Wrap Text
Results for the year ended 31 December 2018
Raven Property Group Limited
Incorporated in Guernsey
Company number 43371
LSE share code: RAV; JSE share code: RAV
ISIN:GB00B0D5V538
(“Raven” or the “Company” or the “Group”)
Results for the year ended 31 December 2018
The Board of Raven Property Group release results for the year ended 31 December 2018.
Highlights
- A good trading performance adversely affected by currency movements;
- Occupancy up from 81% to 89% at 31 December 2018 and 90% today;
- Two warehouse acquisitions completed in the second half of the year;
- Rouble valuation of the investment portfolio up 8% but falling by 10% after currency exchange losses;
- Secured debt facilities moving to Roubles;
- Underlying earnings of £20.0 million and IFRS loss of £120.7 million after revaluation currency loss;
- Tender offer buy back of 2 in 51 shares at 45p, equating to 1.75p per share, giving full year distribution of 3p.
CEO Glyn Hirsch said “Local market conditions are improving. Vacancy rates are down, rents are rising and the overall
performance of the Russian economy is strengthening. Annoyingly the low year end Rouble exchange rate has not allowed this
to be reflected once translated into Sterling.”
Enquiries
Raven Property Group Limited Tel: + 44 (0) 1481 712955
Anton Bilton
Glyn Hirsch
Novella Communications Tel: +44 (0) 203 151 7008
Tim Robertson
Toby Andrews
N+1 Singer Tel: +44 (0) 20 7496 3000
Corporate Finance - James Maxwell / James Moat
Sales - Alan Geeves / James Waterlow
Numis Securities Limited Tel: + 44 (0) 207 260 1000
Alex Ham / Jamie Loughborough / Alasdair Abram
Renaissance Capital (South Africa) Tel: +27 (11) 750 1448
Yvette Labuschagne
Renaissance Capital (Moscow) Tel: + 7 495 258 7770
David Pipia
Ravenscroft Tel: + 44 (0) 1481 729100
Jade Cook
About Raven Property Group
Raven was founded in 2005 to invest in class A warehouse complexes in Russia and lease to Russian and International
tenants. Its Ordinary Shares, preference shares and warrants are listed on the Main Market of the London Stock Exchange
and admitted to the Official List of the UK Listing Authority and the Official List of The International Stock Exchange (“TISE”).
Its Ordinary Shares also have a secondary listing on the main board of the Johannesburg Stock Exchange and the Moscow
Stock Exchange. Its convertible preference shares are admitted to the Official List of TISE and to trading on the SETSqx market
of the London Stock Exchange. The Group operates out of offices in Guernsey, Cyprus and Moscow and has an investment
portfolio of circa 1.9 million square metres of Grade "A" warehouses in Moscow, St Petersburg, Rostov-on-Don, Novosibirsk
and Nizhny Novgorod and 49,000 square metres of commercial office space in St Petersburg. For further information visit the
Company’s website: www.theravenpropertygroup.com
Chairman’s Message
I am pleased to report that we have made significant progress in the year. We now consider ourselves a Rouble operating
business and our balance sheet exposure to US Dollar liabilities has greatly reduced.
The market fundamentals in the warehouse market have steadily improved and our warehouse occupancy levels have increased
from 81% at 1 January 2018 to 89% at 31 December 2018 with a further increase to 90% today.
In 2018 we completed two further acquisitions of grade A warehouse space, totalling 123,200sqm, for Roubles 5.3 billion, which
should generate an additional Roubles 580 million of income per annum. Since April 2017 we have acquired Roubles 14.6 billion
of new assets and, together with increased occupancy, this has supported our top line as legacy US Dollar pegged leases
mature.
Our exposure to US Dollar financing facilities has reduced from 92% at the beginning of the year to 34% of the Group’s secured
debt at 31 December 2018. We still have some work to do but we are confident that 2019 will see the residue of US Dollar
balance sheet exposure disappear.
The certainty of a long term Rouble rental market and the shift away from a US Dollar financing model has led us to reconsider
a number of currency related issues. For the first time our valuers have applied Rouble estimated rental values (“ERVs”) in the
valuation model of our investment portfolio and as at 31 December 2018 all of our investment properties are valued in Roubles
rather than US Dollars. This has precipitated a review of both the balance sheet functional currency of our subsidiaries and also
the presentation currency we use in our Annual Report. The most obvious change being that we have reverted to a Sterling
presentation policy for our Annual Report, the currency of our share capital and preference shares.
The weak Rouble exchange rate at 31 December 2018 has had a detrimental impact on our property valuations. Rouble
valuations of the investment portfolio improved in the year but exchange losses caused a revaluation loss on translation.
Underlying earnings of £20.0 million support our distribution for the year. IFRS losses of £120.7 million reflect the impact of the
weak Rouble on valuation movements.
We welcome Michael Hough to the Board. Michael joined as a non executive director on 9 October 2018 and has a strong
commercial pedigree and previous experience of the Russian market. We are sad to say that Stephen Coe will step down from
the Board following this year’s AGM. Stephen has been an invaluable member of the non executive team for many years and
will be missed. We wish him well. Michael will take over the role of Audit Committee Chairman following Stephen’s retirement.
This signals the resumption of our succession planning for the Board. We had put this on hold following the turbulence of the oil
and Rouble collapse in late 2014 and expect to make an ordered rotation over the next three years.
We have successfully completed two secondary listings of our ordinary shares on the Johannesburg Stock Exchange (“JSE”)
and the Moscow Stock Exchange (“MOEX”) during the year and we hope that this will provide an opportunity to widen our
shareholder base in the future.
It has been another busy year and as always, we are grateful for the support of our shareholders.
Richard Jewson
Chairman
17 March 2019
Strategic Report
Chief Executive’s Report
Dear Shareholders,
We have nearly completed our transition to a Rouble business and in Rouble terms we are performing well. Annoyingly the low
year end Rouble exchange rate has not allowed this to be reflected once translated into Sterling. On 1 January 2018 the
Rouble/Sterling exchange rate was 77.88. At 31 December 2018 that rate had fallen 13.4% to 88.35. Today it is 86.12.
Local market conditions are improving. Vacancy rates are down, rents are rising and the overall performance of the Russian
economy is strengthening.
In our own portfolio we have seen occupancy rise from 81% to 89% in the year with a further increase to 90% today.
Rents have firmed consistently through the year and Moscow rents are now at 3,800 – 4,000 Roubles per sqm for standard
space. Our average warehouse rental rates are Roubles 4,900 per sqm after taking into account higher tenant specification,
office and mezzanine content. We expect these rates to continue to improve as demand and supply is out of balance and there
are exceptionally low levels of speculative development.
At the year end the portfolio revaluation in Roubles has shown an increase of 8%.
We have made good acquisitions in the period and look forward to their full year contribution to results in 2019. We have also
invested close to £19 million in Rouble interest rate hedging, capping our Rouble cost of debt at a rate of 8.25% for periods of
five to seven years. We are nearly out of dollar debt and by refinancing in Roubles and Euros have maintained a cost of debt of
7.69%. The portfolio valuation yields were between 11% and 12.5% at the year end.
In the meantime the Russian e-commerce sector continues to develop successfully with some impressive players emerging. We
anticipate that they will soon start to make a significant impact on the logistics real estate market.
Frustratingly, since the US sanctions in August, the Rouble fall has resulted in Sterling fully diluted NAV per share dropping to
48p at 31 December 2018
We are pleased to be making a final distribution of 1.75p by way of tender offer buy back of 2 shares in every 51 at 45p, meaning
we will have distributed a total of 3p for the year.
The business is now well positioned as a local market leader in one of the world’s most appealing property sectors. We are close
to having restructured our balance sheet so are in a strong position to benefit from a continued improvement in our market and
at some point a significant change in valuations.
Our prospects look better than they have at any time since 2014 and we are confident about the future.
Glyn Hirsch
Chief Executive Officer
17 March 2019
Business Model
Our Strategy
We continue with our strategy of holding an investment portfolio of Grade A logistics warehouses in Russia for the long term,
with the aim of producing rental income that delivers progressive distributions to our shareholders. We will consider other asset
classes in the region if the property and financial metrics are attractive and we have a small office portfolio in St Petersburg
which we also intend to hold for long term income returns.
Business Model
We acquire investment assets typically with yields of between 11% and 14% and have bank financing costs across the Group
of 7.69%. We now run a Rouble operating model but continue to have legacy US Dollar pegged leases which will mature over
the next three years. As explained in last year’s Annual Report, our aim was to adapt our business model, moving the Group’s
secured banking facilities out of US Dollars and to a Rouble/Euro mix to reduce our foreign currency exposure whilst managing
the cost of debt. This process is now well underway.
At the year end, US Dollar leases account for 26% of the Gross Lettable Area (“GLA”) of our warehouse portfolio (2017: 31%).
Our office portfolio has a currency exposure to Euro on 20% (2017: 23%) of its GLA and 9% to US Dollar (2017: 9%).
The Group’s secured banking facilities are 31% (2017: 0%) Rouble denominated, 35% (2017: 8%) Euro and 34% (2017: 92%)
of US Dollar, at year end exchange rates. We expect to convert all remaining US Dollar facilities in the current year.
Each of the facilities secured on our property assets sits in a special purpose vehicle (“SPV”) structure to minimise recourse to
the overall portfolio. At the year end, asset specific debt represented 54.1% loan to value (2017: 53%).
Our average letting size by tenant is 9,000sqm (2017: 8,760sqm). We do not have one tenant with more than 8% (2017: 11%)
of our portfolio’s GLA and the top ten tenants account for 42% (2017: 41%) of our portfolio in GLA terms and 53% (2017: 54%)
in income terms.
Key Performance Indicators (‘KPIs’)
Occupancy levels and average Rouble rental levels achieved are our primary operating focus.
The ability to distribute to ordinary shareholders from cash covered underlying earnings and operating cash flows after interest
remains our focus when determining distribution policy.
All of the above underpin financial targets set for annual bonus incentives.
Portfolio Review
Leasing and maturities
Warehouse Moscow St Petersburg Regions
Space (000sqm) 1,331 (70%) 272 (15%) 287 (15%)
NOI (£m) 81 (80%) 9 (9%) 11 (11%)
Office Moscow St Petersburg Regions
Space (000sqm) - 49 (100%) -
NOI (£m) - 9 (100%) -
During the year we completed two acquisitions; the final phase of Logopark Sever, a warehouse complex north of Moscow, and
Logopark Volga, a warehouse complex with development land in Nizhny Novgorod. In aggregate these were acquired for a total
consideration of Roubles 5.3 billion for 123,200sqm at a blended initial annualised yield of 12.4% assuming the leasing of vacant
space. The acquisitions did not have a material impact on income in 2018 but we expect them to contribute Roubles 580 million
of NOI during 2019.
Occupancy has improved considerably during the year and stands at 90% today with a further 1% covered by letters of intent
(“LOIs”).
‘000sqm 2018 2019 2020 2021 2022-2032 Total
Maturity profile at 1 January 2018 169 264 308 236 495 1 472
Acquisitions - 4 - - 107 111
Subtotal 169 268 308 236 602 1 583
Renegotiated and extended (102) (64) (50) - (37) (253)
Maturity profile of lease extensions - 41 10 84 118 253
Vacated/terminated (67) (5) (4) - (16) (92)
New Lettings - 15 1 39 186 241
Maturity profile at 31 December 2018 - 255 265 359 853 1 732
253,000sqm of existing leases have been renegotiated and extended in the financial year and 241,000sqm of new leases signed.
Significant new lettings include 11,800sqm to Accord Post, 16,000sqm to Mir Instrumenta, 16,200sqm to Cotton Club and
18,200sqm to Perspectiva, all in Moscow.
Space vacated on maturity, breaks exercised and early terminations totalled 92,000sqm which, together with existing vacant
space, gives 206,000sqm of vacancy in our warehouse portfolio at 31 December 2018. There are also potential breaks in the
portfolio of 91,600sqm in 2019 and 199,900sqm in 2020. For 2019 we currently expect tenants who occupy circa 17,000sqm to
exercise their breaks and vacate.
Since the year end we have signed a further 31,850sqm of deals of which 23,000sqm were new lettings and 8,850sqm were
renewals or extensions. We currently have 79,800sqm of LOI’s for renewals, extensions and new lettings. If these are signed
vacancy will reduce by a further 24,250sqm.
At the year end 26% (2017: 31%) of our warehouse GLA had US Dollar denominated leases with an average warehouse rental
level of $148 per sqm (2017: $143 per sqm) and a weighted average term to maturity of 2.1 years (2017: 3.0 years). Rouble
denominated leases account for 61% (2017: 47%) of our total warehouse space with an average warehouse rent of Roubles
4,900 per sqm (2017: 5,200 per sqm) and weighted average term to maturity of 4.5 years (2017: 3.6 years). Rouble leases have
an average minimum annual indexation of 5.9% (2017: 6.8%).
Currency exposure USD RUB EUR Vacant Total
of warehouse sqm sqm sqm Sqm sqm
space ‘000 ‘000 ‘000 ‘000 ‘000
485 1,149 50 206 1,890
% of total 26% 61% 2% 11% 100%
Currency exposure USD RUB EUR Total
of NOI
% of total 51% 42% 7% 100%
The currency split is based on the year end Sterling presentation so will be somewhat volatile, a weak Rouble, as was the case
last year, will increase the contribution of US Dollar pegged leases, a stronger Rouble will reduce that contribution.
Investment Portfolio
Moscow
We have ten warehouse projects in Moscow totalling 1,331,000sqm with 88% of space let at the year end, excluding LOIs, up
from 78% at the beginning of the year.
2018 Year end
Warehouse complex Space (000 sqm) NOI (£m) Occupancy
Sever 253 8.0 87%
Pushkino 214 11.6 94%
Istra 206 17.5 93%
Noginsk 204 18.0 77%
Klimovsk 157 11.2 97%
Krekshino 118 12.3 99%
Nova Riga 68 1.1 50%
Lobnya 52 0.2* 99%
Sholokhovo 45 0.1 80%
Southern 14 0.5 79%
*Excludes space let to Roslogistics
Occupancy has improved in the Moscow portfolio with a net, like for like, increase in occupied area of 132,500sqm during the
year, a combination of new letting and successful lease renewals. The Moscow market has seen vacancy decrease and record
take up in the past year reflected in a hardening of rents. The market is well set for rental growth in 2019. We expect occupancy
to remain in the low 90%’s during the year, held back slightly by over 90,000sqm expiring in Krekshino towards the end of June.
We are already working to mitigate this by pro-actively leasing space prior to expiry.
St Petersburg and Regions
2018 Year end
Warehouse complex Space (‘000sqm) NOI (£m) Occupancy
St Petersburg
Shushary 148 5.0* 100%
Gorigo 87 2.6 67%
Pulkovo 37 1.8 88%
Regions
Novosibirsk 121 6.6* 97%
Rostov 102 4.5* 91%
Nizhny Novgorod 64 0.1 100%
*Excludes space let to Roslogistics
Warehouse occupancy in the regional markets of St Petersburg, Rostov and Novosibirsk has strengthened and we have seen
a lot of activity. Vacancy has reduced in all three markets as at today’s date and rents have begun to grow, particularly in
Novosibirsk where we are now commanding over Roubles 4,000 per sqm.
Tenant Mix
Warehouse Distribution Retail Manufacturing Third Party E-commerce Other
Tenant Type Logistics
operators
Space (‘000sqm) 322 (19%) 519 (31%) 212 (13%) 559 (33%) 45 (3%) 27 (1%)
Office Portfolio
We have continued implementing our asset management strategy in the St Petersburg office properties. At Kellerman, we have
undertaken cosmetic improvements to the common areas, restructured leases and re-let space at enhanced rents. There is
more work to do, but the market is strong and we expect to make additional improvements in value and income. In Primium
where the lease of the sole tenant expires in the summer, we have already put in place a comprehensive re-letting plan which
will mean we suffer little or no vacancy on expiry, including recently signing a new lease with Tele2 on 4,000sqm.
Office Space (‘000sqm) NOI (£m) Occupancy
St Petersburg
Kellerman 22 3.1 99%
Constanta 16 1.8 100%
Primium 11 3.8 91%
Portfolio Yields
Use/Year Moscow (%) St Petersburg (%) Regions (%)
Warehouse
2017 11.25-12.5 12.5 12.5
2018 11.00-12.6 12.30-12.5 12.25-12.5
Office
2017 - 11.00-12.25 -
2018 - 12.00-12.25 -
The investment properties and additional phases of existing projects were valued by Jones Lang LaSalle (“JLL”) at the year end,
in accordance with the RICS Valuation and Appraisal guidelines, and are carried at a market value of £1.2 billion (see notes 11
& 12 to the financial statements). This has resulted in a net loss on revaluation of £121 million in portfolio value during the year,
although in Rouble terms the value of the properties has increased by 8%.
