28th May 2013 07:00
EASTERN EUROPEAN PROPERTY FUND LIMITED Results for the year ended 31 December 2012
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HIGHLIGHTS | |
·; Four property disposals completed during the year generating aggregate proceeds of £10.6 million and profit on historical cost of £6.3 million.
·; Bank loan of US$17.5 million repaid in full.
·; Property held at 31 December 2012 valued by DTZ Debenham Tie Leung at £21.0 million (2011: £23.0 million on a like-for-like basis).
·; Net asset value at 31 December 2012 of £19.5 million, equivalent to 105.03p per Ordinary Share (2011: £22.0 million, 118.23p per Ordinary Share).
·; Loss for the year ended 31 December 2012 of £2.6 million, equivalent to a loss of 13.97p per Ordinary Share (2011: profit of £1.2 million, 6.36p per Ordinary Share).
·; Loss on revaluation of investment properties of £1.8 million (2011: gain of £1.6 million).
·; 120,000 Ordinary Shares bought for cancellation during the year.
Events after the year end: ·; Pera Residence sold for US$2.1 million (£1.4 million) on 18 March 2013, crystallising a gain, based on historic cost, of US$1.4 million (£0.9 million).
·; On 25 March 2013, a share buyback programme was initiated and Liberum Capital Limited was appointed to manage the programme to buy back for cancellation, up to 600,000 Ordinary Shares.
·; Since the year end and, as part of the share buyback programme, 575,000 Ordinary Shares have been purchased for cancellation at a total cost of £488,000.
For further information please visit www.eepfl.com or contact:
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Tom Fyson Liberum Capital Limited Tel: +44 203 100 2000 | |
Bob Locker CNC Property Fund Management Limited Tel: +44 1784 424 740 | Keiran Gallagher / Oliver Cadogan Pera Pera Tel: +90 (212) 252 6048 |
CHAIRMAN'S STATEMENT | |
The difficult economic climate experienced in the countries in which Eastern European Property Fund Limited (the "Company") and its subsidiaries (together "EEP") are invested continued throughout 2012 and this had a negative impact on the property markets. Consistent with EEP's new investment objective and policy to realise all properties on an orderly basis, individual sales were achieved at levels approximating the carrying fair values.
Investment Objective and Policy At the Company's Annual General Meeting ("AGM") held on 14 September 2012, Shareholders approved a resolution that the Company should cease to continue as constituted. In order to implement this decision, the AGM was followed by an Extraordinary General Meeting ("EGM") on 25 September 2012, at which Shareholders approved a change to the Company's investment objective and policy. EEP's strategy is now to carry out an orderly realisation of the Company's portfolio of property assets, distribute the net proceeds to Shareholders and then undertake a voluntary winding-up of the Company. Disposals may be by individual sales or as transactions incorporating a group of properties.
Results EEP reported a net loss for the year ended 31 December 2012 of £2.6 million (2011: profit of £1.2 million), representing a loss per Ordinary Share of 13.97p (2011: profit of 6.36p). The loss for the year was largely attributable to the £1.8 million unrealised loss (2011: gain of £1.6 million) arising from the revaluation of investment property and the £0.7 million realised loss on disposal of investment properties. Total comprehensive loss for the year was £2.5 million (2011: loss of £54,000). The effect of foreign exchange movements contributed £1.3 million to the loss for the year.
EEP's consolidated net asset value ("NAV") at 31 December 2012 was £19.5 million, equivalent to 105.03p per Ordinary Share (2011: £22.0 million; 118.23p per Ordinary Share). Capital was reduced by £103,000 as a result of the repurchase of Ordinary Shares in 2012.
Operating expenses decreased during the year, compared to 2011, mainly as a result of the reversal of the performance fee provision from £210,000 at 31 December 2011 to nil at 31 December 2012. Further information is provided in note 5 to the results. As a direct benefit of the gradual repayment of the bank loan during the course of the year, bank interest payments reduced.
The Company's share price rose by 16.75p during the year to 87.50p at 31 December 2012, representing an increase of 23.7% compared to the 31 December 2011 share price. During the year, the Company purchased and cancelled 120,000 Ordinary Shares at a weighted average price of 85.00p per Ordinary Share. The share price discount to NAV narrowed during the year from 40% at 31 December 2011 to 17% at 31 December 2012.
Since the year end, as part of a share buyback programme initiated on 25 March 2013 by the Company and managed by Liberum Capital Limited, a total of 575,000 Ordinary Shares have been purchased and cancelled. The total cost of the Ordinary Shares purchased was £488,000. Excluding commissions and other charges, the weighted average price per Ordinary Share equated to 84.50p.
Property Portfolio Consistent with the new investment objective and policy, during the year, EEP successfully completed a number of property disposals: ·; On 12 April 2012, EEP completed its first disposal, with the sale of Kadife Palas, which was sold for US$4.3 million (£2.7 million) (compared to the 31 December 2011 DTZ valuation of US$4.4 million) and crystallised a gain, based on historical cost, of US$2.7 million (£1.7 million). ·; On 19 June 2012, the Gonul Sokak apartment, forming part of the Gonul Sokak property, was sold for TRY450,000 (£159,000), in line with the 31 December 2011 DTZ valuation. ·; On 13 July 2012, EEP sold the Ravuna apartments at 401 Istiklal Street, for US$8.5 million (£5.5 million), crystallising a gain, based on historical cost, of US$5.0 million (£3.2 million). The 31 December 2011 DTZ valuation was US$8.0 million. ·; On 26 November 2012, the 6th Floor of the Misir building was sold for US$3.5 million (£2.2 million), crystallising a gain, based on historical cost, of US$2.2 million (£1.4 million). The 31 December 2011 DTZ valuation was US$3.9 million. EEP and its service providers are continuing to implement the new investment objective and policy. The remaining properties will be sold as and when appropriate offers are received. Despite the slower than expected growth of the Turkish economy, we have received considerable interest in many of our remaining properties held in Istanbul, where a broad base of real estate investors exists and debt finance is available. There has been less interest in our properties located in Bucharest and Sofia, in part due to the subdued local economies and limited availability of bank debt funding, but it is hoped that interest will increase as the Property Manager and Investment Adviser boost the yields from lease income. Further information is provided in the Property Manager and Investment Adviser's Report. | |
Since the year end, the Pera Residence was sold on 18 March 2013 for US$2.1 million (£1.4 million), crystallising a gain, based on historic cost, of US$1.4 million (£0.9 million). As the Turkish subsidiary had used up all of its brought forward losses, the sale resulted in the payment of corporate income tax of US$0.3 million (£0.2 million) on the gain. The sale price was 26% higher (in Sterling terms) than the fair value of the property in these accounts as at 31 December 2012.
Disclosure of Property Valuations Consistent with previous years, DTZ Debenham Tie Leung has carried out independent valuations of all properties held by EEP. The aggregate value of EEP's investment properties remaining at 31 December 2012 decreased during the year and resulted in a net unrealised loss on revaluation of £1.8 million (2011: gain of £1.6 million) (see note 14). Further details of the individual properties (except their carrying valuations) are disclosed in the Property Manager and Investment Adviser's Report.
In previous years, EEP has complied with IFRS 8: Operating segments, which requires the disclosure of segmental information based on the internal reports that are regularly reviewed by the Board in order to assess each segment's performance and to allocate resources to them. In EEP's case, this includes a detailed breakdown of individual property values on a country by country basis. However, in view of the new investment objective and policy, the Board has decided not to comply with IFRS 8 in relation to the 31 December 2012 consolidated financial statements. The principal reason for this decision is that, in the view of the Board, the Manager, the Property Manager and the Investment Adviser, disclosure of the carrying values of each individual property could prejudice the ongoing commercial negotiations in relation to disposals. Provision of a breakdown of the values of each property could thus have a negative impact on the eventual outcome of the sales processes of individual buildings and therefore impact the potential returns to Shareholders. As a result of the decision not to comply with IFRS 8, the Auditor's report states 'As explained in note 6 to the financial statements, the Company has omitted to present and disclose segmental analysis. The Company is required to comply with International Financial Reporting Standard 8: Operating segments, and in our opinion, the segmental information is necessary for the full understanding of the Company's state of affairs and its results'.
Loan Facility The US$17.5 million loan facility that the Company's Turkish subsidiary had with HSBC Bank plc (the "Bank") was due to mature on 18 December 2012. The facility, which was repaid in full shortly prior to maturity, was repaid in tranches during the year, principally from the proceeds of the four property disposals. This relieved EEP of the interest burden and adhering to various financial and other covenants imposed by the Bank. The Board believes that the repayment of the loan has increased the flexibility and options available to EEP in implementing the Company's investment objective and policy. The proceeds of future property sales will no longer face restrictions by the Bank and all collateral and mortgages have been released, thereby simplifying transfer of ownership. The full amount of net realisation proceeds from any future sales will be available for distribution to Shareholders.
Shareholders should note that as the US Dollar is the effective transaction currency in the Turkish property market, following the repayment of the US Dollar loan, the partial natural hedge that it provided for US Dollar movements against Sterling no longer exists. EEP does not intend to hedge its currency exposure in relation to the property assets or the related income and expense.
Distributions As the bank loan has been repaid in full, the Board intends to distribute to Shareholders substantially all net proceeds of future property sales, subject to retaining sufficient monies to meet operating costs and liabilities. Where the amount of net cash available for distribution is relatively small, the Board intends to continue to effect distributions by means of market repurchases of Ordinary Shares at a discount to NAV. The Company is limited to repurchasing a maximum of 14.99% of the Ordinary Shares in issue at the time authority was sought and remains in force until the authority to buy back shares is renewed at the AGM to be held on 13 September 2013. Since the AGM held on 14 September 2012, EEP has repurchased 695,000 Ordinary Shares and is permitted to repurchase a further 2,098,574 Ordinary Shares prior to the 2013 AGM. At the prevailing market offer price on 23 May 2013, this equates to an aggregate consideration of £1,826,000.
At the 2013 AGM, Shareholders will be asked to renew the approval of the Company to repurchase up to a maximum of 14.99% of the Ordinary Shares in issue at the date the authority is sought. This will allow the Company to repurchase Ordinary Shares to the value of up to £2,340,000 assuming no change in the prevailing Ordinary Share price and number of shares in issue. As and when larger amounts are available for distribution, the Board intends to effect distributions in a manner that is efficient for the majority of Shareholders. In this regard, the Company intends to consult with Shareholders to determine the preferred method of such larger distributions. | |
Outlook EEP's Turkish property investments have continued to maintain their values in US Dollar terms, with realisations generally being effected at close to carrying values or at a small premium. Monetisation of the investments in Bulgaria and Romania will remain more challenging.
