Final Results

21st May 2007 07:02

Raven Russia Limited21 May 2007 21 May 2007 Raven Russia Limited ('Raven Russia' or the 'Company') Results for the year to 31 December 2006 The Board of Raven Russia releases below the results for the year ended 31December 2006. Highlights • The Company has completed, committed to or agreed to co invest in fifteen development projects with a projected end value of $1.65 billion, comprising 1.7 million sq m (18.3 million sq ft) of space; • Of these committed projects, eleven are on track to be substantially complete by Q1 2009; • The Property Adviser estimates that these assets will produce a yield in excess of 13% after accounting for the Company's share of development profits and accrued mezzanine interest; • In addition, a transaction pipeline of over $1.5 billion is being advanced; • Three fully let investment properties with an annualised net rental income of $19.3 million; • Basic EPS of 4.80p (2005: 0.12p); • NAV after interim dividend increased by 10.4% to 106p (2005: 96p) • Final dividend of 2p per share making a total of 4p per share in the Company's first full year; • Scrip alternative for final dividend; • Raven Russia now has a well established position in an exciting sector of one the world's most dynamic property markets; • With the first signs of yield compression emerging, the Company is on track to provide excellent returns for shareholders over the coming years. For further information: Jeremy Carey/Rachel DrysdaleTavistock CommunicationsTel: 020 7920 3150Email: [email protected] Miscellaneous The results for the year ended 31 December 2006 included in this announcementare extracted from the audited financial statements for the year ended 31December 2006 which were approved by the Directors on 19 May 2007. The 2006 Annual Report is expected to be posted to shareholders in May 2007. Chairman's Statement Overview Since the IPO in July 2005, your Board and Raven Russia Property ManagementLimited (the "Property Adviser") have been working to create a deliverablepipeline of new projects for the Company. To date, the Company has completed,committed to or agreed to co invest in fifteen transactions with a projected endvalue of US$1.65 billion, comprising 1.14 million sq m (12.26 million sq ft) whichonce built and let are anticipated to produce an annual income of approximatelyUS$134 million. In addition the Megalogix joint venture, announced in 2006, hasagreed terms on a further four sites in three major regional cities totaling 114ha and the Property Adviser estimates they could produce a total of 560,000 sq m(6.028 million sq ft) with an expected end value in excess of US$550 million.Completion of the first phases of these developments is scheduled for Q4 2009. In aggregate, as at 31 December 2006, the Company had expended US$177 million,with a further US$823 million committed to be invested over the coming 24 monthson the developments discussed above and US$275 million to be allocated to theCompany's share of the additional four Megalogix sites currently identified. TheProperty Adviser has also sourced a pipeline of additional projects comprising afurther US$1.5 billion which means, with appropriate sourcing of debt, yourCompany is well on course to being fully committed. As indicated at the time of the secondary placing in April 2006 the focus of theCompany moved towards the "forward funding" of developments both in Moscow andthe major regional cities across Russia. Details of these projects are moreparticularly set out in the Property Review. When we launched your Company in July 2005, we did so because we could see thatproperty in Russia and the warehouse sector in particular, representedoutstanding relative value in international real estate markets. With apopulation of 143 million people, the vast majority of whom have had littleaccess to the basic consumables that we all take for granted in the West, wecould see a great opportunity unfolding. We still remain very positive on theconsumer sector in Russia as it will obviously be a major beneficiary of therise in disposable income which we believe will continue to outstrip GDP growthfor the foreseeable future. The Russian consumer and the real estate market islargely under-represented on a per capita basis and despite growth in recentyears, remains at a fraction of the levels of other emerging markets, let alonethose in the more developed world. During the Board's visit to Moscow in June 2006 we were able to witness thevibrancy and vitality of a great city and grasp the huge potential that existsin such a dynamic market. The consumer driven boom and the exceptional reservesof natural resources that Russia possesses should continue to create demand fornew property. The provision of warehousing to satisfy the demand from retailersand third party logistics operators seeking to provide products for the consumeris a market that we continue to be very positive about. There are a number of imminent key elections due shortly - the Duma in December2007 and more significantly, presidential elections this time next year. Itwould be rash and foolhardy for me to comment on politics in Russia but thecountry does enjoy one of the best micro-economic situations among emergingmarkets with steady GDP growth, slowing inflation and a growing disposableincome. The country also enjoys a large current account and fiscal surplus and Ihave no reason to believe that the consensus view of business as normal willprevail and that your Company will continue to reap the fruits of its labour. Results Overview Results for the year to 31 December 2006 have met our expectations, generating anet profit of £16.2 million (2005: £0.2 million) and consolidated, basicEarnings per Share (EPS) of 4.80p (2005: 0.12p). As described in the Property Review, at 31 December 2006 the Company had threeincome producing investment properties, which generated £8.4 million of grossrental income in the year and an annualised, ungeared yield on cost of 13.4%.The completed properties were independently valued by Jones Lang LaSalle (JLL)at the year end, giving us an additional gross valuation uplift of £5.4 million(US$10.5 million) before transaction costs of £1.9 million. This translates toan unrealised gain reflected in the Income Statement of £3.5 million. Forwardfunding of projects gives the company the benefit of a committed position to areal estate project, while continuing to earn interest income on cash balances and as a result the Company generated significant interest income, totalling £14.3million for the year. Investment properties are reflected at a balance sheet value of £70 million(2005: £27.9 million) and property under development at £25.8 million (2005:£nil), including the final building at Krekshino which was completed in January2007 As the Company progresses its development projects the costs carried inproperty under development will increase significantly as cash resources areutilised over the coming year. No significant debt has been introduced at this time, although refinancing ofthe first two properties purchased was agreed in December 2006 with draw downexpected in the next month. Negotiations on the refinancing of the Krekshinoproperty and arrangement of development finance facilities on the majority ofprojects are at an advanced stage. This year will also see the introduction ofproject specific interest rate hedging arrangements as debt is drawn down. The continuing weakening of the US Dollar over the year has resulted in areduction in the value of our Dollar denominated investment assets in sterlingterms. This is shown as a movement on equity and a reduction in our net assetvalue (NAV) of £6.3 million. We have continued to hold the majority of our cashreserves in Sterling and as stated at the half year, the Board continue tomonitor the position of the Group's reporting currency. It is likely that thiswill switch to US Dollars as we utilise our sterling resources and increase ourUS Dollar denominated investment and debt base. The Company has had no significant exposure to the Russian Rouble during theyear as acquisitions and rental income to date is US Dollar pegged. However,this is likely to change as we increase our local development exposure. Togetherwith our advisers and development partners, the Board is considering the bestoptions for hedging any exposure to Russian Rouble denominated constructioncontracts. As announced in the half year report, following the Secondary fundraising inApril 2006, we applied to the Royal Court of Guernsey to have our share premiumaccount released as a distributable reserve. This was approved by the Court inJune 2006 and our Special Reserve now stands at £439 million. Net Assets The Group's NAV per share, after interim dividends, was 106p at 31 December2006, an increase of 10.4% on 1 January 2006 (96p). As the pipeline of committedprojects is developed and equity resources invested, the Board anticipatesfurther substantial uplifts in net asset value. Dividend The Board continues to believe that Raven Russia is on course to pay a dividendof 9p per share when fully invested and is capable of implementing the level ofgearing we anticipated when we floated the Company. As mentioned at the halfyear, the Company is aware of the importance of dividends to shareholders andanticipates that it will pursue a progressive dividend policy as the Company'sproperties produce increasing rental income flows. For the period ended 31December 2006 the Board is proposing to pay a final