All significant yield inputs have remained static for the year reflecting a reasonably stable market place. JLL still quote a range
of yields across all sectors to reflect the difference in quality of assets, leases and differing currencies. The yields used for the
portfolio fall within this range.
The property investment market had a very slow year in 2018 with the volume of transactions dropping by around 40%. The
political environment and additional sanctions conspired to make many investors sit on their hands, either waiting for things to
get better (sellers) or get worse (buyers). Domestic buyers remain the largest part of the market with western capital almost non
existent, foreign investment instead coming from China and the Middle East. The cost of finance has remained broadly flat during
the year although the Central Bank of Russia did raise its key lending rate marginally to combat inflation.
Land Bank
Property/Warehouse
Location Land plot size (ha)
Complex
Moscow Noginsk 26
Nova Riga 25
Additional phases of completed
Lobnya 6
property
Regions Rostov-On-Don 27
Nizhny Novgorod 22
Land bank Regions Omsk 19
Omsk 2 9
Nizhny Novgorod 44
Total 178
In Moscow, as the market tightens, we are considering developing up to an additional 75,000sqm at Nova Riga, subject to pre
lets or Build to Suit requests.
The Market
Demand in 2018 was at record levels in Moscow and the Moscow region where we have the majority of our assets. Take up in
2018 was 1,600,000sqm with new supply at 918,000sqm, causing the vacancy rate to shrink. Demand was strongest from the
retail and distribution businesses which accounted for 40% and 14% respectively. E-commerce is now an increasing area of
demand with total space of 208,000sqm taken by the sector in 2018. This is a strengthening trend and already in 2019 we have
seen Ozon lease 122,000sqm in Moscow and Yandex negotiating for up to 80,000sqm. We expect take up from the e-commerce
sector to accelerate over the next few years, mirroring other European markets.
The vacancy rate in the market is now around 5% and rents have clearly started to grow. Whilst there are still specific sub
markets where demand is weaker and rents lower, the general consensus is that the market is poised for another strong year.
A lot will depend on the supply side and the volume of build to suit projects (“BTS”) that are actually delivered. Preliminary
estimates show that new delivery will be circa 990,000sqm and demand expected to be circa 1,400,000sqm. Of that only
416,000sqm or 42% will be speculative. History tells us the supply side is generally over estimated or delayed, so all things
being equal rents should continue to grow. Construction cost inflation is starting to develop, driven partly by the currency effect
of imported specialist materials and also by rising labour costs. This will result in less space being built or rents increas ing as
developers look to maintain their profit levels.
Last year prime rents were in a range from Roubles 3,600 per sqm to Roubles 4,000 per sqm for Grade A space. Today the
bottom end of that range has increased to closer to Roubles 3,800 per sqm and the top end is pushing above Roubles 4,000
per sqm. We are already negotiating deals around Roubles 4,000 per sqm and as vacancy continues to decline tenants will be
faced with less choice hopefully causing rents to rise further. In St Petersburg and our two regional hubs of Rostov and
Novosibirsk rental levels are broadly the same as in Moscow.
Investment volumes in the year decreased to $2.9 billion, with 66% of this in Moscow. Over 72% of all deals were funded by
Russian capital, and only 14% of the total capital or $400 million went into the warehouse sector. JLL predict prime yields in the
range of 10.75-12.25% for Moscow warehouses. We are seeing a number of new acquisition opportunities, although our
preference is to acquire newly completed or recently let properties as these generally offer the best long term prospects for value
appreciation and sustainable cash flows.
2019 has started positively and all local indicators seem to point to improvements in occupancy and rents. Yields will remain a
function of interest rates and the strength of investor appetite, but if rents begin to grow then yields should certainly begin to
adjust downwards to reflect the potential of rental growth from under rented leases expiring. In any other European market yields
would be considerably lower than we see today, and in the medium term this must be an opportunity.
Finance Review
Asset acquisitions and increased occupancy in the investment portfolio have supported our net rental income. The second half
of the year has also seen a concerted effort to reduce our exposure to US Dollar financing, moving to a Rouble/Euro mix. The
balance sheet at 31 December 2018 gives a snapshot of the business part way through that process and we are very pleased
with progress so far. In the current year we expect to convert all remaining US Dollar debt facilities and then move steadily to a
Rouble balance sheet in the medium term, with an eye on managing the dynamic between the cost of debt and currency
exposure as we go along.
At 31 December 2018, JLL have undertaken Rouble valuations of our investment portfolio for the first time, rather than US Dollar.
Combined with the Group’s balance sheet debt transitioning out of US Dollars, this has triggered a review of all of the functional
currencies of our subsidiaries. Where previously some of our asset owning subsidiaries had a mix of Rouble and US Dollar
functional currency, they are now wholly Rouble functional currency from 31 December 2018. As the US Dollar has a reducing
impact on both our operating results and balance sheet, we have also made the decision to revert to Sterling as our presentation
currency, being the currency of our capital instruments.
Income Statement
We continue to assess our ability to make covered distributions with reference to underlying earnings and operating cash flows
after interest. The former also allows a comparison of operating results before mark to market valuation movements. The
reconciliation between underlying and IFRS earnings is given in note 9 to the accounts.
Underlying Earnings 2018 2017
(Adjusted non IFRS measure) £'000 £'000
Net rental and related income 118,285 129,696
Administrative expenses (22,714) (19,688)
Long term incentives - (1,257)
Foreign exchange (losses)/gains (2,480) 6,132
Share of profits of joint ventures 1,630 1,611
Operating profit 94,721 116,494
Net finance charge (68,510) (60,592)
Underlying profit before tax 26,211 55,902
Tax (6,197) (12,524)
Underlying profit after tax 20,014 43,378
Basic underlying earnings per share (cents) 3.12p 6.54p
When comparing to 2017, this year’s results are distorted by two items. Firstly, the one off income of £16.4 million generated
from UK land bank sales in 2017 and a negative swing of £8.6 million on unrealised foreign exchange movements, the latter
being the effect of the weak Rouble rate at 31 December 2018 of 88.3 to £1 (31 December 2017: 77.9). This masks the improved
performance of our underlying investment portfolio.
Net Rental and Related Income
2018 2017
£’000 £’000
Acquisitions 18,152 8,304
Existing Investment Portfolio 91,632 95,418
RosLogistics 8,124 9,601
UK Land Sales 377 16,373
Net rental and related income 118,285 129,696
The table above illustrates the impact of acquisitions and the proceeds from the UK land sales in 2017 on our net rental income
over the last two years.
The majority of the movement on the existing investment portfolio is simply the translation to Sterling presentation, the weaker
average Rouble/Sterling rate in 2018 of 83.7 (2017: 75.2) reducing equivalent Sterling amounts. The existing investment portfolio
actually generated increased Rouble income of 7.7 billion in 2018 compared to 7.2 billion 2017, higher occupancy matching any
step down to market rents, and we expect a full year of income from acquisitions in 2019 to contribute Roubles 1.9 billion.
Underlying Administrative Expenses
Underlying administrative expenses increase primarily as a result of bonuses paid in early 2018 in relation to 2017 performance
targets. Legal and professional expenses increased in the year for various reasons including an increase in valuation fees with
the change in valuation approach, PR costs and finance related costs.
Underlying Net Finance Charge
Net finance costs increase with a full year of preference share coupon on the tranche raised in 2017, the refinancing of
acquisitions and a reduction in interest received as our average cash balances reduced.
IFRS Earnings
IFRS Earnings 2018 2017
£'000 £'000
Net rental and related income 118,285 129,696
Administrative expenses (25,150) (22,099)
Share based payments and other long term incentives (2,853) (3,517)
Foreign exchange (loss)/profits (2,480) 6,132
Share of joint venture profits 1,630 1,611
Operating profit 89,432 111,823
(Loss)/Profit on revaluation (121,009) 28,235
Net finance charge (83,311) (71,737)
IFRS (loss)/profit before tax (114,888) 68,321
Tax (5,793) (25,182)
IFRS (loss)/ profit after tax (120,681) 43,139
The difference between underlying earnings and IFRS earnings is principally down to mark to market movements on various
items, the most obvious being the property revaluation loss of £121 million in the year (see comments below). New interest
hedging arrangements on Russian Central Bank rates generated increased volatility on mark to market movements and the
amortisation of loan origination costs and premiums payable on preference shares also has an impact (see note 7).
Administration expenses include £1.6 million of abortive deal costs relating to one potential acquisition project and the final
charge for the Retention Scheme is also expensed in share based payments.
Investment Properties
Our investment properties valuation (note 11) harbours the majority of the foreign exchange impact on our Sterling net asset
value. The Rouble valuation movement on the portfolio was positive as ERVs and yields began to tighten, giving a Rouble 8.9
billion uplift in the year. However, the change in functional currency from US Dollars to Roubles at a time of Rouble weakness,
the year end US Dollar rate being 69.4 compared to an average of 62.8 in the year, gives a significant foreign exchange loss as
part of the revaluation movement. This is partly offset by a presentational currency gain through reserves when switching to
Sterling presentation. The allocation of these unrealised foreign exchange gains and losses is down to accounting convention
but the fundamentals do not change. The underlying Rouble metrics are improving but a weak year end Rouble rate means our
Net Assets at 31 December 2018 reduce when converted to the reporting currency.
Debtors and Creditors
Larger movements in debtors and creditors relate to financing and acquisition costs. Derivative financial instruments increase to
£22.3 million following the acquisition of interest caps on Russian Central Bank rates. Trade and other receivables reduce on
receipt of deferred consideration on the UK Land sales completed in 2017 and the recovery of VAT on asset acquisitions.
Deferred consideration on acquisitions falls to £12.2 million from £25.3 million in 2017, reducing Trade and other payables and
long term other payables. Construction payables reduce following the completion of a one off project at Pushkino.
Cash and Debt
The profile of our cash and debt has changed significantly over the last 24 months and it is simpler to look at the combined cash
flows over the last two years to better understand how the various elements interact. This also deals with the distortion of a
refinancing which straddled the 2017 year end.
Cash Flow Summary 24 months to 31
December 2018
£'000
Operating cash generated after net interest paid 58,480
Ordinary shares purchased in tender offers (39,533)
18,947
Property improvements and plant and equipment (24,133)
(210,837)
Acquisition cash flows
Convertible preference shares issued and warrants exercised 103,309
Debt financing and related costs 35,299
(72,229)
Net decrease in cash and cash equivalents (77,415)
Cash and cash equivalents at 1 January 2017 160,559
Effect of foreign exchange rate changes (9,694)
Cash and cash equivalents at 31 December 2018 73,450
The Group has used a combination of the convertible preference share issue, debt refinancing and existing cash reserves to
fund acquisitions and other capital requirements. Tender offer distributions are funded from operating cash after interest,
including preference share coupon paid.
Bank Debt 2018 2017
£m £m
Fixed rate debt - 141
Debt hedged with caps 543 481
543 622
Unhedged debt 106 10
649 632
Unamortised loan origination costs and accrued interest (6) (7)
Total debt 643 625
Weighted average cost of debt 7.69% 7.62%
Weighted average term to maturity 4.0 4.5
Significant progress has been made moving secured debt facilities out of US Dollar and increasing Rouble exposure to match
the Group’s changing income profile.
The currency profile of secured debt at 31 December 2018 was:
$ millions € millions RUB millions
31 December 2018 $276.7 €247.3 17,523.4
31 December 2017 $777.2 €53.2 -
At the year end, the Group had 15 separate secured facilities, five US Dollar denominated, three Euro denominated and seven,
a blended mix of Rouble and Euro. The average split on the blended facilities is 61% Rouble, 39% Euro. Higher US LIBOR and
the effect of the Rouble loans have increased our weighted average cost of debt to 7.69% from 7.62%. The Group also had one
small unsecured facility.
The debt maturity profile at the year end is:
2019 2020 2021 2022 2023 2024 2025
Debt maturing £ million 55 - 163 94 88 206 43
Percentage maturing 9% - 25% 14% 13% 32% 7%
Number of facilities 3 - 4 1 2 5 1
Of the three facilities maturing in the current year, one was extended in January and we are finalising terms on the remaining
two. Of the five US Dollar facilities remaining, one has been converted since the year end and we have agreed terms on the
conversion of the others and expect the majority to have switched to a Rouble/Euro mix by the half year. We have refinanced
all of the projects acquired in the last two years except for Nizhny Novgorod. That is now at document stage and will be a Rouble
facility.
The wholesale change in the secured facility profile has meant that we have adapted our interest hedge cover, purchasing a
series of caps with terms of between 5 and 7 years. The total cost of this exercise was £18.7 million, the majority of cost for
capping Rouble facilities at a strike of 8.25bps for the Central Bank Rate. Since the year end, we have sold existing US LIBOR
hedging instruments for £2.3 million.
Taxation
Tax paid reduces in the year, partly a function of exchange rates when converting the Rouble expense and no significant deferred
tax liability movements when compared to 2017. In cash terms, £7.3 million was paid in the year (2017:£11.0 million).
Net Asset Value
With our change in presentation currency we include 3 years of balance sheets in our primary statement. This illustrates the
impact of the Rouble volatility on our equivalent Sterling Net Asset Value this year. A reasonably benign year of exchange
volatility in 2017 meant no significant foreign exchange hit to net assets but as explained in the investment property section
above, the weakening Rouble in the last quarter of 2018 had a detrimental impact on our Sterling Diluted Net Asset Value per
share, dropping from 59p to 48p in the year.
Subsidiaries
Roslogistics’ underlying Rouble results were slightly down on prior year with transport reducing contribution and overheads up
slightly. The majority of the variance to 2017 however is the conversion to Sterling with the weaker Rouble.
Raven Mount was effectively dormant this year after the flurry of land sales in 2017. The joint venture at “The Lakes” continues
to make a steady contribution of £1.6 million to profit and £3.0 million in dividends in the year.
Risk Report
Risk Appetite
As explained in last year’s annual report, the Group is adapting its balance sheet to deal with the heightened foreign exchange
risk that followed the depreciation of the Rouble in late 2014:
- We reduced existing US Dollar gearing to dampen the effects of Rouble exchange rate volatility on secured debt covenant
requirements;
- We have completed a number of acquisitions to enhance our Rouble income streams; and
- We are now converting all of our US Dollar secured debt into a Rouble/Euro mix of facilities.
We are well into the last stage of this transition and expect to completely eliminate any exposure to US Dollar facilities in the
current year. As well as re-balancing our currency risk we believe that this will also reduce our exposure to future sanctions
risks.
The fundamentals of our market have stabilised and there is a distinct possibility of a continued tightening in supply putting
pressure on ERVs and property yields. We intend to continue with our acquisition and growth strategy to take advantage of the
opportunities that will arise.
Risk Management and Internal Controls
Risk assessment is built into the Group’s operating model and performed throughout the organisation as part of day to day
operations. The Board is ultimately responsible for the management of risk and regularly carries out a robust assessment of the
principal risks and uncertainties affecting the business, discusses how these may impact on operations, performance and
solvency and what mitigating actions, if any, can be taken. The Audit Committee is responsible for ensuring that the internal
control procedures are robust and that risk management processes are appropriate. A fuller explanation of the process is given
in the Audit Committee Report. The Cypriot holding company is an important part of the day to day management of the Group’s
operational risks through its authorisation procedures and management oversight duties. It has also recently engaged an
outsourced, internal audit function to assist with its responsibilities in managing and monitoring the effectiveness of the internal
control systems in place between Cyprus and Russia. The weekly operational committee meetings for each department within
the Group allow operational and management information to flow through the Group’s risk matrix in a timely manner.
The risk management process is designed to identify, evaluate and mitigate any significant risk the Group faces. The process
aims to manage rather than eliminate risks and can only provide reasonable and not absolute assurance.
No significant failings or weaknesses in the internal control and risk assessment procedures have been identified during the
year.
Principal Risks and Uncertainties
We have set out in the following tables the principal risks and uncertainties that face our business, our view on how those risks
have changed during the year and a description of how we mitigate or manage those risks. We have also annotated those risks
that have been considered as part of the viability assessment.
Political and Economic Risk
Risk Impact Mitigation Change
in 2018
Oil and Gas dependent
economy Reduced consumer demand
(Viability Statement has an impact on our customer
Risk) base, reducing appetite for new With little or no speculative development in the Stable
lettings, the renewal of existing market, research continues to forecast a drop in
Oil price volatility returns leases and restricting rental vacancy and a tightening of rental levels.
leading to a weakening growth. This also leads to
Rouble impaired asset values. We are reducing the balance sheet reliance on
foreign currency debt and this will continue in the
The weak Rouble increases the current year.
cost of servicing foreign
currency debt.
Sanctions
The use of economic Continued isolation of Russia The local market has accepted the inevitability of Stable
sanctions by the US and from international markets and long term economic sanctions and this has played its
EU continues for the a return to a declining Russian part in the fundamental changes to the Russian
foreseeable future. economy. economy. We have adapted our business model to
secure our position in the market. However, the risk
of increased sanctions remains.
