Final Results

16 March 2020

Raven Property Group Limited ("Raven" or the "Company" or the "Group")

Results for the year ended 31 December 2019

The Board of Raven Property Group release results for the year ended 31 December 2019.

Highlights

· Net operating income up 7% to £126.5million (2018: £118.3million)

· Underlying earnings increase by 116% to £43.2million (2018: £20.0million) and IFRS earnings to £46.0million (2018: loss of £120.7million)

· Basic earnings per share 8.16p (2018: loss per share 18.81p)

· Diluted Net Asset Value per share 75p (2018: 48p)

· Occupancy today 92%

· Investment property valuation £1.34billion (2018: £1.18billion)

· Cash balances today of £104.4million

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CEO Glyn Hirsch said "We are very proud of these excellent results which demonstrate the potential of our business. Understandably given recent events our focus is now on managing the business through this volatile period."

Enquiries

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, in the 12 months to 31 December 2019, we have enjoyed a strengthening in all aspects of our business. High average occupancy, improving asset valuations, increasing market rents, reducing Central Bank rates and stable average Rouble exchange rates in 2019 have all contributed to improved results.

Together, they have supported an increase in underlying earnings to £43.2million (2018:£20.0million), a significant swing in IFRS earnings to £46.0 million (2018: loss of £120.7million) and a jump in basic net asset value per share from 48p at the end of 2018 to 76p at 31 December 2019.

As you will read in this Annual Report, the executive team focus in the last 12 months has been diverted to deal with shareholder issues. We have purchased and contracted to purchase 38% of our ordinary shares from our two largest institutional holders. It has been a distracting and stressful period for our senior executive team, but the enhancements are well worth the effort and I'd like to congratulate them all on their determination to secure these transactions.

As I write, the issues with Coronavirus are on all personal and business agendas. This has now been exacerbated by the oil price crash and the impact that has had on Rouble exchange rates. We have agreed an extension to the back stop date to acquire our shares from Invesco as a direct consequence of this. We have yet to see any tangible effect on our trading operations but we are progressing with caution.

As we continue with our Board succession planning, I am sorry to say that Christopher Sherwell will be stepping down as a non executive director at the AGM. Christopher has been an exemplary Senior Independent Director and Chair of the Remuneration Committee and will be missed. We are actively searching for new members of the non executive team and hope to make an announcement soon.

All in all, a good year but with mixed emotions on the loss of two long term shareholders and supporters of the Company and we will continue into 2020 with a cautious approach given the wider issues in play today.

Sir Richard Jewson

Chairman

15 March 2020

Strategic Report

Chief Executive's Report

Dear Shareholders,

The normal process for producing these statements involves an early discussion draft some weeks ahead of the results date. This draft gets fine tuned up to the announcement date but rarely changes much. This year external events have meant two redrafts, one for coronavirus and the second following the oil price collapse.

2019 was a very good year although not in the way we originally planned. Our market continued to improve. Vacancy rates in the market are down, rents are up and Russian Central Bank ("CBR") rates continued to fall. This is now impacting positively on a business with no exposure to Dollar debt and only 15% of our space now with Dollar pegged leases. The continuation of this Dollar income is benefitting us during this current period of market and currency turmoil.

E-commerce has arrived and is an expanding force in our market. E-commerce tenants now occupy 6% (2018: 3%) of our portfolio and we expect this increase to continue.

Due to completely non-related circumstances in the fund management industry, 2019 was an extraordinary year for the company. Shareholder liquidity issues meant we were offered the opportunity to purchase 38% of our ordinary shares from two large institutional investors, Woodford Investment Management ("WIM") and Invesco Asset Management Limited ("IAML"), at a near 50% discount to net asset value per share. We completed the purchase of 16% in 2019 including all of WIM's holding, and have contracted to purchase the remainder from IAML, together with their holding of preference and convertible preference shares, before 31 July 2020, subject to certain shareholder approvals. Although this has led to a diversion of our cash resources away from property acquisitions it is an opportunity too good to miss.

The announcement of the share buy backs did have an impact on share price performance and we had seen an improvement prior to the recent market sell off. We hope that when markets return to normal, this will again have a positive effect on price performance.

Net asset value per share at 31 December 2019 increased to 76p (2018: 48p) following the year end valuations and the prospects were looking very good from here prior to the Coronavirus outbreak.

