17th May 2016 07:00
17 May 2016 | |
EASTERN EUROPEAN PROPERTY FUND LIMITED Results for the year ended 31 December 2015 | |
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HIGHLIGHTS | |
· A number of individual units within the Nil Passage property in Beyoglu, Istanbul were sold during the year, generating aggregate proceeds of £0.9 million.
· Property held at 31 December 2015 was valued at £17.4 million (2014: £17.3 million on a like-for-like basis).
· Net asset value at 31 December 2015 of £15.8 million, equivalent to 101.46p per Ordinary Share (2014: £16.4 million, 105.36p per Ordinary Share).
· Loss for the year ended 31 December 2015 of £1.0 million, equivalent to a loss of 6.30p per Ordinary Share (2014: loss of £0.5 million, 3.06p per Ordinary Share).
Events after the year end: · In February 2016, two office units in the Nil Passage property in Istanbul were sold for a total of US$0.5 million (£0.3 million). · In March 2016, the shop and basement in the Nil Passage property were sold for a total of US$0.4 million (£0.3 million).
· In April 2016, two office units on the fifth floor of the Nil Passage property were sold for a total of US$85,000 (£58,000). EEP no longer has any interest in the Nil Passage property.
· Three properties remain in EEP's portfolio; Markiz Passage in Istanbul, The Atrium in Sofia and Gara Progresului in Bucharest. | |
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 |
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Keiran Gallagher Pera Pera Tel: +90 (212) 252 6048 | Oliver Cadogan Walnut Investments OOD Tel: +40 21 451 0823 |
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CHAIRMAN'S STATEMENT | |
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EEP continued with its programme of orderly realisation of investment properties in 2015 with the sale of a number of individual units within the Nil Passage building. In conjunction with further sales of units at the same property in 2016, EEP no longer has any interest in the Nil Passage building. Despite an increase in interest shown by potential investors in EEP's flagship property, the Markiz Passage on Istiklal Street, during the past year, it has not been possible to complete the sale of this asset. Due to the ongoing Syrian conflict and terrorist activities that have occurred in Turkey, tourism has taken a hit and is impacting on the potential for sale of the Markiz building as a hotel concept. For this reason, EEP is exploring other options by which to maximise the potential return on this property.
Results and Financial Position EEP reported a net loss for the year ended 31 December 2015 of £1.0 million (2014: loss of £0.5 million), representing a loss per Ordinary Share of 6.30p (2014: loss of 3.06p). The properties in Turkey have been intentionally kept largely vacant as they are being actively marketed for sale. However, rental income in Turkey increased by 45% (including foreign exchange movements) compared to 2014 due to the successful challenge and resultant award of rent increases backdated to 1 April 2013 relating to one tenant. In addition, the Company has trialled a short-term letting within the Markiz Passage property with a view to raising the profile of the building to potential purchasers. Rental income from the property in Romania increased 6% compared to the comparative period, whereas in Bulgaria, rental income decreased 8%.
Operating expenses decreased by 5.6% (before accounting for performance fees) during the year ended 31 December 2015. The Board and the Manager are disappointed at the delay in realising the remaining property investments and are acutely conscious that ongoing operating costs will reduce the eventual distributions to shareholders. All possible means of containing the level of net operating losses are currently being examined.
EEP's consolidated net asset value ("NAV") at 31 December 2015 was £15.8 million, equivalent to 101.46p per Ordinary Share (2014: £16.4 million; 105.36p per Ordinary Share).
The Company's share price decreased by 14.375p during the year to 50.75p at 31 December 2015, with the discount to NAV widening from 38.2% at 31 December 2014 to 50.0% at 31 December 2015.
Property Portfolio EEP disposed of a number of units within the Nil Passage property during the year ended 31 December 2015. 38 of the 56 individual titles that made up the property were sold in the first half of the year. Aggregate proceeds of £0.9 million were generated, realising a gain of £0.3 million based on historic cost.
Since the year end, all remaining units in the Nil Passage property were sold for a total of US$1.0 million (£0.7 million) (including VAT). The disposals were in line with the 31 December 2015 independent valuations and EEP no longer has any interest remaining in the Nil Passage property.
The remaining properties continue to be marketed for sale. The commercial property market is showing signs of improvement in Romania and, to a lesser extent, Bulgaria. The level of enquiries received suggest that out of the two countries, Romania is where EEP is more likely to achieve a sale in the near future, although this continues to be largely dependent on the availability of bank lending to prospective buyers.
Further information on the property markets and the investment environment is provided in the Property Manager and Investment Advisers' Report.
Property Valuations The aggregate value of EEP's investment properties remaining at 31 December 2015 decreased during the year and resulted in a net unrealised loss on revaluation of £55,000 (2014: gain of £0.6 million) (see note 13). Further details of each property (but not their individual carrying values) are disclosed in the Property Manager and Investment Advisers' Report. It remains the Board's policy not to disclose the breakdown of individual property values as that information could be detrimental to commercial negotiations with prospective buyers. | |
Distributions As stated previously, the Board's intention remains to distribute to Shareholders substantially all net proceeds of property sales, subject to meeting solvency and local legal requirements in each jurisdiction. The Board will continue to effect distributions by means of market repurchases of Ordinary Shares at a discount to NAV where the amount of net cash available for distribution is relatively small. However, disposal of EEP's principal asset, the Markiz Passage property, will trigger a more formal pro rata return of capital to shareholders.
It is likely that corporate income tax will arise to the extent any capital gains crystallise on the disposal of the remaining Turkish properties. This liability has been provided for in these consolidated results as deferred tax and calculated on the assumption that the properties are realised at their current carrying values. However, additional taxes, such as a 15% withholding tax, may arise on the repatriation to Guernsey of non-capital reserves from Turkey. At this time, the Board expects that future income (including realised gains on the sale of properties) will exceed expenses (including withholding tax, other sales taxes and sales commission) and, therefore, no estimated operating losses to liquidation have been made in these consolidated results.
If the remaining Turkish property is sold in 2016, it is expected that any profits will be paid as a dividend to the Company in 2017, with the remaining funds being transferred on the liquidation of the Turkish subsidiary later in 2017. If the remaining Turkish property is not sold in 2016, this process will be put back at least a year, with the subsequent distributions to Shareholders of the Company also being delayed. The Board will endeavour to ensure that cash not needed for the operation of the Company is distributed to Shareholders as quickly as possible. Disposal of the Turkish subsidiary containing the Markiz building should result in a more timely return of proceeds.
The Company is limited to repurchasing a maximum of 14.99% of the Ordinary Shares in issue and this remains in force until the authority to buy back shares is renewed at the AGM to be held later in 2016. EEP is permitted to repurchase 2,331,132 Ordinary Shares prior to the 2016 AGM. | |
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At the 2016 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 up to 2,331,132 Ordinary Shares (approximately £1.2 million at the current share price) assuming no change in the prevailing number of shares in issue.