Financial Risk
Risk Impact Mitigation Change
in 2018
Foreign Exchange
(Viability Statement
Risk) A weakening of the Rouble We have significantly reduced our exposure to Decreased
against those foreign foreign currency secured debt facilities and will
At the year end, 26% of currencies reduces our ability continue to do so in the current year.
warehouse GLA and to service debt and reduces our
69% of secured debt had profitability. Our acquisition strategy and higher occupancy
foreign currency support our rental income levels with market level
exposure. US Dollar pegged leases Rouble income.
contribute above market rental
income. As those leases
mature, rental income will drop.
Interest rates
(Viability Statement
Risk) The cost of debt increases and The majority of our variable cost of debt is hedged Stable
Group profitability and debt with the use of caps with terms matching the debt
Increases in Central service cover reduce. maturity profile
Bank Rates and
financing benchmarks.
Property Investment
Risk Impact Mitigation Change
in 2018
Acquisitions
(Viability Statement
Risk) Legacy issues may erode We have a strong senior management team in both Stable
earnings enhancement and our Cyprus and Moscow offices with international
Our acquisition activity integration into our existing and Russian experience in real estate acquisitions.
has increased
systems may involve excessive
significantly and we management resource. External advisers undertake full detailed due
operate in an diligence on any acquisition projects.
immature investment
market where legacy
issues are common
with Russian
acquisitions.
Leases This can lead to uncertainty of We have a proactive property management team Stable
(Viability Statement on going annualised income and continued open dialogue with tenants.
Risk) due to lease break clauses.
We have a dedicated project management resource
Market practice
There is additional landlord risk assigned to construction and fit-out obligations under
increasingly
attached to the delivery of leases.
incorporates lease break
tenant fit-out requirements.
requirements and
Market conditions are improving with rents
landlord fit-out
increasing and vacancy dropping. Lease breaks are
obligations.
less likely to be exercised in this market and tenants
are signing longer leases on new lettings.
Capital Expenditure Properties become less We have put in place a capital expenditure NEW
(Viability Statement attractive to prospective tenants programme to maintain our properties at a Grade A
Risk) or lower rental values are level. These works should protect or even enhance
achieved. levels of rent achievable.
As 75% of our
warehouse portfolio was
built between 2007 and
2009 some elements of
the buildings require
replacement or
modernisation.
Russian Domestic Risk
Risk Impact Mitigation Change
in 2018
Legal Framework
The legal framework in The large volume of new We have an experienced in house legal team Stable
Russia continues to legislation from various state including a litigation specialist. We use a variety of
develop with a number of bodies is open to interpretation, external legal advisors when appropriate.
new and proposed laws puts strain on the judicial
expected to come into system and can be open to Our lease agreements have been challenged and
force in the near future. abuse. have proven to be robust in both ICAC arbitration
and in Russian Courts.
Russian Taxation
Russian tax code is Tax treaties may be Our business is a significant contributor to inward Stable
changing in line with renegotiated and new investment in the Russian logistics sector. Our
global taxation trends in legislation or clarification of structure has developed to deal with the commercial
areas such as transfer existing practice may increase risks of operating in Russia rather than to take
pricing, beneficial the Group’s tax expense. advantage of tax benefits. Management and control
ownership of cross is exerted as appropriate in each jurisdiction and the
border cash flows and skills and experience of staff in each office reflect
capital gains tax. that commercial requirement.
Ultimately, Russia remains a relatively low tax
jurisdiction with 20% Corporation tax.
Personnel Risks
Risk Impact Mitigation Change
in 2018
Key Personnel
Failing to retain key Strategy becomes more difficult The Remuneration Committee and Executives Stable
personnel. to flex or implement. review remuneration packages against comparable
market information;
Employees have regular appraisals and documented
development plans and targets; and
We are continually addressing succession issues
where they arise.
Change key
- Increased risk in the period
- Stable risk in the period
- Decreased risk in the period
Signed for and on behalf of the Board
Colin Smith
Director
17 March 2019
Directors’ Responsibility Statement
The Statement of Directors’ Responsibilities below has been prepared in connection with the Company’s full Annual Report and
Accounts for the year ended 31 December 2018.
The Board confirms to the best of its knowledge:
The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give
a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included
in the consolidation taken as a whole;
The strategic report includes a fair review of the development and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face; and
The Annual Report and Accounts, taken as a whole, are fair balanced and understandable and provide the information necessary
for shareholders to assess the Company’s performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 17 March 2019 and is signed on its behalf by:
Mark Sinclair Colin Smith
Chief Financial Officer Chief Operating Officer
GROUP INCOME STATEMENT
For the year ended 31 December 2018
2018 2017
Underlying Capital Underlying Capital
earnings and other Total earnings and other Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gross revenue 4/5 162,639 - 162,639 177,000 - 177,000
Property operating expenditure and cost of sales (44,354) - (44,354) (47,304) - (47,304)
Net rental and related income 118,285 - 118,285 129,696 - 129,696
Administrative expenses 4/6 (22,714) (2,436) (25,150) (19,688) (2,411) (22,099)
Share-based payments and other long term incentives 31 - (2,853) (2,853) (1,257) (2,260) (3,517)
Foreign currency (losses) / profits (2,480) - (2,480) 6,132 - 6,132
Operating expenditure (25,194) (5,289) (30,483) (14,813) (4,671) (19,484)
Share of profits of joint ventures 15 1,630 - 1,630 1,611 - 1,611
Operating profit / (loss) before profits and losses on
investment property 94,721 (5,289) 89,432 116,494 (4,671) 111,823
Unrealised (loss) / profit on revaluation of investment
property 11 - (121,764) (121,764) - 31,284 31,284
Unrealised profit / (loss) on revaluation of investment
property under construction 12 - 755 755 - (3,049) (3,049)
Operating profit / (loss) 4 94,721 (126,298) (31,577) 116,494 23,564 140,058
Finance income 7 3,286 1,583 4,869 5,627 710 6,337
Finance expense 7 (71,796) (16,384) (88,180) (66,219) (11,855) (78,074)
Profit / (loss) before tax 26,211 (141,099) (114,888) 55,902 12,419 68,321
Tax 8 (6,197) 404 (5,793) (12,524) (12,658) (25,182)
Profit / (loss) for the year 20,014 (140,695) (120,681) 43,378 (239) 43,139
Earnings per share: 9
Basic (pence) (18.81) 6.50
Diluted (pence) (18.81) 6.27
Underlying earnings per share: 9
Basic (pence) 3.12 6.54
Diluted (pence) 3.08 5.68
The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS as adopted by the EU. The "underlying
earnings" and "capital and other" columns are both supplied as supplementary information permitted by IFRS as adopted by the EU. Further details of the
allocation of items between the supplementary columns are given in note 9.
All items in the above statement derive from continuing operations.
All income is attributable to the equity holders of the parent company. There are no non-controlling interests.
The accompanying notes are an integral part of this statement.
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2018
2018 2017
£'000 £'000
(Loss) / profit for the year (120,681) 43,139
Other comprehensive income, net of tax
Items to be reclassified to profit or loss in subsequent periods:
Foreign currency translation on consolidation 49,854 (53,722)
Total comprehensive income for the year, net of tax (70,827) (10,583)
All income is attributable to the equity holders of the parent company. There are no non-controlling interests.
The accompanying notes are an integral part of this statement.
GROUP BALANCE SHEET
As at 31 December 2018
2018 2017 2016
Notes £'000 £'000 £’000
Non-current assets
Investment property 11 1,175,440 1,159,172 1,052,547
Investment property under construction 12 30,548 28,608 33,553
Plant and equipment 3,574 3,147 2,462
Goodwill - - 1,523
Investment in joint ventures 15 6,566 7,380 7,874
Other receivables 16 15,535 4,118 2,998
Derivative financial instruments 18 21,953 5,875 4,056
Deferred tax assets 25 24,405 25,611 22,075
1,278,021 1,233,911 1,127,088
Current assets
Inventory 356 313 624
Trade and other receivables 17 43,658 58,386 42,518
Derivative financial instruments 18 349 329 290
Cash and short term deposits 19 73,450 197,137 160,559
117,813 256,165 203,991
Total assets 1,395,834 1,490,076 1,331,079
Current liabilities
Trade and other payables 20 66,192 79,427 52,667
Derivative financial instruments 18 1 26 763
Interest bearing loans and borrowings 21 75,565 78,871 33,007
141,758 158,324 86,437
Non-current liabilities
Interest bearing loans and borrowings 21 567,865 547,371 565,701
Preference shares 22 109,271 108,263 106,582
Convertible preference shares 23 206,116 198,870 96,997
Other payables 24 17,797 25,565 20,312
Derivative financial instruments 18 - - 54
Deferred tax liabilities 25 57,400 59,845 49,730
958,449 939,914 839,376
Total liabilities 1,100,207 1,098,238 925,813
Net assets 295,627 391,838 405,266
Equity
Share capital 26 6,233 6,606 6,680
Share premium 103,144 124,568 131,537
Warrants 27 98 438 996
Own shares held 28 (5,965) (3,652) (4,692)
Convertible preference shares 23 11,212 11,212 6,536
Capital reserve (281,001) (166,494) (186,957)
Translation reserve (48,887) (98,741) (45,019)
Retained earnings 510,793 517,901 496,185
Total equity 29 / 30 295,627 391,838 405,266
Net asset value per share (pence): 30
Basic 48 60
Diluted 48 59
The financial statements were approved by the Board of Directors on 17 March 2018 and signed on its behalf by:
Mark Sinclair Colin Smith
Chief Financial Officer Chief Operating Officer
The accompanying notes are an integral part of this statement.
GROUP CASH FLOW STATEMENT
For the year ended 31 December 2018
2018 2017
Notes £'000 £'000
Cash flows from operating activities
(Loss) / profit before tax (114,888) 68,321
Adjustments for:
Impairment of goodwill 6 - 1,523
Depreciation 6 811 888
Provision for bad debts 6 (58) (72)
Share of profits of joint ventures 15 (1,630) (1,611)
Finance income 7 (4,869) (6,337)
Finance expense 7 88,180 78,074
Loss / (profit) on revaluation of investment property 11 121,764 (31,284)
(Profit) / loss on revaluation of investment property under construction 12 (755) 3,049
Foreign exchange losses / (profits) 2,480 (6,132)
Non-cash element of share-based payments and other long term incentives 31 2,853 2,260
93,888 108,679
Changes in operating working capital
(Increase) / decrease in operating receivables 8,212 (848)
Decrease in other operating current assets (43) 311
Decrease in operating payables (1,627) (1,222)
100,430 106,920
Receipts from joint ventures 15 3,000 2,105
Tax paid (7,344) (10,988)
Net cash generated from operating activities 96,086 98,037
Cash flows from investing activities
Payments for property improvements (8,611) (11,642)
Refund of VAT on acquisition of investment property 12,754 -
Acquisition of subsidiaries 38 (33,826) (68,940)
Cash acquired with subsidiaries 38 1,235 3,266
Acquisition of investment property / payment of deferred consideration on acquisition of
investment property 11 (44,054) (80,739)
Loans granted (194) -
Loans repaid 34 -
Purchase of plant and equipment (2,262) (1,618)
Investment in joint ventures 15 (533) -
Interest received 3,254 5,631
Net cash used in investing activities (72,203) (154,042)
Cash flows from financing activities
Proceeds from long term borrowings 155,628 206,641
Repayment of long term borrowings (153,152) (98,167)
Loan amortisation (23,279) (29,684)
Bank borrowing costs paid (50,000) (49,475)
Exercise of warrants 26 / 27 2,125 3,487
Preference shares purchased 22 - (84)
Ordinary shares purchased 26 / 28 (28,258) (11,275)
Dividends paid on preference shares (11,327) (11,234)
Dividends paid on convertible preference shares (12,716) (9,776)
Issue of convertible preference shares 23 - 97,781
Premium paid for derivative financial instruments (18,848) (3,680)
Net cash generated from / (used) in financing activities (139,827) 94,534
Net (decrease) / increase in cash and cash equivalents (115,944) 38,529
Opening cash and cash equivalents 197,137 160,559
Effect of foreign exchange rate changes (7,743) (1,951)
Closing cash and cash equivalents 19 73,450 197,137
The accompanying notes are an integral part of this statement.
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2018
Own Convertible
Share Share Shares Preference Capital Translation Retained
Capital Premium Warrants Held Shares Reserve Reserve Earnings Total
For the year ended 31 December 2017 Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2017 6,680 131,537 996 (4,692) 6,536 (186,957) (45,019) 496,185 405,266
Profit for the year - - - - - - - 43,139 43,139
Other comprehensive income - - - - - - (53,722) - (53,722)
Total comprehensive income for the year - - - - - - (53,722) 43,139 (10,583)
Warrants exercised 26 / 27 139 3,905 (558) - - - - - 3,486
Convertible preference shares issued 23 - - - - 4,693 - - - 4,693
Conversion of convertible preference share 23 / 26 5 262 - - (17) - - - 250
Own shares acquired 28 - - - (124) - - - - (124)
Own shares allocated 28 - - - 1,134 - - - (960) 174
Ordinary shares cancelled 26 / 28 (218) (11,136) - 30 - - - - (11,324)
Transfer in respect of capital losses - - - - - 20,463 - (20,463) -
At 31 December 2017 6,606 124,568 438 (3,652) 11,212 (166,494) (98,741) 517,901 391,838
For the year ended 31 December 2018
Loss for the year - - - - - - - (120,681) (120,681)
Other comprehensive income - - - - - - 49,854 - 49,854
Total comprehensive income for the year - - - - - - 49,854 (120,681) (70,827)
Warrants exercised 26 / 27 85 2,380 (340) - - - - - 2,125
Convertible preference shares issued 23 - - - - - - - - -
Conversion of convertible preference shar 23 / 26 - - - - - - - - -
Own shares acquired 28 - - - (4,235) - - - - (4,235)
Own shares allocated 28 - - - 1,886 - - - (934) 952
Ordinary shares cancelled 26 / 28 (458) (23,804) - 36 - - - - (24,226)
Transfer in respect of capital losses - - - - - (114,507) - 114,507 -
At 31 December 2018 6,233 103,144 98 (5,965) 11,212 (281,001) (48,887) 510,793 295,627
The accompanying notes are an integral part of this statement.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2018
1. General information
Raven Property Group Limited (the "Company") and its subsidiaries (together the "Group") is a property investment group specialising in commercial real estate
in Russia.
The Company is incorporated and domiciled in Guernsey under the provisions of the Companies (Guernsey) Law, 2008. The Company's registered office is at
La Vieille Cour, La Plaiderie, St Peter Port, Guernsey GY1 6EH.
The audited financial statements of the Group for the year ended 31 December 2018 were authorised by the Board for issue on 17 March 2019.
2. Accounting policies
Basis of preparation
The Company has taken advantage of the exemption conferred by the Companies (Guernsey) Law, 2008, section 244, not to prepare company financial
statements as group financial statements have been prepared for both current and prior periods. The Group financial statements are presented in Sterling and
all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated.
The principal accounting policies adopted in the preparation of the group financial statements are set out below. The policies have been consistently applied to
all years presented, unless otherwise indicated.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise
its judgement in the process of applying the accounting policies. The areas involving a high degree of judgement or complexity, or areas where assumptions
and estimates are significant to the financial statements, are disclosed in note 3.
Going concern
The financial position of the Group, its cash flows, liquidity position and borrowings are described in the Financial Review and the notes to these financial
statements. After making appropriate enquiries and examining sensitivities that could give rise to financial exposure, the Board has a reasonable expectation
that the Group has adequate resources to continue operations for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in
the preparation of these financial statements.
Statement of compliance
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards adopted for use in the European
Union ("IFRS") and the Companies (Guernsey) Law, 2008.
Changes in accounting policies
The Group has changed the currency in which it presents its consolidated financial statements from US Dollars to Sterling. A change in presentation currency
is a change in accounting policy which is accounted for retrospectively. The Group's results for 2017, which were previously reported in US Dollars, have been
restated into Sterling as follows:
- assets and liabilities were translated into Sterling at the closing rates of exchange on 31 December 2017;
- income and expenditure were translated into Sterling at the average rates prevailing in 2017; and
- non-Sterling equity items were translated to Sterling at the historic rates prevailing at the dates of the relevant equity transactions.
The US Dollar Sterling exchange rates used were as follows:
2017 2016
Closing rate 1.3528 1.2357
Average rate 1.2888 1.3549
Other than the change in presentation currency, the accounting policies adopted are consistent with those of the previous financial year. The Group has adopted
new and amended IFRS and IFRIC interpretations as of 1 January 2018. The Group applies for the first time, IFRS 15 Revenue from Contracts with Customers
and IFRS 9 Financial Instruments.
