MAKALAH SEMINAR AKUNTANSI KEUANGAN

IAS 7

“STATEMENT OF CASH FLOWS”

JESSICA BANARDI

1711070263

S1 AKUNTANSI-KARYAWAN

PERBANAS INSTITUTE

2019
A. PENDAHULUAN

Kas adalah alat pembayaran yang dimiliki perusahaan dan siap digunakan untuk investasi

maupun menjalankan operasi perusahaan setiap saat dibutuhkan. Karena itu, kas mencakup

semua alat pembayaran yang dimiliki perusahaan yang disimpan di dalam perusahaan maupun di

bank dan siap dipergunakan. Fungsi kas adalah untuk membayar semua aktivitas yang dilakukan

perusahaan, baik dalam operasi sehari-hari maupun untuk investasi.

Arus kas adaah arus masuk dan arus keluar kas dan setara kas dan Laporan Arus Kas

adalah suatu laporan tentang aktivitas penerimaan dan pengeluaran kas perusahaan di dalam

suatu periode tertentu, beserta penjelasan tentang sumber-sumber penerimaan dan

pengeluaran kas tersebut.

Laporan Arus Kas merupakan bagian Informasi dari laporan keuangan. Informasi arus

kas suatu perusahaan berguna bagi para pemakai laporan keuangan sebagai dasar untuk

menilai kemampuan perusahaan dalam menghasilkan kas dan setara kas, dan menilai

kebutuhan perusahaan untuk menggunakan arus kas tersebut.

Di Indonesia, usaha untuk meningkatkan pengungkapan laporan keuangan di tandai

dengan dikeluarkannya Standar Akuntansi (SAK) pada tanggal 7 September 1994 oleh Ikatan

Akuntasni (IAI) yang mulai berlaku tanggal 1 Januari 1995. Dalam pernyataan SAK atau

PSAK No. 2 dinyatakan bahwa perusahaan harus menyusun laporan arus kas dan harus

menyajikan laporan tersebut sebagai bagian yang tidak terpisahkan dari laporan keuangan

untuk setiap periode penyajian pelaporan keuangan. Tujuan utama dari laporan arus kas

adalah memberikan informasi yang reevan tentang penrimaan dan pengeluaran kas suatu unit

usaha selama periode tertentu.

Pada mulanya laporan arus kas belum merupakan bagain dari laporan keuangan,

karena sebelum tahun 1971 pelaporan yang ada direkomendasikan oleh Generally Accepted

Accounting Principles (GAAP) hanya neraca dan laporan laba/rugi. Dalam perekembangan
berikutnya yang dilatar belakangi oleh keinginanan investor, kreditor dan pemakai lainnya

muncul laporan dana sebagai bagian dari laporan keuangan.

American Institute of Certified Public Accountant (AICPA:1961) mengakui pentingnys

penggunaan laporan arus kas dan mensponsori riset mengenai hal ini. Financial Accounting

Standard Board (FASB:1987) menerbitkan laporan keuangan tahunan setelah tanggal 15 Juli

1988. Seperti yang pernah dinatakan oleh Lawson dan Lee (1972) bahwa, “............Cash flow

and not profit is the end result of entity activity. Profit is an abstaction, cash is a physical

resources.” Wolk, Francis & Tearney 1992:340)

Terdapat banyak pengertian tentang laporan arus kas, diantaranya: “The Statements of

cash flows is a primary statements that reports the cash receipt, cash payment and net

change form the operating, investing and financial activities of and enterprise during a

period in a format that reconciles the beginning and ending cash balance.” (Keyso & Wygant

1987:114).

Laporan arus kas baru diwajibkan pada tahun 1987 dengan dikeluarkannya Statement

of Financial Accounting Standar (SFAS) No. 95 oleh FASB tentang Statement of Cash Flow

yang kemudian menjadi efektif sebagai bagian dari laporan keuangan tahunan setelah tanggal

15 Juli 1988. Merekomendasikan untuk memasukan laporan arus kas untuk menaksirkan

likuiditas perusahaan, fleksibilitas perusahaan dan keuangan, profitabilitas dan risiko.

Informasi arus kas suatu perusahaan berguna bagi para pemakai laporan keuangan

sebagai dasar untuk menilai kemampuan perusahaan dalam menghasilkan kas dan setara kas,

dan menilai kebutuhan perusahaan untuk menggunakan arus kas tersebut. Dalam proses

pengambilan keputusan ekonomi, para pemakai laporan keuangan perlu melakukan evaluasi

terhadap kemampuan perusahaan dalam menghasilkan kas dan setara kas serta kapasitas

perolehannya.

Arus kas merupakan jiwa bagi setiap perusahaan dan fundamental bagi eksitensi

sebuah perusahaan serta menunjukan dapat tidaknya perusahaan membayar semua

kewajibannya. Laporan arus kas disusun dengan tujuan untuk memberikan informasi

historis mengenai perubahan kas dan setara kas dari suatu perusahaan, dengan

mengklasifikasikan arus kas berdasarkan aktivitas operas, investasi dan pendanaan.

B. TUJUAN LAPORAN ARUS KAS

Informasi arus kas entitas berguna sebagai dasar untuk menilai kemampuan entias dalam

menghasilkan kas dan setara kas serta menilai kebutuhan kas entitas untuk menggunakan arus kas

tersebut. Laporan arus kas menggambarkan perubahan historis dalam kas dan setara kas yang

diklasifikasikan atas aktivitas operasi, investasi dan pendanaan selama satu periode.

Apabila digunakan bersama laporan keuangan lainnya seperti laporan posisi

keuangan, laporan laba/rugi kompehensif. Laporan arus kas mempunyai kegunaan

memberikan informasi untuk:

1. Mengetahui perubahan aktiva bersih, struktur keuangan dan kemampuan

mempengaruhi kas.

2. Menilai kemampuan perusahaan dalam menghasilkan kas dan setara kas.

3. Mengembangkan model untuk menilai dan membandingkan nilai sekarang arus kas

masa depan dari berbagai perusahaan.

4. Dapat menggunakan informasi arus kas historis sebagai indikator jumlah waktu dan

kepastian arus kas masa depan.

5. Menilai kecermatan taksiran arus kas masa depan dan menentukan hubungan antara

profitabilitas dan arus kas bersih serta dampak perubahan harga.

Laporan arus kas melaporkan penerimaan kas dan pengeluaran kas baik dari aktivitas operasi,

investasi dan pendanaan. Informasi tersebut akan membantu menunjukkan bagaimana mungkin

sebuah perusahaan yang melaporkan kerugian tetap dapat membrli aktiva tetap atau membayar

dividen. Pelaporan kenaikan dan penurunaan kas bersih menjadi barguna bagi
investor, krecditor dan piak lainnya ingin mengetahui apa yang sedang terjadi dengan

sumber dana perusahaan yang saling likuid yaitu kas.

C. KLASIFIKASI LAPORAN ARUS KAS

Perusahaan menyajikan arus kas dari aktivitas operasi, investasi, dan pendanaan dengan cara

paling sesuai dengan bisnis perusahaan. Klsifikasi menurut aktivitas memberikan informasi

yang memungkinkan para pengguna laporan untuk menilai pengaruh aktifitas terhadap posisi

keuangan perusahaan serta jumlah kas dan setara kas. Berikut klasifikasi arus kas, yaitu:

1. Aktivitas Operasi

Menurut PSAK No. 2 Aktivitas Operasi adalah Aktivitas Penghasi utama pendapatan

entitas dan aktvitas lain yang bukan merupakan aktivitas investasi dan aktivitas

pendanaan

2. Aktivitas Investasi

Menurut PSAK No.2 Aktivitas Investasi adalah perolehan dan peepasan aset jangka

panjang serta investasi lain yang tidak termasuk setara kas

3. Aktivitas Pendanaan

Menurut PSAK No.2, Aktivitas Pendanaan adalah aktivitas yang mengakibatkan

perubahan dalam jum;ah serta komposisi kontribusi moda dan pinjaman entitas.
 Secara ringkas, arus kas dari aktivitas operasi, investasi dan pendanaan seperti yang

dinyatakan dalam Standar Akuntansi Keuangan adalah sebagai berikut:

Aktivitas Airan Penerimaan Pengeluaran

Kas

1. Arus Kas dari a. Penerimaan dan a. Pembayaran kas

Aktivitas pengeluaran kas oleh atau penerimaan

Operasi perusahaan asuransi kembali pajak

sehubungan dengan penghasilan

premi, klaim, anuitas dan b. Pembayaran kas

manfaat asuransi lainnya. kepada pemasok

b. Penerimaan kas dari barang dan jasa

penjualan barang atau c. Pembayaran Gaji

jasa Karyawan

c. Penerimaan kas royalty,

fee, komisi dan

pendapatan lain.

d. Penerimaan dan

pembayaran kas dari

kontrak untuk tujuan

transaksi dan

perdagangan
2. Arus Kas dari a. Penerimaan kas dari a. Pembayaran kas
Aktivitas penjualan tanah, untuk membeli aktiva

Investasi banguan dan peralatan tetap, aktiva tak

b. Perolehan saham atau berwujud dan aktiva

instrument keuangan lain jangka panjang

b. Uang muka dan

pinjaman yang

diberikan kepada

pihak lain serta

pelunasannya.

c. Pembayaraan kas

sehubungan dengan

future contracts,

forward contracts,

option contracts dan

swap contracts

3. Arus kas dari a. Penerimaan kas dari a. Pembayaraan kas

aktivitas emisi saham atau kepada pemegang

pendanaan instrument lainnya. saham untuk menarik

b. Penerimaan kas dari dan menebus saham

emisi obligasi, pinjaman, perusahaan

wesel, hipotik dan b. Pelunasan pinjaman

pinjamaan lainnya c. Pembayaran kas oleh

penyewa guna usaha

 untuk mengurangi

saldo kewajiban yang

berkaitan dengan

sewa guna usaha

D. Metode Penyusunan Laporan Arus Kas

Sebagaimana telah disampaikan pada makalah ini, arus kas yang terjadi di dalam perushaan

dibagi ke dalam tiga aktivitas sumber kas, yaitu: aktivitas operasi, investasi dan Pendanaan.