The Property Manager and the Investment Adviser, with the support of the Board and the Manager remain focussed on selling EEP's remaining properties as soon as practicable, taking into account the values of offers received, the timing of completion and the continuing costs of operating EEP. | |
Martin M. Adams Chairman 24 May 2013 | |
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PROPERTY MANAGER AND INVESTMENT ADVISER'S REPORT
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During the year ended 31 December 2012, the overall emphasis of the management of Eastern European Property Fund Limited's (the "Company") and its subsidiaries (together "EEP") properties changed with increased focus on achieving sales and thus repayment of the Bank facility.
While economic conditions in Turkey clearly slowed, the country remained relatively resilient and this enabled EEP's properties in Istanbul to maintain both value and income.
In Bulgaria and Romania, the economic conditions for property remain very subdued. Rental conditions remain difficult and opportunities to sell are very rare. However, ongoing progress continues to be made with lettings of void space and maintaining rental income.
Property Portfolio In the second half of 2012, EEP disposed of the 6th floor of The Misir Building, Istiklal Street, Beyoglu, Istanbul for US$3.5 million (approximately £2.2 million). This followed sales earlier in the year out of the Istanbul based portfolio, including Ravuna apartments, 401 Istiklal Street, Beyoglu for US$8.5 million, Kadife Palas, Susam Street, Cihangir for US$4.3 million and the first floor of Gonul Sokak, Asmalimescit Street, Beyoglu for TRY450,000. Total realisations for 2012 amounted to approximately US$16.6 million (approximately £10.6 million). The proceeds from these property sales, together with available cash within EEP, was utilised to repay in full the US$17.5 million Bank loan during the course of the year.
Since the year end, EEP has sold a further property, the Pera Residence in Asmalimescit Street, Beyoglu, Istanbul, for US$2.1 million (approximately £1.4 million). This transaction forms part of an ongoing strategy to continue to sell down the portfolio on a measured basis in order to realise the best value possible for Shareholders. While the focus has been on achieving sales, the properties continue to be managed to maintain income, where appropriate, and/or create value added opportunities, which may be attractive to a potential purchaser.
In Bulgaria and Romania, where liquidity of the assets remains very difficult, reflecting economic conditions, considerable effort has been maintained to retain revenue and keep costs down pending a potential sale.
The properties held at 31 December 2012 were as follows:
Markiz Passage, Istiklal Street, Beyoglu, Istanbul The property is being widely marketed for sale; discussions remain ongoing with the occupiers about the future of the building.
Nil Passage, Istiklal Street, Beyoglu, Istanbul Progress has been made with the adjoining owners over proposals to upgrade the common areas and a strategy of joint co-operation for the future of the building.
Pera Residence, Asmalimescit Street, Beyoglu, Istanbul The property was sold in March 2013 for US$2.1 million (approximately £1.4 million).
"Yellow" Building and Asmali Cumba, Asmalimescit Street, Beyoglu, Istanbul An application has been made to combine the two buildings, which will improve the overall value and marketability.
Gonul Sokak, Asmalimescit, Beyoglu, Istanbul The occupier continues to trade well and the property is available on the market. The upper part of the property was sold during the first half of the year for 0.5 million Turkish Lira (approximately £160,000).
Taka Building, Asmalimescit Street, Beyoglu, Istanbul Following difficulties with the previous tenant, this property has been re-let and is available for purchase.
The Atrium, 24 George Washington Street, Sofia, Bulgaria The largest tenant signed a new two year lease in April 2013 with a six month break option. A local café has signed a lease and opened on the ground floor. The property continues to be widely marketed for sale.
Gara Progresului Business & Logistics Centre, Gara Progresului Street, Bucharest, Romania Although the largest tenant left in January 2013, other tenants have extended their occupation and new tenants are taking space, indicating the resilience of this property in the current market. The property continues to be widely marketed for sale. | |
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Regional Overview
TurkeyWhile GDP growth slowed in 2012 to 2.2% growth for the year, the perception and early indications are that the Turkish economy will grow by 4-5% in 2013. This increase is expected because of the recovery in domestic demand and the expanding service sector, supported by further economic and judicial reforms. However, the current account deficit and inflation remain uncomfortably high and the country is still perceived to be vulnerable to external economic and political shocks according to political and economic commentators. From a property perspective, most sectors of the market appear to be stabilising, and a number of large complex mixed use schemes are being promoted by local contractors/developers, many of whom exhibited at MIPIM (the annual European Property Conference) this year, where Turkey was the country of focus.
The hotel sector continues to perform well, particularly in central Istanbul and a number of international chains continue to look to expand there.
The luxury residential sector is also once again being marketed heavily to non-Turkish investors as can be evidenced from the increased number of articles promoting Turkish real estate.
From EEP's perspective, the 'renewed' interest in Turkey, and particularly Istanbul, as an investment location cannot be anything other than helpful at this time.
Bulgaria Large anti-austerity and anti-corruption street protests, which began at the end of February 2013, led to the resignation of the GERB-led (Citizens for European Development of Bulgaria) government and its controversial and populist Prime Minister, Boyko Borisov.
The European Commission is forecasting 1.4% annual GDP growth for 2013 and 2% for 2014, while the European Bank for Reconstruction and Development ("EBRD") has upped its forecast for 2013 from 1.7% to 1.9%. Average annual inflation of 2.6% and average unemployment of 12.2% are forecast by the EU for Bulgaria in 2013, while it expects budget and current account deficits of 0.5% and 1.6%, respectively.
Property sales in the commercial sector are difficult to find, although the main property agents are expressing more confidence than they have done for the last three years. This appears to be related to increased levels of enquiry that have not been seen for some time.
Romania The centrist Social Liberal Union (USL) government coalition of the centre-left Social Democratic Party (PSD) and centre-right National Liberal Party (PNL), which took over in May 2012, increased the number of seats it held in the December 2012 elections.
The European Commission is forecasting 1.6% annual GDP growth for 2013 and 2.5% for 2014, while the EBRD has reduced its forecast for 2013 from 1.9% to 1.4%. Average annual inflation of 4.6% and average unemployment of 6.9% are forecast by the EU for Romania in 2013, while it expects budget and current account deficits of 0.9% and 4%, respectively. Romania, at 6.5%, had one of the lowest rates of unemployment in the EU at the end of 2012.
A recent report by Fitch Ratings on the main central and eastern EU economies indicates that structural reforms are necessary to raise their growth potential and re-start the process of income convergence with the EU average.
In Bucharest, the local economy appears more active and there are signs of activity in the property sector. However, there is little evidence of sales transactions, although there is clearly more activity in the letting market. | |
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Prospects The Property Manager and Investment Adviser continue to market EEP's remaining properties on the basis of trying to achieve best value in the current economic environment after achieving sales during 2012 and the beginning of 2013.
In respect of the properties still held in Istanbul, due to the level of prices achieved, despite the perceived reduction in liquidity in the property market during 2012, the Property Manager and Investment Adviser remain confident of achieving a positive outcome for sales of the properties in this region. Early indications are that confidence in Turkey for 2013 is increasing and we are optimistic that this could have a positive impact on the ability to sell properties compared to 2012. However, as indicated in the Regional Overview section above, the country is perceived to be vulnerable to external economic shocks and, in this respect, it is possible that potential buyers of property in Turkey could withdraw from the market at any time.