IFRS 15 does not affect the financial performance or financial position of the Group but it does require additional disclosures to be made. IFRS 15 does not
apply to lease income, so the additional disclosures only relate to the Group's revenues generated by its Roslogistics and Raven Mount reporting segments and
provide information as to how the nature, amount, timing and uncertainty of cash flows from these revenues are affected by economic factors. These disclosures
are provided in note 4.
The Group has assessed the impact of IFRS 9 and concluded that it does not affect the financial performance or financial position of the Group or the disclosures
made in its financial statements.
Certain new standards, interpretations and amendments to existing standards have been published that are mandatory for later accounting periods and which
have not been adopted early. Of these the six thought to have a possible impact on the Group are:
IFRS 16 Leases (effective 1 January 2019)
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments (effective 1 January 2019)
AIP IAS 12 Income Taxes - Income tax consequences of payments on financial instruments classified as equity (effective 1 January 2019)
AIP IAS 23 Borrowing Costs - Borrowing costs eligible for capitalisation (effective 1 January 2019)
The Conceptual Framework for Financial Reporting (effective 1 January 2020)
IFRS 17 Insurance Contracts (effective 1 January 2021)
The Group has assessed the impact of these changes and does not expect them to significantly impact on the financial position or performance of the Group.
There may, however, be changes to disclosures within the financial statements.
The standards, amendments or revisions are effective for annual periods beginning on or after the dates noted above.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company, its subsidiaries and the special purpose vehicles ("SPVs") controlled
by the Company, made up to 31 December each year. Control is achieved where the Company is exposed, or has rights, to variable returns from its involvement
with or ownership of the investee entity and has the ability to affect those returns through its power over the investee.
The Group has acquired investment properties through the purchase of SPVs. In the opinion of the Directors, these transactions did not meet the definition of a
business combination as set out in IFRS 3 "Business Combinations". Accordingly the transactions have not been accounted for as an acquisition of a business
and instead the financial statements reflect the substance of the transactions, which is considered to be the purchase of investment property and investment
property under construction.
The results of subsidiaries acquired or disposed of during the year are included in the Income Statement from the effective date of acquisition or up to the effective
date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of entities acquired to bring the accounting policies into line with those used by the Group.
All intra-group transactions, balances, income and expenditure are eliminated on consolidation.
Joint ventures
A joint venture is a contractual arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint
control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the activities require unanimous consent of the
contracting parties for strategic financial and operating decisions.
The Group's investments in joint ventures are accounted for using the equity method. Under the equity method, the investment in a joint venture is initially
recognised at cost. The carrying value of the investment is adjusted to recognise changes in the Group's share of net assets of the joint venture since the
acquisition date. Any premium paid for an interest in a joint venture above the fair value of the Group's share of identifiable assets, liabilities and contingent
liabilities is determined as goodwill. Goodwill relating to a joint venture is included in the carrying amount of the investment and is neither amortised nor individually
tested for impairment.
The aggregate of the Group's share of profit or loss of joint ventures is shown on the face of the Income Statement within Operating Profit and represents the
profit or loss after tax.
Revenue recognition
(a) Property investment
Rental income from operating leases is recognised in income on a straight-line basis over the lease term. Rental increases calculated with reference to an
underlying index and the resulting rental income ("contingent rents") are recognised in income as they are determined.
Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the payments are not made on such a basis. The lease
term is the non-cancellable period of the lease, together with any further term for which the tenant has the option to continue the lease, where, at the inception
of the lease, the directors are reasonably certain that the tenant will exercise that option.
Premiums received to terminate leases are recognised in the Income Statement as they arise.
(b) Roslogistics
Logistics revenue, excluding value added tax, is recognised as services are provided.
(c) Raven Mount
The sale of completed property and land is recognised on legal completion.
Taxation
The Company is a limited company registered in Guernsey, Channel Islands, and is exempt from taxation. The Group is liable to Russian, Cypriot and UK tax
arising on the results of its Russian, Cypriot and UK operations.
The tax expense represents the sum of the tax currently payable and deferred tax.
(a) Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit (or loss) as reported in the Income Statement because it
excludes items of income and expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
(b) Tax provisions
A current tax provision is recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to
settle that obligation. A provision for uncertain taxes is recorded within current tax payable (see note 20).
(c) Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from
goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit
nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to be recovered. Unrecognised deferred tax assets are reassessed at each balance sheet date and are
recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on tax rates that have
been enacted or substantively enacted at the reporting date. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged
or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the
deferred income taxes relate to the same taxable entity and the same taxation authority.
(d) Value added tax
Revenue, expenditure, assets and liabilities are recognised net of the amount of value added tax except:
Where the value added tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the value added tax is
recognised as part of the cost of acquisition of the asset or as part of the expenditure item as applicable; and
Receivables and payables that are stated with the amount of value added tax included.
The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables, as appropriate, in the
Balance Sheet.
Investment property and investment property under construction
Investment property comprises completed property and property under construction held to earn rentals or for capital appreciation or both. Investment property
comprises both freehold and leasehold land and buildings.
Investment property is measured initially at its cost, including related transaction costs. After initial recognition, investment property is carried at fair value. The
Directors assess the fair value of investment property based on independent valuations carried out by their appointed property valuers or on independent
valuations prepared for banking purposes. The Group has appointed Jones Lang LaSalle as property valuers to prepare valuations on a semi-annual basis.
Valuations are undertaken in accordance with appropriate sections of the current Practice Statements contained in the Royal Institution of Chartered Surveyors
Valuation - Global Standards, 2017 (the "Red Book"). These are internationally accepted standards of valuation. Gains or losses arising from changes in the
fair value of investment property are included in the Income Statement in the period in which they arise. For the purposes of these financial statements, in order
to avoid double counting, the assessed fair value is reduced by the present value of any tenant incentives and contracted rent uplifts that are spread over the
lease term and increased by the carrying amount of any liability under a head lease that has been recognised in the Balance Sheet.
Borrowing costs that are directly attributable to the construction of investment property are included in the cost of the property from the date of commencement
of construction until construction is completed.
Leasing (as lessors)
Leases where the Group does not transfer substantially all the risks and benefits incidental to ownership of the asset are classified as operating leases. All of
the Group's properties are leased under operating leases and are included in investment property in the Balance Sheet.
Financial assets
The Group classifies its financial assets into one of the categories discussed below, depending upon the purpose for which the asset was acquired.
(a) Fair value through profit or loss
This category comprises only in-the-money derivatives (see financial liabilities policy for out-of-the-money derivatives), which are carried at fair value with changes
in the fair value recognised in the Income Statement in finance income or finance expense.
(b) Loans and receivables
These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. In the case of the Group, loans and
receivables comprise trade and other receivables, loans, security deposits, restricted cash and cash and short term deposits.
Loans and receivables are initially recognised at fair value, plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently
carried at amortised cost using the effective interest rate method, less provision for impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset's carrying
amount and the present value of estimated future cash flows. The amount of the impairment loss is recognised in administrative expenses. If in a subsequent
period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment is recognised, the
previously recognised impairment loss is reversed. Any such reversal of an impairment loss is recognised in the Income Statement.
Cash and short term deposits include cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three
months or less.
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
The Group classifies its financial liabilities into one of the categories listed below.
(a) Fair value through profit or loss
This category comprises only out-of-the-money derivatives, which are carried at fair value with changes in the fair value recognised in the Income Statement in
finance income or finance expense.
(b) Other financial liabilities
Other financial liabilities include interest bearing loans, trade payables (including rent deposits and retentions under construction contracts), preference shares,
convertible preference shares and other short-term monetary liabilities. Trade payables and other short-term monetary liabilities are initially recorded at fair value
and subsequently carried at amortised cost using the effective interest rate method.
Interest bearing loans, convertible preference shares and preference shares are initially recorded at fair value net of direct issue costs and subsequently carried
at amortised cost using the effective interest rate method. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are
charged to the Income Statement using the effective interest rate method.
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The Group considers the
convertible preference shares to be a compound financial instrument, that is they have a liability and equity component. On the issue of convertible preference
shares the fair value of the liability component is determined and the balance of the proceeds of issue is deemed to be equity. The Group's other equity
instruments are its ordinary shares and warrants.
Own shares held
Own equity instruments which are acquired are recognised at cost and deducted from equity. No gain or loss is recognised in the Income Statement on the
purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration is recognised in
retained earnings.
Share-based payments and other long term incentives
The Group rewards its key management and other senior employees by a variety of means many of which are settled by ordinary, preference shares or convertible
preference shares of the Company.
Awards linked to or that may be settled by ordinary shares
The share component of the 2016 Retention Scheme may be settled in any of the Company's listed securities, including ordinary shares, and as a consequence
falls within the scope of IFRS 2 Share-based payments. To date the instalments have been settled by preference shares and convertible preference shares and
therefore are cash-settled transactions. The cost of cash-settled transactions is recognised as an expense over the vesting period, measured by reference to
the fair value of the corresponding liability, which is recognised on the Balance Sheet. The liability is remeasured at fair value at each balance sheet date until
settlement, with changes in the fair value recognised in the Income Statement. Also, to the extent the Five Year Performance Plan vests in March 2023, the
resulting entitlements will be settled in ordinary shares and thus will fall within the scope of IFRS 2.
Awards not linked to or settled by ordinary shares
These awards are accounted for in accordance with IAS 19 Employee Benefits whereby the Group estimates the cost of awards using the projected unit credit
method, which involves estimating the future value of the preference shares or convertible preference shares, as appropriate, at the vesting date and the
probability of the awards vesting. The resulting expense is charged to the Income Statement over the performance period and the liability is remeasured at each
Balance Sheet date.The cash component of the 2016 Retention Scheme has been accounted for in this way.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each Group entity are measured in the currency of the primary economic environment in which the entity operates
(the "functional currency"). For the Company the directors consider this to be Sterling. The group financial statements are presented in Sterling and all values
are rounded to the nearest thousand pounds (£'000) except where otherwise indicated and prior years have been restated as described earlier. Following a
move to Rouble valuations of investment property, the Russian subsidiaries that hold investment property have changed their functional currency from US Dollars
to Roubles.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Income Statement. Non-monetary assets and liabilities are translated using exchange rates at the date
of the initial transaction or when their fair values are reassessed.
(c) On consolidation
The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the
presentation currency as follows:
(i) assets and liabilities for each Balance Sheet are translated at the closing rate at the date of the Balance Sheet;
(ii) income and expenditure for each Income Statement are translated at the average exchange rate prevailing in the period unless this does not approximate to
the rates ruling at the dates of the transactions in which case they are translated at the transaction date rates; and
(iii) all resulting exchange differences are recognised in Other Comprehensive Income.
The exchange differences arising from the translation of the net investment in foreign entities are recognised in Other Comprehensive Income. When a foreign
entity is sold, such exchange differences are recognised in the Income Statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising
on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
The results and financial position of all the Group entities that have a functional currency different from the Group's presentation currency (Sterling) are translated
into the presentation currency using the following rates:
2018 2017
Balance Sheet
- Roubles 88.3524 77.8800
- United States Dollar 1.2736 1.3528
- Euro 1.1142 1.1266
2018 2017
Income Statement *
- Roubles 83.6890 75.1859
- United States Dollar 1.3350 1.2888
- Euro 1.1304 1.1415
* These are the average rates for the twelve months ended 31 December 2017 and 2018, which are used unless this does not approximate the rates ruling at
the dates of the relevant transactions in which case the item of income or expenditure is translated at the transaction date rate.
Dividends
Dividends to the Company's ordinary shareholders are recognised when they become legally payable. In the case of interim dividends, this is when declared by
the directors. In the case of final dividends, this is when they are approved by the shareholders at an AGM.
3. Critical accounting estimates and judgements
The Group makes certain estimates and judgements regarding the future. Estimates and judgements are continually evaluated and are based on historical
experience as adjusted for current market conditions and other factors. The resulting accounting estimates will, by definition, seldom equal the related actual
results. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year are outlined below.
Judgements other than estimates
In the process of applying the Group's accounting policies the following are considered to have the most significant effect on the amounts recognised in the
consolidated financial statements:
(a) Acquisitions
Properties can be acquired through the corporate acquisition of a subsidiary company. At the time of acquisition, the Group considers whether the acquisition
represents the acquisition of a business. The Group accounts for the acquisition as a business combination where an integrated set of activities is acquired in
addition to the property. More specifically, consideration is made of the extent to which significant processes are acquired and the extent of ancillary services
provided by the subsidiary.
When the acquisition of a subsidiary does not represent a business, it is accounted for as an acquisition of a group of assets and liabilities. The cost of the
acquisition is allocated to the assets and liabilities acquired based on their relative fair values, and no goodwill or deferred tax liabilities are recognised. As
detailed in note 38, the Group purchased Volga Logistics Park by acquiring all of the issued share capital of the corporate vehicles that owned the property.
(b) Recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether it is probable that sufficient and suitable taxable profits will be available in the future, against which
the reversal of temporary differences can be deducted. Recognition, therefore, involves judgement regarding the future financial performance of the particular
legal entity or tax group in which the deferred tax asset has been recognised.
Estimates
(a) Valuation of investment property and investment property under construction
The best evidence of fair value are current prices in an active market for similar properties. In the absence of such information, the Group determines the amount
within a range of reasonable, fair value estimates. In making its estimation the Group considers information from a variety of sources and engages external,
professional advisers to carry out third party valuations of its properties. The external valuations are completed in accordance with appropriate sections of the
current Practice Statements contained in the Royal Institution of Chartered Surveyors Valuation - Global Standards, 2017 (the "Red Book"). These are
internationally accepted standards of valuation and are consistent with the requirements of IFRS 13. In our market, where transactional activity is minimal, the
valuers are required to use a greater degree of estimation or judgement than in a market where comparable transactions are more readily available.
The significant methods and assumptions used in estimating the fair value of investment property and investment property under construction are set out in note
13, along with detail of the sensitivities of the valuations to changes in the key inputs.
(b) Income tax
As part of the process of preparing its financial statements, the Group is required to estimate the provision for income tax in each of the jurisdictions in which it
operates. This process involves an estimation of the actual current tax exposure, together with assessing temporary differences resulting from differing treatment
of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the Balance Sheet.
Russian tax legislation is subject to varying interpretations and changes, which may occur frequently. New legislation and clarifications have been introduced
over recent years, but it remains unclear as to how these will be applied in practice. The interpretation of the legislation that the Group adopts for its transactions
and activities may be challenged by the relevant regional and federal authorities from time to time. Additionally, there may be inconsistent interpretation of tax
regulations by each local authority, creating uncertainties in the correct application of the taxation regulations in Russia. Fiscal periods remain open to review
by the authorities for the three calendar years preceding the years of review and in some circumstances may cover a longer period. Additionally, there have
been instances where new tax regulations have been applied retrospectively. The level of tax reviews and court activity is increasing. The Group is, and has
been, subject to tax reviews which are worked through with the relevant authorities to resolve.
The Group, in making its tax provision judgements, is confident that an appropriate level of management and control is exerted in each of the jurisdictions in
which it operates, all companies are tax resident in their relevant jurisdictions and are the beneficial owners of any income they receive. Local management use
their in house tax knowledge and previous experience as well as independent professional experts when assessing tax risks and the resultant provisions required.
For the current year, the Group has specifically reviewed the potential impact that new regulations may have on its financing arrangements and the provision
reflects probabilities of between 0% and 100% of possible outcomes. It is reasonably possible that outcomes within the next financial year are different from the
assumptions made and could require an adjustment to the carrying amount of the provision.
4. Segmental information
The Group has three reportable segments, which are managed and report independently to the Board. These comprise:
Property Investment - acquire or develop and lease commercial property in Russia
Roslogistics - provision of warehousing, transport, customs brokerage and related services in Russia - IFRS 15 revenue - services are provided to customers
over time and invoiced at appropriate intervals in accordance with the relevant contract terms, with payment typically due within 10 to 45 days of invoicing; and
Raven Mount - sale of residential property in the UK - IFRS 15 revenue - the transfer of land or property to the purchaser occurs on legal completion of the sale
contract, with payment typically due upon completion, though in some cases a deferral may be agreed.
Financial information relating to Property Investment is provided to the Board on a property by property basis. The information provided comprises gross rentals,
operating costs, net operating income, revaluation gains and losses and where relevant the profit or loss on disposal of an investment property. The individual
properties have similar economic characteristics and are considered to be a single reporting segment.
Information about Raven Mount provided to the Board comprises the gross sale proceeds, inventory cost of sales and gross profit, including the share of profits
or losses of its joint venture.
Roslogistics is an independently managed business and the Board is presented with turnover, cost of sales and operating profits or losses after deduction of
administrative expenses.
Administrative expenses and foreign currency gains or losses are reported to the Board by segment. Finance income and finance expense are not reported to
the Board on a segment basis. Sales between segments are eliminated prior to the provision of financial information to the Board.