Secara umum terdapat dua metode dalam penyusun laporan arus kas, yaitu metode langsung

dan metode tidak langsung. Baik metode langsung maupun tida langsung membagi sumber

penerimaan dan pengeluaran kas perusahaan ke dalam tiga kelompok sumber kas tersebut.

1. Metode Langsung

Suatu metode penyusunan laporan arus kas dimana dirinci sema aliran masuk dan

aliran keluar dari aktivitas-aktivitas operasi. Metode langsung menghitung saldo

operasi dari selisih antara kas masuk dari pendapatan usaha dengan kas keluar untuk

beban usaha perusahaan. Sedangkan arus kas dari aktivitas investasi dan aktivitas

pendanaan dihitung dengan mencari selisih antara arus kas masuk dan arus kas keluar

pada masingmasing kelompok sumber kas tersebut. Arus kas bersih masing-masing

kategori dijumlahkan untuk menghasilkan arus kas bersih total, yang kemudian

ditambahkan dengan saldo kas pada awal periode sehingga menghasilakn saldo kas

pada akhir periode tersebut.

 2. Metode Tidak Langsung

Suatu metode penyusunan laporan arus kas, di mana dibuat rekonsiliasi antara laba

yang dilaporkan dengan aliran kas. Metode tidak langsung dimulai dengan laba bersih

usaha dan mengubahnya menjadi arus kas bersih dari aktivitas operasi. Sedangkan

arus kas dari aktivitas investasi dan aktivitas pendanaan dihitung dengan mencari

selisih antara arus kas masuk dan arus kas keluar pada masing-masing kelompok

sujmber kas tersebut. Arus kas bersih dari masing-masing kategori dijumlahkan untuk

menghasilkan arus kas bersih total, yang kemudian ditambahkan dengan saldo kas

pada awal periode sehingga menghasilkan saldo kas pada skhir periode tersebut.

E. PENYAJIAN LAPORAN ARUS KAS

Arus kas harus dianalisis antara kegiatan operasi, investasi, dan pendanaan. Prinsip-prinsip

utama yang ditentukan oleh IAS 7 untuk penyusunan laporan arus kas adalah sebagai

berikut:

a. Aktivitas operasi adalah aktivitas penghasil pendapatan utama entitas

yang tidak berinvestasi atau mendanai aktivitas, sehingga arus kas operasi

mencakup uang tunai yang diterima dari pelanggan dan uang tunai yang

dibayarkan kepada pemasok dan karyawan

b. Aktivitas investasi adalah akuisisi dan pelepasan aset jangka panjang

dan investasi lain yang tidak dianggap setara kas

c. Aktivitas pendanaan adalah aktivitas yang mengubah modal ekuitas dan

struktur pinjaman entitas

d. Bunga dan dividen yang diterima dan dibayarkan dapat diklasifikasikan

sebagai arus kas operasi, investasi, atau pembiayaan, asalkan

diklasifikasikan secara konsisten dari periode ke periode

 e. Arus kas yang timbul dari pajak atas pendapatan biasanya diklasifikasikan

sebagai operasi, kecuali jika secara spesifik dapat diidentifikasikan dengan

aktivitas pendanaan atau investasi

f. Untuk arus kas operasi, metode presentasi langsung dianjurkan, tetapi metode

tidak langsung dapat diterima

Metode langsung menunjukkan setiap kelas utama penerimaan kas bruto dan

pembayaran tunai bruto. Bagian arus kas operasi dari laporan arus kas dengan metode

langsung akan muncul seperti ini:

Cash receipts from customers xx,xxx

Cash paid to suppliers xx,xxx

Cash paid to employees xx,xxx

Cash paid for other operating expenses xx,xxx

Interest paid xx,xxx

Income taxes paid xx,xxx

Net cash from operating activities xx,xxx

Metode tidak langsung menyesuaikan laba atau rugi bersih dasar akrual untuk efek

transaksi non tunai. Bagian arus kas operasi dari laporan arus kas dengan metode tidak

langsung akan muncul seperti ini:

Profit before interest and income taxes xx,xxx

Add back depreciation xx,xxx

Add back impairment of assets xx,xxx

Increase in receivables xx,xxx

Decrease in inventories xx,xxx

Increase in trade payables xx,xxx

Interest expense xx,xxx

Less Interest accrued but not yet paid xx,xxx

Interest paid xx,xxx

Income taxes paid xx,xxx

Net cash from operating activities xx,xxx

a. Nilai tukar yang digunakan untuk penjabaran transaksi dalam mata uang asing

harus merupakan kurs yang berlaku pada tanggal arus kas

b. Arus kas anak perusahaan asing harus dijabarkan dengan menggunakan kurs

yang berlaku saat arus kas terjadi

c. Sehubungan dengan arus kas rekanan, usaha patungan, dan anak perusahaan, di mana

metode ekuitas atau biaya digunakan, laporan arus kas harus melaporkan hanya arus

kas antara investor dan investee; di mana konsolidasi proporsional digunakan, laporan

arus kas harus mencakup bagian venturer dari arus kas investee

d. Arus kas agregat yang berkaitan dengan akuisisi dan pelepasan anak perusahaan

dan unit bisnis lainnya harus disajikan secara terpisah dan diklasifikasikan sebagai

aktivitas investasi, dengan pengungkapan tambahan tertentu. Uang tunai agregat

 yang dibayarkan atau diterima sebagai imbalan harus dilaporkan setelah

dikurangi kas dan setara kas yang diperoleh atau dibuang

e. Arus kas dari aktivitas investasi dan pendanaan harus dilaporkan bruto oleh kelas

utama penerimaan kas dan kelas utama pembayaran tunai kecuali untuk kasus-

kasus berikut, yang dapat dilaporkan secara bersih:

1) Kwitansi dan pembayaran tunai atas nama pelanggan (misalnya, penerimaan

dan pembayaran giro oleh bank, dan kwitansi yang dikumpulkan atas nama

dan dibayarkan kepada pemilik properti)

2) Penerimaan dan pembayaran tunai untuk barang-barang yang omsetnya cepat,

jumlahnya besar, dan jatuh tempo pendek, umumnya kurang dari tiga bulan

(misalnya, biaya dan pengumpulan dari pelanggan kartu kredit, dan

pembelian dan penjualan investasi)

3) Penerimaan dan pembayaran tunai terkait dengan setoran oleh

lembaga keuangan

4) Uang muka dan pinjaman yang diberikan kepada pelanggan dan pembayarannya

f. Investasi dan pembiayaan transaksi yang tidak memerlukan penggunaan uang

tunai harus dikeluarkan dari laporan arus kas, tetapi mereka harus diungkapkan

secara terpisah di tempat lain dalam laporan keuangan

g. Entitas harus menyediakan pengungkapan yang memungkinkan pengguna laporan

keuangan untuk mengevaluasi perubahan liabilitas yang timbul dari aktivitas

pendanaan

h. Komponen kas dan setara kas harus diungkapkan, dan rekonsiliasi

disajikan dengan jumlah yang dilaporkan dalam laporan posisi keuangan

i. Jumlah kas dan setara kas yang dipegang oleh entitas yang tidak tersedia untuk

digunakan oleh grup harus diungkapkan, bersama dengan komentar oleh

manajemen
CONTOH KASUS 1
Laporan keuangan PT. Karya Abadi untuk tahun yang berakhir pada tanggal 31 Desember
2009 :
Laba bersih ………………………………………………….. Rp. 150.000.000
Penjualan ……………………………………………………. Rp. 750.000.000
Harga Pokok Penjualan ……………………………………… Rp. 450.000.000
Beban Penyusutan …………………………………………... Rp. 80.000.000
Beban Operasi ………………………………………………. Rp. 62.000.000
Beban Bunga ………………………………………………… Rp. 8.000.000
Pengumuman Dividen dan dibayar ………………………….. 60 % dari Laba