In Bulgaria and Romania, the position is very different and the limited number of transactions and potential investors in real estate remains problematic both for the property markets and for EEP. However, local incremental progress has shown the properties to be relatively resilient in terms of maintaining occupation, although rent levels remain under pressure. | |
Bob Locker CNC Property Fund Management Limited
Keiran Gallagher Oliver Cadogan Pera Pera
24 May 2013 | |
The financial information set out in this announcement does not constitute the Company's statutory financial statements for the year ended 31 December 2012. | |||
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||
for the year ended 31 December 2012 | |||
Note | Year ended31 December 2012 | Year ended31 December 2011 | |
£'000 | £'000 | ||
Income | |||
Rental income | 1,322 | 1,432 | |
Other income | 87 | 38 | |
Bank interest receivable | 14 | 13 | |
------------ | ------------ | ||
Total income | 1,423 | 1,483 | |
------------ | ------------ | ||
Expenses | |||
Management fees | 5 | (372) | (416) |
Interest payable and similar charges | 7 | (172) | (323) |
Administration fees | 5 | (125) | (100) |
Other operating expenses | 9 | (1,161) | (844) |
Performance fees | 5 | 210 | (210) |
------------ | ------------ | ||
Total expenses | (1,620) | (1,893) | |
------------ | ------------ | ||
Investment gains and losses | |||
(Loss)/gain on revaluation of investment properties | 14 | (1,806) | 1,570 |
Loss on disposal of investment properties | 14 | (731) | - |
------------ | ------------ | ||
Total investment (losses)/gains | (2,537) | 1,570 | |
------------ | ------------ | ||
Net (loss)/profit from operating activities before gains and losses on foreign currency translation | (2,734) | 1,160 | |
Gain on foreign currency translation | 11 | 13 | 1,253 |
------------ | ------------ | ||
Net (loss)/profit from operating activities | (2,721) | 2,413 | |
Taxation | 21 | 118 | (1,210) |
------------ | ------------ | ||
(Loss)/profit for the year | (2,603) | 1,203 | |
Other comprehensive income/(loss) | |||
Exchange differences arising from translation of foreign operations | 11 | 120 | (1,257) |
------------ | ------------ | ||
Total other comprehensive income/(loss) | 120 | (1,257) | |
------------ | ------------ | ||
Total comprehensive loss for the year attributable to the Owners of the Group |
(2,483) |
(54) | |
------------ | ------------ | ||
(Loss)/earnings per share - basic and diluted | 12 | (13.97)p | 6.36p |
------------ | ------------ | ||
All the items in the above statement are derived from continuing operations. | |||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to Owners of the Company | ||||||
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Share capital | Reserve for own shares |
Distributable reserve | Foreign currency translation reserve |
Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | ||
For the year ended 31 December 2012 | ||||||
Net assets at 1 January 2012 | 186 | - | 22,669 | (822) | 22,033 | |
Total comprehensive income/(loss) for the year | ||||||
Loss for the year | - | - | (2,603) | - | (2,603) | |
Other comprehensive income | - | - | - | 120 | 120 | |
Contributions by and distributions to owners | ||||||
Buy back and cancellation of own shares | (1) | - | (102) | - | (103) | |
---------- | ---------- | ---------- | ---------- | ---------- | ||
Net assets at 31 December 2012 | 185 | - | 19,964 | (702) | 19,447 | |
---------- | ---------- | ---------- | ---------- | ---------- | ||
For the year ended 31 December 2011 | ||||||
Net assets at 1 January 2011 | 198 | (497) | 22,312 | 435 | 22,448 | |
Total comprehensive income/(loss) for the year | ||||||
Profit for the year | - | - | 1,203 | - | 1,203 | |
Other comprehensive loss | - | - | - | (1,257) | (1,257) | |
Contributions by and distributions to owners | ||||||
Buy back and cancellation of own shares | (12) | 497 | (846) | - | (361) | |
---------- | ---------- | ---------- | ---------- | ---------- | ||
Net assets at 31 December 2011 | 186 | - | 22,669 | (822) | 22,033 | |
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION | |||
as at 31 December 2012 | |||
Note | 31 December 2012 | 31 December 2011 | |
£'000 | £'000 | ||
Non-current assets | |||
Freehold investment property | 14 | - | 33,718 |
Intangible assets | 15 | - | 9 |
Property, plant and equipment | 16 | - | 21 |
Deferred tax assets | 22 | - | 118 |
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- | 33,866 | ||
Current assets | |||
Freehold investment property | 14 | 20,959 | - |
Intangible assets | 15 | 8 | - |
Property, plant and equipment | 16 | 13 | - |
Trade and other receivables | 19 | 114 | 435 |
Cash and cash equivalents | 18 | 807 | 1,995 |
Tax assets | - | 2 | |
---------- | ---------- | ||
21,901 | 2,432 | ||
---------- | ---------- | ||
Total assets | 21,901 | 36,298 | |
---------- | ---------- | ||
Current liabilities | |||
Deferred tax liabilities | 22 | (1,931) | - |
Trade and other payables | 20 | (194) | (223) |
Rents received in advance | (165) | - | |
Overseas corporate tax | (125) | (3) | |
Other provisions and payables | (39) | - | |
Bank loan | 23 | - | (11,256) |
---------- | ---------- | ||
(2,454) | (11,482) | ||
Non-current liabilities | |||
Rents received in advance | - | (224) | |
Deferred tax liabilities | 22 | - | (2,308) |
Other provisions and payables | - | (251) | |
---------- | ---------- | ||
- | (2,783) | ||
---------- | ---------- | ||
Total liabilities | (2,454) | (14,265) | |
---------- | ---------- | ||
Net assets | 19,447 | 22,033 | |
---------- | ---------- | ||
Capital and reserves | |||
Called-up share capital | 24 | 185 | 186 |
Distributable reserve | 19,964 | 22,669 | |
Foreign currency translation reserve | (702) | (822) | |
---------- | ---------- | ||
Total equity attributable to owners of the Group | 19,447 | 22,033 | |
---------- | ---------- | ||
Net asset value per Ordinary Share - basic and diluted | 25 | 105.03p | 118.23p |
---------- | ---------- | ||
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2012 | |||
Note | Year Ended31 December 2012 | Year Ended31 December 2011 | |
£'000 | £'000 | ||
Net (loss)/profit from operating activities | (2,721) | 2,413 | |
Adjustments for: | |||
Bank interest receivable | (14) | (13) | |
Loss/(gain) on revaluation of investment properties | 14 | 1,806 | (1,570) |
Loss on disposal of investment properties | 14 | 731 | - |
Gain on foreign currency exchange | (13) | (1,253) | |
Amortisation and depreciation | 15, 16 | 5 | 6 |
Amortisation of bank loan arrangement fees | 7 | 3 | 19 |
Bank loan interest payable | 7 | 166 | 296 |
---------- | ---------- | ||
Net cash outflow from operating activities before working capital changes | (37) | (102) | |
Decrease/(increase) in trade and other receivables | 327 | (48) | |
(Decrease)/increase in trade and other payables and other current liabilities | (415) | 706 | |
---------- | ---------- | ||
Net cash (outflow)/inflow from operating activities after working capital changes | (125) | 556 | |
Interest received in the year | 14 | 13 | |
Interest paid in the year | (169) | (295) | |
Tax paid in the year | (67) | (94) | |
---------- | ---------- | ||
Net cash (outflow)/inflow from operating activities | (347) | 180 | |
Investing activities | |||
Sale of investment property | 10,438 | - | |
Acquisition and development of investment property | (214) | (805) | |
---------- | ---------- | ||
Net cash inflow/(outflow) from investing activities | 10,224 | (805) | |
Financing activities | |||
Repayment of bank loan | 23 | (11,040) | - |
Purchase of own shares | 24 | (103) | (361) |
Release of cash pledged to bank | - | 1,630 | |
---------- | ---------- | ||
Net cash (outflow)/inflow from financing activities | (11,143) | 1,269 | |
---------- | ---------- | ||
(Decrease)/increase in cash and cash equivalents | (1,266) | 644 | |
---------- | ---------- | ||
Cash and cash equivalents at beginning of year | 1,995 | 2,038 | |
(Decrease)/increase in cash and cash equivalents | (1,266) | 644 | |
Foreign exchange movement | 78 | (687) | |
---------- | ---------- | ||
Cash and cash equivalents at end of year | 807 | 1,995 | |
---------- | ---------- | ||
NOTES TO THE RESULTS for the year ended 31 December 2012
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1. General Information |
The Company was incorporated in Guernsey on 27 February 2006 as an authorised closed-ended investment company. The registered office of the Company is 1st Floor, Royal Chambers, St Julian's Avenue, St Peter Port, Guernsey, GY1 3JX.
On 23 March 2006 the Company raised gross proceeds of £20.0 million (net proceeds of £19.1 million) through the issue of 20,000,000 Ordinary Shares at 100.00p each, with the Ordinary Shares being admitted to trading on AIM, a market operated by the London Stock Exchange.
Following the passing of the Discontinuation Resolution at the AGM held on 14 September 2012 and the subsequent passing of the resolution to amend the Company's investment objective and policy at the EGM held on 25 September 2012, the Company's investment objective and policy is to carry out an orderly realisation of the Company's portfolio of assets, distribution of the net proceeds to Shareholders and then undertake a voluntary winding-up of the Company. Disposals may be by individual sales or as transactions incorporating a group of properties. |
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2. Basis of Preparation |
a) Statement of compliance |
These results have been prepared in accordance with International Financial Reporting Standards ("IFRSs") (with the exception of IFRS 8 as explained in note 6), they give a true and fair view and are in compliance with the Companies (Guernsey) Law, 2008 (as amended).
The results were authorised for issuance by the Board of Directors on 24 May 2013. |
b) Basis of measurement |
The results have been prepared on a historic cost basis, except for freehold investment property, which has been measured at fair value.
Due to the change in the Company's investment objective and policy to carry out an orderly realisation of the Company's portfolio of assets, the results have been prepared on a non-going concern basis. This has had no significant impact on the results as the properties have been measured at fair value and are expected to be realised in an orderly manner. Provisions for the costs of winding-up the Group (including taxes, liquidation costs, the costs of realising the assets and operating costs) have not been included in these results, as the Directors consider these costs to be immaterial to the Group, and sales of properties at higher values subsequent to the year end have not been taken into account. |
c) Functional and presentation currency |
These results are presented in Sterling, which is also the Company's functional currency. All amounts are rounded to the nearest thousand. |
d) Use of estimates and judgements |
The preparation of consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.
Judgements made by management in the application of IFRSs that have a significant effect on the results and estimates with a significant risk of material adjustment in the next year are discussed in note 14: Freehold investment property and note 31: Fair values. |
3. Significant accounting policies |
a) Basis of consolidation |
These results consolidate the results of the Company and its subsidiary undertakings to 31 December 2012. The results of the subsidiary undertakings are accounted for in the Consolidated Statement of Comprehensive Income from the date the subsidiaries were formed (the subsidiaries have only been owned by the Company).
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Subsidiaries are those entities, including special purpose entities, controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.
The results of subsidiaries are included in the consolidated results from the date that control commences to the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.
All intercompany balances and transactions are eliminated on consolidation. |
b) Revenue |
Rental income Rental income from freehold investment property rented under operating leases is recognised through the Consolidated Statement of Comprehensive Income on a straight-line basis over the period commencing on the later of the start of the lease, or acquisition of the property by the Group, and ending on the earlier of the end of the lease and the next break point, unless it is reasonably certain that the break option will not be exercised. Rental income revenue excludes service charges and other costs directly recoverable from tenants. Direct costs of rental income comprise head rents payable, irrecoverable service charge costs and other property outgoings. Rental income is included gross of any income tax charged.
Interest income Interest income is accounted for on an accruals basis, taking into account the effective yield. |
c) Expenses |
All expenses are accounted for on an accruals basis. The management, performance and administration fees, finance costs and all other expenses (with the exception of bank loan arrangement fees, which are deducted from the carrying amounts of the loans) are charged through the Consolidated Statement of Comprehensive Income in the period in which they are incurred. |
d) Taxation |
Investment income is recorded gross of applicable taxes and tax expense is recognised through the Consolidated Statement of Comprehensive Income as incurred. The property subsidiaries are subject to tax on income arising on the property portfolio, after deduction of allowable expenses. Withholding tax and irrecoverable VAT may also arise on distributions and interest from the subsidiaries. |
e) Deferred taxation |
Deferred income tax is provided, using the liability method, on all temporary differences at the financial reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences.
Deferred income tax assets are recognised for all deductible temporary differences and unused tax losses, to the extent that it is probable that taxable profit will be available in the foreseeable future against which the deductible temporary differences and unused tax losses can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the relevant tax benefit will be realised.
Deferred tax is measured at the tax rates that are expected to apply when the liability is settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the financial reporting date. |
f) Intangible assets |
Intangible assets are measured at cost less accumulated amortisation and impairment losses. Amortisation is recognised through the Consolidated Statement of Comprehensive Income on a straight-line basis over the estimated useful lives of the intangible assets. The estimated useful life of the trade mark is fifteen years.
The amortisation methods, useful lives and residual values of the intangible assets are reviewed at each reporting date. |
g) Property, plant and equipment |
Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset.