dividend of 2p per share toshareholders on the register as at 1 June 2007 with an ex-dividend date of 30 May 2007. If approved, shareholders will have received a total of 4p per sharefor the full 12 months of 2006. I am of course mindful of the role dividends play in the total return toshareholders and the Company is focused on actively managing its capital base soas to maximize shareholder value. The Board will be asking you to vote to put in place the powers to enable ascrip dividend alternative to be effected for this and future dividends at theforthcoming AGM. While the Company has a buy back facility in place, we did not choose to utilizethis during the period under review. We will seek to renew this authority fromshareholders at the next Annual General Meeting. Company Advisers I am delighted that Numis Securities has become the Company's nominated advisorand will work alongside Credit Suisse, our joint broker. The Board looks forwardto working with them as the business continues to grow. Post Year End Events Since the year end the Company has signed conditional contracts to acquire twofurther properties for a total consideration of US$111 million. The first of these is an office building in St Petersburg of 15,800 sq m(170,000 sq ft) let to a strong local tenant on a five year lease. Thistransaction was completed in April 2007. The second acquisition is a forward funding joint venture to develop a 55,000 sqm (592,000 sq ft) logistics and distribution complex which has been 60% preleton a new five year lease to the joint venture partners logistics business with afully developed value of US$56 million. It is anticipated that the developmentwill be completed in two phases, the first by Q4 2007 and the second in Q3 2008. The Board has conducted a review of the board constitution for the future andhas engaged in constructive dialogue with shareholders in this regard as part ofthat review. It is the unanimous view of the non-executives, myself included,that the Company be chaired by somebody with the capacity to devote significanttime to the Company's affairs which I am unable to do because of othercommitments. I have chaired the Company from float and through the initialstages of the investment programme, but it is right that someone who can give amedium term commitment of the sort required, now takes the chair. The Board hasconducted a thorough process with the assistance of our advisers and I amdelighted to report that Mr Richard Jewson has agreed to become Chairman.Richard has over 10 years' broad experience as non-executive chairman withsignificant public company experience. Richard is presently chairman of AIMquoted PFI Infrastructure Company plc and a non-executive director of AIM quotedClean Energy Brazil plc, as well as a non-executive director of Temple BarInvestment Trust plc, Grafton Group plc and a number of unquoted companies. Hewas previously chairman of Meyer International plc and Savills plc and deputychairman of AWG plc. In the course of the review, the governance implications of having a member ofthe Company's Property Adviser, Glyn Hirsch, on the Board were considered. Bestgovernance practice today tends to discourage having such a representative onthe Board and he has agreed not to seek re-election at the AGM. Glyn'sinternational property expertise has been instrumental in assisting the Board inthe execution of the Company's mandate during the early stages of the Company'slife. His boundless energy and enthusiasm for the tough challenges faced in theRussian Real Estate market have been great assets. The Board and the Companywill continue to have access to his time and talents though his executiveinvolvement with the Property Adviser. I should like to extend my sincere thanks to the growing team of people at RavenRussia Property Management Ltd who have worked tirelessly over the past twelvemonths to source and secure new opportunities for your Company. I should alsolike to thank my Board colleagues whom I have got to know very well over themany Board meetings we have had over the last 20 months and wish my successorwell in chairing this most exciting Company. Adrian Collins19 May 2007 Property Review Prepared by Raven Russia Property Management Limited as Adviser In the twelve months ending 31 December 2006 Raven Russia signed six propertyacquisitions plus a joint venture framework agreement to develop an extensivenetwork of warehouse properties in fourteen cities across Russia. The total endvalue of these six projects, once built and let, is circa US$830 million (£423million). Since inception the Company has committed to projects with a potentialend value of US$1.1billion comprising 1.14 million sq m (12.26 million sq ft)which, once built and let are estimated to produce an annual income ofapproximately US$134 million. Terms have been agreed for the Megalogix Joint Venture to acquire a further foursites in three regional cities. These sites comprise a total of 114 ha and weestimate they could produce a total of 560,000 sq m (6 million sq ft) with anexpected end value in excess of US$550 million. As at today's date, a summary of all acquisitions announced is as follows: Property Square Type Investment Total Equity Project Status Metres at 31 Investment December (US$Million) 2006 (US$Million) -----------------------------------------------------------------------------------Investment-----------------------------------------------------------------------------------Baltia, 28,000 Warehouse 27.5 Fully letMoscow ----------------------------------------------------------------------------------- Southern, 14,000 Warehouse 14.5 Fully let Moscow ----------------------------------------------------------------------------------- Krekshino, 114,000 Warehouse 103 Fully let Moscow ----------------------------------------------------------------------------------- Constanta, 15,800 Office nil Fully let St Petersburg ----------------------------------------------------------------------------------- Sub total 145 205 ----------------------------------------------------------------------------------- Development Anticipated Phase 1 Completion Date----------------------------------------------------------------------------------- Shushari, 140,000 Warehouse 11 125 Q1 2008 St Petersburg ----------------------------------------------------------------------------------- Pulkovo 1, 32,500 Warehouse 2.5 35 Q3 2008 St Petersburg ----------------------------------------------------------------------------------- Pulkovo 2, 60,000 Warehouse 4.5 53 Q3 2008 St Petersburg ----------------------------------------------------------------------------------- Noginsk, 300,000 Warehouse 8.5 257 Q2 2008 Moscow ----------------------------------------------------------------------------------- Istra, 150,000 Warehouse 3 160 Q4 2007 Moscow ----------------------------------------------------------------------------------- EG Logistics, 55,000 Warehouse nil 56 Q1 2008 Moscow ----------------------------------------------------------------------------------- Megalogix JV ----------------------------------------------------------------------------------- Rostov on 230,000 Warehouse 2.5 200 Q3 2008 Don -----------------------------------------------------------------------------------Total 1,139,300 177 1,091 ----------------------------------------------------------------------------------- The expected total gross yield on cost for the above, after accounting forexpected development profits and financing income, is in excess of 13%. Investment Portfolio The Company owns two multi let warehouse and office buildings in Moscow(Southern and Baltia) which are both fully let and producing a yield on cost onan ungeared basis of 13.56%. The Company also has a controlling interest in acompleted and fully let warehouse development at Krekshino in the Moscow regionwhere it has forward funded the construction of 114,000 sq m (1.227 million sqft) of Grade A warehouse and office space. The Company expects to obtainregistered title to the property within the next month. Baltia, Southern and the three completed buildings at Krekshino were valued atthe period end by JLL in accordance with the RICS Valuation and Appraisalguidelines. The valuations show an uplift of US$10.55 million reflectingpositive yield compression from the date of acquisition. This uplift is grossbefore the deduction of capitalized transaction costs and expenses. In total these three properties comprise 156,000 sq m (1.679 million sq ft) ofGross Lettable Area and are expected to produce an annual income ofapproximately US$19.3 million on an investment of US$145 million producing ayield of 13.48%. In addition, the Company has signed a contract to acquire anoffice building of approximately 15,800 sq m (170,128 sq ft) in St Petersburg,let on a five year lease, which completed in April 2007. Development Portfolio The Company has continued to progress its Development Portfolio with projects atShushari, St. Petersburg; Istra, Moscow; Noginsk, Moscow; EG Logistics, Moscow;Pulkovo, St Petersburg; and in Rostov on Don, the latter through its regionaljoint venture , Megalogix. Each of these projects involves the construction ofmulti let warehouses and office buildings. Except for Megalogix, the Company hasstructured these as forward funded projects with local development partners,combined with an investment commitment on completion. The benefits to Raven Russia of forward funding include, inter alia, the abilityto secure assets in a