Neraca komperatif untuk beberapa akun tertentu menunjukkan saldo sebagai berikut :
Keterangan 31 Desember 2009 31 Desember 2008
Piutang Usaha Rp. 30.000.000 Rp. 55.000.000
Persediaan Rp. 70.000.000 Rp. 40.000.000
Utang Usaha Rp.25.000.000 Rp. 40.000.000
Utang Bunga Rp. 0 Rp. 2.000.000

Diminta : Hitunglah jumlah kas bersih yang dihasilkan / digunakan dalam aktivitas operasi
untuk tahun 2009 baik menggunakan metode langsung maupun tidak langsung ! Jawab :

METODE LANGSUNG/ DIRECT METHOD :

Arus kas dari Kegiatan Operasi :
Kas diterima dari pelanggan …………………………………… Rp. 775.000.000
( Berasal dari Penjualan + Piutang yang dibayar )
Kas dibayar untuk Persediaan …………………………………. ( Rp. 495.000.000 )
( Berasal dari HPP + Penambahan persedian + Pen.Utang )
Kas dibayar untuk Beban Operasi ……………………………... ( Rp. 62.000.000 )
Kas dibayar untuk bayar bunga ………………………………... ( Rp. 10.000.000 )
( Berasal dari beban bunga + utang bunga yg tlah dibayar )
Net cash flow From Operating Activities ………………….. Rp. 208.000.000
METODE TIDAK LANGSUNG / INDIRECT METHOD
Arus kas dari Kegiatan Operasi :
Laba Bersih ………………………………………………….. Rp. 150.000.000
Penyusutan …………………………………………………… Rp. 80.000.000
Penurunan dari Akun Piutang ………………………............. Rp. 25.000.000
Peningkatan Persediaan …………………………………….... ( Rp. 30.000.000 )
Penurunan dari akun Utang ………………………………….. ( Rp. 15.000.000 )
Penurunan dari Utang Bunga ………………………………... ( Rp. 2.000.000 )
Net cash flow from Operating Activities ……………………… Rp. 208.000.000
CONTOH KASUS 2

PT. EMAK BAPAK

NERACA KOMPARATIF
31 DES 2012 & 2011
2012 2011 Perubahan
(naik/Turun)
Aktiva
Kas 20.000.000 10.000.000 10 jt/naik
Piutang usaha 17.000.000 15.000.000 2 jt/naik
Persediaan 10.000.000 8.000.000 2 juta/naik
Beban dbyr Dmuka 5.000.000 6.000.000 1 juta/turun
Tanah 50.000.000 60.000.000 10juta/turun
Gedung 65.000.000 65.000.000 0
Akm Peny Gedung (15.000.000) (10.000.000) 5juta/naik*a
Peralatan 35.000.000 25.000.000 10juta/naik
Akm Peny. Peralatan (15.000.000) (10.000.000) 5juta/naik*a
Total 172.000.000 169.000.000
Kewajiban dan Ekuitas Pemegang Saham

Hutang Usaha 82.000.000 85.000.000 3juta/turun

Hutang Obligasi 44.000.000 42.000.000 2juta/naik
Saham Biasa 26.000.000 20.000.000 6 juta/naik
R/E 20.000.000 22.000.000 2 juta/turun*b
Total 172.000.000 169.000.000

PT. EMAK-BAPAK

Laporan Laba Rugi

Per 31 Desember 2012
(Dalam Rupiah)

Pendapatan 45.000.000
HPP 10.000.000
Beban Operasi 8.000.000
Beban Bunga 6.000.000 24.000.000
Laba dari operasi 21.000.000
Beban pajak penghasilan 3.000.000
Laba Bersih 18.000.000*b
Jawab :
1. METODE LANGSUNG

PT. EMAK BAPAK (METODE LANGSUNG)

Laporan Arus Kas
Per 31 Des 2012
Kenaikan (penurunan) Kas
A. Arus Kas Dari Kegiatan Operasi
Penerimaan Kas dr pelanggan 43.000.000
Pembayaran kas pd pemasok&karywn (12.000.000)
Pembayaran bunga (6.000.000)
Pembayaran pajak penghasilan (3.000.000)
Kas Bersih yg ditrima dr keg. Oprasi 22.000.000
B. Arus Kas dr Kegiatan Investasi
Penjualan tanah 10.000.000
Pembelian perlatan (10.000.000)
Kas bersih yang digunakan o/ keg. Investasi 0
C. Arus kas Pembiayaan
Penebusan obligasi 2.000.000
Penjualan saham biasa 6.000.000
Pembayaran deviden tunai (20.000.000)
Kas bersih yg ditrima dr keg. Pembiayaan (12.000.000)
Kenaikan bersih Kas 10.000.000
Saldo kas, 1 Jan 2012 10.000.000
Saldo kas, 31 des 2012 20.000.000

Note :
RUMUS
a. Untuk menghitung Penerimaan dari pelanggan = Pendapatan penjualan –
Kenaikan Piutang Usaha ATAU Pendapatan Penjualan + Penurunan Piutang Usaha
Yaitu 45.000.000 – 2.000.000 = 43.000.000
b. Pembayaran kas kepada pemasok dan karyawan = HPP + B. Operasi +
(jumlah penyusutan – kenaikan persediaan + penurunan beban dbyr dmk – penurunan
hutang usaha)
Jadi = 10.000.000+8.000.000 - (10.000.000-2.000.000+1.000.000-3.000.000) =
12.000.000*d
c. Pembayaran deviden tunai = Kenaikan R/E – Laba Bersih ATAU Penurunan
R/E + Laba Bersih
jadi 18.000.000 – (-2.000.000) = 20.000.000
2. METODE TIDAK LANGSUNG

PT. EMAK BAPAK (METODE TDK LANGSUNG)

Laporan Arus Kas
Per 31 Des 2012
Kenaikan (penurunan) Kas
A. Arus Kas Dari Kegiatan Operasi
Laba Bersih 18.000.000
Peny. Untuk merekonsiliasi laba bersih thd kas
bersih yg diterima dr keg. Operasi :
Beban Penyusutan 10.000.000 *a
Kenaikan piutang usaha (2.000.000)
Kenaikan persediaan (2.000.000)
Penurunan beban dbyr dmk 1.000.000
Penurunan hutang usaha (3.000.000) 4.000.000
Kas Bersih yg ditrima dr keg. Oprasi 22.000.000
B. Arus Kas dr Kegiatan Investasi

Penjualan tanah 10.000.000

Pembelian perlatan (10.000.000)
Kas bersih yang digunakan o/ keg. Investasi 0
C. Arus kas Pembiayaan

Penebusan obligasi
Penjualan saham biasa 2.000.000
Pembayaran deviden tunai 6.000.000
Kas bersih yg ditrima dr keg. Pembiayaan (20.000.000)*b
Kenaikan (Penurunan) bersih Kas (12.000.000)
Saldo kas, 1 Jan 2012 10.000.000
Saldo kas, 31 des 2012 10.000.000
20.000.000
Note :
RUMUS :
a. Pembayaran deviden tunai = Kenaikan R/E – Laba Bersih ATAU Penurunan
R/E + Laba Bersih
18.000.000 – (-2.000.000) = 20.000.000

b. Beban Penyusutan 10.000.000 *a berasal dari kenaikan akumulasi gedung dan

peralatan
5.000.000 + 5.000.000 = 10.000.000
METODE LANGSUNG
Annual Report 2018
Financial statements Contents

116 Statement of Directors’ Responsibilities

117 Independent Auditor’s Report
123 Income statement
123 Statement of comprehensive income
124 Balance sheets
125 Statement of changes in equity
126 Statement of cash flows
127 Notes to the financial statements