Depreciation is recognised through the Consolidated Statement of Comprehensive Income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items of property, plant and equipment. The estimated useful lives of the furniture and fixtures are from five to ten years.
The depreciation methods, useful lives and residual values of the property, plant and equipment are reviewed at each reporting date. |
h) Freehold investment property |
Freehold investment property is initially measured at cost, being the fair value of consideration given, including related transaction costs. Additions to freehold investment property consist of costs of a capital nature and, in the case of investment property under development, capitalised interest. After initial recognition, freehold investment property is carried at its fair value. The fair value of the freehold investment property is largely based on estimates using property appraisal techniques and other valuation methods as outlined below. Such estimates are inherently subjective and actual values can only be determined in a sales transaction.
The appraisers determine the fair value by applying the methodology and guidelines as set out in the appropriate sections of both the current Practice Statements and United Kingdom Practice Statements contained within the RICS Appraisal and Valuation Standards, 8th Edition (the "Red Book") and in accordance with International Accounting Standard ("IAS") 40: Investment Property. This approach is based on discounting the future net income receivable from properties to arrive at the net present value of the future income stream. Future net income comprises the rent secured under existing leases, less any known or expected non-recoverable costs and the current market rent attributable to future vacancy years. The consideration basis for this calculation excludes the effects of any taxes. The discount factors used to fair value are consistent with those used to value similar properties, with comparable leases in each of the respective markets.
All freehold investment properties are valued twice per year by independent appraisers. The last valuation of the investment properties was carried out by DTZ Debenham Tie Leung at 31 December 2012.
The difference between the fair value of an investment property at the reporting date and its carrying amount prior to re-measurement is recognised through the Consolidated Statement of Comprehensive Income as a valuation gain or loss.
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When the Group begins to redevelop an existing investment property for continued future use as an investment property, the property remains an investment property and is accounted for as such. When the Group begins to redevelop an existing investment property with a view to sale, the property is transferred to trading properties and held as a current asset. The property is re-measured to fair value as at the date of the transfer with any gain or loss being taken to the Consolidated Statement of Comprehensive Income. The re-measured amount becomes the deemed cost at which the property is then carried in trading properties. |
i) Impairment of intangible assets and property, plant and equipment |
The assets or groups of assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. If any such indication of impairment exists, the Group makes an estimate of its recoverable amount. An asset group's recoverable amount is the higher of its fair value less costs to sell and its value in use. Where the carrying amount of an asset group exceeds its recoverable amount, the asset group is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are adjusted for the risks specific to the asset group and are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money. |
j) Trade and other receivables |
Trade and other receivables are carried at the original invoice amount, less allowance for doubtful receivables. Provision is made when there is objective evidence that the Group will be unable to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote. |
k) Trade and other payables |
Trade and other payables are carried at payment or settlement amounts. Where the time value of money is material, payables are carried at amortised cost. |
| l) Bank loans |
| All loans and borrowings are initially recognised at cost, being the fair value of the consideration received. After initial recognition, all floating-rate interest-bearing loans and borrowings are subsequently measured at amortised cost on an effective interest rate basis, taking into account any discount or premium on settlement.
Bank loan arrangement fees are deducted from the carrying amounts of the relevant loan and are expensed in the Consolidated Statement of Comprehensive Income as a component of the loan's effective interest rate charge. |
| |
| m) Share capital |
| Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of Ordinary Shares are recognised as a deduction from equity.
When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognised as a deduction from equity. Repurchased shares that are classified as Treasury Shares are presented as a deduction from equity. When Treasury Shares are sold or subsequently reissued, the amount received is recognised as an increase in equity and the resulting surplus or deficit is transferred to/from retained earnings.
Funds received from the issue of Ordinary Shares are allocated to share capital, which is a distributable reserve. |
| |
| n) Distributable and non-distributable reserves |
| All income and expenses, foreign exchange gains and losses and realised investment gains and losses of the Group are allocated to the distributable reserve.
Dividends are accounted for when paid and are reflected in the Consolidated Statement of Changes in Equity. |
| |
| o) Cash and cash equivalents |
| Cash and cash equivalents comprise cash balances and call deposits. Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. |
p) Net asset value per share and earnings per share | |
The net asset value per share disclosed on the face of the Consolidated Statement of Financial Position is calculated by dividing the net assets by the number of Ordinary Shares in issue at the year end.
Earnings per share is calculated by dividing the profit for the year by the weighted average number of Ordinary Shares in issue during the year. | |
q) Foreign currency transactions | |
The currency of the primary economic environment in which the Company operates (the functional currency) is deemed to be Sterling as the Company's Ordinary Shares were issued in Sterling and the majority of the Company's expenses are in Sterling. Sterling is also the Group's presentational currency. The functional and presentational currencies of the majority of the Company's subsidiaries are not Sterling. Transactions involving currencies other than Sterling are recorded at the exchange rates ruling on the transaction dates. At each financial reporting date, monetary items and non-monetary assets and liabilities that are fair valued, which are denominated in currencies other than Sterling, are revalued at the closing rates of exchange. Gains and losses on revaluation are recognised through the Consolidated Statement of Comprehensive Income. | |
r) Financial statements of foreign operations |
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to Sterling at the foreign exchange rates ruling at the financial reporting date. The income and expenses of foreign operations are translated into Sterling at average foreign exchange rates for the year. Foreign currency differences arising on translation are recognised in the Consolidated Statement of Comprehensive Income, in Other Comprehensive Income, in accordance with IAS 1: Presentation of Financial Statements. |
s) Operating leases |
Rental income from freehold investment property leased out under an operating lease is recognised in the Statement of Comprehensive Income on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income over the terms of the lease. |
t) Segmental reporting |
Following the change in the Company's investment objective and policy in September 2012 to carry out an orderly realisation of the investment properties, the Board has opted not to comply with the segmental reporting disclosure requirements of IFRS 8 for the 31 December 2012 consolidated financial statements due to reasons of commercial sensitivity and the possible negative impact such information may have on the disposal of individual properties. |
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4. Changes in accounting policy and disclosures a) New and amended standards and interpretations |
The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS and IFRS Interpretations Committee ("IFRIC") interpretations adopted in the year commencing 1 January 2012: |
IFRS 7: Financial instruments: disclosures (amended), effective 1 July 2011. |
IAS 12: Income taxes (amended), effective 1 January 2012. |
The adoption of these standards and interpretations did not have an impact on the results or performance of the Group. |
b) Standards, interpretations and amendments issued but not yet effective |
The International Accounting Standards Board ("IASB") has issued/revised a number of relevant standards and interpretations with an effective date after the date of these results. The Directors have chosen not to early adopt these standards and interpretations and they do not anticipate that they would have a material impact on the Group's financial statements in the period of initial application. |
IAS 1: Presentation of financial statements (amendment - presentation of items of other comprehensive income) The amendments to IAS 1 require entities to group items presented in other comprehensive income based on whether they are potentially reclassifiable to profit or loss subsequently. The amendment becomes effective for annual periods beginning on or after 1 July 2012. |
IAS 27: Consolidated and separate financial statements (amendment) As a result of the issue of IFRS 10 and IFRS 12 (discussed below), what remains in IAS 27 is limited to accounting for subsidiaries, jointly controlled entities and associates in separate financial statements. The amendment becomes effective for annual periods beginning on or after 1 January 2013. |
IAS 28: Investments in associates and joint ventures (amendment) As a result of the issue of IFRS 11 and IFRS 12 (discussed below), IAS 28 has been renamed IAS 28: Investments in associates and joint ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment becomes effective for annual periods beginning on or after 1 January 2013. |
IAS 32: Financial instruments - presentation (amendment) Amendments have been issued to the application guidance on the offsetting of financial assets and financial liabilities. Specifically that a net amount should only be reported when an entity has a legally enforceable right to set off the amounts and it intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. The amended standard becomes effective for annual periods beginning on or after 1 January 2014. |
IFRS 7: Financial instruments: disclosures (amendment - enhancing disclosures about transfers of financial assets, enhancing disclosures about offsetting of financial assets and financial liabilities, and disclosures about the initial application of IFRS 9) The amended standard is effective for annual periods beginning on or after 1 January 2013 and 1 January 2015. The amendments require entities to disclose information about rights of offset and related arrangements for financial instruments under enforceable master netting agreements or similar arrangements. |
IFRS 9: Financial instruments: classification and measurement IFRS 9 applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. Work on the remaining two phases is still ongoing. The adoption of IFRS 9 is not expected to have a material effect on the classification and measurement of the Group's financial assets. |
b) Standards, interpretations and amendments issued but not yet effective |
IFRS 10: Consolidated financial statements IFRS 10 replaces the portion of IAS 27: consolidated and separate financial statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12: consolidation - special purpose entities.
IFRS 10 establishes a single control model that applies to all entities, including special purpose entities. The changes introduced by IFRS 10 will require significant judgement to determine which entities are controlled and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. It is not anticipated that this standard will have an effect on the Group as all subsidiaries are wholly owned. This standard becomes effective for annual periods beginning on or after 1 January 2013. |
IFRS 11: Joint arrangements IFRS 11 removes the option to account for jointly controlled entities using proportionate consolidation. Instead, jointly controlled entities that meet the definition of a joint venture must be accounted for using the equity method. This standard becomes effective for annual periods beginning on or after 1 January 2013. |
IFRS 12: Disclosure of interests in other entities IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity's interests in subsidiaries, joint arrangements, associates and structured entities, with the requirement for a number of new disclosures. This standard becomes effective for annual periods beginning on or after 1 January 2013 and 1 January 2014. |
IFRS 13: Fair value measurement IFRS 13 brings into one single standard all of the fair value measurement requirements under IFRS and provides guidance on how to measure fair value. The standard does not create any new requirements to measure assets and liabilities at fair value. It is not anticipated that this standard will have any impact on the Group's financial position. This standard becomes effective for annual periods beginning on or after 1 January 2013. |
5. Management and administration fees | |
Elysium Fund Management Limited ("Elysium") is Manager, Administrator and Company Secretary to the Company, CNC Property Fund Management Limited ("CNC") is Property Manager and Pera Pera Yönetim ve Danişmanlik Hizmetleri ve Tic Limited ("Pera Pera") is the Investment Adviser. | |
Administration fees The Company paid Elysium, by way of remuneration for its administration and secretarial services hereunder, an administration fee of 0.1% of the Gross Asset Value per annum calculated at the close of business at each quarter end, subject to a minimum of £100,000 per annum. In addition, a one-off fee of £25,000 was paid to Elysium during the year for work performed outside the scope of the administration agreement.