low-stock, low-supply environment; the participation inany development profit which, together with accrued mezzanine interest, resultsin acquiring the assets on completion at more attractive yields; a greaterflexibility in corporate and financing structures and a simpler due diligenceprocess. The previous table summarising all the acquisitions indicates the totalcommitment on existing deals once fully completed. However, to mitigate marketrisk, the larger projects are designed to be built in phases, allowing theconstruction programmes to be managed were the letting market to decline orflexibility needed on cash management. Phases fully committed to on the sixsites would make an investment of US$511.5 million. Second phase commitmentstotal US$174.5 million. These amounts are net of VAT payable which is recoveredagainst income once properties are let. These projects are estimated to comprise, when developed, approximately 737,500sq m (7.89 million sq ft) and we anticipate they will produce total net rentalincome of approximately US$84million on the anticipated end value ofapproximately US$686 million, net of VAT, when built and let. We estimate theyield on investment from these projects to be in excess of 13% after accountingfor forward funding financing income and the Company's share of potentialdevelopment profits. Construction work at Shushari, St Petersburg is progressing well. The firstphase of 65,000 sq m (0.7 million sq ft), which has been pre-let on a 10-yearlease to Avalon Logistics, is expected to be completed by the end of 2007. Theremaining two phases are expected to be completed by Q2 2008. Marketing of theproject to prospective tenants has already commenced and we anticipatepre-letting the remaining phases prior to completion of construction. At Istra, Moscow 100,000 sq m (1.08 million sq ft) is already under constructionand the first 50,000 sq m (0.54 million sq ft) should be ready for tenants byOctober 2007. Demolition of the existing buildings on the Noginsk, Moscow site is almostcomplete and the Company is gearing up to commence works on site next month.Phase 1 of this project will comprise 110,000 sq m (1.18 million sq ft). Megalogix Joint Venture The Megalogix Joint Venture is 50% owned by Raven Russia and has the objectiveof developing logistics warehouses in 14 locations across Russia and the CIS. Currently, the Joint Venture has identified sites suitable for warehousedevelopment in four regional cities. It is in the process of acquiring the firstin Rostov on Don and anticipates the others will be acquired in the next quartersubject to completion of due diligence. We estimate that the projected end valueof all five projects, once built and fully let, will be in the region of US$750million. In Rostov on Don, the Company's local partner has already completed the rezoningof the land to industrial use and it is intended to start construction of thefirst phase of the project of 77,000 sq m (0.83 million sq ft) this summer withthe potential to increase to 230,000 sq m (2.476 million sq ft) in phaseddevelopment. It is estimated this will require total construction funding ofapproximately US$166.6 million with an estimated end value of US$200 million.Master planning of the proposed development is complete and there has beeninitial interest from prospective tenants. The partner in the venture also owns a logistics business and intends to pre-letan element of all warehouse space built for a term of 10 years without break.The remaining space will be developed speculatively. Deal Pipeline In addition to these projects we are actively considering, or are in detailednegotiations on, a number of other projects which meet the Company's investmentobjectives. We estimate that the end value of these projects could amount inaggregate to approximately US$1.5 billion including the Company's share of theMegalogix Joint Venture. The Market Before looking at the warehouse market it is worth considering the retail marketas this is one of the main drivers of growth for the take up of warehousing.Local Russian and western retailers continue to expand their offerings not onlyin Moscow and St Petersburg but also in the regional cities. JLL reports thatMoscow has only 149 sq m of shopping centre stock per 1000 inhabitants. Londonhas a little over 208 sq m and Paris more than 340 sq m. Vacancy rates forretail stand at 1% for Moscow and 2% for the regions. All the retailers are reporting sales way ahead of expectations and the need toget more floor space as quickly as possible. All this is good for the warehouseand logistic sector. Merchandise for stores need shipping and storing and thedemand from third party logistic operators and end users is very strong. JLL indicates a vacancy rate of less than 1% at the end of 2006 for Grade Awarehouses, JJL also reports that Moscow has the lowest Grade A warehouse stockper capita in Europe at 0.19 m per capita compared to 2 m per capita in London. The letting market for Grade A warehouse and logistics properties remains strongwith high levels of demand. Rents continue to increase, albeit slightly, andlease terms are elongating from 5 years to 7 and 10 years. The majority ofleases now also contain some form of rental indexation either as a fixed annualincrease or linked to US CPI. JLL reports Grade A rents lie between US$115 andUS$140 per sq m per annum excluding VAT and operating expenses. This analysismakes the rents at Krekshino look particularly reversionary as the average renton the first thee buildings (71,400 sq m) is US$105 per sq m. Our view is that rents will remain at similar levels to today for the next twoyears at least. Whilst a large number of schemes have been announced in Moscow,there is often a delay or indeed sometimes a no show of that space onto theletting market because of problems with permits, land assembly or finance. Notwithstanding the excellent conditions for letting it is our policy toincorporate the maximum design flexibility into our development projects. Thismeans not only building in phases to match potential tenant demand, but alsocreating the ability to offer tenants units as small as 5,000 sq m. In the investment market there are a number of new entrants to the market andthe increasing availability of debt finance is driving cap rates lower, althoughas reported at the half year this demand is focused on deals that are openlymarketed by western agents. Our strategy on behalf of the Company continues to be one of off market dealswith existing partners we know and trust or ones who come recommended to us.Using our strong local presence, structuring skills and track record we havebeen able to enter into an increasing number of attractive transactions. An increasing number of both international and local banks are now willing tooffer project finance on both development and investment. Competition betweenthe banks is reducing margins and increasing the percentage of the loansavailable relative to either construction cost or value. The consequence for theCompany is that returns on equity are likely to be higher than previouslyanticipated. Outlook Our work for the Company is now focused on three areas; finding and closing newdeals, working with the development partners to build new properties and themanagement of completed buildings. To do this we have recruited heavily andtaken much larger offices in Moscow. In total we have 33 people predominatelyworking out of this office. In addition, resource has been recruited by theMegalogix joint venture and offices established in four regional cities tomanage the regional development programme with a further 14 employees. With our partners and our own network of contacts we are seeing a constantstream of deals, which we sort meticulously to ensure that the Company onlyinvests in projects that are deliverable and will offer the best prospects forlong term growth. We at Raven Mount would like to thank Adrian Collins as he steps down from theBoard for his outstanding efforts in taking the Company and investment mandateforward. He has been a calm and deliberate force in the execution of acomplicated mandate and in dealing with the day to day issues of a new and largeCompany operating in an overseas market. Adrian has always put the interests ofthe Company first and we wish him well. Raven Russia Property Management Ltd19 May 2007 RAVEN RUSSIA LIMITED Consolidated Income StatementFor the year ended 31 December 2006 2006 4 July 2005 to 31 December 2005 Revenue Capital Total Revenue Capital Total Notes £'000 £'000 £'000 £'000 £'000 £'000 Gross rental income 6 8,430 - 8,430 140 - 140 Property operating expenditure (2,973) - (2,973) (92) - (92) --------------------------------------------------------------Net rental income 5,457 - 5,457 48 - 48 Selling, generaland administrativeexpenses 4 (4,564) - (4,564) (4,400) - (4,400)Other gains 61 - 61 - - -Net foreign currency gains 76 - 76 256 - 256 --------------------------------------------------------------Operatingexpenditure (4,427) - (4,427) (4,144) - (4,144) -------------------------------------------------------------- Operating profit/(loss)before gains oninvestment properties 1,030 - 1,030 (4,096) - (4,096) -------------------------------------------------------------- Unrealised gains onrevaluation ofinvestmentproperties 8 - 3,480 3,480 - 1,908 1,908 --------------------------------------------------------------Operating profit/(loss) 1,030 3,480 4,510 (4,096) 1,908 (2,188) Investment income 3,442 - 3,442 - - -Bank interest receivable 