As stated previously, no buybacks will be undertaken in the foreseeable future unless further properties are realised due to the need to retain sufficient funds for EEP's ongoing operation. | |
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Outlook The focus of the Board, the Manager, the Property Manager and the Investment Advisers is seeking disposal of all of EEP's remaining properties at appropriate prices that reflect their intrinsic value. The Board cannot predict when the remaining properties will be sold, but continues to encourage the Manager and Property Manager to identify unusual, as well as more conventional, potential buyers and to be creative in their approach to, and structure of, potential sales transactions. While sales are being pursued, the Board remains vigilant to minimise operating costs and cash burn.
The estimated timing and costs involved in appointing a liquidator of the Company and its subsidiaries remain under review at each Board meeting and, whilst preliminary discussions have taken place with potential service providers, provisions for the costs of winding-up EEP (including taxes, liquidation costs, the costs of realising the assets and operating costs) have not been included in these consolidated results as the costs are not expected to be material.
The Board appreciates your continued patience and support. Any shareholder wishing to discuss EEP's affairs with the Board, the Property Manager or one of the Investment Advisers should, in the first instance, contact the Manager and a member of the Board or Property Manager will revert to you as necessary. | |
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Martin M. Adams Chairman 16 May 2016 |
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PROPERTY MANAGER AND INVESTMENT ADVISERS' REPORT
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During the year ended 31 December 2015, all of EEP's properties were marketed and made available for sale. This resulted in further sales at Nil Passage in Istanbul and, following sales in early 2016, this property has been fully realised. The other property in Turkey, the Markiz Passage on Istiklal Street is EEP's largest asset and this has been the subject of numerous enquiries and offers during the year.
However, it has proved disappointingly elusive to conclude a transaction for the Markiz Passage. The major factor that has played its part in the sales process has been the reduction in tourist numbers in Istanbul. Virtually all of the enquiries and all of the offers have been based on a hotel development and this sector of the market has become increasingly adversely affected in the downturn in visitors to Turkey and Istanbul.
In Bucharest and Sofia the markets for selling investments and letting space have remained tough, although there are increasing signs that in Bucharest the commercial property market is improving. However, a nightclub fire last year has had a direct impact on costs in relation to some of the city's real estate.
In Sofia, there has been very little interest from the investment market and in Bucharest there are signs of interest, but this remains at a low level.
Due to potential concerns over the difficulty of selling the Markiz, additional emphasis has been placed on the valuation analysis of this property. However, the value has remained broadly the same, which does align with the fact that offer levels for the property have mostly been in excess of the valuation.
The properties held at 31 December 2015 were as follows:
Markiz Passage, Istiklal Street, Beyoglu, Istanbul The property, located in a prime position on Istiklal Street, has been widely marketed for sale and it continues to attract interest and offers. It has not proved an easy property to sell in the economic conditions that have persisted during the last year, including the back drop of the Syrian crisis which, in turn, has affected tourism in Istanbul and Turkey as a whole.
Yemek Kulubi (Food Club) remains in occupation of the front of the building and its lease comes to an end in 2017.
While there remains an emphasis on selling the building, alternative schemes are being considered to rent the building in the future in order to protect EEP's overall income stream in the event that delays in the sale continue. Temporary short-term lettings have already been undertaken and will be considered in the future on the basis that they do not compromise the sales process and help maintain the profile of the property in the market.
Nil Passage, Gonul Sokak, Beyoglu, Istanbul At the year end, two units remained; being a shop and an office suite on the third floor. Since the year end, the office suite was sold for US$500,000 (including VAT), the shop was sold for US$372,000 (including VAT) and the fifth floor office units were sold for US$85,000 (including VAT). The disposals were in line with the 31 December 2015 valuation.
The Atrium, 24 George Washington Street, Sofia While the property is on the market for sale, limited interest was registered during 2015 from potential investors.
The United Bulgaria Bank remains in occupation and is the largest tenant in the building. The majority of the remainder of the property has been and continues to be occupied by small tenants on short-term agreements. This provides some turnover in the building and the amount of void space varies over the period as tenants come and go.
Gara Progresului, Business & Logistics Centre, Bucharest This property remains for sale and has attracted some interest during 2015 and 2016. However, no offers have been received that have merit or that could be taken forward. It continues to attract tenants on a regular basis although these are on short-term agreements, which gives rise to a constant turnover of occupiers. Nevertheless, the property has proved itself to be resilient over time in terms of income generation.
The fire in the centre of Bucharest in October 2015 resulted in a large number of deaths, several arrests and resignations of public officials, and ultimately led to a technocrat government replacing the existing government. Since then, other regulatory matters have also been pursued with greater vigour than before. This has resulted in additional capital assessments being made for potential works in order to comply with more onerous regulations. This has had an impact on the valuation of the property. |
Regional Overview Turkey Whilst the domestic political scene has calmed down, the war in Syria and the internal outbreaks of violence related to the Kurdistan Worker's Party (PKK) continue to create a volatile economic and political environment. This, together with a series of bombings, is causing increased uncertainty in domestic security. Despite the political uncertainty which is affecting consumer and manufacturing confidence, the economy for the present appears resilient; this is perhaps because political uncertainty is not a new phenomenon. The office sector continues to absorb the new stock on the market with prime rents, vacancies and rental yields remaining stable.
According to the surveys, the prime retail market rental levels, vacancies and rental yields remain at levels supported by consumer spending. However, anecdotally, there have been some renegotiations of rent due to earlier Turkish Lira depreciation against the US Dollar. The hotel market was weak in the first quarter of 2016 with rates per night and occupancy declining due to the reduction in tourists from European countries. However, there is a partial offset due to increased visitor numbers from Iran and Arab countries.
Turkey reported stronger than expected quarter four 2015 GDP of +5.7% on the year, and GDP growth in 2015 of 4.0% for the year as a whole. The Economist consensus poll is forecasting GDP growth of 3.3% in 2016. The primary negative impacts are of political unrest, Russian sanctions and (the terrorism related) decline in tourism. Whilst the consumer is expected to be resilient due to an increase in minimum wage and immigration.
Inflation continues to keep interest rates high with 7.5% inflation recorded in March 2016 and the forecast inflation consensus for 2016 is 8.3%. The Turkish Lira has remained relatively stable over the last six months averaging around 2.9 Turkish Lira to the US Dollar. The current account deficit reduced to 4.6% in December 2015 which was due to lower oil and other raw material prices.
The Turkish government is running a budget deficit of 1.6% of GDP and is keeping a tight control over this and overall government debt. However, there is significant corporate US Dollar debt.
Bulgaria While the clean-up of corruption in Romania continues apace and European Commission president Jean-Claude Juncker suggests it may exit a justice-monitoring scheme, which both Bulgaria and Romania have been subject to since joining the EU in 2007, Bulgaria continues to be plagued by continuing corruption issues under prime minister Borisov.
The European Commission has increased slightly its GDP growth forecasts for 2016 to 1.5% and to 2% in 2017. Higher net exports and public investment drove the 2.2% GDP growth rate experienced in 2015. Domestic demand is expected to replace net exports as the main driver of economic growth in 2016, while deflation is expected to continue until the end of 2016. Unemployment is projected to drop to 8.8% in 2017 from 9.4% in 2016.
Romania In a sign of the gradually improving economic climate, the technocrat government, appointed in November 2015, repaid the final instalment of the €13 billion IMF loan which Romania received in 2009 and is not seeking another agreement. Local elections are due in June 2016 and the larger parties are putting political pressure on government ahead of these, although the technocrats appear to retain overwhelming popular support and are likely to remain in power until at least the parliamentary elections due in November 2016.