Financial statements
Landsec Annual Report 2018 115
Statement of
Directors’
Responsibilities
The Annual Report 2018 contains the
following statements regarding responsibility
for the financial statements and business
reviews included therein.
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 prepared the
Group and parent company financial
statements in accordance with International
Financial Reporting Standards (IFRS) as
adopted by the European Union. 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 the
Company and of the profit and loss of the
Group and the Company for that period.
In preparing these financial statements the
Directors are required to:
——select suitable accounting policies in
accordance with IAS 8 ‘Accounting Policies,
Changes in Accounting Estimates and
Errors’ and then apply them consistently;
——make judgements and accounting
estimates that are reasonable and prudent;
——present information, including
accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information;
——state that the Group and Company
has complied with IFRS as adopted by
the European Union, subject to any
material departures disclosed and
explained in the financial statements;
——provide additional disclosures when
compliance with the specific requirements of
IFRS is insufficient to enable users to
understand the impact of particular
transactions, other events and conditions on
the Group’s and Company’s financial
position and performance; and
——prepare the Group’s and Company’s
financial statements on a going concern
basis, unless it is inappropriate to do so.
116 Landsec Annual Report 2018
The Directors are responsible for keeping
adequate accounting records that are sufficient to
show and explain the Group’s and Company’s
transactions and disclose with reasonable
accuracy at any time the financial position
of the Group and the Company, and to enable
them to ensure that the Annual Report
complies with the Companies Act 2006 and, as
regards the Group financial statements, Article
4 of the IAS regulation. They are also
responsible for safeguarding the assets of the
Group and the Company and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
Directors’ responsibility statement under
the Disclosure and Transparency Rules
Each of the Directors, whose names and
functions appear below, confirm that to the
best of their knowledge:
——the Group financial statements, which
have been prepared in accordance with
IFRS as adopted by the EU, give a true and
fair view of the assets, liabilities, financial
position and profit of the Group; and
——the Company financial statements, prepared
in accordance with IFRS as adopted by the
EU, give a true and fair view of the assets,
liabilities, financial position, performance and
cash flows of the Company; and
——the Strategic Report contained in the
Annual Report includes a fair review of the
development and performance of the
business and the position of the Group and
the Company, together with a description of
the principal risks and uncertainties faced
by the Group and Company.
Directors’ statement under the UK
Corporate Governance Code
Each of the Directors confirm that to the best
of their knowledge the Annual Report, taken
as a whole, is fair, balanced and understandable
and provides the information necessary for
shareholders to assess the Group’s and
Company’s position, performance, business
model and strategy.
A copy of the financial statements of the Group
is placed on the Company’s website. The
Directors are responsible for the maintenance
and integrity of statutory and audited
information on the Company’s website at
landsec.com. Information published on the
internet is accessible in many countries with
different legal requirements. Legislation in
the United Kingdom governing the preparation
and dissemination of financial statements may
differ from legislation in other jurisdictions.
The Directors of Land Securities Group
PLC as at the date of this Annual Report
are as set out below:
——Dame Alison Carnwath, Chairman*
——Robert Noel, Chief Executive
——Martin Greenslade, Chief Financial Officer
——Colette O’Shea, Managing
Director, London Portfolio
——Scott Parsons, Managing
Director, Retail Portfolio
——Edward Bonham Carter, Senior
Independent Director*
——Chris Bartram*
——Nicholas Cadbury*
——Cressida Hogg*
——Simon Palley*
——Stacey Rauch*
* Non-executive Directors
The Statement of Directors’ Responsibilities
was approved by the Board of Directors on
14 May 2018 and is signed on its behalf by:
Robert Noel Martin Greenslade
Chief Executive Chief Financial Officer
Independent Auditor’s Report
To the members of Land Securities Group PLC
Our opinion on the financial statements
In our opinion:
——Land Securities Group PLC’s Group financial statements and Parent company financial statements (the “financial statements”) give a true and
fair view of the state of the Group’s and of the Parent company’s affairs as at 31 March 2018 and of the Group’s loss for the year then ended;
——The Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;
——The Parent company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union as
applied in accordance with the provisions of the Companies Act 2006; and
——The financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards the Group
financial statements, Article 4 of the IAS Regulation.

What we have audited

Land Securities Group PLC’s financial statements comprise:
Group
Consolidated balance sheet as at 31 March 2018
Consolidated income statement for the year then ended
Consolidated statement of comprehensive income for the year then ended
Consolidated statement of changes in equity for the year then ended
Consolidated statement of cash flows for the year then ended
Related notes 1 to 40 to the financial statements
Parent company
Balance sheet as at 31 March 2018
Statement of changes in equity for the year then ended
Statement of cash flows for the year then ended
Related notes 1 to 40 to the financial statements

The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards
(IFRS) as adopted by the European Union and as regards the Parent company financial statements as applied in accordance with the provisions
of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We are

Financial statements
independent of the Group and Parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Conclusions relating to principal risks, going concern and viability statement

We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (UK) require us to report to
you whether we have anything material to add or draw attention to:
——the disclosures in the Annual Report set out on pages 54-57 that describe the principal risks and explain how they are being managed or mitigated;
——the Directors’ confirmation set out on pages 52-53 in the Annual Report that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business model, future performance, solvency or liquidity;
——the Directors’ statement set out on page 58 in the financial statements about whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of any material uncertainties to the Group’s ability to continue to do so over a period
of at least twelve months from the date of approval of the financial statements;
——whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit; or
——the Directors’ explanation set out on page 58 in the Annual Report as to how they have assessed the prospects of the Group, over what period
they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.

Landsec Annual Report 2018 117

Income statement
for the year ended 31 March 2018

Revenue 2018 Revenue 2017

Capital and Capital and
profit other items Total profit other items Total
Notes £m £m £m £m £m £m
Revenue 6 753 99 852 721 66 787
Costs 7 (261) (82) (343) (242) (24) (266)
492 17 509 479 42 521
Profit on disposal of investment properties – 1 1 – 19 19
Profit/(loss) on disposal of investment in joint venture – 66 66 – (2) (2)
Profit on disposal of other investment – – – – 13 13
Net deficit on revaluation of investment properties 14 – (98) (98) – (186) (186)
Operating profit/(loss) 492 (14) 478 479 (114) 365
Share of post-tax profit from joint ventures 16 9 18 27 21 48 69
Finance income 10 31 8 39 37 – 37
Finance expense 10 (126) (669) (795) (155) (204) (359)
(Loss)/profit before tax 406 (657) (251) 382 (270) 112
Taxation 12 – (1) (1) – 1 1
(Loss)/profit attributable to shareholders 406 (658) (252) 382 (269) 113
Earnings per share attributable to shareholders:

Basic (loss)/earnings per share 5 (32.9)p 14.3p

Diluted (loss)/earnings per share 5 (32.9)p 14.3p

Statement of comprehensive income

Financial statements
for the year ended 31 March 2018

2018 2017
Total Total
Notes £m £m

(Loss)/profit attributable to shareholders (252) 113

20 –
Items that may be subsequently reclassified to the income statement:
Fair value movement on cash flow hedges arising during the
year Revaluation of other investments (1) –
32 (2) (12)
Items that will not be subsequently reclassified to the income statement:
Net re-measurement loss on defined benefit pension scheme
Deferred tax credit on re-measurement above 1 2
18 (10)
Other comprehensive income/(loss) attributable to shareholders

Total comprehensive (loss)/income attributable to shareholders (234) 103

Landsec Annual Report 2018 123

Balance sheets
at 31 March 2018

Group Company
2018 2017 2018 2017
Notes £m £m £m £m
Non-current assets
Investment properties 14 12,336 12,144 – –
Intangible assets 19 34 36 – –
Net investment in finance leases 18 162 165 – –
Investments in joint ventures 16 1,151 1,734 – –
Investments in subsidiary undertakings 28 – – 6,211 6,205
Trade and other receivables 26 165 123 – –
Other non-current assets 29 49 51 – –
Total non-current assets 13,897 14,253 6,211 6,205
Current assets

Trading properties 15 24 122 – –

Trade and other receivables 26 471 418 – 17
Monies held in restricted accounts and deposits 22 15 21 4 4
Cash and cash equivalents 23 62 30 – –
Total current assets 572 591 4 21

Total assets 14,469 14,844 6,215 6,226

Current liabilities

Borrowings 21 (872) (404) – –

Trade and other payables 27 (294) (302) (2,258) (1,394)
Other current liabilities 30 (14) (7) – –
Total current liabilities (1,180) (713) (2,258) (1,394)
Non-current liabilities

Borrowings 21 (2,752) (2,545) – –

Trade and other payables 27 – (25) – –
Other non-current liabilities 31 (8) (9) – –
Redemption liability (37) (36) – –
Total non-current liabilities (2,797) (2,615) – –

Total liabilities (3,977) (3,328) (2,258) (1,394)

Net assets 10,492 11,516 3,957 4,832

Equity

Capital and reserves attributable to shareholders

Ordinary shares 34 80 80 80 80
Share premium 36 317 791 317 791
Other reserves 26 30 38 39
Merger reserve – – 374 374
Retained earnings 10,069 10,615 3,148 3,548
Total equity 10,492 11,516 3,957 4,832

The loss for the year of the Company was £93m (2017: £68m).

The financial statements on pages 123 to 170 were approved by the Board of Directors on 14 May 2018 and were signed on its behalf by:

R M Noel M F Greenslade
Directors

124 Landsec Annual Report 2018

Statement of changes in equity
for the year ended 31 March 2018

Attributable to shareholders Group

Ordinary Share Other Retained Total
shares premium reserves earnings equity
£m £m £m £m £m
At 1 April 2016 80 790 28 10,801 11,699
Total comprehensive income for the financial year – – – 103 103

Transactions with shareholders:

Share-based payments – 1 8 – 9
Dividends paid to shareholders – – – (289) (289)
Acquisition of own shares – – (6) – (6)
Total transactions with shareholders – 1 2 (289) (286)

At 31 March 2017 80 791 30 10,615 11,516

Total comprehensive loss for the financial year – – – (234) (234)

Transactions with shareholders:

Share-based payments – 1 6 2 9
Capital distribution – (475) – – (475)
Dividends paid to shareholders – – – (314) (314)
Acquisition of own shares – – (10) – (10)
Total transactions with shareholders – (474) (4) (312) (790)

At 31 March 2018 80 317 26 10,069 10,492

Company
Ordinary Share Other Merger Retained Total
shares premium reserves reserve earnings1 equity

Financial statements
£m £m £m £m £m £m
At 1 April 2016 80 790 42 374 3,898 5,184
Total comprehensive loss for the financial year – – – – (68) (68)

