, target and contributing to an Operating Profit of 5.4m. This compares with 1.2m in 2013 and 0.7m in 2012. The financial results were considerably ahead of expectations. In the year to March 2014 GLE s businesses: helped over 8,000 companies to grow their exports; saw almost 4,000 new jobs created by the entrepreneurs assisted; were instrumental in the birth of 3,000 new businesses; lent around 4m to nearly 3,000 businesses; delivered sales ledger management for nearly 200 SME clients; provided small businesses with cash flow funding of almost 300m; and managed, improved or developed serviced office, studio and industrial space for 270 small businesses. The Group s Net Worth increased by 1.7m (2013: increase of 0.4m), reflecting the combined impact of the increase in profitability and in the value of the Group s assets. Regrettably the revaluation of the Group s share of its defined benefit pension scheme operated by the London Pensions Fund Authority resulted in an increase in the estimated deficit of 1.1m which compared with a minimal movement last year (a decrease of 0.1m). The scheme is closed to new members. Group Net Worth was also adversely impacted by the loss on disposal of 1.0m on the Group s investment in YFM Equity Partners, following the Group decision, as reported in last year s Report and Financial Statements, to sell this business to its management team. The Group s Operating Profit benefitted from strong performances across all Group businesses and, in particular, significantly increased profitability in the Properties business (profits of 5.3m; 2013: 2.2m). The Cash Flow Finance business - Independent Growth Finance (IGF) - continued to report strong levels of profitability of 0.9m (2013: 0.6m). Overall this is a very pleasing result, which reflects the hard work of all involved and the growing confidence emerging in the markets in which the Group operates. The Group is committed to the SME finance, enterprise development and property and regeneration sectors, and to the medium term aim of increasing both the scale and the impact of its work in these activities. As the results show all of the Group s business areas now have the potential to generate profits, but GLE aims to ensure that profit generation is not the only driver and that it can identify, target and achieve other non-financial measures too. This may be expressed as the social return on the Group s activities whether in businesses or jobs created, people supported or space regenerated. The Group continues to deliver its services at a national, regional and local level from offices across London and the south-east. In all its activities GLE strives to deliver high quality innovative services and investment aimed at meeting the needs of those starting or growing businesses. This is done by: Delivering International Trade services. Managing start-up and early stage Loan Finance. Encouraging Enterprise Support through self-employment. Providing Cash-flow Finance. Offering IT and Web Services for SMEs. Investing in property and creating Places for Businesses and People. Making Equity Finance investments. The combined activities of International Trade, Loan Finance and Enterprise Support are run though GLE s Enterprise Development business and account for nearly 200 staff and a turnover of more than 14.8m in 2013/14 (2012/13: 10.9m). Together they made their most significant contribution to Group profits to date and in the coming year the Group will invest further in the systems and people to build further on this record performance. International Trade GLE s international trade teams working on behalf of UKTI assisted more than 8,000 companies to develop new export markets, producing nearly 400m of additional sales. This was the major area of growth, with GLE s delivery for UKTI expanding to include a new focus on mid-sized 1 GLE Group Report and Financial Statements 2013-14 I Strategic Report