For the Balance Sheet, segmental information is provided in relation to investment property, inventory, cash balances and borrowings. Whilst segment liabilities
include loans and borrowings, segment profit does not include the related finance costs. If such finance costs were included in segment profit or loss, the profit
from Property Investment would have decreased by £51.1 million (2017: £48.8 million).
(a) Segmental information for the year ended and as at 31 December 2018
Year ended 31 December 2018 Property Raven Segment Central
Investment Roslogistics Mount Total Overhead Total
£'000 £'000 £'000 £'000 £'000 £'000
Gross revenue 146,106 16,402 131 162,639 - 162,639
Operating costs / cost of sales (36,322) (8,278) 246 (44,354) - (44,354)
Net rental and related income 109,784 8,124 377 118,285 - 118,285
Administrative expenses
Running general & administration expenses (14,535) (1,989) (419) (16,943) (5,771) (22,714)
Abortive project costs (1,625) - - (1,625) - (1,625)
Depreciation (491) (318) (2) (811) - (811)
Share-based payments and
other long term incentives (350) - - (350) (2,503) (2,853)
Foreign currency (losses) / profits (2,483) 3 - (2,480) - (2,480)
90,300 5,820 (44) 96,076 (8,274) 87,802
Unrealised loss on revaluation of investment property (121,764) - - (121,764) - (121,764)
Unrealised profit on revaluation of
investment property under construction 755 - - 755 - 755
Share of profits of joint ventures - - 1,630 1,630 - 1,630
Segment (loss) / profit (30,709) 5,820 1,586 (23,303) (8,274) (31,577)
Finance income 4,869
Finance expense (88,180)
Loss before tax (114,888)
As at 31 December 2018 Property Raven
Investment Roslogistics Mount Total
£'000 £'000 £'000 £'000
Assets
Investment property 1,175,440 - - 1,175,440
Investment property under construction 30,548 - - 30,548
Investment in joint ventures - 369 6,197 6,566
Inventory - - 356 356
Cash and short term deposits 69,605 1,358 2,487 73,450
Segment assets 1,275,593 1,727 9,040 1,286,360
Other non-current assets 65,467
Other current assets 44,007
Total assets 1,395,834
Segment liabilities
Interest bearing loans and borrowings 643,430 - - 643,430
Capital expenditure
Corporate acquisition 33,249 - - 33,249
Other acquisition 27,239 - - 27,239
Property improvements 2,741 - - 2,741
63,229 - - 63,229
(b) Segmental information for the year ended and as at 31 December 2017
Year ended 31 December 2017 Property Raven Segment Central
Investment Roslogistics Mount Total Overhead Total
£'000 £'000 £'000 £'000 £'000 £'000
Gross revenue 139,659 17,964 19,377 177,000 - 177,000
Operating costs / cost of sales (35,937) (8,363) (3,004) (47,304) - (47,304)
Net rental and related income 103,722 9,601 16,373 129,696 - 129,696
Administrative expenses
Running general & administration expenses (12,750) (1,711) (661) (15,122) (4,566) (19,688)
Impairment of goodwill - - (1,523) (1,523) - (1,523)
Depreciation (542) (346) - (888) - (888)
Share-based payments and other long term
incentives (589) - - (589) (2,928) (3,517)
Foreign currency profits 6,129 3 - 6,132 - 6,132
95,970 7,547 14,189 117,706 (7,494) 110,212
Unrealised profit on revaluation of investment property 31,284 - - 31,284 - 31,284
Unrealised loss on revaluation of
investment property under construction (3,049) - - (3,049) - (3,049)
Share of profits of joint ventures - - 1,611 1,611 - 1,611
Segment profit / (loss) 124,205 7,547 15,800 147,552 (7,494) 140,058
Finance income 6,337
Finance expense (78,074)
Profit before tax 68,321
As at 31 December 2017 Property Raven
Investment Roslogistics Mount Total
£'000 £'000 £'000 £'000
Assets
Investment property 1,159,172 - - 1,159,172
Investment property under construction 28,607 - - 28,607
Investment in joint ventures - - 7,380 7,380
Inventory - - 313 313
Cash and short term deposits 191,402 671 5,064 197,137
Segment assets 1,379,181 671 12,757 1,392,609
Other non-current assets 38,752
Other current assets 58,715
Total assets 1,490,076
Segment liabilities
Interest bearing loans and borrowings 626,242 - - 626,242
Capital expenditure
Corporate acquisitions 68,593 - - 68,593
Other acquisition 90,663 - - 90,663
Property improvements 12,640 - - 12,640
171,896 - - 171,896
5. Gross revenue 2018 2017
£'000 £'000
Rental and related income 146,106 139,659
Proceeds from the sale of inventory property 131 19,377
Logistics 16,402 17,964
162,639 177,000
The Group's leases typically include annual rental increases ("contingent rents") based on a consumer price index in Russia, Europe or the USA, which are
recognised in income as they arise. Contingent rents, being amounts recorded in excess of minimum contracted increases, are included in rental income for the
year amounted £12k (2017: £8k).
Details of the Group's contracted future minimum lease receivables are detailed in note 36.
The Group recognised revenue of £19 million (2017: £20 million) from a single tenant of the property investment segment that amounted to more than 10% of
Group revenue.
6. Administrative expenses
2018 2017
(a) Total administrative expenses £'000 £'000
Employment costs 12,079 10,366
Directors' remuneration 2,900 2,386
Bad debts (58) (72)
Office running costs and insurance 3,261 3,160
Travel costs 1,321 1,507
Auditors' remuneration 596 553
Impairment of goodwill - 1,523
Legal and professional 2,070 1,494
Abortive project costs 1,625 -
Depreciation 811 888
Registrar costs and other administrative expenses 545 294
25,150 22,099
(b) Fees for audit and other services provided by the Group's auditor
2018 2017
£'000 £'000
Audit services 461 417
Audit related assurance services 50 48
511 465
Other fees:
Taxation services 47 56
Other services 38 32
85 88
Total fees 596 553
The Group engaged Ernst & Young to undertake due diligence in respect of the investment property acquisitions in the year, incurring £103k (2017: £313k) of
fees, which were included in the cost of the relevant investment property and a further £537k (2017: £nil) incurred in respect of aborted projects.
Ernst & Young also provide audit and taxation services for various SPVs that form part of the property operating costs. Charges for the audit of SPVs in the year
amounted to £265k (2017: £235k) and the fees for taxation services were £147k (2017: £59k).
7. Finance income and expense 2018 2017
£'000 £'000
Finance income
Total interest income on financial assets not at fair value through profit or loss
Income from cash and short term deposits 3,254 5,604
Interest receivable from joint ventures 32 23
Other finance incom
Change in fair value of open interest rate derivative financial instruments 1,583 37
Change in fair value of foreign currency embedded derivatives - 673
Finance income 4,869 6,337
Finance expense
Interest expense on loans and borrowings measured at amortised cost 51,092 48,808
Interest expense on preference shares 12,335 12,289
Interest expense on convertible preference shares 19,963 15,576
Total interest expense on financial liabilities not at fair value through profit or loss 83,390 76,673
Change in fair value of open forward currency derivative financial instruments 83 121
Change in fair value of open interest rate derivative financial instruments 4,566 1,280
Change in fair value of foreign currency embedded derivatives 141 -
Finance expense 88,180 78,074
Included in the interest expense on loans and borrowings is £3.93 million (2017: £4.25 million) relating to amortisation of costs incurred in originating the loans.
Included in the interest expense on preference shares is £0.42 million (2017: £0.42 million) relating to the accretion of premiums payable on redemption of
preference shares and amortisation of costs incurred in issuing preference shares. Included in the interest expense on convertible preference shares is £6.95
million (2017: £5.56 million) relating to the accretion of premiums payable on redemption and amortisation of costs incurred in issuing the convertible preference
shares of £0.30 million (2017: £0.22 million).
8. Tax 2018 2017
£'000 £'000
The tax expense for the year comprises:
Current taxation 5,731 15,001
Deferred taxation (note 25)
On the origination and reversal of temporary differences 72 11,431
On unrealised foreign exchange movements in loans (10) 149
Over provision in prior year - (1,399)
Tax charge 5,793 25,182
The charge for the year can be reconciled to the loss per the Income Statement as follows:
2018 2017
£'000 £'000
(Loss) / profit before tax (114,888) 68,321
Tax at the Russian corporate tax rate of 20% (22,978) 13,664
Tax effect of financing arrangements (1,964) (3,865)
Tax effect of non deductible preference share coupon 6,460 5,573
Tax effect of foreign exchange movements (2,186) 1,099
Movement in provision for uncertain tax positions (1,924) 5,450
Tax effect of other income not subject to tax and non-deductible expenses 5,310 3,431
Tax effect of property depreciation on revaluations 17,179 2,127
Tax on dividends and other inter company gains 2,571 2,696
Movement on previously unprovided deferred tax assets 3,325 (3,594)
Over provision in prior year - (1,399)
5,793 25,182
The tax effect of financing arrangements reflects the impact of intra group funding in each jurisdiction. Foreign exchange movements on intra group financing
are taxable or tax deductible in Russia but not in other jurisdictions. In accordance with its accounting policy, the Group is required to estimate its provision for
uncertain tax positions and the movement in the provision is reflected above. Other income and expenditure not subject to tax arises in Guernsey.
9. Earnings measures
In addition to reporting IFRS earnings the Group also reports its own underlying earnings measure. The Directors consider underlying earnings to be a key
performance measure, as this is the measure used by Management to assess the return on holding investment assets for the long term and the Group's ability
to declare covered distributions. As a consequence the underlying earnings measure excludes investment property revaluations, gains or losses on the disposal
of investment property, intangible asset movements; gains and losses on derivative financial instruments, share-based payments and other long term incentives
(to the extent not settled in cash), the accretion of premiums payable on redemption of preference shares and convertible preference shares, depreciation and
amortisation of loan origination costs (as these represent non-cash expenses that do not affect the ability to declare covered distributions); and material non-
recurring items, together with any related tax.
The Group is also required to report Headline earnings per share as required by the listing requirements of the Johannesburg Stock Exchange.
The calculation of basic and diluted earnings per share is based on the following data: 2018 2017
£'000 £'000 £'000 £'000
Earnings
Net (loss) / profit for the year prepared under IFRS (120,681) 43,139
Adjustments to arrive at underlying earnings:
Administrative expenses
Impairment of goodwill (note 6a) - 1,523
Depreciation (note 6a) 811 888
Aborted project costs (note 6a) 1,625 -
2,436 2,411
Share-based payments and other long term incentives (note 31b) 2,853 2,260
Unrealised loss / (profit) on revaluation of investment property 121,764 (31,284)
Unrealised (profit) / loss on revaluation of investment property under construction (755) 3,049
Finance income
Change in fair value of open interest rate derivative financial instruments (note 7) 1,583 37
Change in fair value of foreign currency embedded derivatives (note 7) - 673
(1,583) (710)
Finance expense
Change in fair value of open forward currency derivative financial
instruments (note 7) 83 121
Change in fair value of open interest rate derivative financial instruments (note 7) 4,566 1,280
Change in fair value of foreign currency embedded derivatives (note 7) 141 -
Premium on redemption of preference shares and amortisation of issue costs (note 22) 417 417
Premium on redemption of convertible preference shares and amortisation of issue
costs (note 23) 7,246 5,784
Amortisation of loan origination costs (note 7) 3,931 4,253
16,384 11,855
Tax
Movement on deferred tax arising on depreciation and revaluation of investment
property (619) 12,591
Tax on unrealised foreign exchange movements in loans 215 67
(404) 12,658
Underlying earnings 20,014 43,378
2018 2017
Calculation of Headline earnings £'000 £'000
Net (loss) / profit for the year prepared under IFRS (120,681) 43,139
Adjustments to arrive at Headline earnings:
Impairment of goodwill - 1,523
Unrealised loss / (profit) on revaluation of investment property 121,764 (31,284)
Unrealised (profit) / loss on revaluation of investment property under construction (755) 3,049
Movement on deferred tax arising on revaluation of investment property (6,502) 7,772
Headline earnings (6,174) 24,199
2018 2017
Weighted Weighted
average average
Earnings shares EPS Earnings shares EPS
IFRS £'000 No. '000 Pence £'000 No. '000 Pence
Basic (120,681) 641,588 (18.81) 43,139 663,493 6.50
Effect of dilutive potential ordinary shares:
Warrants (note 27) - - - 7,669
LTIP (note 31) - - - 1,382
2016 Retention Scheme (note 31) - - - 2,513
Convertible preference shares (note 23) - - 15,576 261,369
Diluted (120,681) 641,588 (18.81) 58,715 936,426 6.27
2018 2017
Weighted Weighted
average average
Earnings shares EPS Earnings shares EPS
Underlying earnings £'000 No. '000 Pence £'000 No. '000 Pence
Basic 20,014 641,588 3.12 43,378 663,493 6.54
Effect of dilutive potential ordinary shares:
Warrants (note 27) - 2,641 - 7,669
LTIP (note 31) - 612 - 1,382
2016 Retention Scheme (note 31) - 4,535 - 2,513
Convertible preference shares (note 23) - - 9,792 261,369
Diluted 20,014 649,376 3.08 53,170 936,426 5.68
2018 2017
Weighted Weighted
average average
Earnings shares EPS Earnings shares EPS
Headline earnings £'000 No. '000 Pence £'000 No. '000 Pence
Basic (6,174) 641,588 (0.96) 24,199 663,493 3.65
Effect of dilutive potential ordinary shares:
Warrants (note 27) - - - 7,669
LTIP (note 31) - - - 1,382
2016 Retention Scheme (note 31) - - - 2,513
Convertible preference shares (note 23) - - - -
Diluted (6,174) 641,588 (0.96) 24,199 675,057 3.58
The finance expense relating to the convertible preference shares was greater than IFRS, underlying and headline basic earnings per share and thus the
convertible preference shares are not dilutive. This was not the case in 2017 where the convertible preference shares were dilutive and were incorporated into
the calculation of diluted IFRS and underlying earnings per share.
10. Ordinary dividends
In the place of a final dividend for 2017 the Company implemented a tender offer buy back of ordinary shares on the basis of 1 in every 17 shares held at a
tender price of 52 pence per share, the equivalent of a final dividend of 3 pence per share. Instead of an interim dividend for 2018 the Company implemented a
tender offer buy back of ordinary shares on the basis of 1 in every 44 shares at a tender price of 55 pence per share, the equivalent of a dividend of 1.25 pence
per share.
11. Investment property
Asset class Logistics Logistics Logistics Office
Location Moscow St Petersburg Regions St Petersburg 2018
Fair value hierarchy * Level 3 Level 3 Level 3 Level 3 Total
£'000 £'000 £'000 £'000 £'000
Market value at 1 January 2018 854,288 144,910 117,871 60,682 1,177,751
Corporate acquisition (note 38) - - 30,805 - 30,805
Other acquisition 27,239 - - - 27,239
Property improvements 1,430 293 504 514 2,741
Unrealised loss on revaluation (97,641) (6,468) (10,795) (4,686) (119,590)
On translation to presentation currency 55,297 9,243 6,458 3,892 74,890
Market value at 31 December 2018 840,613 147,978 144,843 60,402 1,193,836
Tenant incentives and contracted rent uplift balances (13,674) (4,046) (1,256) (476) (19,452)
Head lease obligations (note 24) 1,056 - - - 1,056
Carrying value at 31 December 2018 827,995 143,932 143,587 59,926 1,175,440
Revaluation movement in the year ended 31 December 2018
Gross revaluation (97,641) (6,468) (10,795) (4,686) (119,590)
Movement on tenant incentives and contracted rent uplift balances 41 203 8 (70) 182
Less impact of translation to presentation currency (1,626) (532) (150) (48) (2,356)
Revaluation reported in the Income Statement (99,226) (6,797) (10,937) (4,804) (121,764)
Asset class Logistics Logistics Logistics Office
Location Moscow St Petersburg Regions St Petersburg 2017
Fair value hierarchy * Level 3 Level 3 Level 3 Level 3 Total
£'000 £'000 £'000 £'000 £'000
Market value at 1 January 2017 813,667 114,454 122,882 20,084 1,071,087
Corporate acquisitions (note 38) - 28,589 - 40,004 68,593
Other acquisition 90,663 - - - 90,663
Property improvements 8,688 1,329 2,391 232 12,640
Unrealised profit on revaluation 12,090 12,475 3,304 5,048 32,917
On translation to presentation currency (70,820) (11,937) (10,706) (4,686) (98,149)
Market value at 31 December 2017 854,288 144,910 117,871 60,682 1,177,751
Tenant incentives and contracted rent uplift
balances (13,715) (4,249) (1,264) (406) (19,634)
Head lease obligations (note 24) 1,055 - - - 1,055
Carrying value at 31 December 2017 841,628 140,661 116,607 60,276 1,159,172
Revaluation movement in the year ended 31 December 2017
Gross revaluation 12,090 12,475 3,304 5,048 32,917
Movement on tenant incentives and contracted rent uplift balances 444 65 (154) (282) 73
Less impact of translation to presentation currency (1,226) (373) (96) (11) (1,706)
Revaluation reported in the Income Statement 11,308 12,167 3,054 4,755 31,284
*Classified in accordance with the fair value hierarchy, see note 35. There were no transfers between fair value hierarchy in 2017 or 2018.