At today's date we have £104.4million in cash.

We are yet to see any immediate impact on our operating business due to the Coronavirus situation but we have delayed the acquisition of IAML's various shareholdings until we can see some stability returning. As with the majority of international businesses we have implemented a number of preventative measures, stopping all non essential travel, increasing the use of our VCU facilities, monitoring of all staff that do travel and implementing back up plans for working remotely. The mayor of Moscow has also introduced strict rules for companies. This covers the monitoring of employees, including mandatory temperature tests each day, and he has also introduced isolation periods for travellers from numerous countries arriving in Moscow which only reinforces our own travel restrictions.

We know that the Russian economy is heavily influenced by the oil market. Recent movements have impaired external sentiment but at this early stage our day to day business of renting warehouses has not been affected.

Inevitably the Coronavirus and a volatile oil market will lead us to adopt a more financially cautious approach which is a frustration given the positive trends we were seeing across all aspects of our business. 

Despite an excellent 2019 current market turbulence necessitates a cautious approach to distributions particularly given our tender offers which are sensitive to market movements . With that in mind we intend to make a final distribution of 2.25p per share which amounts to 3.5p for the year. However the timing and structure of this distribution will be determined at a later date when market volatility has calmed down.

Finally, I and my colleagues, delight in congratulating our Chairman, Sir Richard Jewson, on being awarded his knighthood during the year. An honour highly reflective of a man marrying great integrity and compassion with strong leadership. Bravo Sir Richard.

Glyn Hirsch

Chief Executive Officer

15 March 2020

Purpose and Culture

The original purpose of our business in 2005 was to act as a conduit for international funds into an underdeveloped and undersupplied logistics property market in Russia at an exciting time of expansion and opportunity for the country. The nascent business encapsulated the entrepreneurial spirit of a small group of pioneers entering a new, untapped market. That spirit remains in the business today and underpins our culture. This has allowed us to be dynamic and quick in reacting to the many obstacles that we have been presented with, from the global crisis of 2009, through international sanctions to the shock of the oil price collapse and Rouble float at the end of 2014.

Today, we have 179 employees in three countries. We have a management team that promotes our entrepreneurial and meritocratic spirit with integrity and openness. The growth of the business also brings the requirement to professionalise, the need for a robust internal control framework and appropriate systems and procedures. The last year has seen a focus on all of these areas, from the introduction of an internal audit function to a review of all internal procedures and IT systems to improve integration.

Our Cyprus Board have run two forums for all senior management this year, to discuss the way the business is managed and controlled. This is fostering a better flow of information and understanding of the control environment amongst employees. It has also precipitated a number of initiatives that are being implemented, covering areas such as data management, IT integration and group structure. At the outset of those meetings however, was a reminder not to lose sight of that original entrepreneurial spirit.

Business Model and Strategy

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 has not changed. The market remains fragmented with a number of developers and single asset owners as our main competitors. Until recently, there had not been an investment property competitor with a sole focus on the logistics market. However, with market fundamentals improving and logistics seen as a key property sector globally, interest in portfolio building does seem to be on the agenda for some international funds.

Having built our infrastructure and with a strong team of property, finance and legal specialists we do believe we have a strong competitive advantage but with such an immature property investment market we would welcome additional players in the sector. It could only benefit the market and support further growth in property valuations.

We have acquired our investment portfolio, typically with yields of between 11% and 14% and have bank financing costs across the Group of 6.52%. The majority of our operating business is Rouble denominated, with a small number of legacy US Dollar pegged leases remaining and secured debt of Rouble and Euro denomination. We intend to continue our move to Rouble denominated debt in the coming year.

At the year end, US Dollar leases accounted for 16% of the Gross Lettable Area ("GLA") of our warehouse portfolio (2018: 26%). Our office portfolio now has no currency exposure (2018: Euro 20%; US Dollar 9%). The majority of leases are "triple net" meaning property operating expenses are recharged to tenants, leakage of cost only occurring on vacant space.

The Group's secured banking facilities are 57.6% (2018: 31.1%) Rouble denominated, 42.4% (2018: 34.8%) Euro and we now have no US Dollar liabilities (2018: 34.1%). Debt amortisation is weighted toward the Euro element of our financing facilities to reduce the foreign exchange exposure over the facility term.