businesses, a doubling of the support for UK companies to improve their export communications, a widening of the export market research service offer to include a new market selection tool, and a near-doubling of the number of companies supported through the intensive Passport to Export programme to more than 750. At the end of the year, clients had reported 383m of new export contracts which they attributed to the help they had received from GLE s international trade teams. Loan Finance 4m was lent to nearly 3,000 new and established businesses. A record lending year of 3,000 loans was further enhanced by the longawaited launch of two new funds aimed at established businesses, as the year closed. Thanks to the backing of Lloyds Banking Group, Co-operative and Unity Banks, the Regional Growth Fund and the European Investment Fund, 10m of new funds under management were added, allowing the business to set to triple its target for the value of loans to be made in the coming year to 12m. The highest volume of loans made was on behalf of the Government under the New Enterprise Allowance Scheme (NEA), helping unemployed people to become self-employed and start businesses. An excellent lending record was acknowledged by a request for the team to expand its delivery from 3 to 4 of the 7 NEA regions. The business now delivers this service in Wales, Scotland, London, the Home Counties and Central England. The team s work for the Start- Up Loans Company also grew, culminating in a further contract extension into the new financial year. Enterprise Support Over 4,000 new and established entrepreneurs were helped to start and expand. The early stage advisory team continued to support new businesses to start and grow on behalf of several London boroughs with more than 2,000 people receiving counselling, mentoring and training. Under a major contract for the Department of Work and Pensions, the enterprise support team has now helped nearly 1,000 unemployed people create work of their own by starting a business. More widely, London s SMEs have been supported to increase and commercialise innovation in their businesses, become supplier-ready, prepare a case for finance and adapt to major threats to businesses survival. Cash Flow Finance During the year the Group, through its subsidiary Independent Growth Finance (IGF), delivered cash flow finance and sales ledger management to around 200 SME clients. The majority of the 300m advanced to this sector was delivered through IGF s invoice discounting and factoring operations although ancillary services including direct debit, payroll and commercial loans also enhanced the financial packages provided to clients. Once again the financial performance of the business exceeded budget despite substantial investment in IT enhancement and marketing initiatives, considered necessary for the future growth of the business. Recognising how technology is impacting the invoice finance market, the Company is investing in technological projects to enhance and simplify the clients experience. After several years of static overall client numbers it is pleasing to report that client numbers showed an encouraging increase during the year. Client numbers across the industry as a whole only grew 1% during the year, as reported by the Asset Based Finance Association (ABFA), predominantly in ABL Finance, Export, Import and Stock financing, which are not products that IGF offers. Despite this IGF has managed to increase numbers from the more traditional Invoice Finance products demonstrating that there is a sustained need within the SME market for these facilities. The rate of client attrition was encouraging at 28% with the noticeable change being that IGF reduced the number of clients lost to competitors or who became selffunding to 11 which was down from 21 in the previous year. This reflects IGF s commitment to continually striving to improve customer service. During the year, IGF undertook a survey of its clients. Feedback showed that 97% felt that their expectations had been met and 96% would recommend IGF s services to a third party. IGF acknowledges that a key strength of the business is its staff and the engagement of its workforce to drive service quality is reflected in the feedback received. IGF has continued to outperform its original 3 year plan and the strategy to continue to focus on traditional invoice finance has proved sound. In a benign market it has been pleasing to see growth and sustainable levels of profitability, which will further strengthen the business as a significant independent provider of vital cash flow finance to SMEs. GLE Group Report and Financial Statements 2013-14 I Strategic Report 2