During the year the Group acquired two new investment properties. As a corporate acquisition it acquired Volga Logistics Park (see note 38) and, as a direct
purchase of real estate, it acquired a further phase of Logopark Sever.
At 31 December 2018 the Group has pledged investment property with a value of £1,153 million (2017: £1,061 million) to secure banking facilities granted to
the Group (see note 21).
12. Investment property under construction
Asset class Assets under construction Land Bank
Location Moscow Regions Regions 2018
Fair value hierarchy * Level 3 Level 3 Sub-total Level 3 Total
£'000 £'000 £'000 £'000 £'000
Market value at 1 January 2018 19,736 5,618 25,354 2,873 28,227
Costs incurred 18 10 28 - 28
Corporate acquisition (note 38) - 2,444 2,444 - 2,444
On translation to presentation currency (268) (636) (904) (336) (1,240)
Unrealised (loss) / profit on revaluation (144) 899 755 - 755
Market value at 31 December 2018 19,342 8,335 27,677 2,537 30,214
Head lease obligations (note 24) 334 - 334 - 334
Carrying value at 31 December 2018 19,676 8,335 28,011 2,537 30,548
Asset class Assets under construction Land Bank
Location Moscow Regions Regions 2017
Fair value hierarchy * Level 3 Level 3 Sub-total Level 3 Total
£'000 £'000 £'000 £'000 £'000
Market value at 1 January 2017 23,954 6,069 30,023 3,128 33,151
Costs incurred 20 9 29 - 29
On translation to presentation currency (1,578) (273) (1,851) (53) (1,904)
Unrealised loss on revaluation (2,660) (187) (2,847) (202) (3,049)
Market value at 31 December 2017 19,736 5,618 25,354 2,873 28,227
Head lease obligations (note 24) 381 - 381 - 381
Carrying value at 31 December 2017 20,117 5,618 25,735 2,873 28,608
*Classified in accordance with the fair value hierarchy, see note 35. There were no transfers between fair value hierarchy in 2017 or 2018.
No borrowing costs were capitalised in the year (2017: £nil).
At 31 December 2018 the Group has pledged investment property under construction with a value of £25.3 million (2017: £25.4 million) to secure banking
facilities granted to the Group (see note 21).
13. Investment property and investment property under construction - Valuation
It is the Group's policy to carry investment property and investment property under construction at fair value in accordance with IFRS 13 "Fair Value
Measurement" and IAS 40 "Investment Property":
- investment property consists of the completed, income producing, portfolio; and
- investment property under construction consists of potential development projects and land bank.
The latter is sub-categorised as:
- assets under construction - current development projects and the value of land on additional phases of existing investment property; and
- land bank - land held for potential development.
For the purposes of IFRS 13 disclosure, we have analysed these categories by the geographical market they are located in being Moscow, St Petersburg and
the Regions (the other Russian regional cities). These form distinct markets for valuation purposes as the fundamentals differ in each.
The fair value of the Group's investment property and assets under construction at 31 December 2018 has been arrived at on the basis of market valuations
carried out by Jones Lang Lasalle ("JLL"), external valuers to the Group. JLL have consented to the use of their name in these financial statements.
The Group's land bank in the Regions is valued by the Directors.
Valuation process
The Group has four qualified RICS members on the management team, one of whom was a former Chairman of RICS in Russia and the CIS. Three have
relevant valuation and market experience and are actively involved in the valuation process. They also regularly meet with agents and consultants to obtain
additional market information.
The effectiveness and independence of the external valuers is reviewed each year. The criteria considered include market knowledge, reputation, independence
and professional standards. The Audit Committee also meets the external valuers at least once a year. The Group's management team have determined that
the external valuers are experienced in the Russian market and acts as an "External Valuer" as defined in the RICS Valuation - Global Standards, 2017.
The Group has continued to use the income capitalisation approach in assessing its opinion of value but has moved to a discounted cash flow methodology in
line with changes in market practice internationally and in Russia, and is accepted practice under RICS Valuation - Global Standards, 2017. The RICS Valuation
- Global Standards, 2017 are internationally accepted standards of valuation and are consistent with the principles of IFRS 13.
For investment properties and assets under construction, the executive team members consult with the external valuers and the valuers then determine:
- whether a property's fair value can be reliably determined;
- which valuation method should be applied for each asset; and
- the assumptions made for unobservable inputs that are used in valuation methods.
The land bank is valued by the Directors. The process followed includes site inspections, meetings with local real estate experts, comparison to any local land
sale information and comparison to transactions in other regional cities including those where the Group has income producing assets. Updated acquisition
appraisals and any indication of value for alternative use are also considered.
Valuations are prepared on a biannual basis. At each valuation date the executive team members review the information prepared by the property department
for valuation purposes being submitted to the external valuers. Each property valuation is then reviewed and discussed with the external valuers in detail and
adjustments made as necessary.
The executive management also present the valuation results to the Audit Committee and hold discussions with the Group's auditors. Both the Audit Committee
and the auditors also have discussions with the external valuers.
Valuation assumptions and key inputs
Class of property Carrying amount Valuation Input Range
2018 2017 technique 2018 2017
£'000 £'000
Completed investment property
Rub 3,500 to Rub Rub 3,500 to
Moscow - Logistics 827,995 841,628 Discounted ERV per sqm 3,800 Rub 3,800
cash flow ERV growth 4.00% to 7.00% 5.00%
Discount rate 10.75% to 12.60% 11.20% to 12.90%
Exit cap rate 10.50% to 11.50% 10.50% to 11.50%
Vacancy rate 1% to 50% 1% to 94%
Passing rent per sqm $113 to $170 $110 to $166
Passing rent per sqm Rub 3,000 to Rub 3,104 to
Rub 12,315 Rub 11,847
St Petersburg - Logistics 143,932 140,661 Discounted ERV per sqm Rub 3,800 Rub 3,800
cash flow ERV growth 6.00% 4.00%
Discount rate 12.30% to 12.50% 12.15% to 12.48%
Exit cap rate 11.75% 11.75%
Vacancy rate 0% to 29% 3% to 19%
Passing rent per sqm $109 to $133 $69 to $140
Passing rent per sqm Rub 2,456 to Rub 2,339 to
Rub 5,260 Rub 4,916
Regional - Logistics 143,587 116,607 Discounted ERV per sqm Rub 3,800 Rub 3,800
cash flow ERV growth 6.00% 4.00%
Discount rate 12.25% to 12.50% 12.45% to 12.50%
Exit cap rate 11.75% 11.75%
Vacancy rate 0% to 9% 6% to 27%
Passing rent per sqm $107 to $138 $104 to $133
Passing rent per sqm Rub 3,750 to Rub 3,720 to
Rub 7,300 Rub 6,707
Passing rent per sqm €88 n/a
Rub 10,976 to Rub 9,965 to
St Petersburg - Office 59,926 60,276 Discounted ERV per sqm Rub 12,366 Rub 12,384
cash flow ERV growth 2.00% to 4.00% 0.00%
12.00% to 11.00% to
Discount rate 12.25% 12.25%
11.25% to 11.00% to
Exit cap rate 12.25% 12.25%
Vacancy rate 1% to 8% 0% to 1%
Passing rent per sqm $408 $388
Passing rent per sqm €410 to €413 €390
Passing rent per sqm Rub 4,384 to Rub 8,124 to
Rub 17,570 Rub 16,271
Range
Other key information Description 2018 2017
Moscow - Logistics Land plot ratio 34% - 65% 34% - 65%
Age of building 1 to 14 years 1 to 13 years
Outstanding costs (£'000) 2,290 6,980
St Petersburg - Logistics Land plot ratio 48% - 57% 48% - 57%
Age of building 4 to 10 years 3 to 9 years
Outstanding costs (£'000) 282 611
Regional - Logistics Land plot ratio 48% - 61% 48% - 61%
Age of building 9 years 8 years
Outstanding costs (£'000) 363 114
St Petersburg - Office Land plot ratio 148% to 496% 148% to 496%
Age of building 10 to 12 years 9 to 11 years
Outstanding costs (£'000) 23 60
Carrying amount Valuation Input Range
Investment property under
construction 2018 2017 technique 2018 2017
£'000 £'000
Moscow - Logistics 19,676 20,117 Comparable Value per ha Rub 17.9m - Rub 33.6m $0.31m - $0.53m
Regional - Logistics 8,335 5,618 Comparable Value per ha Rub 9.7m - Rub 20.6m $0.29m
The fair value of investment property is determined using the income capitalisation method where a property's fair value is estimated based on the present value
of net cash flows generated from each property, plus the reversionary value based on the final year's income capitalised using an all-risks exit yield. Allowance
is made for a potential letting void and an assessment is made of the estimated rental value on re-letting (ERV). These elements are determined based on
current market conditions and values.
Assets under construction (development projects) are valued on a residual value basis using the future anticipated costs to complete construction, a provision
for letting costs, a letting void period and an assessment of ERV, which is capitalised at the prevailing market yield. Depending on the status of the development,
and how much of development process has been completed an allowance will also be made for developer's profit. There were no active development projects
at 31 December 2018 or 2017.
Assets under construction (additional phases of existing sites) are valued on a comparable basis. The value of these plots is estimated based on comparable
transactions in the same market. This approach is based on the principle that a buyer will not pay more for an asset than it will cost to buy a comparable substitute
property. The unit of comparison applied is the price per square metre.
All of the above valuations are completed by JLL.
The land bank is valued by the Directors using the comparable basis.
Sensitivity analysis of significant changes in unobservable inputs within Level 3 of the hierarchy
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity's portfolio of investment
property are:
- ERV;
- ERV growth;
- Void period on re-letting;
- Discount rate;
- Exit capitalisation yield; and
- Specific to property under development: construction costs, letting void, construction period and development profit.
Further significant increases (or decreases) in any of the main inputs to the valuation, being discount rate, exit capitalisation yield, ERV (per sqm p.a.), ERV
growth and letting void, would result in a significantly lower (or higher) fair value measurement.
14. Investment in subsidiary undertakings
The principal subsidiary undertakings of Raven Property Group Limited, all of which have been included in these consolidated financial statements, are as follows:
Name Country of incorporation Proportion of ownership interest
2018 2017
Raven Russia Holdings Cyprus Limited Cyprus 100% 100%
Dorfin Limited Cyprus 100% 100%
Roslogistics Holdings (Russia) Limited Cyprus 100% 100%
Raven Mount Group Limited England 100% 100%
Raven Russia Property Advisors Limited England 100% 100%
Raven Russia (Service Company) Limited Guernsey 100% 100%
Avalon Logistics Company LLC Russia 100% 100%
Delta LLC Russia 100% 100%
EG Logistics LLC Russia 100% 100%
Fenix LLC Russia 100% 100%
Gorigo LLC Russia 100% 100%
Kstovo Industrial Park 1 LLC Russia 100% -
JSC Kulon Development Russia 100% 100%
JSC Kulon Istra Russia 100% 100%
Kulon Spb LLC Russia 100% 100%
League LLC Russia 100% 100%
Logopark Don LLC Russia 100% 100%
Logopark Ob LLC Russia 100% 100%
JSC Noginsk Vostok Russia 100% 100%
Pervomayskay Zarya LLC Russia 100% 100%
Petroestate LLC Russia 100% 100%
Primium LLC Russia 100% 100%
Resource Economia LLC Russia 100% 100%
Sever Estate LLC Russia 100% 100%
Soyuz-Invest LLC Russia 100% 100%
JSC Toros Russia 100% 100%
The Group's investment property and investment property under construction are held by its subsidiary undertakings.
15. Investment in joint ventures
The principal joint ventures of the Group are as follows:
Name Country of incorporation Proportion of ownership interest
2018 2017
Coln Park LLP England 50% 50%
Coln Park Construction LLP England 50% 50%
Coln Park LLP and Coln Park Construction LLP are the entities through which the Group undertakes its second home development activity in the UK. In addition,
the Group has a number of other small joint ventures primarily associated with the second home development activity. The Group's interest in each joint venture
has been accounted for using the equity method. None of the Group's joint ventures are individually material. Summarised aggregated financial information of
the joint ventures, prepared under IFRS, and a reconciliation with the carrying amount of the investments in the consolidated financial statements are set out
below:
2018 2017
Summarised Balance Sheet £'000 £'000
Non-current assets 3,634 3,221
Inventory 3,425 6,157
Cash and short term deposits 3,597 3,533
Other current assets 1,874 1,963
Current liabilities (3,659) (2,575)
Non-current liabilities (3,051) (4,505)
Net assets 5,820 7,794
Investment in joint ventures
Goodwill on acquisition 3,694 3,483
Share of net assets 2,872 3,897
Carrying value 6,566 7,380
Carrying value at 1 January 7,380 7,874
Investment in the year 533 -
Share of total comprehensive income for the year 1,630 1,611
Share of distributions paid (3,000) (2,105)
On translation to presentation currency 23 -
Carrying value at 31 December 6,566 7,380
2018 2017
Summarised Statement of comprehensive income £'000 £'000
Gross revenue 27,708 23,886
Cost of sales (22,329) (18,684)
Administrative expenses (2,017) (1,790)
Finance expense (216) (183)
Profit before tax 3,146 3,229
Tax 20 (8)
Profit for the year 3,166 3,221
Other comprehensive income 53 -
Total comprehensive income 3,219 3,221
Group's share of total comprehensive income for the year 1,630 1,611
The joint ventures had no contingent liabilities or capital commitments as at 31 December 2018 and 2017. The joint ventures cannot distribute their profits until
they obtain the consent from the joint venture partners.
The Group charged its joint ventures £244k (2017: £73k) for services rendered to them during the year, of which £81k (2017: nil) was included in payables at the
balance sheet date. The joint ventures recharged certain costs back to the Group that for the year amounted to £51k (2017: £136k) of which £7k (2017: £7k)
was included in payables at the balance sheet date. The Group has advanced loans to its joint ventures of £491k (2017: £300k) generating interest income of
£32k (2017: £23k).
16. Other receivables 2018 2017
£'000 £'000
Loans receivable 676 491
Restricted cash 12,249 965
VAT recoverable 2,538 2,468
Prepayments and other receivables 72 194
15,535 4,118
VAT recoverable arises from the payment of value added tax on construction or purchase of investment property, which will be recovered through the offset of
VAT paid on future revenue receipts or repayment direct from the taxation authority. VAT recoverable has been split between current and non-current assets
based on the Group's assessment of when recovery will occur.
17. Trade and other receivables 2018 2017
£'000 £'000
Trade receivables 27,803 32,773
Prepayments 3,524 3,985
Restricted cash 1,792 -
VAT recoverable 7,084 17,328
Other receivables 317 210
Tax recoverable 3,138 4,090
43,658 58,386
18. Derivative financial instruments 2018 2017
£'000 £'000
Interest rate derivative financial instruments
Non-current assets 21,953 5,713
Current assets 329 223
Forward currency derivative financial instruments
Non-current assets - 91
Current assets 20 13
Foreign currency embedded derivatives
Non-current assets - 71
Current assets - 93
Current liabilities (1) (26)
The Group has entered into a series of interest rate derivative financial instruments to manage the interest rate and resulting cash flow exposure from the Group's
banking facilities. At 31 December 2018 the instruments have a notional value of £543 million (2017: £481 million) and a weighted average fixed or capped rate
of 3.90% (2017: 1.61%).
The Group had also entered into a series of forward currency derivative financial instruments to hedge interest payments due to preference shareholders against
sterling strengthening. The instruments have a notional amount of £12 million (2017: £24 million), a weighted average capped rate of $1.55 to £1 (2017: $1.55
to £1) and quarterly maturities with the final instruments maturing on 18 December 2019 (2017: 18 December 2019).
Several of the Group's leases incorporate collars and caps on US Dollar and Rouble exchange rates. These have been categorised as embedded derivatives
and their fair values calculated resulting in the assets or liabilities disclosed above.
19. Cash and short term deposits 2018 2017
£'000 £'000
Cash at bank and on call 45,153 128,079
Short term deposits 28,297 69,058
73,450 197,137
Cash at bank and on call attracts variable interest rates, whilst short term deposits attract fixed rates but mature and re-price over a short period of time. The
weighted average interest rate at the balance sheet date is 5.50% (2017: 5.04%).
