Finance Director's Report 2022 (continued)

Income and Expenditure review

(continued)

Unrealised gain

On all developments the Board carefully assesses the risks to the development and the Company and prior to IFC 6 construction commencing, the Board decided that its strategy was to retain IFC 6 for a period of time as an investment property. Following this decision and a review of the debt profile of the Company, the Board agreed to put in place an interest rate swap to protect the Company against interest rate increases.

At the time of putting the swap in place, modest increases were expected compared to the increases the market is now experiencing and expecting and consequently, the swap has increased significantly in value. Accounting standards require companies to recognise the full impact of the rate hedge in the year of entering into the agreement, with subsequent adjustments each year and accordingly, £3.15m of unrealised gain resulting from the cashflow hedge was recognised in the Consolidated Statement of Comprehensive income for the year.

Consolidated statement of Financial Position Review

Total assets increased by £1.38m in 2022, mainly due to the recognition of the valuation of the beneficial swap derivative on the balance sheet.

The total carrying value of investment property fell by £17.9m due to a reclassification from investment property to inventory of the development area known as KOS3, on which the Waterfront Leisure Centre sits. Given that plans are proceeding to develop the whole of the SWSH Waterfront area, it was deemed appropriate to reclassify this asset, and this reclassification was given Board approval during the year.

The carrying value of inventories, land holdings for future developments, which are stated at lower of cost and net realisable value, increased by £34.5m in 2022, reflecting both £17.9m transferred in from investment property, £17m expenditure incurred during the year on the IFC 6 building under construction, less £1.4m impairment thereon recognised, as well as further pre-development expenditure capitalised on other inventories.

An impairment review of the carrying value of investment property and inventories supports the costs carried. Note 8 on pages 84-85 gives further details.

Pre-development expenditure on South Hill of £2.6m remains capitalised as Other Current Assets. Whilst title to the land had not transferred to the Company at the year end, a Ministerial Decision approving the transfer of the land to the Company was signed before the year end.

As the Horizon development is being delivered by a 50:50 Joint Venture, the net position is reflected as ‘Investment in Joint Venture’ in the Consolidated Statement of Financial Position. Full details of the current net assets and liabilities can be found at Note 16 on pages 90-91.

The year end cash position was broadly as budgeted, ending higher than anticipated, with £13.7m total cash at bank and short-term deposits and a further loan finance approved and initially drawn upon via a development loan for the completion of IFC 6 over the coming year. £15.5m of the total cash at bank and short-term deposits of £32.8m as at 31 December 2021 directly related to the Revolving Credit Facility for part financing IFC 6, which had to be fully drawn down upfront. This has now been fully expended within the project.

Total liabilities increased only marginally. An additional funding agreement of £28.5m to complete the construction of IFC 6 was agreed in November 2021, £1m of which was drawn before the year end. Note 13 on page 88 provides more information.

Consolidated statement of Cash flow Review

The budget anticipated year end closing operating bank balances of £10.7m, and actual total cash at bank and short-term deposits at 31 December 2022 was £13.7m, reflecting continued assurance in the Company’s prudent financial planning. The share of profits in the first block of Horizon would not have resulted in a cashflow movement until the end of the development, nor is cashflow impacted by the recognition of the unrealised gains on the Swap agreement, therefore the difference to budget reflects careful management of cash and prudent expenditure. Cash and cash equivalents stated within the cashflow statement do not take account of funds on short term deposit.

Dividends

To end, and in line with our commitment to make a contribution to Jersey and its people, we have been able to declare a dividend again this year. The amount paid to the Government of Jersey was £1.2m, representing £730k to the improvement to Midvale Road and pavements and £425k as a contribution for the much welcomed new Les Quennevais Skate Park. In future years, total returns to our Shareholder will increase further, both in financial and in social and environmental benefit terms, reflecting the Company’s continued positive employment of the assets entrusted to it and the overall benefit to the Island that the Company provides.