Other than our St Petersburg office portfolio, each of the secured facilities sits in a special purpose vehicle ("SPV") structure to minimise recourse to the overall portfolio. At the year end, asset specific debt represented 50.1% loan to value (2018: 54.1%).

Our average letting size by tenant is 8,722sqm (2018: 9,000sqm). We do not have one tenant with more than 9% (2018: 8%) of our portfolio's GLA and the top ten tenants, including Roslogistics, account for 43% (2018: 42%) of our portfolio in GLA terms and 49% (2018: 53%) in income terms.

Key Performance Indicators ("KPIs")

Occupancy levels and average Rouble rents achieved are our primary operating focus. Our measure of average Rouble rents incorporates the running rent for all parts of a lease: the indexed dry warehouse rent; mezzanine; related office space; ancillary items such as parking; and "rentalised" tenant improvements on high specification space.

We also aim to refinance at least our secured debt amortisation each year, which approximates to a four year refinancing cycle for each asset.

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

During a year without acquisitions we have focussed on maintaining occupancy, investing in our properties for the long term and positioning ourselves to benefit from the upswing in tenant demand and rents. Occupancy began and ended the year at 90% but has improved since the year end and now stands at 92% with a further 2% covered by letters of intent ("LOIs").

280,700sqm of existing leases have been renegotiated and extended in the financial year and 225,500sqm of new leases signed. Significant new lettings include 11,500sqm to Inditex, 14,400sqm to Diageo and 19,200sqm for IKEA. A number of major tenants have also increased their space with us including Bacardi taking an extra 17,100sqm, Pernod Ricard 9,300sqm and Cotton Club 11,500sqm.

Space vacated on maturity, breaks exercised and early terminations totalled 212,200sqm during the year. Vacant warehouse space at the year end totalled 195,000sqm and the office portfolio had only 3,000sqm of vacancy. There are potential breaks in the portfolio of 189,000sqm in 2020 and 241,000sqm in 2021. We currently expect tenants who occupy only circa 19,000sqm and 29,750sqm to exercise their breaks and vacate in 2020 and 2021 respectively.

Since the year end we have signed a further 104,000sqm of deals of which 63,000sqm were new lettings and 41,000sqm were renewals or extensions. We currently have 218,000sqm of LOIs for renewals, extensions or expansions and 31,000sqm of new lettings.

Our leasing strategy remains one of attracting the best tenants for the long term whilst keeping a diversified tenant mix across sectors and business types. We also target tenants who require significant capital investment into their premises and seek to "rentalise" these improvements over the term of the lease, creating enhanced returns.

Across the portfolio we are implementing a number of initiatives to reduce our energy consumption and use more sustainable sources of energy. In 2019, as part of our rolling capital maintenance programme, we have completed the replacement of roof membranes and associated insulation on 89,000sqm of buildings and also replaced outdated lights in 53,000sqm of our portfolio, installing LED fittings. Both of these measures have reduced energy consumption. At Noginsk in Moscow, our electricity is now supplied from a sustainable source (hydro electricity) and we intend to roll this out to other properties where appropriate. In Rostov, in the south of Russia, we are currently evaluating an option to create a Solar Power Plant to generate electricity for our property in the city, and subject to obtaining any necessary permits will start these works during 2020.

At the year end, 16% (2018: 26%) of our warehouse GLA had US Dollar denominated leases with an average warehouse rental level of $158 per sqm (2018: $148 per sqm) and a weighted average term to maturity of 1.9 years (2018: 2.1 years). Rouble denominated leases account for 71% (2018: 61%) of our total warehouse space with an average warehouse rent of Roubles 4,922 per sqm (2018: 4,900 per sqm) and weighted average term to maturity of 4.1 years (2018: 4.5 years). Rouble leases have an average minimum annual indexation of 5.7% (2018: 5.9%).

Investment Portfolio

Moscow

We have ten warehouse projects in Moscow totalling 1.3million sqm with 87% (2018: 88%) of space let at the year end.

*Excludes space let to Roslogistics

Occupancy in Moscow year on year remained broadly flat, but this hides the fact that one of our largest leases expired in June releasing 91,300sqm of space at Krekshino. At that point we took the opportunity to invest in the property undertaking some technical improvements and a cosmetic refurbishment. At the date of writing only 21,000sqm remains vacant with new tenants including Diageo, Wildberries and Ball Corp with one LOI on a further 5,600sqm. Currently we only have 116,800sqm available for rent in Moscow, although this will rise in the second half when Itella returns a further 65,000sqm to us at Pushkino. We are already in discussions with a number of prospective tenants to relet this space.