10,860 - 10,860 2,797 - 2,797Loan interest receivable 639 - 639 57 - 57Bank borrowing costs (1,031) - (1,031) (33) - (33) --------------------------------------------------------------Finance income 13,910 - 13,910 2,821 - 2,821 --------------------------------------------------------------Profit/(loss) before tax 14,940 3,480 18,420 (1,275) 1,908 633 --------------------------------------------------------------Tax 5 (1,388) (835) (2,223) 7 (458) (451) --------------------------------------------------------------Net profit/(loss) forthe year/period 13,552 2,645 16,197 (1,268) 1,450 182 ============================================================== Earnings pershare - basic 7 4.80p 0.12p ========== ========== Earnings pershare - diluted 7 4.79p 0.12p ========== ========== The total column of this statement represents the Group's Income Statement, prepared inaccordance with IFRS. The revenue and capital columns are both supplied as supplementaryinformation permitted by IFRS. All items in the above statement derive from continuingoperations. All income is attributable to the equity holders of the parent company. There are no minorityinterests. The accompanying notes are an integral part of this statement. Raven Russia Limited is a Company incorporated in Guernsey. The address of theregistered office is shown on page 36. The financial statements were authorisedfor issue on 18 May 2007 by Stephen Coe and John Peters on behalf of the board RAVEN RUSSIA LIMITED Company Income StatementFor the year ended 31 December2006 2006 4 July 2005 to 31 December 2005 Notes £'000 £'000 ------------------------------- Revenue 6 19,794 2,843 ===================== Selling, general and administration expenses 4 (7,865) (4,111)Net foreign currency (losses)/gains (6,343) 255 ---------------------Operating expenditure (14,208) (3,856) ---------------------Profit/(loss) before tax 5,586 (1,013) ---------------------Tax - -Net profit/(loss) for the year/period 5,586 (1,013) ===================== All items in the above statement derive from continuing operations. RAVEN RUSSIA LIMITED Consolidated Balance SheetAs at 31 December 2006 2006 2005 Notes £'000 £'000 ------------------------- Non-current assetsInvestment property 8 70,010 27,902Investment property under construction 9 25,835 -Deferred tax asset 14 510 355Other receivables 11 10,903 1,706 ----------------- 107,258 29,963 ----------------- Current assetsTrade and other receivables 12 6,945 1,385Cash and cash equivalents 17 376,117 141,069 ----------------- 383,062 142,454 ----------------- Total assets 490,320 172,417 ----------------- Non-current liabilitiesInterest bearing loans and borrowings 13 8,615 10,106Deferred tax liability 14 2,744 802Other payables 15 2,588 376 ----------------- 13,947 11,284 ----------------- Current liabilitiesTrade and other payables 16 22,096 13,130Interest bearing loans and borrowings 13 1,429 1,115 ----------------- 23,525 14,245 ----------------- -----------------Total liabilities 37,472 25,529 ----------------- Net assets 452,848 146,888 ================= EquityShare capital 19 4,247 1,530Special reserve 21 439,165 143,374Capital reserve 22 4,095 1,450Warrant reserve 23 1,279 1,279Share options reserve 24 1,231 523Share based payment reserve 25 1,400 -Retained earnings/(deficit) 26 7,711 (1,268)Translation reserve (6,280) - =================Total equity 452,848 146,888 ================= Net asset value per share 27 106p 96p ================= RAVEN RUSSIA LIMITED Company Balance SheetAs at 31 December 2006 2006 2005 Notes £'000 £'000 ------------------------------ Non-current assetsInvestments in subsidiary undertakings 10 80,823 9,580 ------------------- Current assetsTrade and other receivables 12 133 903 -------------------Cash and cash equivalents 17 369,632 139,010 ------------------- 369,765 139,913 ------------------- -------------------Total assets 450,588 149,493 ------------------- Current liabilitiesTrade and other payables 16 3,266 3,800 ------------------- Total liabilities 3,266 3,800 ------------------- -------------------Net assets 447,322 145,693 =================== EquityShare capital 19 4,247 1,530Special reserve 21 439,165 143,374Warrant reserve 23 1,279 1,279Share options reserve 24 1,231 523Share based payment reserve 25 1,400 -Retained earnings/(deficit) 26 - (1,013) -------------------Total equity 447,322 145,693 ===================Net asset value per share 27 105p 95p =================== RAVEN RUSSIA LIMITED ConsolidatedStatement of Changes in Equity Share Share BasedFor the period Share Share Special Capital Warrant Options Translation Payment Retained4 July 2005 to Capital Premium Reserve Reserve Reserve Reserve Reserve Reserve Earnings Total31 December 2005 Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000---------------- ------------------------------------------------------------------------------------------- Issue of ordinaryshare capital, net of issue costs 19,20 1,530 143,374 144,904 Conversion of share premium 20,21 (143,374) 143,374 - Net profit forthe period 26 182 182 Transfer in respect of gains on investmentproperties 22,26 1,450 (1,450) - Recognition in respect ofshare-based payments 23,24 1,279 523 1,802 -------------------------------------------------------------------------------------------At 31 December2005 1,530 - 143,374 1,450 1,279 523 - - (1,268) 146,888 ------------------------------------------------------------------------------------------- For the year ended 31 December2006 Translation on consolidation (6,280) (6,280) Net profit forthe year 26 16,197 16,197 -------------------------------------------------------------------------------------------Total recognisedincome for theyear - - - - - - (6,280) - 16,197 9,917 ------------------------------------------------------------------------------------------- Issue of ordinaryshare capital, netof issue costs 19,20 2,696 297,282 299,978 Issue in respectof PropertyAdviser's fees 19,20 21 2,429 2,450 Conversion of share premium 20,21 (299,711) 299,711 - Dividends paid 26,28 (8,493) (8,493) Transfer fromspecial reservesto retainedearnings 21,26 (3,920) 3,920 - Transfer in respect of gainson investmentproperties 22,26 2,645 (2,645) - Recognition in respect of sharebased payments 24 708 708 Property Adviser'sfees to be settledby post balancesheet issue of shares 25 1,400 1,400 -------------------------------------------------------------------------------------------At 31 December 2006 4,247 - 439,165 4,095 1,279 1,231 (6,280) 1,400 7,711 452,848 ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of this statement. RAVEN RUSSIA LIMITED Company Statement of Changes in Equity Share Share Based Share Share Special Warrant Options Payment RetainedFor the period 4 July Capital Premium Reserve Reserve Reserve Reserve Earnings Total2005 to 31 December 2005 Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000---------------- ----------------------------------------------------------------------------------- Issue of ordinary share capital, net of issue costs 1,530 143,374 144,904 Conversion of share premium 20,21 (143,374) 143,374 - Net loss for the period 26 (1,013) (1,013) Recognition in respect ofshare-based payments 23,24 1,279 523 1,802 ----------------------------------------------------------------------------------At 31 December 2005 1,530 - 143,374 1,279 523 - (1,013) 145,693 For the year ended31 December 2006Issue of ordinary sharecapital,net of issue costs 19,20 2,696 297,282 299,978 Issue in respect ofProperty Adviser's fees 19,20 21 2,429 2,450 Conversion of sharepremium 20,21 (299,711) 299,711 - Net profit for the year 26 5,586 5,586 Dividends Paid 26,28 (8,493) (8,493) Transfer from specialreserves to retainedearnings 21,26 (3,920) 3,920 - Recognition in respect ofshare based payments 24 708 708 Property Adviser's feesto be settled by postbalance sheet issue ofshares 25 1,400 1,400 ----------------------------------------------------------------------------------At 31 December 2006 4,247 - 439,165 1,279 1,231 1,400 - 447,322 ================================================================================== RAVEN RUSSIA LIMITED Consolidated Cash Flow StatementFor the year ended 31 December 2006 4 July 2005 to 31 December 2006 2005 Notes £'000 £'000 -------------------------------- Cash flows from operating activitiesOperating profit/(loss) for the year/ period 4,510 (2,188) Adjustments for:Gains on revaluation of investment properties 8 (3,480) (1,908)Recognised share based payments 29 139 197Performance fee to be settled by share issue 700 -Increase in operating trade and other receivables (5,193) (2,092)Increase in operating trade and other payables 5,961 7,357 -------------------- 2,637 1,366 Investment income received 14,732 2,797Bank borrowing costs paid (1,031) (33)Dividends paid 28 (8,493) -Tax paid (436) - --------------------Net cash from operating activities 7,409 4,130 -------------------- Cash flows from investing activitiesPurchase of investment properties (6,426) (5,089)Payments for investment properties under construction (54,715) -Loans advanced (10,252) (482)Loans repaid 482 - --------------------Net cash used in investing activities (70,911) (5,571) -------------------- Cash flows from financing activitiesProceeds from the issue of share capital 300,004 147,027Issue costs (26) (519)Repayments of borrowings (1,177) (3,998) --------------------Net cash from financing activities 298,801 142,510 -------------------- --------------------Net increase in cash and cash equivalents 235,299 