Romania's GDP grew 3.6% in 2015, the highest rate since 2008. There is growing concern that import-led consumption has taken over from investment as the driving factor behind this, a trend which seems to be continuing. Increasing confidence, increasing public and private sector salaries and reduced taxes (VAT on food was cut from 24% to 9% in June 2015 and the overall VAT rate fell from 24% to 20% in January 2016) would appear to be the main factor behind this. |
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The European Commission is currently forecasting a 2016 GDP growth rate of 4.2% in 2016 and 3.7% in 2017.
The unemployment rate has held steady at 6.7% in 2015 and key interest rates are sub 2% per annum.
Investment Advisory Agreement With effect from 12 March 2015, Pera Pera Yönetim ve Danişmanlik Hizmetleri ve Tic Limited ("Pera Pera") and Walnut Investments OOD ("Walnut") are the Investment Advisers. Pera Pera is Investment Adviser in respect of the Turkish portfolio and Walnut is Investment Adviser in respect of the Bulgarian and Romanian properties. Prior to 12 March 2015, Pera Pera also acted as the Investment Adviser in respect of the Bulgarian and Romanian properties. The change to Walnut as Investment Adviser for Bulgaria and Romania has not resulted in any change to the individuals working in an investment advisory capacity to EEP. The fees of the Investment Advisers are borne by the Manager.
Prospects The Syrian War and more recent terrorist events in Turkey have not been the easiest of backgrounds in which to operate a sales programme of prime assets in central Istanbul. This has followed on from earlier political uncertainty and the many general economic concerns that persist worldwide. Notwithstanding this, the local business operators in Istanbul remain confident in their city, although acknowledging the lack of western foreign investment and visitors. The sales at Nil Passage demonstrate that property transactions are possible, but the lot sizes of these small units are significantly smaller than the Markiz Passage property. The wider property market (in terms of offer levels) and the external professional valuer's emphasis on analysis of potential income and yield comparisons support the current valuation. The Manager and Turkey based Investment Adviser remain focussed on achieving the best value possible while assessing income and costs.
In Sofia, activity levels remain low and this is reflected in current confidence levels. However, the property has been kept mostly occupied and it is in a very central location with a direct underground link now in place to the airport, which should enable it to take advantage of investor interest once that market returns. This is likely to be tied to bank lending on commercial property which has been almost non-existent in terms of new commercial property loans for some time. There are signs this might be returning, but it is likely to be a slow process.
In Bucharest, activity levels are higher than Sofia and there are reasons to be more optimistic that a sale will happen. Banks are indicating they will lend for commercial real estate, but the process is very slow and loan to value ratios remain lower than in previous years when activity levels were higher. Bank lending margins remain relatively high which is leaving still some way to go before the commercial property market is likely to improve significantly in terms of sales transactions, but the direction is positive.
Bob Locker CNC Property Fund Management Limited
Keiran Gallagher Pera Pera
Oliver Cadogan Walnut Investments OOD
16 May 2016 |
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The financial information set out in this announcement does not constitute the Company's statutory financial statements for the year ended 31 December 2015. |
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||
for the year ended 31 December 2015 | |||
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Note | Year ended31 December 2015 | Year ended31 December 2014 |
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| £'000 | £'000 |
Income |
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Rental income |
| 626 | 554 |
Other income |
| 56 | 47 |
Bank interest receivable |
| 5 | 1 |
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| ------------ | ------------ |
Total income |
| 687 | 602 |
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| ------------ | ------------ |
Expenses |
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Management fees | 5 | (194) | (197) |
Administration fees | 5 | (100) | (100) |
Performance fees | 5 | 61 | (62) |
Other operating expenses | 8 | (735) | (793) |
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| ------------ | ------------ |
Total expenses |
| (968) | (1,152) |
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| ------------ | ------------ |
Investment gains and losses |
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(Loss)/gain on revaluation of investment properties | 13 | (55) | 565 |
Gain on disposal of investment properties | 13 | 95 | - |
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| ------------ | ------------ |
Total investment gains |
| 40 | 565 |
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| ------------ | ------------ |
Net (loss)/profit from operating activities before gains and losses on foreign currency translation |
| (241) | 15 |
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Loss on foreign currency translation | 10 | (42) | (34) |
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| ------------ | ------------ |
Net loss from operating activities |
| (283) | (19) |
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Taxation | 19 | (696) | (462) |
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| ------------ | ------------ |
Loss for the year |
| (979) | (481) |
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Other comprehensive income that may be reclassified to profit or loss in subsequent periods |
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Exchange differences arising from translation of foreign operations | 10 | 372 | 104 |
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| ------------ | ------------ |
Total other comprehensive income |
| 372 | 104 |
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| ------------ | ------------ |
Total comprehensive loss for the year attributable to the Owners of the Group |
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(607) |
(377) |
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| ------------ | ------------ |
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Loss per share - basic and diluted | 11 | (6.30)p | (3.06)p |
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| ------------ | ------------ |
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All the items in the above statement are derived from continuing operations. | |||
The accompanying notes form an integral part of these consolidated results. | |||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | ||||||
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Attributable to Owners of the Group for the year ended 31 December 2015 | ||||||
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| Note |
Share capital |
Distributable reserve | Foreign currency translation reserve |
Total |
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| £'000 | £'000 | £'000 | £'000 |
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Net assets at 1 January 2014 |
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| 165 | 17,825 | (627) | 17,363 |
Total comprehensive income/(loss) for the year ended 31 December 2014 |
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Loss for the year |
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| - | (481) | - | (481) |
Other comprehensive income |
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| - | - | 104 | 104 |
Contributions by and distributions to owners |
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Buy back and cancellation of own shares |
| 21 | (10) | (591) | - | (601) |
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| ---------- | ---------- | ---------- | ---------- |
Net assets at 31 December 2014 |
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| 155 | 16,753 | (523) | 16,385 |
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Total comprehensive income/(loss) for the year ended 31 December 2015 |
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Loss for the year |
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| - | (979) | - | (979) |
Other comprehensive income |
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| - | - | 372 | 372 |
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| ---------- | ---------- | ---------- | ---------- |
Net assets at 31 December 2015 |
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| 155 | 15,774 | (151) | 15,778 |
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| ---------- | ---------- | ---------- | ---------- |
The accompanying notes form an integral part of these consolidated results. |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION | |||
as at 31 December 2015 | |||
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| Note | 31 December 2015 | 31 December 2014 |
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| £'000 | £'000 |
Current assets |
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Freehold investment property | 13 | 17,421 | 18,294 |
Intangible assets | 14 | 4 | 5 |
Property, plant and equipment | 15 | 2 | 5 |
Trade and other receivables | 17 | 125 | 131 |
