Notes to the Consolidated Financial Statements (continued)

3. Financial Risk Management (continued)

c) Credit risk (continued)

The Group’s investment in the joint venture as 31 December 2022 included its loan to the joint venture and its equity interest. An impairment analysis is performed at each reporting date to measure ECLs arising from the loan to the joint venture. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Whilst the Group does not hold collateral as security over the loan, it assesses the level of equity interest in the joint venture and the quality of its real assets, such as the development land, as providing sufficient credit protection to conclude that the ECLs arising on the loan to joint venture is negligible.

For items subject to credit risk classified as trade / contract and / or lease receivables, the Group applies a simplified approach in calculating ECLs and concludes that generally, the respective ECLs arising on all the other assets are negligible as at 31 December 2022.

As at the 31 December 2022, the Group had the following credit risk exposures:

d) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group’s market risks arise from open positions in interest-bearing assets and liabilities to the extent that these are exposed to general and specific market movements. Management sets limits on the exposure to interest rate risk that may be accepted, which are monitored quarterly. However, this approach does not prevent losses outside of these limits in the event of more significant market movements.

i) Cash flow and fair value interest rate risk

Any variable rate borrowings expose the Group to cash flow interest rate risk, and any fixed-rate borrowings expose it to fair value interest rate risk. The Group generally enters into longterm borrowings at floating rates. During the year, the Group entered into a swap agreement at fixed rate for future floating rate borrowing. The Group currently has both long-term variablerate and fixed-rate borrowings (Note 13).

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with floating interest rates.

The Group’s interest rates risk is monitored by the Group’s management monthly. The Board approves the interest rate risk policy at the time each facility is put in place. Management analyses the Group’s interest rate exposure together with adverse rate sensitivity analysis monthly based on the latest market information. These calculations are only run for liabilities that represent major interest-bearing positions and are included in the development appraisals reported to the Board at each Board meeting.

Trade receivables and payables under one year are interest-free and have settlement dates within one year.

As at 31 December 2022, the Group’s maximum exposure to credit risk was £25,496,292 (2021: £41,302,315), and it had a concentration of credit risk of £7,185,826 (2021: £23,010,599) with its bankers/brokers and a concentration of credit risk of £7,581,859 (2021: £7,361,026) with its Joint Venture.

To manage the future interest rate risk, the Group entered into a interest rate swap agreement (which is effective from 31 March 2024), in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. Refer Note 13 for the interest rate sensitivity.

3. Financial Risk Management (continued)

d) Market risk (continued) i) Cash flow and fair value interest rate risk (continued)

Hedge effectiveness

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments, to ensure that an economic relationship exists between the hedged item and hedging instrument.

The group enters into interest rate swaps that have similar critical terms as the hedged item, such as reference rate, reset dates, payment dates, maturities and notional amount. The group does not hedge 100% of its loans, therefore the hedged item is identified as a proportion of the outstanding loans up to the notional amount of the swap. As all critical terms matched during the year, there is an economic relationship.

Hedge ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated, or if there are changes in the credit risk of the bank or the derivative counterparty. Hedge ineffectiveness for interest rate swaps is assessed using:

• the credit value/debit value adjustment on the interest rate swaps which is not matched by the loan, and

• differences in critical terms between the interest rate swaps and loans.

Hedge ineffectiveness in relation to the interest rate swap was negligible for 2022.

ii) Price risk

The Group has no significant exposure to price risk other than property price risk and includes property rentals risk.

e) Fair value estimation

The carrying values of all financial assets and liabilities are a reasonable approximation of their fair values.

4. Revenue and Expenses

4.1 Rental Income

from inventories relates to income received for the use of inventory as a temporary car park.

Service charge income relates to the recharging of tenants for the maintenance of the Waterfront Leisure Centre and Trenton Square.

Property management charges relate to property services provided by the Group to Trenton Square and to Waterfront Development (6C) Limited, which relate to the construction project known as Horizon, as disclosed in Note 16.