IT and Web Services A further demonstration of the Group s commitment to backing an entrepreneurial approach in the SME service sector was the creation of GLE Connect. GLE has backed its own inhouse IT team in making their high quality IT and Web Services available externally. From a standing start, the newly created business has secured two significant external contracts and is currently in discussion with several other prospective clients. This is a very encouraging start for this new business. Places for Businesses and People The Group s property and regeneration business, GLE Properties (GLEP) helps create places for businesses and people through property investment and development focused mainly in the London area. This year GLEP, before property revaluations, produced an operating profit of 2.9m (2013: 2.2m), whilst the value of its investment portfolio increased by approximately 7.9m through a combination of acquisitions of 5.5m (2013: 0.4m) and valuation improvements of 2.4m (2013: 0.2m). Profits overall were approximately 5.3m (2013: 2.6m). The results benefitted from the construction of the Company s first key worker housing development, a conversion and extension of a redundant former BBC office building in Shepherds Bush. The project which has been developed in partnership with specialist intermediate housing provider Pocket Living has created 30 residential units, 24 of which are designated as affordable housing. Purchaser interest was stronger than originally anticipated reflecting the strength of demand for this type of housing and the London residential market generally. Both lettings and sales at the Company s 34,000sf Dagenham Business Centre development have progressed well as the economy has recovered and demand for new business space has increased. The development was completed in 2011/2012 and initial take up was slow reflecting the economic environment but by this year the development was 85% occupied. The year also saw the sale of the last two units at the 57,000sf, 28 unit Horizon Business Centre in Erith bringing that development to a successful conclusion. The market index for industrial property capital values (IPD) showed an increase of approximately 9% over the year having been negative or more recently static for several years so the increase is particularly welcome. The independent valuation of the Company s investment portfolio shows an increase in value of approximately 7%, slightly behind the IPD index. This reflects a combination of the shorter term more flexible tenure offered to the Company s SME tenants, the focus on smaller units and that the portfolio includes some ageing offices where the potential for alternative uses are being considered. During the year the Company completed its first investment acquisition for several years with the purchase of the Romford Seedbed Centre. A second investment acquisition was progressing at the year-end and has since completed. The Company s portfolio of investments now provides accommodation for around 270 mainly small businesses in a mixture of serviced office, studio and industrial units. The hands-on approach of the in-house property team meant that occupancy increased further to reach 84% by the year-end producing a better than target rental return from the portfolio. The business continues to focus on creating opportunities to enhance value and promote regeneration by investing finance and expertise in site assembly, capital improvements and exploring alternative and complementary uses. Whilst no new development site acquisitions were made in the year, the business expects to make progress in this regard early in 2014/2015. Identifying investment opportunities with the potential to enhance value over the medium term continues to be challenging, with limited product coming to the market and considerable demand from investors. However, as reported the business has made progress with two new investment acquisitions and remains well placed for further acquisitions in the year ahead. Equity Finance During the year the Group made two strategic investment transactions. As planned, it completed the sale of YFM Equity Partners (YFM), a business it had acquired in 2008, and which it had over the five years of ownership restructured from one focused substantially on public sector supported venture funds (a product of former government policy initiatives in the sector) to a successful Venture Capital Trust (VCT) and institutional private equity fund manager. It had long been recognised that to realise its full potential and complete its transition YFM needed to be able to grow the level of institutional funds under management in the same way that it had grown its VCT activity. For the business to be able to attract substantial institutional investment, a move to a management owned/ management risk-taking model was required and this was completed successfully in late 2013. At the same time the Group made a strategic investment in Pocket Living Limited (Pocket), the award-winning private developer of intermediate housing in London. GLE acquired a 5% stake in the company with an option to acquire a further 5%. 3 GLE Group Report and Financial Statements 2013-14 I Strategic Report

Pocket had successfully bid for and was awarded a loan of 21.7m for 10 years from the Mayor of London to build for owner occupation around 4,000 affordable homes across London. Pocket s model is unique and their homes are targeted specifically at the intermediate market those who earn too much to qualify for social housing, but are priced out of the open market. The investment from GLE and the agreement with the Mayor s office will help develop Pocket as a key provider of affordable housing for London s intermediate market and support the expansion of the Pocket model into a greater number of London local authorities. GLE will continue to invest directly and will also take stakes in a range of SME relevant equity funds. It currently retains investments in the Seraphim Capital Fund (an Enterprise Capital Fund launched by GLE), the Chandos Fund (a YFM managed institutional fund), and the British Smaller Companies VCTs. The Group has total investment holdings under these combined headings of 1.6m (2013: 1.5m). Other activities GLE has continued to service the London boroughs and London Councils European funding, information and lobbying contracts which are run centrally from within the Chief Executive s team. The specialist consulting team provide support to help organisations access European funding, policy information and advice to strengthen funding bids and to evaluate the effectiveness of existing programmes and projects. The team works for a range of public and private sector providers. In order to ensure the future of this vital service GLE has secured the support of London Councils, the Greater London Authority and the City of London in a partnership to create a new Community Interest Company to be known as Access Europe Network CIC to deliver these services from mid-2014 onwards. GLE will continue its involvement as a sponsor and supporter of this new vehicle. 3. Principal Risks and Uncertainties The Board and the management of the Group pay careful attention to the identification and control of risks associated with the Group s activities. At Board level, regular reports are given addressing all risk areas. These are supplemented by reviews by the Audit Review Committee. As with other aspects of the Group, all identified areas of risk are allocated to an Executive Director for monitoring and management. The Group is exposed to a number of risks which can be summarised as follows: Property market: The Group is exposed to fluctuation in the commercial property market. This risk is mitigated by management regularly reviewing market conditions and taking appropriate action. Interest rate risk: The Group s borrowings are principally at a margin over LIBOR thus exposing the Group to cash flow interest rate risk. The Group s policy is to ensure the margin is competitive when compared to other banks and to give consideration to hedging to reduce exposure to this risk. Credit risk: At IGF Invoice Finance significant sums of monies are advanced to clients thereby exposing the Group to the risk that these amounts may not be recoverable. This risk is mitigated by controls over client take-on procedures, securing advanced funds against client assets and ongoing review of client accounts to ensure the amounts remain recoverable. Liquidity risk: The Group is exposed to liquidity risk as sufficient funds are required to support trading, investing and financing activities. The Group regularly monitors the liquidity position to ensure that sufficient funds are available to meet both current and future requirements. Liquidity management includes managing the Group s working capital and borrowings. The Group s borrowings are the subject of a number of financial covenants which the Directors regularly monitor to ensure both current and future compliance. 4. Conclusion The results this year demonstrate the substantial progress GLE s businesses have made over recent years and the real benefit of the longer term view the Group takes when investing its finance and expertise in developing new activities. The challenge remains to maintain the flexibility to respond quickly to the constantly changing needs and circumstances of the markets and the economy in which the Group competes. The small business finance and enterprise agenda remains vital if the recovery in the economy is to be sustained. This is where GLE operates and where GLE can continue to play its part in delivering effective high quality SME focussed services, investment and innovation. Finally and most importantly the success reported this year would not have been possible without one essential ingredient, the people. GLE is fortunate in that it is able to attract and retain a rich resource of hardworking, innovative and creative people throughout the organisation. My sincere thanks to everyone and to all of my board colleagues too for the immense contribution they have made over the past year. I look forward to this continuing as we explore the opportunities and indeed the challenges that lie ahead. Martin Large Group Chief Executive GLE Group Report and Financial Statements 2013-14 I Strategic Report 4