The total administration fees paid to Elysium relating to the year ended 31 December 2012 amounted to £125,000 (2011: £100,000). | |
Management fees Elysium is entitled to receive a management fee of 1.25% of the Total Assets of the Group per annum. Total assets is defined as the ongoing NAV of the Group plus an amount equal to long-term borrowings invested by the Group. The management fee is payable quarterly in advance. The total management fee paid to Elysium for the year ended 31 December 2012 was £372,000 (2011: £416,000).
The Manager is responsible for the payment of the fees of the Investment Adviser and Property Manager. For details on the payment of commissions to the Investment Adviser for the sale of properties, please refer to note 26. | |
The Manager has the benefit of an indemnity from the Group in relation to liabilities incurred by the Manager in the discharge of its duties other than those arising by reason of any fraud, willful default, negligence or bad faith on the part of the Manager or its delegates. | |
The Manager's appointment as investment manager is terminable by either party on not less than twelve months' notice. The Management Agreement may also be terminated by either the Manager or the Group if the other party, or CNC, has gone into liquidation, administration or receivership or has committed a substantial or continuing breach of the Management Agreement. | |
Performance fees Elysium shall be entitled to receive a performance fee only in the event of a Realisation Event (as defined below), which shall be paid no later than the date falling three months after the relevant Realisation Event. A Realisation Event shall be any of the following: | |
a) a continuation vote being passed prior to 31 December 2012, in accordance with article 36 of the Articles of Incorporation, in which the total distribution made to Shareholders will be the audited NAV per Ordinary Share as at 31 December 2012 together with any dividends per Ordinary Share or capital returned by way of tender offer per Ordinary Share or any other amount returned pari passu to all Shareholders from 1 January 2011 to the realisation date; or | |
b) an offer for the entire issued share capital of the Company being declared unconditional in all respects, in which case the total distribution made to Shareholders will be the amount of any such offer per Ordinary Share together with any dividends per Ordinary Share or capital returned as described in a); or | |
c) the sale of substantially all of the Company's properties (comprising not less than 90% by value of the total property assets then held), in which case the total distribution made to Shareholders will be the NAV per Ordinary Share of the Company immediately after receipt of the proceeds of the sale of substantially all of its properties together with any dividends per Ordinary Share or capital returned as described in a); or | |
d) the Company entering liquidation, in which case the total distribution made to Shareholders will be the NAV per Ordinary Share of the Company immediately prior to the moment at which it enters liquidation together with any dividends per Ordinary Share or capital returned by way of tender offer per Ordinary Share or any other amount as described in a). | |
The total distribution to Shareholders shall be calculated on a basis that does not recognise any liability of the Company to Elysium (i) in respect of any performance fee that is, or may become, payable, and (ii) in respect of any liquidation costs or expenses. | |
The value of the performance fee shall be calculated by reference to the total distribution to Shareholders, as follows: | |
Total distribution | Performance fee |
Less than 110 pence per Ordinary Share | None. |
Greater than 110 pence per Ordinary Share but less than 130 pence per Ordinary Share | 10% of the total distribution in excess of 110 pence per Ordinary Share multiplied by the number of shares in issue on the date of the Realisation Event. |
Greater than 130 pence per Ordinary Share but less than 150 pence per Ordinary Share | a) 10% of the amount by which the total distribution to Shareholders is in excess of 110 pence per Ordinary Share but less than 130 pence per Ordinary Share; and b) 20% of the amount by which the total distribution to Shareholders is in excess of 130 pence per Ordinary Share but less than 150 pence per Ordinary Share, in each case multiplied by the number of Ordinary Shares in issue on the realisation date. |
Greater than 150 pence per Ordinary Share | a) 10% of the amount by which the total distribution to Shareholders is in excess of 110 pence per Ordinary Share but less than 130 pence per Ordinary Share; and b) 20% of the amount by which the total distribution to Shareholders is in excess of 130 pence per Ordinary Share but less than 150 pence per Ordinary Share; and c) 30% of the amount by which the total distribution to Shareholders is in excess of 150 pence per Ordinary Share, in each case multiplied by the number of Ordinary Shares in issue on the realisation date. |
During the year ended 31 December 2012, the performance fee provision decreased by £210,000 to nil at 31 December 2012 (2011: £210,000). | |
6. Segmental analysis |
In accordance with IFRS 8: Operating segments, it is a requirement for the Group to present and disclose segmental information based on the internal reports that are regularly reviewed by the Board in order to assess each segment's performance and to allocate resources to them. However, the Board has opted not to comply with IFRS 8 for the 31 December 2012 consolidated financial statements due to reasons of commercial sensitivity and the possible negative impact such information may have on the disposal of individual properties. |
7. Interest payable and similar charges | ||
Year ended31 December 2012 | Year ended31 December 2011 | |
£'000 | £'000 | |
Bank loan interest payable | 166 | 296 |
Amortisation of bank loan arrangement fees | 3 | 19 |
Other finance charges | 3 | 8 |
---------- | ---------- | |
172 | 323 | |
---------- | ---------- | |
8. Directors' remuneration | ||||
Year ended31 December 2012 | Year ended31 December 2011 | Amount due at31 December 2012 | Amount due at31 December 2011 | |
£'000 | £'000 | £'000 | £'000 | |
Martin M. Adams (appointed 8 May 2012) | 29 | - | 11 | - |
Carol Goodwin | 25 | 20 | 5 | 5 |
Hugh Ward | 25 | 20 | 5 | 5 |
Charles Parkinson (resigned 8 May 2012) | 14 | 25 | - | 6 |
---------- | ---------- | ---------- | ---------- | |
93 | 65 | 21 | 16 | |
---------- | ---------- | ---------- | ---------- | |
No bonuses or pension contributions were paid or were payable on behalf of the Directors. | ||||
9. Other operating expenses | ||
Year ended31 December 2012 | Year ended31 December 2011 | |
£'000 | £'000 | |
Building maintenance, power, and management | 325 | 293 |
Property sales commission | 156 | - |
Legal, professional and consultancy fees | 125 | 90 |
Directors' remuneration (note 8) | 93 | 65 |
Administration of subsidiaries | 90 | 95 |
Auditor's remuneration | 69 | 79 |
Property conveyance fees | 48 | - |
Nominated Adviser and Broker fees | 45 | 45 |
Allowance for doubtful debt [1] | 43 | - |
Insurance | 36 | 46 |
Registrar fees | 15 | 13 |
Depreciation and amortisation (notes 15 and 16) | 5 | 6 |
Other expenses | 111 | 112 |
---------- | ---------- | |
1,161 | 844 | |
---------- | ---------- | |
[1] Relates to unpaid rental income that is not expected to be received. | ||
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10. Tax effects of other comprehensive loss | ||
There are no tax effects arising from the other comprehensive loss disclosed in the Consolidated Statement of Comprehensive Income (2011: £nil). | ||
11. Foreign currency |
The gains and losses on foreign currency translation included in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2012 amounted to a net gain of £13,000 (2011: gain of £1,253,000). The gains and losses include exchange differences arising on the settlement of monetary and non-monetary items denominated in currencies other than Sterling, the Group's presentational and the Company's functional currency. The changes in the value of the bank loan (until repayment), cash and deferred tax resulting from movements in foreign currency exchange rates make up the majority of this balance.
The exchange difference arising from the translation of foreign operations included within other comprehensive income amounted to a net income of £120,000 for the year ended 31 December 2012 (2011: loss of £1,257,000). This relates to the retranslation of share capital and reserves of the Company's subsidiary undertakings.
As stated in the Admission Document, on an on-going basis, the Group does not intend to hedge the exchange rate risk between Sterling, and US Dollars, Euros and other local currencies. The Group has freehold investment property and rental agreements denominated in currencies other than Sterling (the Company's functional and presentational currency). |
12. (Loss)/earnings per share - basic and diluted |
The loss per Ordinary Share is based on a loss of £2,603,000 (2011: profit of £1,203,000) and on a weighted average number of 18,630,348 (2011: 18,896,086) Ordinary Shares in issue. There is no difference between the basic and diluted earnings per share. |
13. Dividends |
In accordance with the disclosure in the Chairman's Statement, the Board is planning to consult with Shareholders on the most suitable way of distributing the proceeds of property sales to Shareholders and, therefore, does not propose an interim or final dividend for the year ended 31 December 2012 (2011: £nil). |
14. Freehold investment property | ||
Year ended31 December 2012 | Year ended31 December 2011 | |
£'000 | £'000 | |
Brought forward | 33,718 | 31,440 |
Additions | 211 | 708 |
Disposals | (10,433) | - |
Realised loss on disposal of investment properties | (731) | - |
(Loss)/gain on revaluation of investment properties | (1,806) | 1,570 |
---------- | ---------- | |
Carried forward | 20,959 | 33,718 |
---------- | ---------- | |
In the opinion of the Directors, the Property Manager and the Investment Adviser, the fair value of the properties held at the year end is equal to the values attributed to them in the independent valuation report prepared by DTZ Debenham Tie Leung. | ||
Property assets in Turkey, Bulgaria and Romania are inherently difficult to value as there is no liquid market or transparent pricing mechanism. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the date of the valuation. | ||
The Group invests primarily in US Dollars, Euros or local currencies in Turkey, Bulgaria and Romania. Although US Dollars, Euros and the local currencies of those countries are freely convertible into other currencies, exchange rate fluctuations could have a material effect on the market value of the Group's property investments, which although expressed in Sterling, are valued by DTZ Debenham Tie Leung in either US Dollars or Euros.