Cash and cash equivalents |
| 848 | 511 |
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| ---------- | ---------- |
Total assets |
| 18,400 | 18,946 |
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| ---------- | ---------- |
Current liabilities |
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Deferred tax liabilities | 20 | (2,260) | (2,076) |
Trade and other payables | 18 | (270) | (380) |
Overseas corporate tax |
| (18) | (7) |
Rents received in advance |
| (74) | (98) |
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| ---------- | ---------- |
Total liabilities |
| (2,622) | (2,561) |
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| ---------- | ---------- |
Net assets |
| 15,778 | 16,385 |
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| ---------- | ---------- |
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Capital and reserves |
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Called-up share capital | 21 | 155 | 155 |
Distributable reserve |
| 15,774 | 16,753 |
Foreign currency translation reserve |
| (151) | (523) |
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| ---------- | ---------- |
Total equity attributable to owners of the Group |
| 15,778 | 16,385 |
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| ---------- | ---------- |
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NAV per Ordinary Share - basic and diluted | 22 | 101.46p | 105.36p |
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| ---------- | ---------- |
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The accompanying notes form an integral part of these consolidated results. | |||
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2015 | |||
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| Note | Year ended31 December 2015 | Year ended31 December 2014 |
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| £'000 | £'000 |
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Net loss from operating activities |
| (283) | (19) |
Adjustments for: |
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Bank interest receivable |
| (5) | (1) |
Loss/(gain) on revaluation of investment properties | 13 | 55 | (565) |
Gain on disposal of investment properties | 13 | (95) | - |
Loss on foreign currency exchange |
| 42 | 34 |
Amortisation and depreciation |
| 3 | 2 |
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| ---------- | ---------- |
Net cash outflow from operating activities before working capital changes |
| (283) | (549) |
(Increase)/decrease in trade and other receivables |
| (10) | 145 |
Decrease in trade and other payables and other current liabilities |
| (88) | (34) |
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| ---------- | ---------- |
Net cash outflow from operating activities after working capital changes |
| (381) | (438) |
Interest received in the year |
| 5 | 1 |
Tax paid in the year |
| (186) | (315) |
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| ---------- | ---------- |
Net cash outflow from operating activities |
| (562) | (752) |
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Investing activities |
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Sale of investment property |
| 916 | 906 |
Acquisition and development of investment property |
| (3) | (14) |
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| ---------- | ---------- |
Net cash inflow from investing activities |
| 913 | 892 |
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Financing activities |
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Purchase of own shares | 21 | - | (601) |
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| ---------- | ---------- |
Net cash outflow from financing activities |
| - | (601) |
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| ---------- | ---------- |
Increase/(decrease) in cash and cash equivalents |
| 351 | (461) |
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| ---------- | ---------- |
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Cash and cash equivalents at beginning of year |
| 511 | 957 |
Increase/(decrease) in cash and cash equivalents |
| 351 | (461) |
Foreign exchange movement |
| (14) | 15 |
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| ---------- | ---------- |
Cash and cash equivalents at end of year |
| 848 | 511 |
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| ---------- | ---------- |
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The accompanying notes form an integral part of these consolidated results. | |||
NOTES TO THE CONSOLIDATED RESULTS for the year ended 31 December 2015
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1. General Information |
The Company is registered in Guernsey as an authorised closed-ended investment company and its Ordinary Shares are traded on AIM, a securities market operated by the London Stock Exchange.
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 consolidated results have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standards Board (with the exception of IFRS 8, as explained in note 6, and IFRS 13 as explained in note 13), they give a true and fair view and are in compliance with the Companies (Guernsey) Law, 2008.
The consolidated results were authorised for issuance by the Board on 16 May 2016. |
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b) Basis of measurement |
The consolidated results have been prepared on a historic cost basis, except for freehold investment property, which has been measured at fair value.
The Board has considered cashflow forecasts and has determined that EEP will be able to continue to meet its liabilities as they fall due for the foreseeable future, enabling the Company to realise its portfolio of assets in an orderly manner.
As the Company's investment objective and policy is to carry out an orderly realisation of the Company's portfolio of assets, the consolidated results have been prepared on a non-going concern basis. This has had no significant impact on the consolidated results as the properties have been measured at fair value and are expected to be realised in an orderly manner.
It is likely that corporate income tax will arise on capital gains on the disposal of the remaining Turkish properties. This liability has been provided for in these consolidated results as deferred tax and calculated on the assumption that the properties are realised at their current carrying values. However, additional taxes, such as a 15% withholding tax, may arise on the repatriation to Guernsey of non-capital reserves from Turkey. At this time, the Board expects that future income (including realised gains on the sale of properties) will outweigh expenses (including withholding tax, other sales taxes and sales commission) and, therefore, no losses to liquidation have been provided for in these consolidated results, which have been prepared on a non-going concern basis. |
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c) Functional and presentation currency |
These consolidated results are presented in Sterling, which is also the Company's functional currency. All amounts are rounded to the nearest thousand. |
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d) Use of estimates and judgements |
The preparation of consolidated results 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 consolidated results and estimates with a significant risk of material adjustment in the next year are discussed in note 2b), note 13: Freehold investment property and note 28: Fair values. |
3. Significant accounting policies |
a) Basis of consolidation |
These consolidated results consolidate the results of the Company and its subsidiary undertakings to 31 December 2015. 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 ever been owned by the Company).
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Subsidiaries are those entities, including special purpose entities, controlled by the Company. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. 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 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 subsidiaries holding property 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 trademark 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 Valuation - Professional Standards 2014 Edition (the "Red Book"). For certain properties, the 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. For other properties, values are determined on the basis of near vacant possession, whereby capital values are assessed per square metre and cross checked on a rent and yield approach, with adjustments made for void space and expected refurbishment costs prior to letting. This calculation also excludes the effects of any taxes.
All freehold investment properties are valued twice per year by independent appraisers. The last valuation of the investment properties was carried out by Cushman & Wakefield as at 31 December 2015.
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.
Investment properties are derecognised when they have been disposed of and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying value of the property is recognised in the Statement of Comprehensive Income in the period of derecognition. |
|
|
| 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) 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 as a distributable reserve. |
|
|
| m) 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. |
|
|
| n) 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. |
| |
o) NAV per share and loss per share | |
The NAV 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.