141,069 ==================== Opening cash and cash equivalents 141,069 - Effect of foreign exchange rate changes (251) - --------------------Closing cash and cash equivalents 376,117 141,069 ==================== The accompanying notes are an integral part of thisstatement. RAVEN RUSSIA LIMITED Company Cash Flow StatementFor the year ended 31 December 2006 4 July 2005 to 31 December 2006 2005 Notes £'000 £'000 ------------------------------- Cash flows from operating activitiesProfit/(loss) before tax 5,586 (1,013) Adjustments for:Foreign exchange loss arising from non-operating activities 5,613 -Recognised share based payments 29 708 197Performance fee to be settled by share issue 25 1,400 -Investment income 6 (14,303) (2,843)Interest accrued included in the carrying value of subsidiary 6 (5,491) -Increase in operating trade and other receivables (69) (63)Increase in operating trade and other payables 1,174 3,729 ---------------------Cash generated from operations (5,382) 7 Interest income received 6 14,303 2,740Dividend received 6 58 -Dividends paid 28 (8,493) - ---------------------Net cash from operating activities 486 2,747 --------------------- Cash flows from investing activitiesInvestment in subsidiary undertakings (70,324) (9,763)Loans advanced - (482)Loans repaid 482 - ---------------------Net cash used in investing activities (69,842) (10,245) --------------------- Cash flows from financing activitiesProceeds from the issue of share capital 300,004 147,027Issue costs (26) (519) ---------------------Net cash from financing activities 299,978 146,508 --------------------- ---------------------Net increase in cash and cash equivalents 230,622 139,010 ===================== Opening cash and cash equivalents 139,010 - ---------------------Closing cash and cash equivalents 369,632 139,010 ===================== The accompanying notes are an integral part of thisstatement. RAVEN RUSSIA LIMITED Notes to the Financial StatementsFor the year ended 31 December 2006 1 General information Raven Russia Limited is a Company incorporated in Guernsey. The address of theregistered office is shown on page 36. The financial statements were authorisedfor issue on 18 May 2007 by Stephen Coe and John Peters on behalf of the board.The nature of the Group's operations and its principal activities are set out inthe Directors' Report. Foreign operations are included in accordance with the policies set out in note2.6. 2 Accounting policies A summary of the principal accounting policies, all of which have been appliedconsistently throughout the period, is set out below: 2.1 Basis of accounting The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS"), which comprise standards andinterpretations approved by the International Accounting Standards Board (IASB),and International Accounting Standards and Standing Interpretations Committeeinterpretations approved by the International Accounting Standards Committee("IASC") that remain in effect. The financial statements have been prepared on the historical cost basis, exceptfor the revaluation of investment properties. At the date of authorisation of these financial statements, the followingstandards and interpretations, which have not been applied in these financialstatements, were in issue but not yet effective:- * IFRS 7: Financial instruments: Disclosures and the related amendments to IAS 1 on capital disclosures - for accounting periods commencing on or after 1 January 2007. * IFRS 8: Operating segments - for accounting periods commencing on or after 1 January 2009. * IFRIC 7: Applying the Restatement Approach under IAS 29:Financial Reporting in Hyperinflationary Economies - for accounting periods commencing on or after 1 March 2006. * IFRIC 8: Scope of IFRS 2 - for accounting periods commencing on or after 1 May 2006. * IFRIC 9: Reassessment of embedded derivatives - for accounting periods commencing on or after 1 June 2006. * IFRIC 10: Interim financial reporting and impairments - for accounting periods commencing on or after 1 November 2006. * IFRIC 11: IFRS 2 - Group and Treasury Share Transactions - for accounting periods commencing on or after 1 March 2007. * IFRIC 12: Service Concession Arrangements - for accounting periods commencing on or after 1 January 2008. The Directors anticipate that the adoption of these standards andinterpretations in future periods will not have material impact on the financialstatements of the Group, except for the additional disclosures on capital andfinancial instruments when IFRS 7 comes into effect. 2.2 Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and the special purpose vehicles controlled by the Company, made upto 31 December each year. Control is achieved where the Company has the power togovern the financial and operating policies of an investee entity so as toobtain benefit from its activities. Investment properties have been acquired through special purpose vehicles(SPVs). In the opinion of the Directors, these transactions did not meet thedefinition of a business combination as set out in IFRS 3 "BusinessCombinations". Accordingly the transactions have not been accounted for asbusiness acquisitions and instead the financial statements reflect the substanceof the transactions, which is considered to be the purchases of investmentproperties and associated net assets. The results of SPVs acquired or disposed of during the year are included in theconsolidated income statement from the effective date of acquisition or up tothe effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of SPVs tobring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. 2.3 Joint ventures A joint venture is a contractual arrangement whereby two or more partiesundertake economic activity that is subject to joint control. The Groupundertakes its joint ventures through jointly controlled entities. Theconsolidated financial statements include the Group's proportionate share ofthese entities' assets, liabilities, income and expenses on a line by line basisfrom the date on which joint control commences to the date on which jointcontrol ceases. 2.4 Revenue recognition Rental revenues are accounted for on an accruals basis. Rent is billed inadvance and then allocated to the appropriate period. Therefore, deferredrevenue generally represents advance payments from tenants. Revenue isrecognised when it is probable that the economic benefits associated with thetransaction will flow to the Group and the amount of revenue can be measuredreliably. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable. 2.5 Leasing Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. 2.6 Foreign currency translation a) Functional and presentation currencyItems included in the financial statements of each of the Group entities aremeasured in the currency of the primary economic environment in which the entityoperates (the "functional currency"). The consolidated financial statements arepresented in pounds sterling, which is the Company's functional and presentationcurrency. b) Transactions and balancesForeign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at the year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement. c) Group companiesThe results and financial position of all the Group entities that have afunctional currency different from the presentation currency are translated intothe presentation currency as follows: i. assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet; ii. income and expenses for each income statement are translated at the average exchange rate prevailing in the period; and iii.all resulting exchange differences are recognised as a separate component of equity. On consolidation, the exchange differences arising from the translation of thenet investment in foreign entities are taken to shareholders' equity. When aforeign operation is sold, such exchange differences are recognised in theincome statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. 2.7 Taxation The Company is exempt from Guernsey taxation on income derived outside ofGuernsey and bank interest earned in Guernsey under the Income Tax (ExemptBodies) (Guernsey) Ordinance, 1989. A fixed annual fee of £600 is payable to theStates of Guernsey in respect of this exemption. No charge to Guernsey taxationwill arise on capital gains. The Directors conduct the Group's affairs such that the management and controlis not exercised in the United Kingdom and so that neither the Company nor anyof its subsidiaries carries on any trade in the United Kingdom. Accordingly, theCompany and its subsidiaries will not be liable for UK taxation. The Group is liable to Russian tax arising on the activities of its Russianoperations. The Group is liable to Cypriot tax arising on the activities of its Cypriotoperations. The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income and expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amount of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. 