Directors Report 1. Results The Group s profit for the year, after taxation and minority interests, amounted to 3,158,000 (2013: 519,000) and has been added to reserves. In accordance with the articles of association, no dividend is payable to members. 2. Directors Those persons who acted as Directors during the year and subsequently are given below: Non-Executive Directors P G Collis CB J Crook M Dobney M I Edmond P A Hendrick Cllr M A Loveday (resigned Chair 4 April 2013) A K Manning-Jones Cllr G Nicholson (appointed Chair 4 April 2013) Sir E Peacock (appointed 22 July 2014) S Tye (appointed 22 July 2014) A M Watts CBE Executive Directors M G Large P Thackwray OBE M B Walsh (Group Chief Executive) (Managing Director, GLE Enterprise Development) (Group Finance Director) 3. Directors Interests in Shares The Company is limited by guarantee without share capital. Certain Non-Executive Directors are appointed from time to time to act as Private Members of the Company. These Private Members have no rights to participate in the income and assets of the Company. P A Hendrick, J Crook, M Dobney, M I Edmond, A K Manning-Jones and A M Watts CBE acted as Private Members throughout the year. P G Collis CB, following his appointment to the Board in September 2012, became a Private Member effective from the last Annual General Meeting held on 28 November 2013. None of these Directors has or had at any time during the year any interest in the shares of any other Group undertakings. 4. Auditors BDO LLP have expressed their willingness to continue in office. In accordance with Section 485 of the Companies Act 2006, a resolution to reappoint BDO LLP as auditors of the Company will be proposed at the next Annual General Meeting. 5 GLE Group Report and Financial Statements 2013-14 I Directors Report

5. Directors responsibilities for the financial statements The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company s auditors for the purpose of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware. ON BEHALF OF THE BOARD M G Large Director 5th Floor, Valiant Building, 14 South Parade, Leeds, West Yorkshire, LSI 5QS 22 July 2014 GLE Group Report and Financial Statements 2013-14 I Directors Report 6

Left & below: Computer generated images of the Apex Court, Shepherds Bush office-to-residential conversion project. A principally key worker flat development comprising a total of 30 units developed with our project partners Pocket Living Limited. 7 GLE Group Report and Financial Statements 2013-14

Above: Supply Nine Elms on the South Bank is a free programme of supply chain development workshops, presentations by Nine Elms developers, one-to-one support, networking and Meet the Buyer events. The programme is designed to help Lambeth and Wandsworth businesses providing building and construction related services, grow, engage with new buyers and be fit to compete for new contracts. Over 10 billion worth of construction spending in Nine Elms on the South Bank will create numerous opportunities for local businesses. This programme is delivered by GLE on behalf of the London Boroughs of Wandsworth and Lambeth. GLE Group Report and Financial Statements 2013-14 8