Loss per share is calculated by dividing the loss for the year by the weighted average number of Ordinary Shares in issue during the year. | |
| |
p) 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. | |
q) Financial statements of foreign operations | |||||||||||||||||||||||||
The assets and liabilities of foreign operations, including 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. | |||||||||||||||||||||||||
| |||||||||||||||||||||||||
r) 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. | |||||||||||||||||||||||||
| |||||||||||||||||||||||||
s) 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 2015 and the 31 December 2014 consolidated results due to reasons of commercial sensitivity and the possible negative impact such information may have on the disposal of individual properties. | |||||||||||||||||||||||||
| |||||||||||||||||||||||||
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. The Group adopted the following new and amended relevant IFRS adopted in the year commencing 1 January 2015: | |||||||||||||||||||||||||
| |||||||||||||||||||||||||
IAS 16 | Property, Plant and Equipment - proportionate restatement of accumulated depreciation | ||||||||||||||||||||||||
IAS 24 | Related Party Disclosures - management entities | ||||||||||||||||||||||||
IAS 40 | Investment Property - clarification of interrelationship of IFRS 3 and IAS 40 | ||||||||||||||||||||||||
The adoption of these standards and interpretations did not have an impact on the consolidated 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 with an effective date after the date of these consolidated results. Any standards that are not deemed relevant to the operations of the Company have been excluded. The Board has chosen not to early adopt these standards and interpretations and they do not anticipate that they, with the exception of IFRS 9, would have a material impact on the Group's results in the period of initial application. A full assessment of the impact of IFRS 9 has not yet been performed. | |||||||||||||||||||||||||
|
| Effective date | |||||||||||||||||||||||
| IFRS 5 | Non-current Assets Held for Sale and Discontinued Operations - changes in methods of disposal | 1 January 2016 | ||||||||||||||||||||||
| IFRS 7 | Financial Instruments: Disclosures - annual improvements and additional hedge accounting disclosures | 1 January 2016,1 January 2018 | ||||||||||||||||||||||
| IFRS 9 | Financial Instruments | 1 January 2018 | ||||||||||||||||||||||
| IFRS 10 | Consolidated Financial Statements - amendments regarding the application of the consolidation exception | 1 January 2016 | ||||||||||||||||||||||
| IFRS 12 | Disclosure of Interests in Other Entities - amendments regarding the application of the consolidation exception | 1 January 2016 | ||||||||||||||||||||||
| IFRS 15 | Revenue from Contracts with Customers | 1 January 2018 | ||||||||||||||||||||||
| IFRS 16 | Leases | 1 January 2019 | ||||||||||||||||||||||
| IAS 1 | Presentation of Financial Statements - amendments resulting from the disclosure initiative | 1 January 2016 | ||||||||||||||||||||||
| IAS 12 | Income Taxes - amendments regarding the recognition of deferred tax assets for unrealised losses | 1 January 2017 | ||||||||||||||||||||||
| IAS 16 | Property, Plant and Equipment - various amendments | 1 January 2016 | ||||||||||||||||||||||
| IAS 34 | Interim Financial Reporting - annual improvements | 1 January 2016 | ||||||||||||||||||||||
| IAS 38 | Intangible Assets - amendments regarding the clarification of acceptable methods of depreciation and amortisation | 1 January 2016 | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 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") and Walnut Investments OOD ("Walnut") (with effect from 12 March 2015) are the Investment Advisers. Pera Pera is Investment Adviser in respect of the Turkish portfolio and Walnut is Investment Adviser in respect of the Bulgarian and Romanian properties. Prior to 12 March 2015, Pera Pera also acted as the Investment Adviser in respect of the Bulgarian and Romanian properties. The change to Walnut as Investment Adviser for Bulgaria and Romania has not resulted in a change to the individuals working in an investment advisory capacity to EEP. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| Administration fees The Company pays Elysium, by way of remuneration for its administration and secretarial services, 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.
The total administration fees paid to Elysium relating to the year ended 31 December 2015 amounted to £100,000 (2014: £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 2015 was £194,000 (2014: £197,000).
The Manager is responsible for the payment of the fees of the Investment Advisers and Property Manager. For details on the payment of commissions to the Investment Advisers for the sale of properties, please refer to note 23. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 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 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, which shall be paid no later than the date falling three months after the relevant realisation event. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| The total distribution to Shareholders shall be calculated on a basis that does not recognise any liability of the Company to Elysium in respect of: (i) any performance fee that is, or may become, payable; and (ii) 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 2015, the performance fee provision was decreased by £61,000 to £121,000 (2014: the provision was increased by £62,000 to £182,000). | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 6. Segmental analysis | ||||||||||||||||||||||||
| In accordance with IFRS 8: Operating segments, the Group is required 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 due to reasons of commercial sensitivity and the possible negative impact such information may have on the proceeds from the sale of individual properties. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 7. Directors' remuneration | ||||||||||||||||||||||||
|
| Year ended31 December 2015 | Year ended31 December 2014 | Amount due at31 December 2015 | Amount due at31 December 2014 | ||||||||||||||||||||
|
| £'000 | £'000 | £'000 | £'000 | ||||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||
| Martin M. Adams | 45 | 45 | 11 | 11 | ||||||||||||||||||||
| Carol Goodwin | 20 | 20 | 5 | 5 | ||||||||||||||||||||
| Hugh Ward | 20 | 20 | 5 | 5 | ||||||||||||||||||||
|
| ---------- | ---------- | ---------- | ---------- | ||||||||||||||||||||
|
| 85 | 85 | 21 | 21 | ||||||||||||||||||||
|
| ---------- | ---------- | ---------- | ---------- | ||||||||||||||||||||
|
No bonuses or pension contributions were paid or were payable on behalf of the Directors. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 8. Other operating expenses | ||||||||||||||||||||||||
|
| Year ended31 December 2015 | Year ended31 December 2014 | ||||||||||||||||||||||
|
| £'000 | £'000 | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
| Building maintenance, power, and management | 263 | 280 | ||||||||||||||||||||||
| Directors' remuneration (note 7) | 85 | 85 | ||||||||||||||||||||||
| Legal, professional and consultancy fees | 85 | 77 | ||||||||||||||||||||||
| Auditor's remuneration | 62 | 63 | ||||||||||||||||||||||
| Administration of subsidiaries | 53 | 95 | ||||||||||||||||||||||
| Nominated Adviser and Broker fees | 45 | 45 | ||||||||||||||||||||||
| Property insurance | 23 | 21 | ||||||||||||||||||||||
| Registrar fees | 15 | 15 | ||||||||||||||||||||||
| Property sales commission | 11 | 15 | ||||||||||||||||||||||
| Property conveyance fees | 6 | 5 | ||||||||||||||||||||||
| Depreciation and amortisation (notes 14 and 15) | 3 | 3 | ||||||||||||||||||||||
| Other expenses | 84 | 89 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| 735 | 793 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 9. Tax effects of other comprehensive income | ||||||||||||||||||||||||
| There are no tax effects arising from the other comprehensive income disclosed in the Consolidated Statement of Comprehensive Income (2014: £nil). | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 10. Foreign currency | ||||||||||||||||||||||||
| The gains and losses on foreign currency translation included in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2015 amounted to a net loss of £42,000 (2014: loss of £34,000). 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 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 £372,000 for the year ended 31 December 2015 (2014: income of £104,000). 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). | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 11. Loss per share - basic and diluted | ||||||||||||||||||||||||
| The loss per Ordinary Share is based on a loss of £979,000 (2014: loss of £481,000) and on a weighted average number of 15,551,250 (2014: 15,735,702) Ordinary Shares in issue. There is no difference between the basic and diluted earnings/(loss) per share. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 12. Dividends | ||||||||||||||||||||||||