2.8 Investment property Property held to earn rentals and/or for capital appreciation and that is notoccupied by the companies in the Group, is classified as investment property.Investment property comprises freehold land, freehold buildings and land heldunder operating lease. Investment property is measured initially at its cost, including relatedtransaction costs. After initial recognition, investment property is carried at fair value. TheGroup has appointed Jones Lang LaSalle as property valuers to prepare valuationson a semi-annual basis. Valuations will be undertaken in accordance withInternational Valuation Standards published by the International ValuationsStandards Committee. Gains or losses arising from changes in the fair value ofinvestment property are included in the income statement in the period in whichthey arise. The purchase of the investment properties is often made using SPVs.The acquisition of a corporate vehicle, whose only activity is that of holdingthe targeted investment property, is accounted for based on the substance of thetransaction. The Directors consider the substance of such transactions to beproperty acquisitions as opposed to a business combination under IFRS 3. 2.9 Investment property under construction Properties in the course of construction for rental purposes, or for purposesnot yet determined are carried at cost, less any recognised impairment loss.Cost includes professional fees and borrowing costs capitalised in accordancewith the Group's accounting policy. Upon completion of the construction of property for rental purposes, the property is transferred to investment property at fair value when it is available for letting. Where a property is constructed under a forward funding arrangement, the Groupwill provide the developer with funding for the development, generatinginterest. Such interest accrues throughout the construction period and is notreflected in income but instead is applied as a cost rebate in arriving at thepurchase cost of the property. 2.10 Borrowing costs Borrowing costs that are directly attributable to the construction of investmentproperty are capitalised as incurred. All other borrowing costs are recognised in the income statement in the periodin which they are incurred. 2.11 Interest-bearing loans and borrowings Interest bearing loans are recorded at the proceeds received, net of directissue costs. Finance charges, including premiums payable on settlement orredemption and direct issue costs, are accounted for on an accruals basis to theprofit and loss account using the effective interest method and are added to thecarrying amount of the instrument to the extent that they are not settled in theperiod in which they arise. 2.12 Expenses Expenses are accounted for on an accruals basis. Fees payable to the PropertyAdviser are calculated with reference to the cost or valuation of the underlyingproperties held by the Group. Fees in respect of properties under constructionare included within the cost of such properties, until such times as they aretransferred to investment property, whereupon future fees are expensed in theincome statement. All other administration expenses are charged through the income statement.Transaction costs directly attributable to the purchase of the investmentproperties are included within the cost of the property. 2.13 Segmental reporting The Directors are of the opinion that the Group is engaged in a single segmentof business being property investment business and in one geographical area,Russia. 2.14 Cash and cash equivalents Cash at bank and short term deposits that are held to maturity are carried atcost. Cash and cash equivalents consist of cash in hand, short term deposits inbanks and money market instruments with an original maturity of three months orless. 2.15 Share-based payments The Group has applied the requirement of IFRS 2 Share-based Payments. The Group makes equity-settled and cash-settled share-based payments to certainemployees and service providers. Equity-settled, share based payments aremeasured at fair value as at the date of grant. The fair value determined atgrant date is expensed on a straight line basis over the vesting period, basedon the Group's estimate of the number of instruments that will eventually vest.Further details of how the fair value is determined are shown in note 29. 2.16 Financial liability and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. 2.17 Financial instruments Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes party to the contractual provisions of theinstrument. 2.18 Trade and other payables Trade payables are not interest bearing and are stated at their nominal value. 2.19 Trade and other receivables Trade and other receivables are stated at their cost less impairment losses. 2.20 Investment in subsidiary undertakings Investment in subsidiary undertakings are stated at cost less, whereappropriate, provisions for impairment. 3. Financial risk factors The Group is exposed to interest rate risk, credit risk, liquidity risk andcurrency risk arising from the financial instruments it holds. The riskmanagement policies employed by the Group to manage these risks are discussedbelow: (a) Interest rate riskThe Group's exposure to interest rate risk relates to the Group's loansreceivable, cash and cash equivalents, and long-term debt obligations. Interestrate risk is the risk that the value of financial instruments will fluctuate dueto changes in market interest rates. Financial instruments issued at variablerates expose the Group to cash flow interest rate risk. Financial instrumentsissued at fixed rates expose the Group to fair value interest rate risk. TheGroup's loans receivable are at fixed rates and the cash and cash equivalentsare at variable rates. To date the Group has borrowed funds at variable rates.The Group monitors this situation on an on-going basis. (b) Credit riskCredit risk arises when a failure by counter-parties to discharge theirobligations could reduce the amount of future cash inflows from financial assetson hand at the balance sheet date. In the event of a default by an occupationaltenant, the Group will suffer a rental shortfall and incur additional costs,including legal expenses in maintaining, insuring and re-letting the property. With respect to credit risk arising from other financial assets of the Group,which comprise cash and cash equivalents, the Group's exposure to credit riskarises from default of the counterparty with a maximum exposure equal to thecarrying value of these instruments. The Group has determined to maintain itscash and cash equivalent balances with financial institutions, with a minimumcredit rating of 'A'. The Group monitors the placement of cash balances on anongoing basis. (c) Liquidity riskLiquidity risk is the risk that arises when the maturity of assets andliabilities does not match. An unmatched position potentially enhancesprofitability, but can also increase the risk of losses. The Group hasprocedures with the object of minimising such losses such as maintainingsufficient cash and other highly liquid current assets and will negotiateadditional credit facilities as and when required. Cash and cash equivalents areplaced with financial institutions on a short term basis reflecting the Group'sdesire to maintain a high level of liquidity to enable timely completion ofinvestment transactions. (d) Currency riskCurrency risk is the risk that the value of financial instruments will fluctuatedue to changes in foreign exchange rates. Currency risk arises when futurecommercial transactions and recognised assets and liabilities are denominated ina currency that is not the Group's measurement currency. The Group is exposed toforeign exchange risk arising from various currency exposures primarily withrespect to the Russian Rouble, United States Dollar and Sterling. The Group'smanagement monitors the exchange rate fluctuations on an on-going basis.The financial instruments of the Company and its Group had the followingcurrency profile at the balance sheet date: Group: Sterling US Dollar Russian Total31 December 2006 Rouble £'000 £'000 £'000 £'000 Non-current assets Loans receivable - 10,461 - 10,461 Other assets - - 44 442Current assets Trade receivables - - 2,148 2,148 Other receivables 132 2,520 2,145 4,797 Call deposits 14,304 354 6,288 20,946 Money market instruments 355,171 - - 355,171 --------------------------------------------- 369,607 13,335 11,023 393,965 ---------------------------------------------Non-current liabilities Interest bearing loans and borrowings - 8,615 - 8,615 Rent deposits - 749 - 749 Retention under construction contracts - 1,787 - 1,787Current liabilities Investment property acquisition costs - 17,538 - 17,538 Other creditors 3,266 167 1,125 4,558 Interest bearing loans and borrowings - 1,429 - 1,429 --------------------------------------------- 3,266 30,285 1,125 34,676 ---------------------------------------------31 December 2006 Sterling US Dollar Russian Total Rouble £'000 £'000 £'000 £'000 Non-current assets Other assets - - 1,706 1,706Current assets Loan receivable - 482 - 482 Other receivables 421 - 482 903 Call deposits - 804 1,461 2,265 Money market instruments 138,804 - - 138,804 --------------------------------------------- 139,225 1,286 3,649 144,160 ---------------------------------------------Non-current liabilities Interest bearing loans and borrowings - 10,106 - 10,106 Rent deposits - 325 - 325Current liabilities Investment property acquisition costs - 6,426 - 6,426 Other creditors 3,800 - 2,904 6,704 Interest bearing loans and borrowings - 1,115 - 1,115 --------------------------------------------- 3,800 17,972 2,904 24,676 --------------------------------------------- Company: Sterling US Dollar Russian Total31 December 2006 Rouble £'000 £'000 £'000 £'000Non-current assets Investment in subsidiary undertakings - 80,823 - 80,823Current assets Other receivables 133 - - 133 Call deposits 14,303 158 - 14,461 Money market instruments 355,171 - - 355,171 --------------------------------------------- 369,607 80,981 - 450,588 ---------------------------------------------Current liabilities Other creditors 3,266 - - 3,266 --------------------------------------------- 31 December 2006 Sterling US Dollar Russian Total Rouble £'000 £'000 £'000 £'000Current assets Loan receivable - 482 - 482 Other receivables 421 - - 421 Call deposits - 206 - 206 Money market instruments 138,804 - - 138,804 --------------------------------------------- 139,225 688 - 139,913 ---------------------------------------------Current liabilities Other creditors 3,800 - - 3,800 --------------------------------------------- (e) Fair value estimation The fair values of the Group's financial assets and liabilities approximatetheir carrying amounts at the balance sheet date. 4. Selling, general and administration expenses 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 Property Adviser management fees 2,924 909 146 146Property Adviser performance fees 2,000 700 3,500 3,500Recognised option share-based payments (see note 29) 708 139 197 197Directors' remuneration 161 161 40 40Auditors' remuneration 22 58 28 38 Administration, registrar& other operating expenditure 2,050 2,597 200 479 --------------------------------------------- 7,865 4,564 4,111 4,400 --------------------------------------------- The Property Adviser fees are project specific and are included in the cost ofinvestment properties under construction on consolidation where appropriate.Total fees of £3.9 million (2005: nil) were included in the cost of investmentproperties and properties under construction at 31 December 2006. Performancefees are partly share-based payments as detailed in note 29. 5. Tax 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000The tax expense for the yearcomprises:- Current taxation - 295 - (7)Increase in deferred tax asset - (155) - -Increase in deferred tax liability - 1,942 - 458Under provision in prior year - 141 - - ---------------------------------------------Income tax expense - 2,223 - 451 --------------------------------------------- The charge for the year can be reconciled to the profit per the consolidated income statement as follows: 2006 2005 Group Group £'000 £'000 Profit before tax 18,420 633 ==================== Tax at the Russian corporate tax rate of 24% 4,421 152Tax effect of income not subject to tax (3,545) (744)Tax effect of non deductible expenses andeffect of foreign exchange 1,343 1,043Under provision in prior year 4 - --------------------Tax charge 2,223 451 ==================== 6. Revenue 2006 2005 Company Company £'000 £'000Company: Bank interest 10,836 2,797Investment income 3,409 -Dividends from subsidiary undertakings 58 -Interest from subsidiary undertakings 5,491 46 -------------------- 19,794 2,843 ==================== Group:Gross rental income for the year ended 31 December 2006 amounted to £8.43million (2005: £0.14 million) The Group leases all of its investment properties under operating leases. Leasesare typically for terms of three, five, seven or ten years. At the balance sheet date the Group had contracted with tenants for the followingfuture minimum lease payments:- £'000Within one year 11,350In second year 11,306In the third to fifth years (inclusive) 29,770After five years 17,032 ------- 69,458 ======= 7. Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: 2006 2005 Group Group £'000 £'000Earnings for the purposes of basic and diluted earnings per share being net profit 16,197 attributable to equity holders of the parent. 16,197 182 ==================== Number of shares Number of ordinary shares for the purposes of basic earnings per share anddilutive earnings per share: 2006 2005 Group Group No '000 No '000Weighted average number of ordinary shares for thepurposes of basic earnings per share 337,565 153,000 Effect of dilutive potentialordinary shares: Options 184 277Warrants 736 1,108Weighted average number of ordinaryshares for the purposes of diluted EPS 338,485 154,385 ===================== The Company has issued 25,058,189 options (2005: 11,475,000), which vesting isbased on the share price based performance criteria. At 31 December 2006 theperformance criteria had not been met and accordingly the options have not beenincluded in the calculation of dilutive earnings per share. Since the balance sheet date the Company has issued a further 1,222,841 ordinaryshares. 8. Investment property 2006 2005 Group Group £'000 £'000 As at 1 January 27,902 -Effect of foreign exchange rate changes (3,395) -changes Acquisitions in the year / period - 25,994Transfer from investment property under construction (note 9) 42,023 - -------------------- 66,530 25,994 Unrealised gains on revaluationof investment properties 3,480 1,908 --------------------Balance as at 31 December 70,010 27,902 ===================== The fair value of the Group's investment property at 31 December 2006 has beenarrived at on the basis of valuations carried out at that date by Jones LangLaSalle, independent valuers not connected with the Group. Market Valuevaluation basis has been used as defined by the International ValuationStandards Committee ('VIC'). Valuation are gross of purchase cost. The approved VIC definition of Market Value is "the estimated amount for whichan asset should exchange on the date of valuation between a willing buyer andwilling seller in an arms length transaction after proper marketing whereinparties had each acted knowledgeably, prudently and without compulsion". The Group has pledged approximately £25.5m of its investment property to securebanking facilities granted to the Group (note 13). The consideration payable in respect of each acquisition is dependant uponcertain future events. In calculating each acquisition the Directors haveassessed the most probable outcome as at the balance sheet date. The Directorswill reconsider the consideration payable at each year end and adjustaccordingly. 9. Investment property under construction 2006 2005 Group Group £'000 £'000 As at 1 January - -Costs incurred 70,076 -Effect of foreign exchange rate changes (2,218) -Transfer to investment property (note 8) (42,023) - ----------------------------Balance as at 31 December 25,835 - ============================ All expenditure on the acquisition and construction of investment property iscapitalised on an accruals basis. Investment property under construction isreclassified to investment property upon completion of the project, when it isavailable for letting. 10. Investment in subsidiary undertakings Share Loans Total Capital £'000 £'000 £'000 At 4 July 2005 - - -Acquisition of shares in subsidiaryundertakings 15 - 15Loans to subsidiary undertakings - 9,565 9,565 ---------------------------- -At 1 January 2006 15 9,565 9,580Loans to subsidiary undertakings - 71,243 71,243 ----------------------------At 31 December 2006 15 80,808 80,823 ============================ The Group's investment properties are held by its subsidiary undertakings. The Group's share of the assets and liabilities, revenues and expenses of thejoint ventures is not significant at the balance sheet date. All loans to subsidiary undertakings are unsecured and have no set repaymentdate and are subject to a weighted average interest rate of 11.8%. 11. Other receivables 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000Loans receivable - 10,461 - -Other assets - 442 - 1,706 ----------------------------------------------------- - 10,903 - 1,706 ===================================================== Included in other assets is value added tax paid on construction of investmentproperties which will be recovered through the offset of VAT paid on futurerevenue receipts. VAT recoverable has been split between current and non-currentassets based on the Group's assessment of when recovery will occur. The loans receivable are secured, with a weighted average loan period of 1 yearand a weighted average interest rate of 16.2%. 12. Trade and other receivables 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 Trade receivables - 2,148 - -Loan receivable - - 482 482Other receivables 133 4,797 421 903 ----------------------------------------------------- 133 6,945 903 1,385 ===================================================== 13. Interest bearing loans and borrowings 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 (a) Bank loans Loans due for settlement within 12 months - 1,047 - 1,115 Loans due for settlement after 12 months - 7,516 - 10,106 ----------------------------------------------------- - 8,563 - 11,221 ===================================================== 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000(b) Other interest bearing loans Loans due for settlement within 12 months - 382 - - Loans due for settlement after 12 months - 1,099 - - ----------------------------------------------------- - 1,481 - - ===================================================== 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 Total loans due forsettlement after 12 months - 8,615 - 10,106Total loans due forsettlement within 12 months - 1,429 - 1,115 ----------------------------------------------------- - 10,044 - 11,221 ===================================================== The bank borrowings are secured and bear a weighted average interest rate of5.2% over 3 month US Libor per annum. The weighted average loan period is 5years. Other interest bearing loans are secured and bear a weighted average interestrate of 7% per annum. The weighted average loan period is 5 years. All loans are sourced in United States dollars and the Group has not enteredinto any hedging arrangements in respect of its foreign currency obligations orinterest rate exposures. 