St Petersburg and Regions

*Excludes space let to Roslogistics

Warehouse occupancy in the regional markets of St Petersburg, Rostov and Novosibirsk has remained strong and we have increased rents in all locations. The lack of supply in the market generally means we could see further rental increases in 2020.

Tenant Mix

Our tenant mix has remained diverse during the year. The proportion of space leased to the e-commerce sector increased to 4% at the year end and is 6% today. The influence of e-commerce on the letting market still remains small compared to other European markets but it is growing.

Office Portfolio

Rents have continued to improve in St Petersburg where our office portfolio is situated. This has allowed us to virtually fully relet Primium where the sole tenant's lease expired in the summer. New occupiers include Tele2 and PIK as well as YIT, the original occupier, retaining 27% of the building. Since acquisition we had benefitted from a very high Euro rent and this has now re-based down to the market rental level, although the rents we have achieved are 20% above the ERV at the date of purchase. The picture at Kellerman is very similar with the last hard currency lease coming to an end last year. It is now 87% let with LOIs on a further 3%. The office portfolio is now entirely let in Roubles.

Portfolio Yields

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 £1.4billion (see notes 11 & 12 to the financial statements). This has resulted in a net profit on revaluation of £46.6million in portfolio value during the year. In Rouble terms the value of the properties has increased by 4.2%.

JLL reduced both the cap and discount rate inputs during the second half of the year by 25 basis points, reflecting the improving market, CBR rates and market evidence. JLL still quote a range of yields across all sectors to reflect the difference in quality of assets, leases and differing currencies. The figures in the table above are the discount rates applied to the cash flows from the properties. These are derived from the prime cap rates that JLL publish adjusted for individual property factors.

The property investment market improved in 2019 with the total value of transactions increasing by 41% to $4.1billion. 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.

Land Bank

In Moscow, after some delays caused by changes in the planning system we have now renewed our construction permit at Nova Riga, and could start to build out up to 75,000sqm if we secure a sizeable prelet.

The Market

In our main market of Grade A warehouses in Moscow where we hold 70.5% of our portfolio, demand has remained strong and market vacancy has reduced to circa 4%. In real terms this means there is only circa 500,000sqm of space available in the market. At last year's take up levels this amounts to only five months supply. The robust level of demand and limited new supply has forced rents upwards and we are generally seeing average rents of Rub4,000 per sqm in Moscow and the Moscow region. There are variations in different sub markets, with the range of rents being from Rub3,500-Rub4,250, however the vast majority are now above Rub4,000 per sqm. In St Petersburg and our two regional hubs of Rostov and Novosibirsk rental levels are broadly the same as in Moscow.

In 2019, 1.1million sqm of warehouse space was delivered. This is the highest volume since 2016 and 7% higher than in 2018. Only 21% of new supply was speculative, the majority being build to suit or pre-leased, one third of the level of two years ago. Overall take-up amounted to 1.3million sqm which was the driving factor in reducing vacancy. Demand was strongest from the retail, logistics and manufacturing businesses which accounted for 35%, 28% and 18% respectively. E-commerce companies continued to expand, and although their share of take up was down in the year this can partly be explained by the very high level of take up in 2018.

For the coming year it is estimated that a further 918,000sqm will be delivered and take up will be circa 1.2milllion sqm. Of the space under construction 352,000sqm or 38% is pre committed as build to suit for lease or sale, leaving 566,000sqm of speculative space coming to the market. Construction costs have increased by approximately 5% during the year and may continue to rise as a result of Rouble weakness.

Investment volumes in the year increased to $4.1billion, with 67% of this in Moscow. Over 74% of all deals were funded by Russian capital, and only 7% of the total capital or $290million went into the warehouse sector. JLL predict prime yields in the range of 10.50-12.00% for Moscow warehouses. We continue to look at a number of new acquisition ideas in our preferred sector of Grade A warehouses and would have made acquisitions in 2019, if the opportunity to buy back our ordinary shares had not arisen.