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All investment properties were valued by DTZ Debenham Tie Leung, international property advisers, at fair value (see note 3h) at 31 December 2012 and 31 December 2011 in accordance with the latest edition of the Royal Institution of Chartered Surveyors ("RICS") Appraisal and Valuation Manual. | ||
Since the year end, the Pera Residence was sold on 18 March 2013 for US$2.1 million (£1.4 million). The sale price was 26% higher (in Sterling terms) than the fair value of the property in these accounts as at 31 December 2012. | ||
15. Intangible assets | ||
During the period ended 31 March 2007, the Group purchased a trademark for Markiz Patisserie. The estimated useful economic life of the trade mark is fifteen years. | ||
Year ended31 December 2012 | Year ended31 December 2011 | |
£'000 | £'000 | |
Cost | ||
Brought forward | 14 | 17 |
Foreign exchange movement | - | (3) |
---------- | ---------- | |
Carried forward | 14 | 14 |
---------- | ---------- | |
Accumulated Amortisation | ||
Brought forward | (5) | (5) |
Provided during the year | (1) | (1) |
Foreign exchange movement | - | 1 |
---------- | ---------- | |
Carried forward | (6) | (5) |
---------- | ---------- | |
Net book value | 8 | 9 |
---------- | ---------- | |
16. Property, plant and equipment | |||||
Year ended31 December 2012 | Year ended31 December 2011 | ||||
£'000 | £'000 | ||||
Cost | |||||
Brought forward | 44 | 53 | |||
Disposals | (9) | - | |||
Foreign exchange movement | 1 | (9) | |||
---------- | ---------- | ||||
Carried forward | 36 | 44 | |||
---------- | ---------- | ||||
Accumulated Depreciation | |||||
Brought forward | (23) | (22) | |||
Provided during the year | (4) | (5) | |||
Disposals | 2 | - | |||
Foreign exchange movement | 2 | 4 | |||
---------- | ---------- | ||||
Carried forward | (23) | (23) | |||
---------- | ---------- | ||||
Net book value | 13 | 21 | |||
---------- | ---------- | ||||
| |||||
17. Investments in subsidiary undertakings | |||||
Details of the subsidiary undertakings held by the Company at 31 December 2012 were as follows: | |||||
Registered | % of ordinary shares held | Principal activity | |||
Gateway Properties SRL [1] | Romania | 100% | Property investment | ||
Markiz Gayrimenkul Yatirim ve Ticaret Limited Şirketi | Turkey | 100% | Property investment | ||
Sarnia Eastern Property (Cyprus) Limited | Cyprus | 100% | Investment holding | ||
Sarnia Eastern Property (Malta) Limited | Malta | 100% | Investment holding | ||
Sarnia Real Estate (Cyprus) Limited | Cyprus | 100% | Investment holding | ||
Sarnia Real Estate (Cyprus) No. 2 Limited [2] | Cyprus | 100% | Investment holding | ||
Southern Properties EOOD | Bulgaria | 100% | Property investment | ||
Southern Properties SRL | Romania | 100% | Property investment | ||
[1] Gateway Properties SRL is dormant. It was voluntarily suspended from the Registrar of Companies in Romania on 30 June 2009 to save costs, but was unsuspended during the course of 2012 in preparation for its disposal.
[2] Sarnia Real Estate (Cyprus) No. 2 Limited was dormant throughout the year and was stricken from the registrar's records on 25 April 2012.
| |||||
Sarnia Eastern Property (Cyprus) Limited and Sarnia Real Estate (Cyprus) Limited each have 50% shareholdings in Southern Properties SRL and Gateway Properties SRL. All other companies are wholly (and directly) owned by the Company. | |||||
18. Cash and cash equivalents | ||
31 December 2012 | 31 December 2011 | |
£'000 | £'000 | |
Cash balances with banks | 807 | 1,995 |
---------- | ---------- | |
The Group did not have any cash equivalents at the financial reporting date.
Cash balances held with banks earn interest at prevailing bank interest rates. | ||
19. Trade and other receivables | ||
31 December 2012 | 31 December 2011 | |
£'000 | £'000 | |
VAT control account | 35 | 320 |
Other receivables and prepayments | 79 | 115 |
---------- | ---------- | |
114 | 435 | |
---------- | ---------- | |
20. Trade and other payables | ||
31 December 2012 | 31 December 2011 | |
£'000 | £'000 | |
Administration fee | 25 | 25 |
Directors' fees | 21 | 16 |
Other payables and accruals | 148 | 182 |
---------- | ---------- | |
194 | 223 | |
---------- | ---------- | |
21. Taxation | ||
The taxation charge in the Consolidated Statement of Comprehensive Income is made up as follows: | ||
Year ended31 December 2012 | Year ended31 December 2011 | |
£'000 | £'000 | |
Deferred taxation (note 22) | 300 | (1,136) |
Overseas corporate tax | (117) | - |
Other taxes and duties charged overseas (1) | (48) | (55) |
Withholding tax | (17) | (19) |
---------- | ---------- | |
118 | (1,210) | |
---------- | ---------- | |
The Group has been granted exemption from Guernsey taxation under The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and is charged an annual exemption fee, which is currently £600.
| ||
(1) Other taxes and duties charged overseas relate to taxes imposed in the Turkish, Bulgarian and Romanian subsidiaries for expenses such as environment tax, withholding tax, property tax and stamp tax. | ||
Year ended31 December 2012 | Year ended31 December 2011 | |
£'000 | £'000 | |
(Loss)/profit before tax | (2,721) | 2,413 |
---------- | ---------- | |
Tax calculated at domestic rates applicable to the respective countries | (268) | 1,083 |
Non-deductible expenses | 1 | 1 |
Tax losses not recognised | - | 61 |
Reversal of previously recognised tax losses | (28) | - |
Other taxes | 177 | 65 |
---------- | ---------- | |
Taxation (receivable)/payable | (118) | 1,210 |
---------- | ---------- | |
Domestic tax rates in the other jurisdictions in which the Group operates was as follows: | ||
Year ended31 December 2012 | Year ended31 December 2011 | |
Turkey | 20% | 20% |
Bulgaria | 10% | 10% |
Romania | 16% | 16% |
The deferred tax liability has largely been created by the movement in unrealised gain or loss on freehold investment property. In the year ended 31 December 2012 the following movements occurred: ·; The Turkish subsidiary's deferred tax liabilities decreased by TRY 1,182,000; ·; The Bulgarian subsidiary's deferred tax assets decreased by BGN 276,000; and ·; The Romanian subsidiary's deferred tax was unchanged.
| ||
Withholding tax has been deducted from interest receivable in relation to the loan interest payable by the Turkish and Bulgarian subsidiaries at a rate of 10%. | ||
22. Deferred tax assets and liabilities | ||
Deferred tax assets and liabilities are attributable to the items detailed in the table below: | ||
31 December 2012 | 31 December 2011 | |
£'000 | £'000 | |
Deferred tax asset | - | 118 |
Deferred tax liability | (1,931) | (2,308) |
---------- | ---------- | |
Net deferred tax liability | (1,931) | (2,190) |
---------- | ---------- | |
The positive movement in the net deferred tax liability for the year (including movements on foreign exchange rates) is £259,000 (2011: negative movement of £770,000). After negating the effect of movements in foreign exchange rates of £41,000 (2011: £366,000), the positive deferred tax movement for the year was £300,000 (2011: negative movement of £1,136,000) (note 21).
| ||
The deferred tax assets and deferred tax liabilities at 31 December 2012 and 31 December 2011 were as follows: | ||
31 December 2012 | 31 December 2011 | |||
Assets | Liabilities | Assets | Liabilities | |
£'000 | £'000 | £'000 | £'000 | |
Tax losses carried forward | - | - | 1,142 | - |
(Gains)/losses on freehold investment property | - | (1,933) | 115 | (3,453) |
Loans and borrowings | - | - | 1 | - |
Trade and other payables | 2 | - | 5 | - |
---------- | ---------- | ---------- | ---------- | |
Total | 2 | (1,933) | 1,263 | (3,453) |
Amount netted off | (2) | 2 | (1,145) | 1,145 |
---------- | ---------- | ---------- | ---------- | |
Deferred tax (liability)/asset | - | (1,931) | 118 | (2,308) |
---------- | ---------- | ---------- | ---------- | |
23. Bank loan | ||
HSBC Bank plc (the "Bank") made available to the Company's Turkish subsidiary a US$17.5 million loan facility, which was drawn down on 19 December 2007 and was originally due to be repaid on 18 December 2012. Interest was payable at 2.35% per annum above the US$ London interbank euro-currency deposit rate. | ||
The loan was repaid during the year as follows: | ||
US$'000 | ||
Bank loan at 1 January 2012 | 17,500 | |
13 April 2012 | (4,500) | |
17 July 2012 | (9,000) | |
30 November 2012 | (4,000) | |
---------- | ||
Bank loan at 31 December 2012 | - | |
---------- | ||
Following the repayment of the loan, the security that the Bank held over the Turkish properties was released (2011: the value of Turkish properties charged as security to the Bank was £28,016,000).
Bank loan arrangement fees amounted to US$148,750 (0.85% of the amounts drawn down). The fees were deducted from the amount of the loan and were being amortised over the period of the loan. The Bank loan arrangement fees were fully amortised at 31 December 2012. | ||
31 December 2012 | 31 December 2011 | |
£'000 | £'000 | |
Loan drawn down | 8,784 | 8,784 |
Loan arrangement fees | (75) | (75) |
Loan arrangement fees amortised | 75 | 72 |
Loan repayment | (11,040) | - |
Foreign exchange loss | 2,256 | 2,475 |
---------- | ---------- | |
Carried forward | - | 11,256 |
---------- | ---------- | |
24. Share capital and reserves | ||
31 December 2012 | 31 December 2011 | |
£'000 | £'000 | |
Authorised: | ||
200,000,000 Ordinary Shares of 1 pence each | 2,000 | 2,000 |
---------- | ---------- | |
Issued and fully paid: | ||
18,516,250 (2011: 18,636,250) Ordinary Shares of 1 pence each (1) | 185 | 186 |
---------- | ---------- | |
(1) During the year, the Company purchased and cancelled 120,000 Ordinary Shares in the Company at a total cost of £103,000.
During the year ended 31 December 2011, the Company purchased and cancelled 555,000 Ordinary Shares in the Company at a total cost of £361,000.
Since the year end, 575,000 Ordinary Shares have been purchased for cancellation at a total cost of £488,000. | ||
| ||
The Company has one class of Ordinary Shares, which carry no right to fixed income. Ordinary Shares carry the right to vote at general meetings and the entitlement to receive any dividends and surplus assets of the Company on a winding-up.
Any Ordinary Shares held in treasury do not have the right to vote at general meetings nor do they have an entitlement to receive any dividends or surplus assets of the Company on a winding-up.
Foreign currency translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. | ||
Reserve for own shares The Company has the authority to utilise the distributable reserves to buy back up to 14.99% of the Ordinary Shares (2,793,574 Ordinary Shares) in issue at the time the notice of the AGM, held on 14 September 2012, was circulated, for cancellation. In addition, the Company has the authority to purchase up to 10% of the Ordinary Shares in issue and hold them as Treasury Shares until a time when they are either re-issued or cancelled.