| The Board does not propose an interim or final dividend for the year ended 31 December 2015 (2014: £nil). | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 13. Freehold investment property | ||||||||||||||||||||||||
|
| Year ended31 December 2015 | Year ended31 December 2014 | ||||||||||||||||||||||
|
| £'000 | £'000 | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
| Brought forward | 18,294 | 18,621 | ||||||||||||||||||||||
| Additions | 3 | 14 | ||||||||||||||||||||||
| Disposals | (916) | (906) | ||||||||||||||||||||||
| Realised gain on disposal of investment properties | 95 | - | ||||||||||||||||||||||
| (Loss)/gain on revaluation of investment properties | (55) | 565 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
| Carried forward | 17,421 | 18,294 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| In the opinion of the Board, the Property Manager and the Investment Advisers, 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 Cushman & Wakefield. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 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 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 Valuation - Professional Standards 2014 Edition. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| All investment properties are classified as Level 3 in accordance with the fair value hierarchy levels set in IFRS 13: Fair value measurement. Apart from the property disposals in June 2015, there were no transfers into or out of Level 3 during the year. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| In accordance with IFRS 13: Fair value measurement, it is a requirement for the Group to present and disclose key inputs and the sensitivity of those inputs in the valuation of the properties. However, the Board has opted not to fully comply with IFRS 13 due to reasons of commercial sensitivity and the possible negative impact such information may have on the disposal of individual properties. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 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 Cushman & Wakefield in either US Dollars or Euros. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| Since the year end, two office units in the Nil Passage property in Beyoglu, Istanbul were sold for US$0.5 million (£0.3 million) in February 2016. In addition, the shop and basement in the Nil Passage property were sold for US$0.4 million (£0.3 million) in March 2016. Furthermore, two office units on the fifth floor of the same property were sold for US$85,000 (£58,000) in April 2016. The disposals were in line with the 31 December 2015 valuations and the Company no longer has any interest remaining in the Nil Passage property. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 14. Intangible assets | ||||||||||||||||||||||||
| During the period ended 31 March 2007, the Group purchased a trademark for Markiz Patisserie. The estimated useful economic life of the trademark is fifteen years. | ||||||||||||||||||||||||
|
| Year ended31 December 2015 | Year ended31 December 2014 | ||||||||||||||||||||||
|
| £'000 | £'000 | ||||||||||||||||||||||
| Cost |
|
| ||||||||||||||||||||||
| Brought forward | 11 | 11 | ||||||||||||||||||||||
| Foreign exchange movement | (1) | - | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
| Carried forward | 10 | 11 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
| Accumulated Amortisation |
|
| ||||||||||||||||||||||
| Brought forward | (6) | (5) | ||||||||||||||||||||||
| Provided during the year | (1) | (1) | ||||||||||||||||||||||
| Foreign exchange movement | 1 | - | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
| Carried forward | (6) | (6) | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
| Net book value | 4 | 5 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 15. Property, plant and equipment | ||||||||||||||||||||||||
|
| Year ended31 December 2015 | Year ended31 December 2014 | ||||||||||||||||||||||
|
| £'000 | £'000 | ||||||||||||||||||||||
| Cost |
|
| ||||||||||||||||||||||
| Brought forward | 28 | 29 | ||||||||||||||||||||||
| Foreign exchange movement | (4) | (1) | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
| Carried forward | 24 | 28 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
| Accumulated Depreciation |
|
| ||||||||||||||||||||||
| Brought forward | (23) | (21) | ||||||||||||||||||||||
| Provided during the year | (2) | (3) | ||||||||||||||||||||||
| Foreign exchange movement | 3 | 1 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
| Carried forward | (22) | (23) | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
| Net book value | 2 | 5 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 16. Investments in subsidiary undertakings | ||||||||||||||||||||||||
| Details of the subsidiary undertakings held by the Company at 31 December 2015 were as follows: | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
|
|
|
| 31 December 2015 | 31 December 2014 | ||||||||||||||||||||
|
| Registered | Principal activity | % of ordinary shares held | |||||||||||||||||||||
| Markiz Gayrimenkul Yatirim ve Ticaret Limited Şirketi | Turkey | Property investment | 100% | 100% | ||||||||||||||||||||
| Sarnia Eastern Property (Cyprus) Limited | Cyprus | Investment holding | 100% | 100% | ||||||||||||||||||||
| Sarnia Eastern Property (Malta) Limited | Malta | Investment holding | 100% | 100% | ||||||||||||||||||||
| Sarnia Real Estate (Cyprus) Limited | Cyprus | Investment holding | 100% | 100% | ||||||||||||||||||||
| Southern Properties EOOD | Bulgaria | Property investment | 100% | 100% | ||||||||||||||||||||
| Southern Properties SRL | Romania | Property investment | 100% | 100% | ||||||||||||||||||||
|
| ||||||||||||||||||||||||
| Sarnia Eastern Property (Cyprus) Limited and Sarnia Real Estate (Cyprus) Limited each have 50% shareholdings in Southern Properties SRL. All other companies are wholly (and directly) owned by the Company.
In determining whether the Company has control over its subsidiary undertakings, the Company considered: · That it holds all of the voting rights of each subsidiary, either directly or indirectly, which gives the Company the current ability to direct all activities of each subsidiary; · That the Company is exposed to variability in returns, whether those returns are positive or negative; and · That the Board acts as principal on behalf of Shareholders to direct the activities of each subsidiary. | ||||||||||||||||||||||||
|
The Company has intercompany loans due from the Bulgarian and Romanian subsidiaries and will not suffer withholding tax on the repatriation of funds from those entities until the intercompany loans have been repaid in full. Withholding tax on dividends paid to overseas companies from companies in Bulgaria and Romania is currently 5% and 16%, respectively. The intercompany loan from the Turkish subsidiary has been fully repaid and, therefore, future distributions from the Turkish subsidiary to the Company will incur withholding tax, which is currently 15%. The Cypriot and Maltese subsidiaries have limited resources and the Company financially supports these subsidiaries so that they may continue in operation. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 17. Trade and other receivables | ||||||||||||||||||||||||
|
| 31 December 2015 | 31 December 2014 | ||||||||||||||||||||||
|
| £'000 | £'000 | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
| VAT control account | 15 | 30 | ||||||||||||||||||||||
| Prepaid tax | 10 | 1 | ||||||||||||||||||||||
| Other receivables and prepayments | 100 | 100 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| 125 | 131 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 18. Trade and other payables | ||||||||||||||||||||||||
|
| 31 December 2015 | 31 December 2014 | ||||||||||||||||||||||
|
| £'000 | £'000 | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
| Performance fee | 121 | 182 | ||||||||||||||||||||||
| Directors' fees | 21 | 21 | ||||||||||||||||||||||
| Administration fee | - | 25 | ||||||||||||||||||||||
| Other payables and accruals | 128 | 152 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| 270 | 380 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 19. Taxation | ||||||||||||||||||||||||
| The taxation charge in the Consolidated Statement of Comprehensive Income is made up as follows:
| ||||||||||||||||||||||||
|
| Year ended31 December 2015 | Year ended31 December 2014 | ||||||||||||||||||||||
|
| £'000 | £'000 | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
| Deferred taxation (note 20) | 520 | 273 | ||||||||||||||||||||||
| Overseas corporate tax | 50 | - | ||||||||||||||||||||||
| Other taxes and duties charged overseas (1) | 43 | 32 | ||||||||||||||||||||||
| Withholding tax | 83 | 157 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
| Taxation payable | 696 | 462 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 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 of £1,200 (2014: £600).