Share-based payments – 1 (3) – 7 5

Dividends paid to shareholders – – – – (289) (289)

At 31 March 2017 80 791 39 374 3,548 4,832

Total comprehensive loss for the financial year – – – – (93) (93)

Share-based payments – 1 (1) – 7 7

Capital distribution – (475) – – – (475)
Dividends paid to shareholders – – – – (314) (314)

At 31 March 2018 80 317 38 374 3,148 3,957

1. Available for distribution.

Landsec Annual Report 2018 125

Statement of cash flows
for the year ended 31 March 2018

2018 2017
Notes £m £m
Cash flows from operating activities

Net cash generated from operations 13 439 464

Interest received 29 15
Interest paid (100) (152)
Capital expenditure on trading properties (24) (12)
Disposal of trading properties 102 69
Other operating cash flows (1) 2
Net cash inflow from operating activities 445 386
Cash flows from investing activities

Investment property development expenditure (33) (46)

Acquisition of investment properties (349) (16)
Other investment property related expenditure (58) (80)
Disposal of investment properties 158 245
Disposal of investment in joint venture 633 13
Cash contributed to joint ventures 16 (111) (67)
Loan advances to joint ventures (72) (45)
Loan repayments by joint ventures 16 – 54
Cash distributions from joint ventures 16 190 44
Other investing cash flows – (19)
Net cash inflow from investing activities 358 83
Cash flows from financing activities

Proceeds from new borrowings (net of finance fees) 629 356

Repayment of borrowings 21 – (391)
Redemption of medium term notes 21 (1,256) (690)
Premium paid on redemption of medium term notes 21 (385) (137)
Redemption of QAG Bond 21 (273) –
Premium paid on redemption of QAG Bond 21 (61) –
Issue of medium term notes (net of finance fees) 21 1,334 698
Net cash inflow/(outflow) from derivative financial instruments 31 (4)
Dividends paid to shareholders 11 (314) (289)
Capital distribution (475) –
Other financing cash flows (1) (7)
Net cash outflow from financing activities (771) (464)
Increase in cash and cash equivalents for the year 32 5

Cash and cash equivalents at the beginning of the year 30 25

Cash and cash equivalents at the end of the year 23 62 30

The Company did not hold any cash and cash equivalents balances at 31 March 2018 (2017: none) and therefore did not have any cash flows in the year
then ended (2017: none).

126 Landsec Annual Report 2018

Notes to the financial statements
for the year ended 31 March 2018

Section 1 – General
This section contains a description of the Group’s significant accounting policies that relate to the financial statements as a whole. A description of
accounting policies specific to individual areas (e.g. investment properties) is included within the relevant note to the financial statements.

This section also includes a summary of new accounting standards, amendments and interpretations that have not yet been adopted, and their
expected impact on the reported results of the Group.

1. Basis of preparation and consolidation

Basis of preparation
These financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards as
adopted by the EU (IFRS), IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial
statements have been prepared in Pounds Sterling (rounded to the nearest one million), which is the presentation currency of the Group (Land
Securities Group PLC and all its subsidiary undertakings), and under the historical cost convention as modified by the revaluation of investment
property, available for sale investments, derivative financial instruments and pension assets.

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions,
actual results ultimately may differ from those estimates. Further details on the Group’s significant accounting judgements and estimates are
included in note 2.

Land Securities Group PLC (the Company) has not presented its own statement of comprehensive income (and separate income statement), as
permitted by Section 408 of Companies Act 2006. The merger reserve arose on 6 September 2002 when the Company acquired 100% of the
issued share capital of Land Securities PLC. The merger reserve represents the excess of the cost of acquisition over the nominal value of the
shares issued by the Company to acquire Land Securities PLC. The merger reserve does not represent a realised or distributable profit. Other
reserves includes the Capital redemption reserve, which represents the nominal value of cancelled shares, the Share-based payment reserve
and Own shares held by the Group.

Basis of consolidation
The consolidated financial statements for the year ended 31 March 2018 incorporate the financial statements of the Company and all its

Financial statements
subsidiary undertakings. Subsidiary undertakings are those entities controlled by the Company. Control exists where an entity is exposed to
variable returns and has the ability to affect those returns through its power over the investee.

The results of subsidiaries and joint ventures acquired or disposed of during the year are included from the effective date of acquisition or to
the effective date of disposal. Accounting policies of subsidiaries and joint ventures which differ from Group accounting policies are adjusted
on consolidation.

Where instruments in a subsidiary held by third parties are redeemable at the option of the holder, these interests are classified as a financial
liability, called the redemption liability. The liability is carried at fair value; the value is reassessed at the balance sheet date and movements are
recognised in the income statement.

Joint arrangements are those entities over whose activities the Group has joint control, established by contractual agreement. Interests in joint
arrangements are accounted for as either a joint venture or a joint operation. A joint arrangement is accounted for as a joint venture when the Group,
along with the other parties that have joint control of the arrangement, have rights to the net assets of the arrangement. Interests in joint ventures
are equity accounted. The equity method requires the Group’s share of the joint venture’s post-tax profit or loss for the year to be presented
separately in the income statement and the Group’s share of the joint venture’s net assets to be presented separately in the balance sheet. A joint
arrangement is accounted for as a joint operation when the Group, along with the parties that have joint control of the arrangement, have rights to
the assets and obligations for the liabilities relating to the arrangement. Joint operations are accounted for by including the Group’s share of the
assets, liabilities, income and expenses on a line-by-line basis.

Intra-group balances and any unrealised gains and losses arising from intra-group transactions are eliminated in preparing the consolidated
financial statements. Unrealised gains arising from transactions with joint ventures are eliminated to the extent of the Group’s interest in the joint
venture concerned. Unrealised losses are eliminated in the same way, but only to the extent that there is no evidence of impairment.

Landsec Annual Report 2018 127

Notes to the financial statements
for the year ended 31 March 2018 continued

2. Significant accounting judgements and estimates

The preparation of financial statements in conformity with IFRS requires management to exercise judgement in applying the Group‘s accounting
policies. The areas where the Group considers the judgements to be most significant involve assumptions or estimates in respect of future
events, where actual results may differ from these estimates.

Judgements
——Accounting for property acquisitions and disposals (note 14).
——Compliance with the Real Estate Investment Trust (REIT) taxation regime and the recognition of deferred tax assets and liabilities (note 12).

Estimates
——Valuation of investment and trading properties (note 14).

3. Changes in accounting policies and standards

The accounting policies used in these financial statements are consistent with those applied in the last annual financial statements, as amended
where relevant to reflect the adoption of new standards, amendments and interpretations which became effective in the year. These amendments
have not had an impact on the financial position or performance of the Group, but have resulted in additional disclosures. Additional disclosures
included in the financial statements as a result of adopting the Amendments to IAS 7 Statement of Cash Flows, relating to changes in liabilities
resulting from financing activities are included in note 21.

Change in accounting policy

As part of the Group’s review of the impact of adopting IFRS 9 on the bond exchange de-recognition adjustment (see note 21 for further details
on the bond exchange de-recognition adjustment), the Group has taken the opportunity to revisit its accounting policy on determining whether an
existing liability has been extinguished when carrying out a debt refinancing transaction. Under the Group’s current accounting policy, the result of
the quantitative ‘10% test’, as described in IAS 39, is the key criterion considered to determine whether an existing liability has been extinguished.
Under the revised policy, greater weight will be given to qualitative factors when assessing the appropriate treatment. With effect from 1 April
2018, the Group’s revised policy is:

‘When debt refinancing exercises are carried out, existing liabilities will be treated as having been extinguished when the new liability is substantially
different from the existing liability. In making this assessment, the Group will consider the transaction as a whole, taking into account both qualitative
and quantitative characteristics.’

This change in accounting policy will result in the debt refinancing exercise completed on 3 November 2004 being treated as an extinguishment of
the original debt, and therefore the bond exchange de-recognition adjustment will no longer be held on the Group’s balance sheet.

The revised accounting policy will provide more relevant and reliable information by more accurately reflecting the Group’s current net asset position and
the carrying value of its borrowings. The Group currently reports this revised position using alternative performance measures which adjust net assets (see
note 5) and net debt (see note 20). Under the revised accounting policy, the Group will report fewer alternative performance measures.

The change in accounting policy will be applied retrospectively and comparatives restated accordingly. Had this policy been applied at 31 March
2018, net assets would have been £106m lower at £10,386m, and the loss attributable to shareholders would have been £208m smaller at £44m.
Net assets per share would have been 14p lower at 1,404p, and the loss per share would have been 27.1p smaller at 5.8p. The change in
accounting policy will have no impact on adjusted net assets per share and adjusted earnings per share as these measures already exclude the
bond exchange de-recognition adjustment and the related amortisation charge respectively.