Tenant demand has started the year very strongly and we are now 92% let. What the medium term effects of the Coronavirus will be are as yet unknown, but we are well placed with high occupancy, a diversified tenant mix and with little vacancy in the broader market. In a favourable scenario where the effect of Coronavirus is muted then 2020 should be another year of high occupancy and rising rents. Even though the CBR reduced rates by 1.75% in 2019, cap rates have only fallen by 25 basis points so we expect there to be further positive movement in cap rates as the cost of borrowing falls. As we have said before, in any other European market yields would be considerably lower than we see today and in the medium to long term the relative high yields and low rents should attract more capital.

Finance Review

Increased occupancy and a stronger Rouble have supported our income and profitability in the year. Improving asset valuations have also given a boost to IFRS earnings. Our net asset vale per share has benefitted from a stronger year end Rouble, property valuation uplifts and the purchase and cancellation of 99 million ordinary shares at a discount to net asset value per share in the year.

Income Statement

We 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.

Net rental and related income benefits from a full year of income from acquisitions completed in 2018. The average Rouble/Sterling rate of 82.6 (2018: 83.7) has had minimal effect on translating the income statement to presentation currency. The stronger year end Rouble/Euro exchange rate of 69.3 (2018: 79.3) results in an unrealised profit on foreign exchange when our Russian subsidiaries account for their Euro debt liability.

Underlying Administrative Expenses

Underlying administrative expenses increase as a result of bonus provisions. The 2019 results include £1.2million paid in relation to 2018 performance but also carry an accrual for 2019 bonuses of £1.3million together with an estimate of share based bonus payments of £4.6million, therefore accounting for the impact of two years.

Underlying Net Finance Charge

Our underlying interest expense increases as acquisitions completed towards the end of 2018 were refinanced in the year. Interest receivable dropped on lower average cash balances following the use of funds to acquire the company's ordinary shares and on reducing CBR rates.

The principal movements between underlying earnings and IFRS earnings relate to mark to market changes, with a profit on revaluation of investment properties of £48.3million (2018: loss of £121.0million) and the write down of the value of CBR rate caps of £20.4million (2018: £4.6million) being the largest. The latter a factor of the CBR monetary easing over the year, interest rates dropping from 7.75% at 1 January 2019 to 6% today.

Taxation

Tax paid increases in line with increased profits. The largest element of the charge for the year relates to deferred taxes with a reduction in deferred tax losses and a charge for the gain in revaluation compared to the depreciated cost of our assets in the Russian operating companies.

Investment Properties

The carrying value of our investment property and investment property under construction benefits from both improving valuations and a stronger Rouble. Revaluation gains of £46.6million have been recognised in the year on the back of improving yields and ERVs. The stronger year end Rouble/Sterling rate of 81.15 compared to 88.35 at 31 December 2018 also adds £108.8million on the retranslation of the opening balances to Sterling.

Debtors and Creditors

Non current asset movements in the year relate principally to financing. Other receivables reduce as restricted cash of £12million retained for repayment of a loan was discharged early in the year. As noted above, the carrying value of interest rate caps on our Rouble debt reduced significantly as CBR rates fell, reflected in the change in derivative financial instruments' carrying value.

Points of note in trade and other receivables include the recovery of a VAT asset of £4million which arose on the acquisition of the Sever asset in 2018 and the inclusion of deferred consideration of £3million in other receivables on the sale of the Coln JV.

The largest movement in trade and other payables relates to the payment of £12million of deferred consideration on the Sever acquisition in the year. Advanced rentals drop in the year on the loss of NLC at Krekshino. Other payables increase with the inclusion of the 2019 bonus provision as explained above.

Cash and Debt

Cash flows for the year were relatively neutral, the main investment in the period being the buy back of our ordinary shares, costing £53.3million in total, matched by net debt financing of £50.9million after debt amortisation of £22.7million. £3.65million was received as the first tranche consideration on the sale of our share in the Coln joint venture, with a further £3million payable later this year.

The currency profile of secured debt at 31 December 2019 was:

The debt maturity profile at the year end is:

The Group has now converted all US Dollar debt to a mixture of Rouble and Euro facilities and extended terms on the majority of facilities. There are five facilities of Euro only totalling €126.1million, one facility of Rouble only and ten facilities with a Rouble/Euro mix. The amortisation profile of the mixed facilities is weighted towards the Euro element to reduce foreign exchange risk over the term of the facility. It is the intention to convert the Euro only facilities into a Rouble/Euro mix during this year, continuing to increase our Rouble debt weighting. At the year end Rouble debt accounted for 57.6% (2018: 31.1%) of secured facilities and Euro 42.4% (2018: 34.8%).