20. Trade and other payables 2018 2017
£'000 £'000
Trade and other payables 4,900 4,998
Construction payables 2,958 7,764
Advanced rentals 20,840 19,574
Deferred consideration on property acquisitions 12,197 17,874
Other payables 4,392 5,172
Current tax payable 11,369 14,656
Other tax payable 9,518 9,382
Head leases (note 24) 18 7
66,192 79,427
21. Interest bearing loans and borrowings 2018 2017
£'000 £'000
Bank loans
Loans due for settlement within 12 months 75,565 78,871
Loans due for settlement after 12 months 567,865 547,371
643,430 626,242
The Group's borrowings have the following maturity profile:
On demand or within one year 75,565 78,871
In the second year 20,730 109,636
In the third to fifth years 333,862 283,816
After five years 213,273 153,919
643,430 626,242
The amounts above include unamortised loan origination costs of £7.1 million (2017: £7.8 million) and interest accruals of £1.3 million (2017: £1.2 million).
The Group's interest bearing loans and borrowings have a weighted average interest rate of 7.69% (2017: 7.62%) and a weighted average term to maturity of 4
years (2017: 4.5 years).
The interest rates shown above are the weighted average cost, including the relevant benchmark rate, as at the Balance Sheet dates.
There have been a number of changes to the Group's financing arrangements in the year. The Group drew down €86.0 million and Rub 5.7 billion on new and
existing debt facilities, repaying $108 million of existing debt. In addition existing facilities of $306 million were extended and / or converted into Rouble / Euro
blended facilities of Rub 11.9 billion and €113 million.
Since the year end, the Group has drawn a further Rub 358 million and €13 million of new bank debt, whilst repaying $13 million of existing debt.
As at 31 December 2018 the Group had interest rate hedges for £396.8 million of borrowings (2017: £349.6 million) capped at 3.90% (2017: 1.61%) for a weighted
average of 4 years (2017: 3 years). None of the Group's borrowings have fixed interest rates (2017: £141.2 million).
22. Preference shares 2018 2017
£'000 £'000
Issued share capital:
At 1 January 108,263 106,582
Purchased in the year - (84)
Reissued in the year - 710
Premium on redemption of preference shares and amortisation of issue costs 417 417
Scrip dividends 591 638
At 31 December 109,271 108,263
2018 2017
Number Number
Issued share capital:
At 1 January 99,143,192 98,265,327
Purchased in the year - (56,866)
Reissued in the year - 487,047
Scrip dividends 413,342 447,684
At 31 December 99,556,534 99,143,192
Shares in issue 99,613,402 99,200,060
Held by the Company's Employee Benefit Trusts (56,868) (56,868)
At 31 December 99,556,534 99,143,192
The preference shares entitle the holders to a cumulative annual dividend of 12 pence per share.
23. Convertible preference shares 2018 2017
£'000 £'000
Issued share capital:
At 1 January 198,870 96,997
Issued in the year - 100,788
Allocated to equity - (4,693)
Acquired by Company's Employee Benefit Trust - (3,007)
Reissued in the year - 3,235
Converted to ordinary shares (note 26) - (250)
Premium on redemption of preference shares and amortisation of issue costs 7,246 5,784
Movement on accrual for preference dividends - 16
At 31 December 206,116 198,870
2018 2017
Number Number
Issued share capital:
At 1 January 192,388,886 102,837,876
Issued in the year - 89,766,361
Acquired by Company's Employee Benefit Trust - (2,631,578)
Reissued in the year - 2,683,075
Converted to ordinary shares (note 26) - (266,848)
At 31 December 192,388,886 192,388,886
Shares in issue 198,189,014 198,189,014
Held by the Company's Employee Benefit Trust (5,800,128) (5,800,128)
At 31 December 192,388,886 192,388,886
The convertible preference shares entitle the holders to a cumulative annual dividend of 6.5 pence per share and are redeemable by the Company on 6 July
2026 at £1.35 per share. The convertible preference shares are convertible to ordinary shares at the holder's request at any time prior to redemption at a rate
that is currently 1.617 ordinary shares for each convertible preference share.
In applying its accounting policies the Group has determined that the convertible preference shares are a compound financial instruments in that it has a liability
component and an equity component. The Group has determined the fair value of the liability component, which is reflected above, and the residual amount of
the fair value of the consideration received on issue is equity. The fair value of the liability component has been calculated using a discounted cash flow model.
24. Other payables 2018 2017
£'000 £'000
Rent deposits 16,425 16,734
Deferred consideration on property acquisitions - 7,402
Head leases 1,372 1,429
17,797 25,565
The Group has leasehold properties that it classifies as investment property and investment property under construction. Minimum lease payments due over the
remaining term of the leases totalled £3.9 million (2017: £4.3 million) and have a present value at 31 December 2018, as reflected above and in note 20, of £1.4
million (2017: £1.4 million).
25. Deferred tax
Tax losses Other Total
(a) Deferred tax assets £'000 £'000 £'000
Balance at 1 January 2017 21,551 524 22,075
On translation to presentation currency (770) - (770)
Credit for the year 2,488 336 2,824
On acquisition (note 38) 1,482 - 1,482
Balance at 31 December 2017 24,751 860 25,611
On translation to presentation currency (2,852) (40) (2,892)
Credit for the year 237 (41) 196
On acquisition (note 38) 1,490 - 1,490
Balance at 31 December 2018 23,626 779 24,405
The Group has tax losses in Russia of £265 million (2017: £261 million) and tax losses in the UK of £53 million (2017: £53 million) for which deferred tax assets
have not been recognised. The losses in the UK do not have an expiry date. The losses in Russia can be carried forward indefinitely, however there is a
restriction on the use of losses in that taxable profits cannot be reduced by more than 50% in any one year.
Accelerated Revaluation
tax of investment
allowances property Total
(b) Deferred tax liabilities £'000 £'000 £'000
Balance at 1 January 2017 32,568 17,162 49,730
On translation to presentation currency (1,404) (1,486) (2,890)
Charge for the year 5,233 7,772 13,005
Balance at 31 December 2017 36,397 23,448 59,845
On translation to presentation currency (4,161) 1,458 (2,703)
Charge / (credit) for the year 6,760 (6,502) 258
Balance at 31 December 2018 38,996 18,404 57,400
26. Share capital
2018 2017
£'000 £'000
Issued share capital:
At 1 January 6,606 6,680
Issued in the year for cash on warrant exercises (note 27) 85 139
On conversion of convertible preference shares (note 23) - 5
Repurchased and cancelled in the year (458) (218)
At 31 December 6,233 6,606
2018 2017
Number Number
Issued share capital:
At 1 January 660,571,843 667,968,463
Issued in the year for cash on warrant exercises (note 27) 8,500,126 13,946,387
On conversion of convertible preference shares (note 23) - 474,722
Repurchased and cancelled in the year (45,802,535) (21,817,729)
At 31 December 623,269,434 660,571,843
Of the authorised ordinary share capital of 1,500,000,000 at 31 December 2018, 2,448,226 (2017: 10,948,352) are reserved for warrants.
Details of own shares held are given in note 28.
27. Warrants 2018 2017
£'000 £'000
At 1 January 438 996
Exercised in the year (note 26) (340) (558)
At 31 December 98 438
2018 2017
Number Number
At 1 January 10,948,352 24,894,739
Exercised in the year (note 26) (8,500,126) (13,946,387)
At 31 December 2,448,226 10,948,352
The Company has issued warrants, which entitle each holder to subscribe for ordinary shares in the Company at an exercise price of 25 pence per share. The
warrants expire on 25 March 2019.
565,543 warrants have been exercised in the period since 31 December 2018 (2017: 315).
28. Own shares held 2018 2017
£'000 £'000
At 1 January (3,652) (4,692)
Acquired under a tender offer (4,160) -
Other acquisitions (75) (124)
Allocation to satisfy Annual Performance Incentive (note 31) 1,278 -
Cancelled 36 30
Allocation to satisfy LTIP options exercised (note 31a) 608 1,134
At 31 December (5,965) (3,652)
2018 2017
Number Number
At 1 January 5,150,122 6,444,080
Acquired under a tender offer 8,000,000 -
Other acquisitions 173,958 257,703
Allocation to satisfy Annual Performance Incentive (note 31) (1,704,000) -
Cancelled (48,613) (39,472)
Allocation to satisfy LTIP options exercised (note 31a) (810,811) (1,512,189)
At 31 December 10,760,656 5,150,122
Allocations are transfers by the Company's Employee Benefit Trusts to satisfy LTIP options exercised in the year and certain of the 2017 Annual Performance
Incentives to directors. The amounts shown for share movements are net of the Trustees' participation in tender offers during the period from grant to exercise.
Details of outstanding LTIP options, which are vested but unexercised, are given in note 31a.
29. Equity
The following describes the nature and purpose of each component within equity:
Component Description and purpose
Share capital The amount subscribed for ordinary share capital at nominal value.
Share premium The amount subscribed for ordinary share capital in excess of the nominal value.
Warrants The consideration attributed to the subscription of warrants less associated costs of issuance.
Own shares held The cost to the Company of acquiring the own shares held by the Company and its subsidiary undertakings or Employee Benefit Trusts.
Convertible The amount subscribed for convertible preference shares which the Directors consider to be Equity.
preference
shares
Capital reserve The amount of any capital profits and losses, including gains and losses on the disposal of investment properties (after taxation), increases
and decreases in the fair value of investment properties held at each period end, foreign exchange profits and losses on capital items,
profits and losses on forward currency financial instruments relating to capital items and deferred taxation on the increase in fair value of
investment properties.
Translation The amount of any gains or losses arising on the retranslation of net assets of overseas operations.
reserve
Retained The amount of any profit or loss for the year after payment of dividend, together with the amount of any equity-settled share-based
earnings payments, and the transfer of capital items described above. Retained earnings also includes distributable reserves created when in 2005
and 2006 the Company applied to the Royal Court of Guernsey to cancel its share premium at that time and create a reserve which is
distributable.
30. Net asset value per share
The Group no longer reports its own adjusted net asset value and adjusted net asset value per share. With the change in presentation currency from US Dollars
to Sterling the most significant adjustment, being the unrealised foreign exchange gains and losses on irredeemable preference shares, is no longer relevant.
2018 2017
Number Number
Number of ordinary shares (note 26) 623,269,434 660,571,843
Less own shares held (note 28) (10,760,656) (5,150,122)
612,508,778 655,421,721
2018 2017
Net asset Net asset
Net asset Ordinary value per Net asset Ordinary value per
value shares share value shares share
£'000 No. '000 Pence £'000 No. '000 Pence
Net asset value per share 295,627 612,509 48 391,838 655,422 60
Effect of dilutive potential ordinary shares:
Convertible preference shares (note 23) - - 198,870 338,412
Warrants (note 27) 612 2,448 2,737 10,948
LTIP (Note 31) 266 1,062 468 1,873
2016 Retention Scheme (note 31) 2,095 4,998 1,267 4,616
Fully diluted net asset value per share 298,600 621,017 48 595,180 1,011,271 59
The balance sheet carrying value of the liability portion of the convertible preference shares divided by the number of ordinary shares that would be issued on
their conversion is greater than the NAV per share and thus the convertible preference shares are not dilutive.
The number of potential ordinary shares is the total number of ordinary shares assuming the exercise of all potential ordinary shares less those not expected to
vest.
31. Share-based payments and other long term incentives
The Group has utilised a number of different share schemes to reward and incentivise the Group's executives and senior staff.
Long Term Incentive Plan ("LTIP")
The LTIP options vested in three equal tranches, subject to performance criteria, on 24 March 2012, 2013 and 2014. The LTIP options have an exercise price of
25p per option and have vested in full. The LTIP is closed and further awards cannot be made. Awards made under the LTIP have been accounted for in
accordance with the Group's accounting policy for Share-based payments.
2016 Retention Scheme
During 2016 the Group terminated the CBLTIS 2015 and the Company's shareholders approved the introduction of the 2016 Retention Scheme. Awards under
the scheme were made to the executive directors of the Company and two senior managers of the Group. The awards entitled the participants to three equal
payments each equivalent to 150% of their basic salary. The first instalment was paid on approval of the scheme and the second on 31 December 2017. The
third instalment will be paid on 31 March 2019. The sole condition for each instalment being paid is the continuing employment of the participant at the relevant
payment date.
Participants will receive payment of an instalment in a combination of the Company's listed securities and cash. The numbers of listed securities to be issued to
satisfy such payments will be calculated with reference to the average price of the relevant security prior to the payment date. On 13 July 2016 an employment
benefit trust ("EBT") of the Company transferred 2,148,375 convertible preference shares to participants of the scheme in satisfaction of the first instalment. On
31 December 2017 the EBT transferred 487,049 preference shares and 1,957,775 convertible preference shares in respect of the second instalment. It is intended
that convertible preference shares held by the EBT will also be used to satisfy the third instalment.
Five Year Performance Plan ("FYPP")
The FYPP is a long term incentive scheme which is open to the executive directors and two senior managers. The scheme allows each participant to invest into
the FYPP a number of the listed securities in the Company that they hold and those that they receive on 31 March 2019 under the 2016 Retention Scheme. All
securities invested in the FYPP must continue to be retained by the participant until 31 March 2023. On 31 March 2023, based on annual compound TSR
calculations, the participants will be entitled to receive up to three times the value of the securities in the FYPP. Vested entitlements will be settled in the
Company's ordinary shares, with a value based on the average price of the Company's ordinary shares for March 2023.
The performance period for the FYPP runs from 31 March 2018 to 31 March 2023. Below an annual compound equivalent TSR of 4% the Plan will lapse, at an
annual compound TSR of 12% the Plan will vest in full and a sliding scale will apply for a TSR between 4% and 12%.
The maximum aggregate investment in the FYPP is £12 million and the potential participants will be required to confirm their participation and the amount of their
investment once the final payment under the 2016 Retention Scheme has been made on 31 March 2023.
Annual Performance Incentive
As noted in the letter from the Remuneration Committee in the Group's 2017 Annual Report, two of the Company's directors accepted their Annual Performance
Incentive in the Company's ordinary shares rather than in cash.
(a) Movement in LTIP options
2018 2017
No of No of
options options
Outstanding at the beginning of the year 1,872,973 3,872,973
Exercised during the year
- LTIP (810,811) (2,000,000)
Outstanding at the end of the year 1,062,162 1,872,973
The options expire in March 2019.
2018 2017
(b) Income Statement charge for the year £'000 £'000
Annual Performance Incentive 750 -
2016 Retention scheme 2,103 3,517
Five Year Performance Plan - -
2,853 3,517
To be satisfied by allocation of:
Ordinary shares (IFRS 2 expense) 750 -
Convertible preference shares / preference shares (IFRS 2 expense) 2,103 2,260
Cash - 1,257
2,853 3,517
Of the IFRS 2 expense for the year £2.1 million (2017: £1.3 million) is included in current liabilities.
32. Capital commitments
The Group had no significant capital commitments at 31 December 2017 and 2018.
33. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Further disclosures concerning transactions with the Company's directors are made in the Remuneration Report and note 6. There are no loan balances with
directors.
Remuneration of Directors and other key management personnel 2018 2017
£'000 £'000
Short term employee benefits 4,247 3,052
Post employment benefits 224 219
Share-based payments and other long term incentives 2,853 3,527
7,324 6,798
34. Financial instruments - risk management
The Group's activities expose it to a variety of financial risks in relation to the financial instruments it uses: market risk (including currency risk, price risk and cash
flow interest rate risk), credit risk and liquidity risk. The Group has the following financial instruments on its balance sheet: loans receivable, restricted cash, trade
receivables, cash and short term deposits, trade and other payables, interest bearing loans and borrowings, preference shares, convertible preference shares
and derivative financial instruments.
Risk management parameters are established by the Board and overseen by management in conjunction with professional advisers. Reports are provided to
the Board weekly basis and also when changes in risk parameters are required.
(a) Market risk
Currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from a variety of currency exposures, primarily with respect to Euro, Sterling
and US Dollar against the predominate functional currency of its subsidiaries of Roubles. Foreign exchange risk arises from future commercial transactions
(including lease receivables), recognised monetary assets and liabilities and net investments in foreign entities.
The majority of the Group's transactions are denominated in Roubles. The functional currency of the Company is Sterling, which is also the presentation currency
of the Group. The analysis that follows considers the impact of these currencies on the Group.
Rouble
The majority of the Group's transactions in Russia are undertaken in Roubles. The Group's debt profile however is a mix of currencies and a weakening in the
Rouble exchange rate can put pressure on the Group's ability to service foreign currency debt facilities. This risk has reduced over the last year as the Group
moves to a greater proportion of Rouble denominated debt.
A weak Rouble also has an impact on reported earnings per share and net asset value per share when translated to the Group's presentation currency of Sterling.
Sterling
The Group's exposure to Sterling relates to the Company's preference shares, convertible preference shares and ordinary shares, together with head office
administrative expenses. As the presentation currency of the Group, there will also be foreign currency movements through the Group's translation reserve when
restating opening balances on consolidation.