Amendments to IFRS
A number of new standards and amendments to standards have been issued but are not yet effective for the Group. The most significant of
these, and their potential impact on the Group’s accounting, are set out below:
——IFRS 9 Financial Instruments (effective from 1 April 2018) – the standard applies to classification and measurement of financial assets and
financial liabilities, impairment provisioning and hedge accounting. The Group has completed its impact assessment and does not expect IFRS
9 to have a material impact on its reported results.
——IFRS 15 Revenue from Contracts with Customers (effective 1 April 2018) – the standard will be applicable to service charge income, other property
related income, trading property sales proceeds and proceeds from the sale of investment properties, but not rental income arising from the Group’s leases
with tenants. Based on the transactions impacting the current financial year and future known transactions, the Group does not expect the adoption of IFRS
15 to have a material impact on the Group’s reported results. However, service charge income and expense will be presented on
a net basis for those properties where the property management activities are performed by a third party, which the Group considers to be the
principal delivering the service. The impact on presentation for the year ended 31 March 2018 is expected to be a £21m reduction in both
service charge income and expense.
——IFRS 16 Leases (effective from 1 April 2019) – the Group continues to assess the impact of IFRS 16 Leases, effective from 1 April 2019. Based
on the initial impact assessment, the Group expects to report separately service charge income for leases where a single payment is received to
cover both rent and service charge. The total payment received is currently reported as rental income, but upon adoption of the standard, the
service charge component will be separated and reported as service charge income in the notes to the financial statements. There will be no net
impact on profit attributable to shareholders.

128 Landsec Annual Report 2018

13. Net cash generated from operations
Reconciliation of operating profit/(loss) to net cash generated from operations Group Company
2018 2017 2018 2017
£m £m £m £m
Operating profit/(loss) 478 365 (32) (30)
Adjustments for:

Net deficit on revaluation of investment properties 98 186 – –

Movement in impairment of trading properties – (12) – –
Profit on disposal of trading properties (17) (29) – –
Profit on disposal of investment properties (1) (19) – –
Profit on disposal of other investment – (13) – –
(Profit)/loss on disposal of investment in joint venture (66) 2 – –
Share-based payment charge 6 5 – –
Other 8 8 – –
506 493 (32) (30)
Changes in working capital:
Increase in receivables (53) (17) – –
(Decrease)/increase in payables and provisions (14) (12) 32 30
Net cash generated from operations 439 464 – –

Section 3 – Properties
This section focuses on the property assets which form the core of the Group’s business. It includes details of investment properties,
investments in joint ventures and trading properties.

Our property portfolio is a combination of properties that are wholly owned by the Group, part owned through joint arrangements and properties

Financial statements
owned by the Group but where a third party holds a non-controlling interest. In the Group’s IFRS balance sheet, wholly owned properties are
presented as either ‘Investment properties’ or ‘Trading properties’. The Group applies equity accounting to its investments in joint ventures, which
requires the Group’s share of properties held by joint ventures to be presented within ‘Investments in joint ventures’.

Internally, management review the results of the Group on a basis that adjusts for these forms of ownership to present a proportionate share. The
Combined Portfolio, with assets totalling £14.1bn, is an example of this proportionate share, reflecting the economic interest we have in our
properties regardless of our ownership structure. We consider this presentation to better explain to stakeholders the activities and performance of
the Group, as it aggregates the results of all of the Group’s property interests which under IFRS are required to be presented across a number of
line items in the statutory financial statements.

The Group’s investment properties are carried at fair value and trading properties are carried at the lower of cost and net realisable value. Both
of these values are determined by the Group’s external valuers. The combined value of the Group’s total investment property portfolio
(including the Group’s share of investment properties held through joint ventures) is shown as a reconciliation in note 14.

Accounting policy
Investment properties
Investment properties are properties, either owned or leased by the Group, that are held either to earn rental income or for capital appreciation, or
both. Investment properties are measured initially at cost including related transaction costs, and subsequently at fair value. Fair value is based on
market value, as determined by a professional external valuer at each reporting date. The difference between the fair value of an investment
property at the reporting date and its carrying amount prior to re-measurement is included in the income statement as a valuation surplus or deficit.
Investment properties are presented on the balance sheet within non-current assets.

Some of the Group’s investment properties are owned through long-leasehold arrangements, as opposed to the Group owning the freehold. Where
the Group is a lessee and the lease transfers substantially all the risks and rewards of ownership of the asset to the Group, the lease is accounted for
as a finance lease. Finance leases are capitalised within investment properties at the commencement of the lease at the lower of the fair value of the
property and the present value of the minimum lease payments, and a corresponding liability is recorded within borrowings. Each lease payment is
allocated between repayment of the liability and a finance charge to achieve a constant rate on the outstanding liability. The investment properties
held under finance leases are subsequently carried at their fair value.

Landsec Annual Report 2018 139

METODE
TIDAK
LANGSUNG
ANNUAL REPORT AND ACCOUNTS 2018
METRO BANK PLC
METRO BANK
THE REVOLUTION IN
BRITISH BANKING
Strategic report
01 Highlights
02 Chairman’s statement
03 Chief Executive Officer’s statement
04 Our integrated approach
06 Our market
08 Business model
10 Strategy
12 Operating review
16 Creating FANS
24 Financial review
28 Risk report
44 Environment and social summary

Governance
54 Corporate governance overview
56 Board of Directors
58 Directors’ report
61 Corporate governance report
68 Audit Committee report
74 Risk Oversight Committee report
78 Nomination Committee report
81 Remuneration Committee report
85 Remuneration at a glance
87 Annual report on remuneration

Financial statements
98 Independent auditors’ report to the
members of Metro Bank PLC
105 Consolidated statement of
comprehensive income
106 Consolidated balance sheet
107 Consolidated statement of changes
in equity
108 Consolidated cash flow statement
109 Company balance sheet
110 Company statement of changes
in equity
111 Company cash flow statement
112 Notes to the financial statements
160 Country-by-country reporting
161 Independent auditors’ report to the
Directors of Metro Bank PLC on
country-by-country information
163 Glossary
164 Alternative performance measures
166 Shareholder information
168 Our stores
INDEPENDENT AUDITORS REPORT
TO THE MEMBERS OF METRO BANK PLC

Report on the audit of the financial statements

Opinion
In our opinion, Metro Bank PLC’s group financial statements and parent company financial statements (the ‘financial
statements’):
• give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2018 and of the
group’s profit and the group’s and the parent company’s cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union and, as regards the parent company’s financial statements, as applied in accordance with the provisions of
the Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.

We have audited the financial statements, included within the Annual Report and Accounts (the ‘Annual Report’), which
comprise: the group and parent company balance sheets as at 31 December 2018; the group statement of comprehensive
income, the group and parent company cash flow statements, and the group and parent company statements of changes in
equity for the year then ended; and the notes to the financial statements, which include a description of the significant
accounting policies.

Our opinion is consistent with our reporting to the Audit Committee.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.

Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the group or the parent company.

Other than those disclosed in note 7 to the financial statements, we have provided no non-audit services to the group or the
parent company in the period from 1 January 2018 to 31 December 2018.

98 Metro Bank Plc Annual report and accounts 2018

 STRATEGIC REPORT

CONSOLIDATED STATEMENT GOVERNANCE FINANCIAL

STATEMENTS

OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2018

Year ended Year ended

31 December 31 December
2018 2017
Notes £’million £’million

Interest income 2 444.4 302.0

Interest expense 2 (114.3) (61.0)
Net interest income 330.1 241.0
Fee and commission income 3 37.6 29.7
Net gains on sale of assets 10.7 3.7
Other income 4 25.7 19.4
Total income 404.1 293.8
General operating expenses 5 (305.6) (232.9)
Depreciation and amortisation 12,13 (45.1) (33.4)
Impairment of property, plant and equipment and intangible assets 12,13 (4.8) (0.6)
Total operating expenses (355.5) (266.9)
Credit impairment charges¹ 23 n/a (8.2)
Expected credit loss expense¹ (8.0) n/a
Profit before tax² 40.6 18.7
Taxation 8 (13.5) (7.9)
Profit for the year 27.1 10.8
Other comprehensive expense for the year
Items which will be reclassified subsequently to profit or loss:
Movements in respect of investment securities held at available-for-sale (net of tax):
– changes in fair value n/a 2.7
– fair value changes transferred to the income statement on disposal n/a (3.7)
Movement in respect of investment securities held at fair value through other
comprehensive income (net of tax):
– changes in fair value (2.4) n/a
– fair value changes transferred to the income statement on disposal (1.5) n/a
Total other comprehensive expense (3.9) (1.0)
Total comprehensive profit for the year 23.2 9.8
Earnings per share
Basic (pence) 30 29.1 12.8
Diluted (pence) 30 28.2 12.6

1. On 1 January 2018 we adopted IFRS 9 which replaced IAS 39. Under IAS 39, credit impairment charges were recognised on loans and advances to
customers when there was objective evidence of impairment. Losses which may have arisen from future events were not recognised. Charges were recognised in
the income statement under line item “Credit impairment charges”. Under IFRS 9, we recognise expected credit losses (‘ECL’) on all financial assets. All reasonable
and supportable information, including information about past events, current conditions and reasonable and supportable forecasts of economic conditions at the
reporting date is used in measuring ECL. Charges are recognised in the income statement under line item “Expected credit loss expense”. Further details about our
transition to IFRS 9 can be found in note 1.4.
2. A reconciliation between our statutory profit before tax of £40.6 million and our underlying profit before tax of £50.0 million can be found on page 165.