| ||||||||||||||||||||||||
| (1) Other taxes and duties charged overseas relate to taxes imposed in the Turkish, Bulgarian and Romanian subsidiaries for expenses such as withholding tax, property tax, stamp tax and legal tax. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
|
| Year ended31 December 2015 | Year ended31 December 2014 | ||||||||||||||||||||||
|
| £'000 | £'000 | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
| Loss before tax | (283) | (19) | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
| Tax calculated at domestic rates applicable to the respective countries | 613 | 233 | ||||||||||||||||||||||
| Non-deductible expenses | - | - | ||||||||||||||||||||||
| Current year tax losses on which deferred tax asset previously recognised | (33) | 38 | ||||||||||||||||||||||
| Other taxes | 116 | 191 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
| Taxation payable | 696 | 462 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| Domestic tax rates in the other jurisdictions in which the Group operates was as follows: | ||||||||||||||||||||||||
|
| Year ended31 December 2015 | Year ended31 December 2014 | ||||||||||||||||||||||
| 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 2015 the following movements occurred: · The Turkish subsidiary's deferred tax liabilities increased by TRY 2,166,000; · The Bulgarian subsidiary's deferred tax was unchanged; 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%. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| It is likely that corporate income tax will arise on capital gains on the disposal of the remaining Turkish properties. The corporate income tax likely to arise, if the properties are realised at their current carrying values, has been provided for in these consolidated results as deferred tax. However, additional taxes, such as a 15% withholding tax, may arise on the repatriation to Guernsey of non-capital reserves from Turkey. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 20. Deferred tax assets and liabilities | ||||||||||||||||||||||||
| Deferred tax assets and liabilities are attributable to the items detailed in the table below:
| ||||||||||||||||||||||||
|
| 31 December 2015 | 31 December 2014 | ||||||||||||||||||||||
|
| £'000 | £'000 | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
| Deferred tax asset | 2 | 2 | ||||||||||||||||||||||
| Deferred tax liability | (2,262) | (2,078) | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
| Net deferred tax liability | (2,260) | (2,076) | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| The increase in the net deferred tax liability for the year (including movements on foreign exchange rates) is £184,000 (2014: increase of £228,000). After adjusting for the effect of movements in foreign exchange rates of £336,000 (2014: £45,000), the increase in deferred tax for the year was £520,000 (2014: increase of £273,000) (note 19). | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| The deferred tax assets and deferred tax liabilities at 31 December 2015 and 31 December 2014 were as follows: | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
|
| 31 December 2015 | 31 December 2014 | ||||||||||||||||||||||
|
| Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||
|
| £'000 | £'000 | £'000 | £'000 | ||||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||
| Gains on freehold investment property | - | (2,262) | - | (2,078) | ||||||||||||||||||||
| Trade and other payables | 2 | - | 2 | - | ||||||||||||||||||||
|
| ---------- | ---------- | ---------- | ---------- | ||||||||||||||||||||
| Total | 2 | (2,262) | 2 | (2,078) | ||||||||||||||||||||
| Amount netted off | (2) | 2 | (2) | 2 | ||||||||||||||||||||
|
| ---------- | ---------- | ---------- | ---------- | ||||||||||||||||||||
| Deferred tax liability | - | (2,260) | - | (2,076) | ||||||||||||||||||||
|
| ---------- | ---------- | ---------- | ---------- | ||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 21. Share capital and reserves | ||||||||||||||||||||||||
|
| 31 December 2015 | 31 December 2014 | ||||||||||||||||||||||
|
| £'000 | £'000 | ||||||||||||||||||||||
| Authorised: |
|
| ||||||||||||||||||||||
| 200,000,000 Ordinary Shares of 1 pence each | 2,000 | 2,000 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
| Issued and fully paid: |
|
| ||||||||||||||||||||||
| 15,551,250 (2014: 15,551,250) Ordinary Shares of 1 pence each | 155 | 155 | ||||||||||||||||||||||
|
| ---------- | ---------- | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| During the year ended 31 December 2014, the Company purchased and cancelled 955,000 Ordinary Shares in the Company at a total cost of £601,000. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 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 results of foreign operations. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| Reserve for own shares The Company has the authority to utilise the distributable reserves to buy back for cancellation up to 14.99% of the Ordinary Shares (2,331,132 Ordinary Shares) in issue at the time the notice of the AGM, held on 10 September 2015, was circulated. 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 (2014: nil). | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 22. NAV per Ordinary Share | ||||||||||||||||||||||||
| The NAV, in pence per Ordinary Share, is based on the net assets attributable to equity Shareholders of £15,778,000 at 31 December 2015 (2014: £16,385,000) and on 15,551,250 Ordinary Shares in issue at the end of the year (2014: 15,551,250). | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 23. Related parties | ||||||||||||||||||||||||
| The relationship and transactions between the Group, Elysium, CNC, Pera Pera and Walnut 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. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| The Group has agreed to pay Walnut commission of 2% of the sales proceeds of property in Bulgaria and Romania, 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 disposal of various units within the Nil Passage property during the year incurred total sales commission of £11,000 (2014: commission of £15,000 was incurred), which was payable to Pera Pera.
The relationship that the Company has with each of its subsidiaries is disclosed in full in note 16. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| The Board is not aware of any ultimate controlling party. | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| 24. Maturity of financial liabilities | ||||||||||||||||||||||||
| The maturity of the Group's financial liabilities at 31 December 2015 was as follows: | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
|
| 31 December 2015 | 31 December 2014 | ||||||||||||||||||||||
|
| Total | Less than one month | Between one month and six months | Between six months and one year | Total | Less than one month | Between one month and six months | Between six months and one year | ||||||||||||||||
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| Trade and other payables | 270 | 39 | 108 | 123 | 380 | 94 | 103 | 183 | ||||||||||||||||
| Rents received in advance | 74 | 3 | 1 | 70 | 98 | 3 | - | 95 | ||||||||||||||||
| Overseas corporate tax | 18 | 18 | - | - | 7 | 7 | - | - | ||||||||||||||||
|
| ---------- | --------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | ||||||||||||||||
|
| 362 | 60 | 109 | 193 | 485 | 104 | 103 | 278 | ||||||||||||||||
|
| ---------- | --------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | ||||||||||||||||
|
| ||||||||||||||||||||||||
| 25. Financial risk management | ||||||||||||||||||||||||
| The Group holds cash and cash equivalents, has trade and other receivables/payables, tax assets and liabilities, and 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 supervises the 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. | |||
| |||
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. 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, Pera Pera and Walnut 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. A 10% increase in the value of the freehold investment property at 31 December 2015 would have increased net assets by £1,742,000 (2014: £1,829,000; or £1,727,000 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 24 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 Bank plc and Garanti Bank, the Group's primary bank. At the year end a total of £260,000 (2014: £435,000) was held with HSBC Bank plc and £484,000 (2014: £nil) was held with Garanti Bank. Standard & Poor's rating agency has assigned an AA- credit rating to HSBC Bank plc and BB+ to Garanti Bank. | |||
| |||
Interest rate risk The Group's exposure to interest rate risk is on its cash balances. The cash balances are held in instant access or short-term deposits earning interest at floating rates. 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 2015 |
|
|
|
Cash and cash equivalents | 848 | 292 | 556 |
Other current assets | 17,552 | - | 17,552 |
| ------------ | ----------- | ------------ |
Total assets | 18,400 | 292 | 18,108 |
| ------------ | ----------- | ------------ |
Assets as at 31 December 2014 |
|
|
|
Cash and cash equivalents | 511 | 511 | - |
Other current assets | 18,435 | - | 18,435 |
| ------------ | ----------- | ------------ |
Total assets | 18,946 | 511 | 18,435 |
| ------------ | ----------- | ------------ |
| |||
| |||
| 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 2015 |
|
|
|
Current liabilities | 2,622 | - | 2,622 |
| ----------- | ----------- | ----------- |
Total liabilities | 2,622 | - | 2,622 |
| ----------- | ----------- | ----------- |
Liabilities as at 31 December 2014 |
|
|
| ||||||||||
Current liabilities | 2,561 | - | 2,561 | ||||||||||
| ----------- | ----------- | ----------- | ||||||||||
Total liabilities | 2,561 | - | 2,561 | ||||||||||
| ----------- | ----------- | ----------- | ||||||||||
| |||||||||||||
Interest sensitivity analysis Assuming all factors remained the same, a 0.5% increase in the US$ London interbank euro-currency deposit rate would have decreased the loss for the year by £3,000 (2014: decreased loss by £4,000). 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).