No shares were purchased to be held as Treasury Shares during the year (31 December 2011: nil). On 1 September 2011, 608,750 Ordinary Shares held as Treasury Shares were cancelled. At 31 December 2012, no Ordinary Shares were held as Treasury Shares (2011: nil). | ||
25. NAV per Ordinary Share |
The NAV, in pence per Ordinary Share, is based on the net assets attributable to equity Shareholders of £19,447,000 at 31 December 2012 (2011: £22,033,000) and on 18,516,250 Ordinary Shares in issue at the end of the year (2011: 18,636,250). |
26. Related parties |
The relationship and transactions between the Group, Elysium, CNC and Pera Pera are disclosed in note 5. In addition, with effect from 8 May 2012, Andrew Duquemin was appointed as an alternate Director for Carol Goodwin. Mr Duquemin is executive chairman of Elysium.
During the year, the Group incurred £125,000, £372,000 and benefitted from a reduction in provision of £210,000 in respect of administration, management and performance fees, respectively (2011: £100,000, £416,000 and £210,000). The administration, management and performance fees were payable to Elysium. The £210,000 performance fee provision at 31 December 2011 was in respect of a possible future performance fee due to Elysium, based on the 31 December 2011 NAV. The liability had not yet crystallised (see note 5 for further details regarding when a performance fee becomes payable). As the 31 December 2012 NAV is not within the parameters required for a performance fee, no accrual has been made and the previously accrued fee has been reversed.
At 31 December 2012, £25,000, £nil and £nil (2011: £25,000, £nil and £210,000) was due to Elysium in respect of administration, management and performance fees, respectively.
The management and performance fees payable to CNC and Pera Pera are borne by Elysium.
|
The Group has agreed to pay Mr Cadogan (who is employed by the Investment Adviser) commission of 2% of the sales proceeds of property in Romania and Bulgaria, if a third party agent is involved, split in the proportion of 1.5% to the agent and 0.5% to Mr Cadogan. If a property sale is executed solely by Mr Cadogan, the rate would be 1.5%. The Group has agreed to pay Pera Pera commission on any property sales in Turkey on the same terms as those agreed with Mr Cadogan.
The four property sales during the year incurred total sales commission of £156,000, which was payable to Pera Pera.
The relationship that the Company has with each of its subsidiaries is disclosed in full in note 17. |
The Directors are not aware of any ultimate controlling party. |
27. Maturity of financial liabilities |
Until it was repaid during the year, the Group's main financial liability was its bank loan, details of which are disclosed in note 23. The maturity of the Group's financial liabilities at 31 December 2012 was as follows: |
31 December 2012 | 31 December 2011 | |||
One year or less | Between two and five years | One year or less | Between two and five years | |
£'000 | £'000 | £'000 | £'000 | |
Trade and other payables | 194 | - | 223 | - |
Rents received in advance | 165 | - | - | 224 |
Overseas corporate tax | 125 | - | 3 | - |
Other provisions and payables | 39 | - | - | 251 |
Bank loan | - | - | 11,256 | - |
---------- | ---------- | ---------- | ---------- | |
523 | - | 11,482 | 475 | |
---------- | ---------- | ---------- | ---------- | |
28. Financial risk management |
Until it was repaid, the Group's principal financial liability was the bank loan. The Group holds cash and cash equivalents, has trade and other receivables/payables, tax assets and liabilities, receives rents in advance, all of which arise directly from its operations.
The main risks arising from the Group's assets are market risk, liquidity risk and credit risk. Market risk comprises of price risk, interest rate risk and foreign currency risk. For a more complete list of the risks facing the Group, please refer to the risk warning in the Admission Document. |
The Manager is responsible for identifying and controlling risks. The Board of Directors supervises the Investment Manager and is ultimately responsible for the overall risk management approach within the Group. The Board reviews and agrees policies for managing its risk exposure. These policies are summarised below and have remained unchanged during the year under review.
|
Excessive risk concentration Concentration indicates the relative sensitivity of the Group's performance to developments affecting a particular industry or geographical location. Concentrations of risk arise when a number of financial instruments or contracts are entered into with the same counterparty, or where a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations of liquidity risk may arise from the repayment terms of financial liabilities, sources of borrowing facilities or reliance on a particular market in which to realise liquid assets. Concentrations of foreign exchange risk may arise if the Group has a significant net open position in a single foreign currency, or aggregate net open positions in several currencies that tend to move together.
Following the passing of the Discontinuation Resolution at the AGM held on 14 September 2012 and the subsequent passing of the resolution to amend the Company's investment objective and policy at the EGM held on 25 September 2012, the Company's investment objective and policy is to carry out an orderly realisation of the Company's portfolio of assets, distribution of the net proceeds to Shareholders and then undertake a voluntary winding-up of the Company. Disposals may be by individual sales or as transactions incorporating a group of properties. Depending on the timing of property sales, the Group may become more greatly exposed to a higher concentration of geographical risk than it is now exposed to. |
Market price risk The Group's exposure to market price risk mainly arises as a result of fluctuations in the value of the Group's portfolio of investment properties. The Board has contracted with CNC and Pera Pera to provide up-to-date information regarding the markets in which the properties are invested. The properties are valued on a six monthly basis by independent property valuers DTZ Debenham Tie Leung in order that the Board can respond to any adverse effects on a timely basis. A 10% increase in the value of the freehold investment property at 31 December 2012 would have increased net assets by £2,096,000 (2011: £3,372,000; or £2,320,000 on a like-for-like basis). A decrease of 10% would have had an equal but opposite effect. |
Liquidity risk The Group has invested in investment properties, which, by their nature, are illiquid. However, the Group maintains sufficient cash balances to meet its working capital requirements. See note 27 for details of the contractual maturities of financial liabilities. |
Credit risk The risk of financial loss arising from the failure of a party to honour its obligations arises principally in connection with property leases and the investment of surplus cash and transactions where the Group sells properties with an element of deferred consideration.
|
Tenant rent payments are monitored regularly and appropriate action is taken to recover monies owed or if necessary to terminate the lease. Credit risk is minimised through the requirement, where possible, for tenants to pay rent in advance.
|
Deferred consideration terms are only agreed with counterparties approved by the Board or, where some additional security is available.
Funds may be invested and derivative transactions contracted only with banks and financial institutions with a high credit rating. The bank accounts held by the Group are principally with HSBC, the Group's primary bank. At the year end a total of £742,000 (2011: £1,936,000) was held on deposit with HSBC. Standard & Poor's rating agency has assigned an AA- credit rating to HSBC Bank plc. |
Interest rate risk The Group's exposure to interest rate risk is on its cash balances and, prior to its repayment, the bank loan. The cash balances are held in instant access or short-term deposits earning interest at floating rates. The bank loan (see note 23) bore interest at 2.35% per annum above the US$ London interbank euro-currency deposit rate. The Group does not hedge against movements in interest rates. |
Interest rate risk profile of assets and liabilities | |||
Total as per Consolidated Statement of FinancialPosition | Floating rate | Assets on which no interest is received | |
£'000 | £'000 | £'000 | |
Assets as at 31 December 2012 | |||
Cash and cash equivalents | 807 | 807 | - |
Other current assets | 21,094 | - | 21,094 |
------------ | ----------- | ------------ | |
Total assets | 21,901 | 807 | 21,094 |
------------ | ----------- | ------------ | |
Assets as at 31 December 2011 | |||
Non-current assets | 33,866 | - | 33,866 |
Cash and cash equivalents | 1,995 | 1,995 | - |
Other current assets | 437 | - | 437 |
------------ | ----------- | ------------ | |
Total assets | 36,298 | 1,995 | 34,303 |
------------ | ----------- | ------------ |
Total as per Consolidated Statement of Financial Position |
Floating rate | Liabilities on which no interest is paid | |
£'000 | £'000 | £'000 | |
Liabilities as at 31 December 2012 | |||
Current liabilities | 2,454 | - | 2,454 |
----------- | ----------- | ----------- | |
Total liabilities | 2,454 | - | 2,454 |
----------- | ----------- | ----------- |
Liabilities as at 31 December 2011 | |||
Bank loan (note 23) | 11,256 | 11,256 | - |
Non-current liabilities | 2,783 | - | 2,783 |
Other current liabilities | 226 | - | 226 |
----------- | ----------- | ----------- | |
Total liabilities | 14,265 | 11,256 | 3,009 |
----------- | ----------- | ----------- |
Interest sensitivity analysis Assuming all factors remained the same, a 0.5% increase in the US$ London interbank euro-currency deposit rate would have increased the loss for the year by £21,000 (2011: decreased profit by £42,000). A decrease of 0.5% would have had an equal but opposite effect. |
Foreign currency risk The Group conducts business in jurisdictions that generate revenue, expenses and liabilities in currencies other than Sterling. As a result, the Group is subject to the effects of exchange rate fluctuations with respect to any of these currencies.
The Group reports its consolidated results and its consolidated financial position in Sterling. The Group invests primarily in US Dollars, Euros or local currency in Turkey, Bulgaria and Romania and, accordingly, it generates revenue in currencies other than Sterling. The Group declares its dividends (when applicable) in Sterling and the amount received by Shareholders will be an amount in Sterling. As a consequence, Shareholders may experience fluctuations in the market price of their Ordinary Shares as a result of movements in the exchange rate between Sterling and US Dollars, Euros and any other local currencies. Such movements in the exchange rate may also adversely affect the NAV of the Group and the amount of dividends paid. In addition, the amount of any dividends declared by the Group will be determined based on the results of the Group's operations. |
| |||||||
Although US Dollars, Euros and the local currencies of Turkey, Bulgaria and Romania are freely convertible into other currencies, exchange rate fluctuations could have a material effect on the value of the Group's property investments, which are expressed in Sterling.