Euro
The Group has exposure to Euro debt facilities and a small number of Euro pegged leases. As noted above, a weak Rouble may reduce the Group's ability to
service that debt. A weak Rouble will however increase Rouble income on Euro pegged leases.
US Dollar
Currency risk to US Dollars is now significantly reduced as the Group moves away from US Dollar debt facilities. It is expected that there will be no US Dollar
facilities by the end of 2019. The Group still has a proportion of its leases pegged to the US Dollar and these will mature over the next three years. A weakening
Rouble relative to the US Dollar will put pressure on debt servicing of the remaining US Dollar debt but also generate increased Rouble income on US Dollar
pegged leases.
Accounting standards require disclosure of monetary assets and liabilities that are denominated in currencies different from the functional currency of the specific
subsidiary or entity in the Group. These are set out in the tables below.
As at 31 December 2018 Rouble Euro US Dollar Sterling ZAR
£'000 £'000 £'000 £'000 £'000
Non-current assets
Restricted cash - - 630 - -
Derivative financial instruments 7,236 4,782 - - -
7,236 4,782 630 - -
Current assets
Rent receivable - 1 2,476 - -
Restricted cash - - 1,006 - -
Derivative financial instruments - - 20 - -
Other current receivables 15 971 84 37 -
Cash and short term deposits 8,835 3,236 984 26 100
8,850 4,208 4,570 63 100
Non-current liabilities
Interest bearing loans and borrowings 122,717 95,821 - - -
Rent deposits - - 9,935 - -
122,717 95,821 9,935 - -
Current liabilities
Interest bearing loans and borrowings 27,250 27,122 - - -
Rent deposits - 88 5,799 - -
Other payables 68 436 40 349 -
27,318 27,646 5,839 349 -
As at 31 December 2017 Rouble Euro US Dollar Sterling ZAR
£'000 £'000 £'000 £'000 £'000
Non-current assets
Restricted cash - - 226 - -
Derivative financial instruments - 1,842 48 - -
- 1,842 274 - -
Current assets
Rent receivable - 1 2,153 - -
Restricted cash - - - - -
Derivative financial instruments - - 7 - -
Other current receivables 38 1,230 4 17 -
Cash and short term deposits 40,649 30,908 8,928 69 -
40,687 32,139 11,092 86 -
Non-current liabilities
Interest bearing loans and borrowings - 44,302 64,389 - -
Rent deposits - - 13,292 - -
- 44,302 77,681 - -
Current liabilities
Interest bearing loans and borrowings 10,524 - 2,063 - -
Rent deposits 3,543 - - - -
Other payables 58 - 400 - -
14,125 - 2,463 - -
The sensitivity analyses below are based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur and
changes in some of the assumptions may be correlated, for example a change in interest rate and a change in foreign currency exchange rates. The Group
principally manages foreign currency risk on a project by project basis.
The table below shows the impact on profits if US Dollar, Euro, Rouble or Sterling weakened or strengthened by 10% against the functional currency of the
specific subsidiary or entity in the Group, with all other variables in each case remaining constant, then:
2018 2017
Post tax profit or loss would change by: £'000 £'000
US Dollar 1,104 8,032
Russian Rouble 13,395 4,069
Sterling 28 4
Euro 11,699 1,278
The Group's interest rate risk arises from its long-term borrowings (note 21), preference shares (note 22) and convertible preference shares (note 23). Borrowings
issued at variable rates expose the Group to cash flow interest rate risk, whilst borrowings issued at a fixed rate expose the Group to fair value risk. The Group's
cash flow and fair value risk is reviewed monthly by the Board. The cash flow and fair value risk is approved monthly by the Board.
The Group analyses its interest rate exposure on a dynamic basis. It takes on exposure to the effects of fluctuations in the prevailing levels of market interest
rates on its financial position and cash flows. Interest costs may increase as a result of such changes. They may reduce or create losses in the event that
unexpected movements arise. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and
hedging. Based on these scenarios the Group calculates the impact on profit and loss of a defined interest rate shift. The simulation is run on an on-going basis
to verify that the maximum potential impact is within the parameters expected by management. Formal reporting to the Board on cash flows is made on a monthly
basis.
To date the Group has sought to fix its exposure to interest rate risk on borrowings through fixed rate debt facilities, the use of a variety of interest rate derivatives
and the issue of preference shares and convertible preference shares at a fixed coupon. This gives certainty over future cash flow but exposure to fair value
movements, which amounted to an accumulated unrealised loss of £13.8 million at 31 December 2018 (2017: loss of £10.9 million).
We have diversified our debt exposure and, hence, interest rate exposure. The Group is now less exposed now to US LIBOR and more sensitive to EURIBOR
and Central Bank of Russia Key rate movements. Sensitivity to all benchmark rates is presented in the table below.
2018 2017
Increase Decrease Increase Decrease
100 bps 100 bps 100 bps 100 bps
£'000 £'000 £'000 £'000
US LIBOR (81) 344 (1,923) 4,532
EURIBOR (1,499) - (317) -
Central Bank of Russia Key rate (704) 1,680 - -
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on their contractual obligations resulting in financial loss to the Group. The Group's principal financial
assets are cash and short term deposits and trade receivables.
Cash and short term deposits are placed with a variety of financial institutions in order to spread the counterparty risk and in accordance with limits approved by
the Board. The Group considers the credit rating of its counterparties when assessing whether a particular financial institution is suitable. Deposits and liquidity
requirements are considered by management weekly.
The Group reviews the creditworthiness of potential tenants prior to entering into a lease. Based on this assessment the Group will require a cash deposit or
guarantee as collateral for the tenant's obligations under the lease. The collateral typically represents three months rent but may be shorter or longer as required.
The Group has a relatively large number of different tenants and as disclosed in note 5 there is only a single tenant that accounts for in excess of 10% of Group
revenue.
Taking these factors into account and having examined the Group's historical credit loss ratio, the risk to the Group of individual tenant default is considered low.
An allowance for impairment of trade receivables is made with reference to the Group's assessment of expected credit loss or where there is objective evidence
that the Group will not be able to collect all amounts due. Details of the movements in provision for impairment of trade receivables is provided in the table below.
2018 2017
£'000 £'000
At 1 January 3,416 3,711
Effect of foreign exchange rate changes (240) (223)
Charge for the year - 82
Utilised in the year (238) -
Unused amounts reversed (58) (154)
At 31 December 2,880 3,416
At 31 December 2018 there were no significant amounts of unimpaired trade receivables that were past due for collection (2017: £ nil).
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and
the ability to close out market positions. The Board and its advisers seek to have appropriate credit facilities in place on a project by project basis, either from
available cash resources or from bank facilities.
Management monitor the Group's liquidity position on a daily basis and formal liquidity reports are issued from all jurisdictions on a weekly basis and are reviewed
monthly by the Board, along with cash flow forecasts. A summary table with maturity of financial liabilities is presented below.
All amounts shown are gross undiscounted cash flows.
Financial liabilities Years
As at 31 December 2018 Total Current Year 2 Years 3 to 5 6 to 10
£'000 £'000 £'000 £'000 £'000
Interest bearing loans and borrowings 814,184 124,230 64,568 401,318 224,068
Preference shares 119,537 11,954 11,954 35,861 59,768
Convertible preference shares 353,514 12,505 12,505 37,516 290,988
Derivative financial instruments 1 1 - - -
Head leases 1,150 115 115 345 575
Trade and other payables 28,927 12,503 5,396 8,147 2,881
1,317,313 161,308 94,538 483,187 578,280
As at 31 December 2017
Interest bearing loans and borrowings 792,484 122,949 146,249 353,389 169,897
Preference shares 118,971 11,897 11,897 35,691 59,486
Convertible preference shares 366,018 12,505 12,505 37,516 303,492
Derivative financial instruments 26 26 - - -
Head leases 1,149 115 115 345 574
Trade and other payables 34,525 17,799 5,718 10,335 673
1,313,173 165,291 176,484 437,276 534,122
Details of the interest rates applicable to the Group's long term borrowings and preference shares are given in notes 21 and 22. The Group is subject to interest
costs in perpetuity in respect of preference shares, which have no contractual maturity date. The table above does not show cash flows beyond 10 years.
The Group monitors its risk to a shortage of funds by forecasting cash flow requirements for future years. The Group's objective is to maintain a balance between
continuity of funding and flexibility through the use of short term borrowing facilities, bank loans and equity fund raisings.
Fair values
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial instruments in the financial statements.
2018 2017
Carrying Fair Carrying Fair
Value Value Value Value
£'000 £'000 £'000 £'000
Non-current assets
Loans receivable 676 627 491 459
Restricted cash 12,249 12,249 965 902
Derivative financial instruments 21,953 21,953 5,875 5,875
Current assets
Trade receivables 27,803 27,803 32,773 32,773
Restricted cash 1,792 1,792 - -
Other current receivables 907 907 1,116 1,116
Derivative financial instruments 349 349 329 329
Cash and short term deposits 73,450 73,450 197,137 197,137
Non-current liabilities
Interest bearing loans and borrowings 567,865 561,076 547,371 549,592
Preference shares 109,271 130,494 108,263 144,749
Convertible preference shares 206,116 226,057 198,870 234,714
Derivative financial instruments - - - -
Rent deposits 16,425 13,130 16,734 14,150
Deferred consideration - - 7,402 7,402
Other payables 1,372 1,372 1,428 1,428
Current liabilities
Interest bearing loans and borrowings 75,565 75,565 78,871 78,871
Derivative financial instruments 1 1 26 26
Rent deposits 7,242 7,242 4,895 4,895
Deferred consideration 12,197 12,197 17,874 17,874
Other payables 5,262 5,262 12,903 12,903
The fair values of loans receivable and borrowings have been calculated based on a discounted cash flow model using a discount rate based on the Group's
weighted average cost of capital. The valuation technique falls within level 3 of the fair value hierarchy (see note 35 for definition). The fair value of short term
deposits, other assets, trade and other receivables, trade and other payables is assumed to approximate to their book values. The fair value of preference shares
and convertible preference shares are assumed to be their last quoted price, which is considered to be level 1 of the fair value hierarchy. The fair value of
derivatives is determined by a model with market based inputs.
(d) Capital risk management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern to provide returns to shareholders and benefits
for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
For capital risk management, the Directors consider both the ordinary and preference shares to be permanent capital of the Company, with similar rights as to
cancellation.
To maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, under take tender offers, return capital to
shareholders, issue new shares or sell assets to reduce debt. Consistent with others in its industry, the Group monitors capital on the basis of its gearing ratio.
This ratio is calculated as net debt divided by total capital. Net debt is calculated as total liabilities but excluding provisions, head lease obligations and preference
shares, which for capital risk management is considered to be capital rather than debt, less cash and short term deposits and restricted cash. Total capital is
calculated as equity, as shown in the balance sheet, plus preference shares and net debt. Where the Group has a net cash position, the gearing ratio will be
zero.
2018 2017
£'000 £'000
Non-current liabilities 847,806 830,222
Current liabilities 141,740 158,317
Total borrowings 989,546 988,539
Less: cash and short term deposits 73,450 197,137
Less: restricted cash 14,041 965
Net debt 902,055 790,437
Equity 295,627 391,838
Preference shares 109,271 108,263
Total capital 1,306,953 1,290,538
Gearing ratio 69.02% 61.25%
35. Fair value measurement
The following table provides the fair value measurement hierarchy* of the Group's assets and liabilities.
Total Fair
Level 1 Level 2 Level 3 Value
As at 31 December 2018 £'000 £'000 £'000 £'000
Assets measured at fair value
Investment property - - 1,175,440 1,175,440
Investment property under construction - - 30,548 30,548
Derivative financial instruments - 22,302 - 22,302
Liabilities measured at fair value
Derivative financial instruments - 1 - 1
As at 31 December 2017
Assets measured at fair value
Investment property - - 1,159,172 1,159,172
Investment property under construction - - 28,608 28,608
Derivative financial instruments - 6,204 - 6,204
Liabilities measured at fair value
Derivative financial instruments - 26 - 26
* Explanation of the fair value hierarchy:
Level 1 - Quoted prices in active markets for identical assets or liabilities that can be accessed at the balance sheet date.
Level 2 - Use of a model with inputs that are directly or indirectly observable market data.
Level 3 - Use of a model with inputs that are not based on observable market data.
The Group's foreign currency derivative financial instruments are call options and are measured based on spot exchange rates, the yield curves of the respective
currencies as well as the currency basis spreads between the respective currencies. The Group's interest rate derivative financial instruments comprise swap
contracts and interest rate caps. These contracts are valued using a discounted cash flow model and where not cash collateralised consideration is given to the
Group's own credit risk.
There have been no transfers between level 1 and level 2 during the year or the prior year.
36. Operating lease arrangements
The Group earns rental income by leasing its investment properties to tenants under non-cancellable operating leases, which are discussed in detail in the
Strategic Report and note 13. At the Balance Sheet date the Group had contracted with tenants for the following future minimum lease payments:-
2018 2017
£'000 £'000
Within one year 124,107 120,708
In the second year 92,553 101,418
In the third to fifth year (inclusive) 133,265 150,533
After five years 66,757 34,128
416,682 406,787
37. Reconciliation of liabilities arising from financing activities
Non-cash changes
Year ended 31 December 2018 Foreign
2017 Cash flows Fair value exchange Other 2018
£'000 £'000 £'000 £'000 £'000 £'000
Interest bearing loans and borrowings 626,242 (10,588) - 24,282 3,494 643,430
Preference shares 108,263 - - - 1,008 109,271
Convertible preference shares 198,870 - - - 7,246 206,116
Derivative financial instruments (6,040) (18,848) 3,066 (480) - (22,302)
927,335 (29,436) 3,066 23,802 11,748 936,515
Year ended 31 December 2017 Non-cash changes
Foreign
2016 Cash flows Fair value exchange Other 2017
£'000 £'000 £'000 £'000 £'000 £'000
Interest bearing loans and borrowings 598,708 75,201 - (51,356) 3,689 626,242
Preference shares 106,582 (84) - - 1,765 108,263
Convertible preference shares 96,997 97,781 - - 4,092 198,870
Derivative financial instruments (3,711) (3,680) 1,364 (13) - (6,040)
798,576 169,218 1,364 (51,369) 9,546 927,335
2018 2017
Cash flows relating to interest bearing loans and borrowings comprise: £'000 £'000
Proceeds from long term borrowings 155,628 206,641
Repayment of long term borrowings (153,152) (98,167)
Add: payments to restricted cash 13,056 -
(140,096) (98,167)
Loan amortisation (23,279) (29,684)
Bank borrowing costs paid (50,000) (49,475)
Add: Interest paid 47,159 45,886
Loan origination costs incurred (2,841) (3,589)
(10,588) 75,201
Other non-cash changes include amortisation of origination costs, movements in interest accruals, accretion of premiums payable on redemption of preference
and convertible preference shares and the allocation to equity on issue of convertible preference shares.
38. Acquisitions in the year
Acquisitions in the year
The Group made one corporate acquisition in the year, the purchase of Volga Logistics Park. The Group purchased the property by acquiring all of the issued
share capital of the corporate vehicles that owned the property. In accordance with its accounting policy, the Group considered the acquisition assessing whether
an integrated set of activities had been acquired in addition to the property. It was concluded a business had not been purchased but rather the acquisition of a
group of assets and related liabilities.
Analyses of the consideration payable for the properties and the incidental assets and liabilities are provided below:
2018
£'000
Non-current assets
Investment property (note 11) 30,805
Investment property under construction (note 12) 2,444
Deferred tax assets (note 25a) 1,490
Current assets
Trade and other receivables 642
Cash and short term deposits 1,235
Current liabilities
Trade and other payables (2,621)
33,995
Discharged by:
Cash consideration paid 32,958
Acquisition costs 868
Consideration payable 169
33,995
Acquisitions in prior year
The Group made three corporate acquisitions in the prior period; Gorigo Logistics Park, Primium Business Centre and Kellerman Business Centre. The Group
purchased the properties by acquiring all of the issued share capital of the corporate vehicles that owned the properties. In accordance with its accounting policy,
the Group considered each acquisition in turn, and in each case it was concluded a business had not been purchased but rather the acquisition of a group of
assets and related liabilities.
Analyses of the consideration payable for the properties and the incidental assets and liabilities are provided below:
Primium Kellerman Offices Total Gorigo Total
£'000 £'000 £'000 £'000 £'000
Non-current assets
Investment property (note 11)
Deferred tax assets (note 25a) 23,280 16,724 40,004 28,589 68,593
- - - 1,482 1,482
Current assets
Trade and other receivables
Cash and short term deposits 187 352 539 225 764
1,542 812 2,354 912 3,266
Current liabilities
Trade and other payables
(1,584) (2,016) (3,600) (1,565) (5,165)
23,425 15,872 39,297 29,643 68,940
Discharged by:
Cash consideration paid 68,278
Acquisition costs 662
68,940
18 March 2019
JSE Sponsor: Rencap Securities (Pty) Limited
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