In accordance with IFRS 7, the below foreign currency sensitivity analysis reflects only sensitivity of monetary items. At 31 December 2015, the Group had exposure to the Turkish Lira amounting to net assets of £61,000 (2014: net assets of £27,000). | |||||||||||||
| |||||||||||||
Currency split of financial assets and liabilities as at 31 December 2015
| |||||||||||||
| Total | GBP | EUR | US$ | TRY | BGN | LEU | ||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
Financial assets: |
|
|
|
|
|
|
| ||||||
Trade and other receivables | 125 | 8 | - | - | 58 | 18 | 41 | ||||||
Cash and cash equivalents | 848 | 263 | 20 | 456 | 29 | 5 | 75 | ||||||
| ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||||||
Total financial assets | 973 | 271 | 20 | 456 | 87 | 23 | 116 | ||||||
| ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||||||
|
|
|
|
|
|
|
| ||||||
Financial liabilities: |
|
|
|
|
|
|
| ||||||
Trade and other payables | (270) | (197) | (39) | - | (10) | (17) | (7) | ||||||
Overseas corporate tax | (18) | - | - | - | (16) | (1) | (1) | ||||||
Rents received in advance | (74) | - | - | (70) | - | - | (4) | ||||||
| ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||||||
Total financial liabilities | (362) | (197) | (39) | (70) | (26) | (18) | (12) | ||||||
| ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||||||
|
|
|
|
|
|
|
| ||||||
Net financial assets/(liabilities) | 611 | 74 | (19) | 386 | 61 | 5 | 104 | ||||||
| ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||||||
Net exposure to currency | 100% | 12.1% | (3.1)% | 63.2% | 10.0% | 0.8% | 17.0% | ||||||
| ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||||||
| |||||||||||||
Currency split of financial assets and liabilities as at 31 December 2014
| |||||||||||||
| Total | GBP | EUR | US$ | TRY | BGN | LEU | ||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
Financial assets: |
|
|
|
|
|
|
| ||||||
Trade and other receivables | 131 | 8 | - | - | 37 | 18 | 68 | ||||||
Cash and cash equivalents | 511 | 185 | 3 | 222 | 30 | 43 | 28 | ||||||
| ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||||||
Total financial assets | 642 | 193 | 3 | 222 | 67 | 61 | 96 | ||||||
| ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||||||
|
|
|
|
|
|
|
| ||||||
Financial liabilities: |
|
|
|
|
|
|
| ||||||
Trade and other payables | (380) | (270) | (46) | - | (10) | (22) | (32) | ||||||
Overseas corporate tax | (7) | - | - | - | (1) | (1) | (5) | ||||||
Rents received in advance | (98) | - | - | (66) | (29) | - | (3) | ||||||
| ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||||||
Total financial liabilities | (485) | (270) | (46) | (66) | (40) | (23) | (40) | ||||||
| ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||||||
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Net financial assets/(liabilities) | 157 | (77) | (43) | 156 | 27 | 38 | 56 | ||||||
| ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||||||
Net exposure to currency | 100% | (49.1)% | (27.4)% | 99.4% | 17.2% | 24.2% | 35.7% | ||||||
| ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ||||||
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Foreign currency sensitivity analysis A 5% strengthening of Sterling against each currency (20% against the Turkish Lira, given its ongoing volatility) would have decreased the net assets at 31 December 2015 and 31 December 2014 and increased the loss for each 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 (20% against the Turkish Lira): | |||||||||||||
| Financial assets and liabilities only | ||||||||||||
| 31 December 2015 | 31 December 2014 | |||||||||||
| £'000 | £'000 | |||||||||||
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Euro | 1 | 2 | |||||||||||
US Dollar | (19) | (8) | |||||||||||
Turkish Lira | (12) | (5) | |||||||||||
Romanian Leu | (5) | (3) | |||||||||||
Bulgarian Lev | - | (2) | |||||||||||
| ------------ | ------------ | |||||||||||
Total | (35) | (16) | |||||||||||
| ------------ | ------------ | |||||||||||
A weakening of Sterling against each currency would have an equal but opposite effect. | |||||||||||||
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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. | |||||||||||||
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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. | |||||||||||||
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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.
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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. The comparative illiquidity has been exacerbated following the disposal to date of easier to realise properties in the Company's portfolio. | |||||||||||||
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26. Capital commitments | |||||||||||||
All contracted capital commitments have been provided for. | |||||||||||||
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27. Subsequent events | |||||||||||||
Since the year end, two office units in the Nil Passage property in Beyoglu, Istanbul were sold for US$0.5 million (£0.3 million) in February 2016. In addition, the shop and basement in the Nil Passage property were sold for US$0.4 million (£0.3 million) in March 2016. Furthermore, two office units on the fifth floor of the same property were sold for US$85,000 (£58,000) in April 2016. The disposals were in line with the 31 December 2015 valuations and the Company no longer has any interest remaining in the Nil Passage property.
There were no other material events after the financial reporting date that required disclosure as at 16 May 2016. | |||||||||||||
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28. Fair values | |||||||||||||
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. 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. | |||||||||||||
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29. Operating leases | |||||||||||||
The Group leases out its freehold investment property under operating leases. At 31 December 2015, the future minimum lease receipts under non-cancellable leases were as follows: | |||||||||||||
| 31 December 2015 | 31 December 2014 | |||||||||||
| £'000 | £'000 | |||||||||||
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Less than one year | 522 | 461 | |||||||||||
Between one and five years | 369 | 216 | |||||||||||
| ---------- | ---------- | |||||||||||
| 891 | 677 | |||||||||||
| ---------- | ---------- | |||||||||||
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The total above comprises the total contracted rent receivable as at 31 December 2015.
Leases have for the most part 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. | |||||||||||||
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30. 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. | |||||||||||||
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The Board, with the assistance of the Manager, Property Manager and Investment Advisers, 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 continued to focus on the orderly realisation of the Company's portfolio of assets and distribution of the net proceeds to Shareholders.
As disclosed in the Consolidated Statement of Financial Position, the total equity Shareholders' funds were £15,778,000 at 31 December 2015 (2014: £16,385,000). | |||||||||||||
--- ENDS ---
Related Shares:
Eastern European Property