Metro Bank Plc Annual report and accounts 2018 105

CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2018

31 December 31 December
2018 2017
Notes £’million £’million

Assets
Cash and balances with the Bank of England 2,286 2,112
Loans and advances to banks 186 100
Loans and advances to customers 10 14,235 9,620
Available-for-sale investment securities¹ 11 n/a 361
Held to maturity investment securities¹ 11 n/a 3,554
Investment securities held at fair value through other comprehensive income (‘FVOCI’)¹ 11 674 n/a
Investment securities held at amortised cost¹ 11 3,458 n/a
Property, plant and equipment 12 454 328
Intangible assets 13 197 148
Prepayments and accrued income 14 66 52
Deferred tax asset 8 41 54
Other assets 15 50 26
Total assets 21,647 16,355
Liabilities
Deposits from customers 16 15,661 11,669
Deposits from central banks2 3,801 3,321
Debt securities 17 249 –
Repurchase agreements 344 121
Other liabilities 18 189 147
Total liabilities 20,244 15,258
Equity
Called-up share capital 19 – –
Share premium 19 1,605 1,304
Retained earnings 21 (209) (219)
Other reserves 7 12
Total equity 1,403 1,097
Total equity and liabilities 21,647 16,355

1. On 1 January 2018 we adopted IFRS 9 which replaced IAS 39. As part of the transition our investment securities are classified as held at amortised cost and as
FVOCI, rather than under the previous categories of available-for-sale and held to maturity. Further details about our transisition to IFRS 9 can be found in note 1.4.
2. Deposits from central banks comprises solely of amounts drawn down under the Bank of England’s Term Funding Scheme (‘TFS’).

The accounting policies, notes and information on pages 112 to 159 form part of the financial statements.

The financial statements on pages 105 to 159 were approved by the Board of Directors on 10 April 2019 and signed
on its behalf by:

Vernon W. Hill, II
Chairman

Craig Donaldson
Chief Executive Officer

David Arden
Chief Financial Officer

106 Metro Bank Plc Annual report and accounts 2018

 STRATEGIC REPORT

CONSOLIDATED STATEMENT OF
GOVERNANCE FINANCIAL

STATEMENTS

CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018

Called-up Available- Share

share Share Retained for-sale FVOCI option Total
capital premium earnings reserve reserve reserve equity
Notes £’million £’million £’million £’million1 £’million1 £’million £’million

Balance as at 31 December 2017 – 1,304 (219) (4) n/a 16 1,097

IFRS 9 transition adjustment (net of tax) 1.4 – – (17) 4 1 – (12)
Balance as at 1 January 2018 – 1,304 (236) – 1 16 1,085
Net profit for the year – – 27 n/a – – 27
Other comprehensive expense (net of tax)
relating to investment securities designated at
fair value through other comprehensive income – – – n/a (4) – (4)
Total comprehensive income – – 27 n/a (4) – 23
Shares issued – 304 – n/a – – 304
Cost of shares issued – (3) – n/a – – (3)
Net share option movements – – – n/a – (6) (6)
Balance as at 31 December 2018 – 1,605 (209) n/a (3) 10 1,403
Balance as at 1 January 2017 – 1,028 (230) (3) n/a 10 805
Net profit for the year – – 11 – n/a – 11
Other comprehensive income (net of tax) relating
to available-for-sale investments – – – (1) n/a – (1)
Total comprehensive income – – 11 (1) n/a – 10
Shares issued – 279 – – n/a – 279
Cost of shares issued – (3) – – n/a – (3)
Net share option movements – – – – n/a 6 6
Balance as at 31 December 2017 – 1,304 (219) (4) n/a 16 1,097
Notes 19 19 21

1. On 1 January 2018 we adopted IFRS 9 which replaced IAS 39. Upon adoption of IFRS 9 the available for sale reserve was replaced by the fair value through
other comprehensive income (‘FVOCI’) reserve in accordance with the new requirements.

Metro Bank Plc Annual report and accounts 2018 107

CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2018

Year ended Year ended

31 December 31 December
2018 2017
Notes £’million £’million

Reconciliation of profit before tax to net cash flows from operating activities:
Profit before tax 41 19
Adjustments for:
Impairment and write-offs of property, plant and equipment and intangible assets 5 1
Depreciation and amortisation 12, 13 45 33
Share option charge 5 3
Gain on sale of assets and fair value gains on derivatives (11) (4)
Accrued interest on and amortisation of investment securities (7) (2)
Changes in operating assets (4,651) (3,751)
Changes in operating liabilities 4,726 5,994
Net cash inflows from operating activities 153 2,293
Cash flows from investing activities
Sales of investment securities 1,522 309
Purchase of investment securities (1,740) (997)
Purchase of property, plant and equipment 12 (150) (99)
Purchase and development of intangible assets 13 (75) (70)
Net cash outflows from investing activities (443) (857)
Cash flows from financing activities
Shares issued 19 304 279
Cost of shares issued 19 (3) (3)
Debt securities issued 17 250 –
Cost of debt security issued 17 (1) –
Net cash inflows from financing activities 550 276
Net increase in cash and cash equivalents 260 1,712
Cash and cash equivalents at start of year 2,212 500
Cash and cash equivalents at end of year 2,472 2,212
Profit before tax includes:
Interest received 437 296
Interest paid 105 61
Cash and cash equivalents comprise:

Cash and balances with the Bank of England 2,286 2,112

Loans and advances to banks 186 100
2,472 2,212

108 Metro Bank Plc Annual report and accounts 2018

 STRATEGIC REPORT

COMPANY BALANCE SHEET GOVERNANCE

FINANCIAL STATEMENTS

AS AT 31 DECEMBER 2018

31 December 31 December
2018 2017
Notes £’million £’million

Assets
Cash and balances with the Bank of England 2,286 2,112
Loans and advances to banks 160 94
Loans and advances to customers 10 13,940 9,393
Available-for-sale investment securities¹ 11 n/a 361
Held to maturity investment securities¹ 11 n/a 3,554
Investment securities held at fair value through other comprehensive income (‘FVOCI’)¹ 11 674 n/a
Investment securities held at amortised cost¹ 11 3,458 n/a
Property, plant and equipment 454 328
Investment in subsidiaries 15 15
Intangible assets 13 190 141
Prepayments and accrued income 14 63 50
Deferred tax asset 40 54
Other assets 15 355 240
Total assets 21,635 16,342
Liabilities
Deposits from customers 16 15,661 11,669
Deposits from central banks2 3,801 3,321
Debt securities 17 249 –
Repurchase agreements 344 121
Other liabilities 18 182 142
Total liabilities 20,237 15,253
Equity
Called-up share capital 19 – –
Share premium 19 1,605 1,304
Retained earnings3 21 (214) (227)
Other reserves 7 12
Total equity 1,398 1,089
Total equity and liabilities 21,635 16,342

1. On 1 January 2018 we adopted IFRS 9 which replaced IAS 39. As part of the transition our investment securities are classified as held at amortised cost and as
FVOCI, rather than under the previous categories of available-for-sale and held to maturity. Further details about our transition to IFRS 9 can be found in note
1.4.
2. Deposits from central banks comprises solely of amounts drawn down under the Bank of England’s Term Funding Scheme (‘TFS’).
3. The Company profit for the year was £29.0million (2017: £8.9 million).

The financial statements on pages 105 to 159 were approved by the Board of Directors on 10 April 2019 and signed
on its behalf by:

Vernon W. Hill, II
Chairman

Craig Donaldson
Chief Executive Officer

David Arden
Chief Financial Officer

Metro Bank Plc Annual report and accounts 2018 109

COMPANY STATEMENT OF
CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018

Called-up Available- Share

share Share Retained for-sale FVOCI option Total
capital premium earnings reserve reserve reserve equity
Notes £’million £’million £’million £’million £’million1 £’million £’million

Balance as at 31 December 2017 – 1,304 (227) (4) n/a 16 1,089

IFRS 9 transition adjustment (net of tax) 1.4 – – (14) 4 1 – (9)
Balance as at 1 January 2018 – 1,304 (241) – 1 16 1,080
Net profit for the year – – 27 n/a – – 27
Other comprehensive expense (net of tax)
relating to investment securities designated at
fair value through other comprehensive income – – – n/a (4) – (4)
Total comprehensive income – – 27 n/a (4) – 23
Share issue – 304 – n/a – – 304
Cost of share issue – (3) – n/a – – (3)
Net share option movements – – – n/a – (6) (6)
Balance as at 31 December 2018 – 1,605 (214) n/a (3) 10 1,398
Balance as at 1 January 2017 – 1,028 (236) (3) n/a 10 799
Net profit for the year – – 9 – n/a – 9
Other comprehensive income (net of tax) relating
to available-for-sale investments – – – (1) n/a – (1)
Total comprehensive income – – 9 (1) n/a – 8
Share issue – 279 – – n/a – 279
Cost of share issue – (3) – – n/a – (3)
Net share option movements – – – – n/a 6 6
Balance as at 31 December 2017 – 1,304 (227) (4) n/a 16 1,089
Notes 19 19 21

1. On 1 January 2018 we adopted IFRS 9 which replaced IAS 39. Upon adoption of IFRS 9 the available for sale reserve was replaced by the fair value through
other comprehensive income (‘FVOCI’) reserve in accordance with the new requirements.