As stated in the Admission Document, on an on-going basis, the Group does not intend to hedge the currency risk between Sterling, and US Dollars, Euros and other local currencies. The Group has freehold investment property and rental agreements denominated in currencies other than Sterling (the functional and presentational currency). |
| |||||||
| ||||||||
Currency split of financial assets and liabilities as at 31 December 2012 | ||||||||
Total | GBP | EUR | US$ | TRY | BGN | LEU | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Financial assets: | ||||||||
Trade and other receivables | 114 | 9 | - | - | 19 | 20 | 66 | |
Cash and cash equivalents | 807 | 318 | 27 | 87 | 341 | 15 | 19 | |
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||
Total financial assets | 921 | 327 | 27 | 87 | 360 | 35 | 85 | |
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||
Financial liabilities: | ||||||||
Trade and other payables | (194) | (86) | (22) | - | (15) | (19) | (52) | |
Overseas corporate tax | (125) | - | - | - | (124) | (1) | - | |
Rents received in advance | (165) | - | - | (146) | (15) | - | (4) | |
Other provisions and payables | (39) | - | - | - | - | - | (39) | |
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||
Total financial liabilities | (523) | (86) | (22) | (146) | (154) | (20) | (95) | |
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||
Net financial assets/(liabilities) | 398 | 241 | 5 | (59) | 206 | 15 | (10) | |
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||
Net exposure to currency | 100% | 60.5% | 1.3% | (14.8)% | 51.7% | 3.8% | (2.5)% | |
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||
Currency split of financial assets and liabilities as at 31 December 2011 | |||||||
Total | GBP | EUR | US$ | TRY | BGN | LEU | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Financial assets: | |||||||
Trade and other receivables | 435 | 9 | - | - | 337 | 18 | 71 |
Tax assets | 2 | - | - | - | 2 | - | - |
Cash and cash equivalents | 1,995 | 157 | 3 | 1,543 | 242 | 46 | 4 |
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | |
Total financial assets | 2,432 | 166 | 3 | 1,543 | 581 | 64 | 75 |
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | |
Financial liabilities: | |||||||
Trade and other payables | (432) | (293) | (22) | - | (11) | (34) | (72) |
Overseas corporate tax | (3) | - | - | - | (2) | (1) | - |
Rents received in advance | (224) | - | - | (210) | (14) | - | - |
Bank loans | (11,256) | - | - | (11,256) | - | - | - |
Other provisions and payables | (41) | - | - | - | - | - | (41) |
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | |
Total financial liabilities | (11,956) | (293) | (22) | (11,466) | (27) | (35) | (113) |
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | |
Net financial (liabilities)/assets | (9,524) | (127) | (19) | (9,923) | 554 | 29 | (38) |
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | |
Net exposure to currency | (100)% | (1.3)% | (0.2)% | (104.2)% | 5.8% | 0.3% | (0.4)% |
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | |
Foreign currency sensitivity analysis A 5% strengthening of Sterling against each currency at 31 December 2012 and 31 December 2011 would have decreased the net assets and the loss (2011: increased the net assets and profit) for the year by the amounts shown below. This analysis assumes that all other variables remain constant and that any change in foreign exchange rates would not affect the prices of the properties.
The effect on equity of a strengthening of Sterling by 5% against each currency: | |||
Financial assets and liabilities only |
| ||
31 December 2012 | 31 December 2011 |
| |
£'000 | £'000 |
| |
| |||
Euro | - | 1 |
|
US Dollar | 3 | 496 |
|
Turkish Lira | (11) | (28) |
|
Bulgarian Lev | (1) | (1) |
|
Romanian Leu | 1 | 2 |
|
------------ | ------------ |
| |
Total | (8) | 470 |
|
------------ | ------------ |
| |
A weakening of Sterling against each currency would have an equal but opposite effect. | |||
In order to manage the Group's exposure to foreign currency risk, rather than purchase properties in local currency, the Group agreed prices for the properties and subsequently values the properties in either US Dollars or Euros. However, all payments for the properties were made in the relevant local currency, namely the Bulgarian Lev, Romanian Leu or Turkish Lira, at the relevant exchange rates at the time of payment. The same process is used in respect of rental agreements. The Board believes that this removes some of the volatility and reduces the foreign exchange exposure that may be experienced with the less stable local currencies, namely the Bulgarian Lev, Romanian Leu, and Turkish Lira.
In addition, the Group entered into the bank facility in US Dollars in Turkey in order to reduce the Group's net exposure to US Dollars (the currency with which the Turkish properties are linked). As the bank loan was repaid in full during the year using the proceeds from the sale of investment properties and some of the Group's working capital, the partial hedge provided by the loan no longer exists.
|
Possible adverse economic and political conditions The financial operations of the Group may be adversely affected by general economic conditions and particularly by economic conditions in Turkey, Bulgaria and Romania. The returns that are likely to be achieved on an investment in property or land in those countries will be materially affected by the political and economic climate in Eastern Europe, particularly in Turkey, Bulgaria and Romania. In particular, changes in the rates of inflation and interest rates in Turkey, Bulgaria and Romania may affect the income generated by, and capital values of, the investment properties.
The property and land markets in which the Group invests are relatively immature and the economies of Turkey, Bulgaria and Romania are not as developed as certain other countries in Western Europe. Further, those countries carry risks of political, legal and economic instability, which could adversely affect the Group's results or operations. The ability to enforce the Group's legal rights in Turkey, Bulgaria and Romania differ from those prevailing in certain other countries in Western Europe. With any investment in any country, there exists the risk of adverse political or regulatory developments including, but not limited to, nationalisation, confiscation without fair compensation, terrorism, war or currency restrictions. The latter may be imposed to prevent capital flight and may make it difficult or impossible to exchange local currency into foreign currency or to repatriate foreign currency.
Further, deterioration in the Western European economies could be expected to have an adverse effect on the economies of Turkey, Bulgaria and Romania and potentially on property values and the level of rents in those countries.
|
Risks of property ownership Investments in property may be difficult, slow or impossible to realise. The Ordinary Shares will be subject to the general risks incidental to the ownership of real or heritable property, including changes in the supply of or demand for competing investment properties in an area, changes in interest rates and the availability of mortgage funds, changes in property tax rates and landlord/tenant or planning laws, credit risks of tenants and borrowers and environmental factors. The marketability and value of any properties owned by the Group will, therefore, depend on many factors beyond the control of the Group and there is no assurance that there will be either a ready market for any properties held by the Group or that such properties will be sold at a profit or will yield a positive cash flow.
Changes in law relating to foreign ownership of property in any of the jurisdictions in which the Group invests might also have an adverse effect on the net returns from the property portfolio.
Property investment risk The performance of the Group could be adversely affected by a downturn in the property market in terms of capital value or weakening of rental markets. In the event of default by a tenant, the Group may suffer a rental shortfall and incur additional costs including legal expenses and costs of maintaining, insuring and re-letting the property. Any future property market recession could materially adversely affect the value of the properties.
Returns from an investment in property depend largely upon the amount of rental income generated from the property and the expenses incurred in the development or redevelopment and management of the property, as well as changes in its market value.
|
Rental income and the market value for properties are generally affected by overall conditions in the local economy, such as growth in GDP, employment trends, inflation and changes in interest rates. Changes in GDP may also impact employment levels, which in turn may impact demand for premises, especially for office space for commercial enterprises. Furthermore, movements in interest rates may also affect the cost of financing for real estate companies.
Both rental income and property values may also be affected by other factors relevant to the real estate market, such as competition from other property owners and developers, the perceptions of prospective tenants on the attractiveness, convenience and safety of properties, the inability to collect rents because of the bankruptcy or insolvency of tenants or otherwise, the periodic need to renovate, repair or re-lease space and the costs thereof, the costs of maintenance and insurance, and increased operating costs. In addition, the owner must meet certain significant expenditures, including operating expenses, even if the property is vacant.
Investments in property are relatively illiquid and more difficult to realise than investments in equities or bonds. |
29. Capital commitments |
All contracted capital commitments have been provided for. |
30. Subsequent events |
Since the year end, as part of a share buyback programme launched on 25 March 2013 by EEP and managed by Liberum Capital Limited, a total of 575,000 Ordinary Shares have been purchased and cancelled. The total cost of the Ordinary Shares purchased was £488,000.
Since the year end, the Pera Residence was sold on 18 March 2013 for US$2.1 million (£1.4 million), crystallising a gain, based on historic cost, of US$1.4 million (£0.9 million).
There were no other material events after the financial reporting date that required disclosure as at 24 May 2013. |
31. Fair values |
The fair value of interest-bearing loans and borrowings has been calculated based on discounted expected future principal and interest cash flows. For receivables and payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. The fair value of the deferred tax liabilities is linked to the fair value of the freehold investment property and is thus carried at its fair value. The fair value of the Group's bank loan was equal to its carrying value as the repayment of the bank loan was discounted at the variable rate at which it bore interest. All other receivables/payables are discounted to determine the fair value.
There is no significant difference between the carrying amount and the fair value of the Group's assets and liabilities. |
32. Operating leases | ||
The Group leases out its freehold investment property under operating leases. At 31 December 2012, the future minimum lease receipts under non-cancellable leases were as follows: | ||
31 December 2012 | 31 December 2011 | |
£'000 | £'000 | |
Less than one year | 416 | 1,242 |
Between one and five years | 323 | 512 |
---------- | ---------- | |
739 | 1,754 | |
---------- | ---------- | |
The total above comprises the total contracted rent receivable as at 31 December 2012.
Leases have been negotiated for terms of between one and five years and are either for fixed amounts per annum over the term of the lease or are increased annually at amounts set in advance or are linked to various price indices. The lessees do not have options to purchase the properties at the expiry of the lease periods. | ||
33. Capital management policy and procedures |
The Group's capital management objectives are: ·; to ensure that it will be able to continue to operate in order to return funds in an orderly manner to Shareholders; and ·; to maximise its total return primarily through the capital appreciation of its investments.
The Board, with the assistance of the Manager, Property Manager and Investment Adviser, monitors and reviews the structure of the Group's capital on an ad hoc basis. This review includes: ·; the current and future levels of gearing; ·; cash flow projections for the Group; ·; the working capital requirements of the Group; ·; the need to buy back Ordinary Shares for cancellation or to be held in treasury, which takes account of the difference between the NAV per Ordinary Share and the Ordinary Share price; ·; the current and future dividend policy; and ·; the return of funds to Shareholders.
|
Following the passing of the Discontinuation Resolution at the AGM held on 14 September 2012 and the subsequent passing of the resolution to amend the Company's investment objective and policy at the EGM held on 25 September 2012, the Board and its advisers have focussed on the orderly realisation of the Company's portfolio of assets, repayment of the bank loan and distribution of the net proceeds to Shareholders.
As disclosed in the Consolidated Statement of Financial Position, the total equity Shareholders' funds were £19,447,000 at 31 December 2012 (2011: £22,033,000). |
--- ENDS ---
Related Shares:
Eastern European Property