The weighted cost of debt reduced during the year as CBR rates fell. The majority of our facilities are hedged with interest rate caps. Of the unhedged amount £78.4million relates to debt drawn late in December 2019 which was subsequently hedged with interest caps in January this year. The remainder relates to the near term maturities which are in the process of being extended and two Euro facilities where hedging is only required if EURIBOR exceeds 100 basis points.

Net Asset Value

Net asset value per share has increased from 48p at 31 December 2018 to 76p at 31 December 2019. The 2018 figure was depressed by a weak Rouble at the balance sheet date. 2019 increases on a stronger Rouble, investment property valuation gain and the accretive impact of buying ordinary shares at a significant discount to net asset value per share during the year.

Subsidiaries

In December 2019 we completed on the sale of our share in the Coln Park joint venture for a total consideration of £6.65million. £4million was received in December 2019, including the repayment of a loan of £0.35million, with the £3million balance payable by December 2020. This gave a small profit on sale of £0.5million.

Roslogistics has continued to trade at a similar level to 2018. We expect it to reduce its let space during the year but maintain profitability levels.

Risk Report

Risk Appetite

The 2019 financial year saw a marked improvement in our sector with market rents increasing, vacancy dropping and property valuations improving. We have now extinguished all of our US Dollar liabilities and asset secured debt is currently a Rouble/Euro mix, reducing our foreign exchange balance sheet risk. If favourable terms for Rouble secured facilities continue then we will further reduce our exposure to Euro financing in the current year.

As we stated in last year's Risk Report, we intended to continue with our acquisition driven growth strategy in the current year but instead have been distracted by some unforeseen developments.

The most significant risk we were presented with in 2019 was a significant overhang in our ordinary shares as firstly WIM and then latterly, IAML, two of our largest shareholders, faced liquidity issues. We diverted funds we had earmarked for property acquisitions to purchase WIM's ordinary shares in August 2019 and subsequently contracted to purchase IAML's. We have secured a credit committee approved financing line for the IAML transaction.

However, we now have the Coronavirus situation and the subsequent oil price collapse. Given the uncertainty surrounding the potential impact this may have on our business we have temporarily reduced our risk appetite. The immediate effect of this is a decision to maintain our current liquidity levels and postpone the IAML share buy back until we have a better understanding of the fall out, if any, from the crisis. Already we have seen a fall in oil prices precipitating a weakening of the Rouble. In a worst case scenario, this could lead to a suspension of investment decisions by our tenants, a disruption in supply chains impacting on the demand for new warehouse space and potential defaults by existing tenants whose businesses are affected most. However, given the experience the business had in 2015 and 2016 following the last oil price collapse we have adapted our balance sheet to reduce the impact of market shocks such as this and we believe we are in a significantly stronger position than we were during that period.

For now though, other than the Rouble weakening, we are not seeing any impact on our operations but we will proceed with caution.

The principal risk factors that follow reflect our opinion of how they have changed in 2019 and how the oil price volatility may impact on our business. The impact of Coronavirus on our local market is as yet unknown.

We are also cognisant of our responsibility for our impact on the environment and sustainability. We are looking at a number of potential projects at the moment. These range from introducing greater energy efficiency in our buildings as part of our rolling capital expenditure programme, through managing international travel with greater use of VCU technology and carbon offsets to the assessment of the impact of building a solar panel farm and the introduction of bee hives at one of our regional asset sites.

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, including new and emerging risks, 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.

Our Cypriot holding company board has been working with our other jurisdictions reviewing and codifying the group's internal control infrastructure and has overseen the first year of our internal audit function. 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. The Risk Committee has met four times during the year and reports are also reviewed by the Audit Committee. The Cypriot Board have reported to the Audit Committee on progress made with their internal control procedures with and without the internal auditors in attendance.

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

Financial Risk

Property Investment

Russian Domestic Risk

Personnel Risks

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

15 March 2020

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 2019.

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 15 March 2020 and is signed on its behalf by:

Mark Sinclair Colin Smith

Chief Financial Officer Chief Operating Officer