110 Metro Bank Plc Annual report and accounts 2018

 STRATEGIC REPORT

COMPANY CASH FLOW GOVERNANCE

FINANCIAL STATEMENTS

STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2018

Year ended Year ended

31 December 31 December
2018 2017
Notes £’million £’million

Reconciliation of profit before tax to net cash flows from operating activities:
Profit before tax 40 16
Adjustments for:
Impairment and write-offs of property, plant and equipment and intangible assets 5 –
Depreciation and amortisation 45 34
Share option charge 4 4
Gain on sale of assets and fair value gains on derivatives (8) (4)
Accrued interest on and amortisation of investment securities (7) (2)
Changes in operating assets (4,675) (3,753)
Changes in operating liabilities 4,724 5,993
Net cash inflows from operating activities 128 2,288
Cash flows from investing activities
Sales of investment securities 1,526 309
Purchase of investment securities (1,740) (997)
Purchase of property, plant and equipment (150) (100)
Proceeds from sale of property, plant and equipment – –
Purchase and development of intangible assets 13 (75) (69)
Net cash outflows from investing activities (439) (857)
Cash flows from financing activities
Share issue 19 304 279
Cost of share issue 19 (3) (3)
Share issue 17 250 –
Cost of share issue 17 (1) –
Net cash inflows from financing activities 550 276
Net increase in cash and cash equivalents 239 1,707
Cash and cash equivalents at start of year 2,207 499
Cash and cash equivalents at end of year 2,446 2,206
Profit before tax includes:
Interest received 425 286
Interest paid 105 61
Cash and cash equivalents comprise:

Cash and balances with the Bank of England 2,286 2,112

Loans and advances to banks 160 94
2,446 2,206

Metro Bank Plc Annual report and accounts 2018 111

NOTES TO THE FINANCIAL STATEMENTS

1. Basis of preparation and significant accounting policies

This section sets out the Group’s (‘our’ or ‘we’) accounting policies which relate to the financial statements as a whole. Where an
accounting policy relates specifically to a note then the related accounting policy is set out within that note. All policies have been
consistently applied to all the years presented unless stated otherwise.

1.1 General information

Metro Bank (‘the Company’) together with its subsidiaries (‘the Group’) provides retail and commercial banking services in the UK and is
a public limited liability company incorporated and domiciled in the United Kingdom under the Companies Act 2006 (Registration number
6419578). The address of our registered office is One Southampton Row, London WC1B 5HA.

1.2 Basis of preparation

Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’)
as adopted by the EU, the IFRS Interpretations Committee (‘IFRS IC’) and the Companies Act 2006 applicable to companies
reporting under IFRS.

The financial statements are prepared on a going concern basis, as our Directors are satisfied that the Group and the Company have
the resources to continue in business for the foreseeable future.

In publishing the Company financial statements here together with the Group financial statements, we have taken advantage of the
exemption in section 408(3) of the Companies Act 2006 not to present an individual income statement and related notes that form a
part of these financial statements.

1.3 Cash flow statement

Cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash in
hand, deposits held at call with banks and balances held with the Bank of England.

The consolidated cash flow statement shows the changes in cash and cash equivalents arising during the year from operating activities,
investing activities and financing activities.

The cash flows from operating activities are determined by using the indirect method. Under that method, profit before tax is adjusted for
non-cash items, changes in other assets and liabilities and other items that relate to investing and financing cash flows, to determine net
cash inflows or outflows from operating activities. Cash flows from investing and financing activities are determined using the direct method,
that is by directly reporting the cash effects of transactions.

1.4 Changes in accounting policy and disclosures

During the year we adopted the following standards across all Group companies:

IFRS 9 ‘Financial Instruments’

On 1 January 2018 we adopted IFRS 9 ‘Financial Instruments’, which replaced IAS 39 ‘Financial Instruments: Recognition and
Measurement’. This resulted in changes in accounting policies and adjustments to the amounts previously recognised in the financial
statements. In accordance with the transitional provisions in IFRS 9, comparative figures have not been restated; accordingly, all
comparative period information is presented in accordance with our previous accounting policies.

Reconciliation of balance sheet balances from IAS 39 to IFRS 9

The following tables reconcile the carrying amount of financial assets and liabilities, from their previous measurement category in
accordance with IAS 39 as at 31 December 2017 to their new measurement categories upon transition to IFRS 9 on 1 January 2018.

112 Metro Bank Plc Annual report and accounts 2018

 STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS

23. Credit risk continued

Economic variable assumptions

The period-end assumptions used for the ECL estimate as at 31 December 2018 are as follows:
2019 2020 2021 2022

Interest rates (%) Base: 2.2% Base: 2.6% Base: 2.8% Base: 3.2%
Upside: 2.1% Upside: 3.1% Upside: 3.1% Upside: 3.5%
Downside: 0.9% Downside: 1.2% Downside: 1.4% Downside: 1.6%
Brexit:0.5% Brexit: 0.8% Brexit: 0.9% Brexit: 1.3%
UK unemployment (%) Base: 4.6% Base: 4.8% Base: 5.0% Base: 5.0%
Upside: 3.3% Upside: 3.4% Upside: 3.6% Upside: 3.0%
Downside: 6.2% Downside: 7.2% Downside: 7.3% Downside: 6.9%
Brexit: 6.7% Brexit: 8.4% Brexit: 8.5% Brexit: 8.1%
UK house price index Base: 1.9% Base: 0.5% Base: 1.2% Base: 1.9%
– % change year-on- Upside: 7.6% Upside: 4.5% Upside: 1.9% Upside: 0.9%
year Downside: (5.3)% Downside: (6.4)% Downside: 0.0% Downside: 3.7%
Brexit: (8.5)% Brexit: (11.1)% Brexit: (1.7)% Brexit: (4.3)%
UK GDP – % change Base: 1.6% Base: 1.4% Base: 1.9% Base: 1.8%
year-on-year Upside: 4.0% Upside: 2.1% Upside: 1.9% Upside: 1.6%
Downside: (1.9)% Downside: 0.8% Downside: 2.6% Downside: 2.0%
Brexit: (3.6)% Brexit: (0.2)% Brexit: 2.6% Brexit: 2.3%
The assumptions used for the ECL estimate as at 1 January 2018 are as follows:

2018 2019 2020 2021 2022

Interest rates (%) Base: 1.7% Base: 2.3% Base: 2.7% Base: 2.6% Base: 3.0%
Upside: 1.8% Upside: 2.6% Upside: 2.9% Upside: 3.0% Upside: 3.3%
Downside: 1.5% Downside: 1.0% Downside: 1.0% Downside: 1.3% Downside: 1.8%
Brexit: n/a Brexit: n/a Brexit: n/a Brexit: n/a Brexit: n/a
UK unemployment (%) Base: 4.6% Base: 4.8% Base: 5.0% Base: 5.1% Base: 5.1%
Upside: 4.0% Upside: 3.5% Upside: 3.6% Upside: 3.9% Upside: 4.1%
Downside: (5.7)% Downside: 7.1% Downside: 7.5% Downside: 7.3% Downside: 6.9%
Brexit: n/a Brexit: n/a Brexit: n/a Brexit: n/a Brexit: n/a
UK house price index Base: 2.9% Base: 1.3% Base: 0.9% Base: 1.8% Base: 2.4%
– % change year-on- Upside: 5.8% Upside: 7.2% Upside: 3.2% Upside: 1.6% Upside: 1.0%
year Downside: (0.9)% Downside: (7.3)% Downside: (2.7)% Downside: 1.8% Downside: 4.3%
Brexit: n/a Brexit: n/a Brexit: n/a Brexit: n/a Brexit: n/a
UK GDP – % change Base: 1.6% Base: 1.6% Base: 1.8% Base: 1.9% Base: 1.8%
year-on-year Upside: 3.4% Upside: 3.2% Upside: 2.1% Upside: 1.7% Upside: 1.6%
Downside: (1.1)% Downside: (0.8)% Downside: 1.9% Downside: 2.5% Downside: 2.0%
Brexit: n/a Brexit: n/a Brexit: n/a Brexit: n/a Brexit: n/a

Following the initial four year projection period, the Upside and Downside scenarios converge to the Baseline
scenario. The rate of convergence varies based on the macro economic factor, but at a minimum convergence
takes place three years from the initial four year projection period.

We note that the scenarios applied comprise our best estimate of economic impacts on the ECL, and the actual
outcome may be significantly different.

Investment securities and other financial assets

Impairment provisions have been calculated based on our best estimate of expected credit losses on other assets
classified and measured at amortised cost and fair value through other comprehensive income. These include
investment securities, cash held at banks and other financial assets. Impairment provisions are not material.

Metro Bank Plc Annual report and accounts 2018 139