Above: The launch of the GLE onelondon 5m London Loan Fund which, with backing from Lloyds Bank and European Investment Fund, will finance over 270 London businesses. From left to right: Sir Michael Snyder, Senior Partner, Kingston Smith LLP and chairman of the fund; Peter Thackwray, Managing Director, GLE Enterprise Development; Tim Hinton, Managing Director, SME & Mid Markets Banking, Commercial Banking, Lloyds Banking Group; and George Passaris, Head of Securitisation, European Investment Fund. Right: Ilias Manolopoulos brings real Greek frozen yoghurt to Coventry, with finance and mentoring from GLE s Start Up Loans team. 9 GLE Group Report and Financial Statements 2013-14

Corporate Governance Framework The Group is committed to high standards of Corporate Governance and the Board of Directors believes this is a key element in continuing to preserve value and deliver growth in the Group. This commitment reflects the importance the Board attaches to strong, open and visible governance and clear and transparent reporting. GLE is a company limited by guarantee with a combination of private and public sector members, the public sector members being the London local authorities. Thirteen of these local authorities have the opportunity to nominate a proportion (less than 20%) of the board of Directors. The Board monitors its corporate governance practices with an annual review undertaken by the Audit Review Committee with the aim of ensuring that governance policies and performance are maintained and continue to comply with the appropriate legal, regulatory and reporting requirements. Board of Directors The Board of Directors met three times during the financial year and has overall responsibility for leading and controlling the Company and is accountable to the Ordinary and New Members (the London Boroughs) for financial and operational performance. The Board has adopted a formal schedule of matters detailing key aspects of the Company s affairs presented to it for decision. Responsibility for the development and recommendation of strategic plans for consideration by the Board, for implementation of strategies and policies approved by the Board and for operational management is delegated to the Boards of GLE Investments Limited (GLEI) and GLE Contracts Limited (GLEC) of which a number of Executive and Non-Executive Directors are members. At 31 March 2014, the Board comprised a Non-Executive Chair, three Executive Directors and eight Non-Executive Directors. The Directors are as shown on page 5. With the exception of Cllr G Nicholson and Cllr M A Loveday (who are nominated by the original London Borough Ordinary Members) the Non-Executive Directors are the Private Members of the Company. Biographical details of members of the Board are included on the Group s external website at: www.gle.co.uk/team.php and www.gle.co.uk/non-executiveteam.php. The Board is aware that six Non- Executive Directors, Paul Hendrick, Jeremy Crook, Megan Dobney, Anne Watts, Andrew Manning-Jones and Mary Edmond have all served in excess of 10 years. However, the Board considers they remain independent given their wide range of external appointments to other Boards and other interests outside of the Group. Their continued engagement and contribution is much valued. Following an open recruitment process, the gradual refreshing of the Board is continuing with the appointment in July 2014 of two new non-executive directors: Sir Eric Peacock and Ms Sheryl Tye. The roles of the Chair and Group Chief Executive are distinct and separate, with a clear division of responsibilities. The Board appointed Paul Hendrick as Senior Independent Director. The Senior Independent Director chairs the boards of the principal operating subsidiaries GLEI and GLEC. The Board considers that the Non-Executive Chair and the Senior Independent Director are independent of the Group Chief Executive and this, together with the majority of independent Non- Executive Directors and use of Board Committees, facilitates a forum for clear, independent and unfettered communication both internally and externally. The Non-Executive Directors combine broad business and commercial experience with independent and objective judgement. This balance enables the Board to provide clear and effective leadership and maintain the highest standards of integrity across the Group s business activities. The Board has reviewed the independence of the Non-Executive Directors and has concluded that, with the exception of Cllr G Nicholson and Cllr M A Loveday who are nominated by the original London Borough Ordinary Members, the Non-Executive Directors are independent. The Board is supplied with comprehensive Board papers in advance of each Board meeting, including financial and business reports covering each of the Group s principal business activities. The Board accepts its responsibility for ensuring there is an effective system of internal control. In this respect the Audit Review Committee regularly reports and advises the Board on these issues. The Board undertakes an annual self-assessment process, the results of which are reviewed by the Board and the Nominations Committee and help inform future priorities for Board performance development generally. GLE Group Report and Financial Statements 2013-14 I Corporate Governance Framework 10