14. Deferred tax (a) Deferred tax asset Tax losses and foreign currency effect Other Total £'000 £'000 £'000 At 4 July 2005 - - -Charge to income 355 - 355Charge to equity - - - ---------------------------------At 1 January 2006 355 - 355Charge to income 132 23 155Charge to equity - - - ---------------------------------At 31 December 2006 487 23 510 ================================= Accelerated Revaluation of Total tax allowances investment and other property temporary differences (b) Deferred tax liability £'000 £'000 £'000 At 4 July 2005 - - -Charge to income 344 458 802Charge to equity - - - -------------------------------------------At 1 January 2006 344 458 802Charge to income 1,107 835 1,942Charge to equity - - - -------------------------------------------At 31 December 2006 1,451 1,293 2,744 =========================================== 15. Other payables 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 Rent deposits - 749 - 325Deferred revenue - 52 - 51Retention under construction - 1,787 - -contracts ------------------------------------------ - 2,588 - 376 ========================================== 16. Trade and other payables 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 Investment property acquisition costs - 17,538 - 6,426Other creditors 3,266 4,558 3,800 6,704 ------------------------------------------ 3,266 22,096 3,800 13,130 ========================================== 17. Cash and cash equivalents 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 Call deposits 14,461 20,946 206 2,265Money market instruments 355,171 355,171 138,804 138,804 ------------------------------------------ 369,632 376,117 139,010 141,069 ========================================== All the money market instruments attract variable interest rates. The weighted average interest rate at the balance sheet date is 5.2%. 18. Significant non-cash transactions Investing activitiesUpon acquisition of its investment properties in 2005 the Group acquired/assumedvarious assets and liabilities including borrowings of £11.7 million. Financing activitiesThe proceeds from the issue of ordinary share capital were received afterdeduction of commissions totalling £10 million (2005: £5.9 million). Included within issue costs shown in 2005 statement of changes in equity is thecost of issuing certain options and warrants for cost of £1.6 million. 19. Share capital 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000Authorised sharecapital: 1,000,000,000 ordinary shares of 1p each: 10,000 10,000 10,000 10,000 ============================================Issued share capital: 4,247 4,247 1,530 1,530 ============================================ 2006 2006 2005 2005 Company Group Company Group No No No No As at 1 January 153,000,000 153,000,000 - -Issued (ordinary shares of 1p each) 271,663,711 271,663,711 153,000,000 153,000,000 -----------------------------------------------------Balance as at 31 December 424,663,711 424,663,711 153,000,000 153,000,000 ===================================================== Included in the issued shares during the year are 2,098,501 ordinary sharesissued to the Property Adviser. Of the authorised share capital 34,620,687ordinary shares are reserved for options and warrants. The Company has one class of ordinary shares which carry no right to fixedincome. 20. Share premium 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 As at 1 January - - - -Premium arising on issue of ordinary shares 307,304 307,304 151,470 151,470Issue in respect of Property Adviser's fees 2,429 2,429 - -Transaction costs on issue of ordinary shares (10,022) (10,022) (8,096) (8,096)Conversion to special distributable reserve (note 21) (299,711) (299,711) (143,374) (143,374) ---------------------------------------------Balance as at 31 December - - - - ============================================= On 16 June 2006 the Royal Court of Guernsey confirmed the reduction of capitalby way of cancellation of the Company's share premium. The amount cancelled hasbeen credited as a distributable reserve. 21. Special reserve 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 As at 1 January 143,374 143,374 - -On conversion from share premium (note 20) 299,711 299,711 143,374 143,374Transfer from special reserve to retained earnings (note 26) (3,920) (3,920) - - --------------------------------------------Balance as at 31 December 439,165 439,165 143,374 143,374 ============================================ The special reserve is a distributable reserve to be used for all purposespermitted under Guernsey Company law, including the buy back of shares and thepayment of dividends. 22. Capital reserve 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 As at 1 January - 1,450 - -Net fair value adjustment in the year/periodon investment properties - 2,645 - 1,450 ----------------------------------------------Balance as at 31 December - 4,095 - 1,450 ============================================== The following are accounted for in this reserve: - Gains and losses on the disposal of investment properties. - Increases and decreases in the fair value of investment properties held at the period end. - Deferred taxation on the increase in fair value of investment properties. 23. Warrant reserve 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 As at 1 January 1,279 1,279 - -Recognised fair value of share-based payments for the year/period - - 1,279 1,279 -----------------------------------------------Balance as at 31 December 1,279 1,279 1,279 1,279 =============================================== Details of share-based payments are shown in note 29. 24. Share options reserve 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 As at 1 January 523 523 - -Recognised fair value of share-basedpayments for the year/ period 708 708 523 523 ---------------------------------------------Balance as at 31 December 1,231 1,231 523 523 ============================================= Details of share-based payments in the period are shown in note 29. 25. Share-based payment reserve 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 As at 1 January - - - -Property Adviser's fees to be settled by post balance sheet issue of shares 1,400 1,400 - - ---------------------------------------------Balance as at 31 December 1,400 1,400 - - ============================================= This reserve will be transferred to share capital and premium upon the allotmentof ordinary shares to the Property Adviser. 26. Retained earnings 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 As at 1 January (1,013) (1,268) - -Net profit/(loss) for the year/period 5,586 16,197 (1,013) 182Dividends paid (8,493) (8,493) - -Transfer in respect of gains on investmentproperties - (2,645) - (1,450)Transfer from special reserves to retained earnings (note 21) 3,920 3,920 - - ---------------------------------------------Balance as at 31 December - 7,711 (1,013) (1,268) ============================================= Any surplus arising from the net profit for the period after payment ofdividends is taken to this reserve. 27. Net asset value per share 2006 2006 2005 2005 Company Group Company Group £'000 £'000 £'000 £'000 Net asset value 447,322 452,848 145,693 146,888Net asset value attributable tofuture issues of shares (1,400) (1,400) - - -------------------------------------------------Adjusted net asset value 445,922 451,448 145,693 146,888 ================================================= Number of ordinary shares at 31 December 424,663,711 424,663,711 153,000,000 153,000,000 Net asset value per share 105p 106p 95p 96p ================================================= 28. Dividend per share The dividend paid on 22 December 2006 was £8,493,274 (or 2p per share). 29. Share-based payments (a) Terms As part consideration for the services offered by Cenkos Securities Limited andKinmont Limited under the Placing Agreement, options were granted to thesecompanies pursuant to which they have the right to subscribe for 1,530,000 and382,500 ordinary shares respectively at £1.00 per share, such options to beexercisable at any time during the period of five years from the date ofAdmission. To incentivise personnel of the Property Adviser involved in providing advice tothe Group, the Company granted to the trustee of the Raven Mount EmployeeBenefit Trust an option to acquire up to 7.5% of its issued ordinary sharecapital from time to time (less the number of shares under option in favour ofAdrian Collins referred to in the Directors' Report). The options will vest inthree tranches. The options are exercisable over a period of 4 to 12 yearsfollowing admission dependent on cumulative performance criteria of between 9%and 12% of total shareholders return having been met. The exercise price for each tranche is set by reference to the average price ofthe Company's shares in the month preceding the first and second anniversariesof the Company's Admission to AIM (for tranche two and three). Tranche oneoptions have an exercise price of £1.00 per share. The Company has issued warrants to the Property Adviser pursuant to which theProperty Adviser has been granted the right to subscribe for 7,650,000 ordinaryshares in the Company at £1.00 per ordinary share such warrants to beexercisable at any time during the period of 5 years from the date of Admission.The Warrant Instrument provides that the Warrant Holder from time to time maytransfer all or part of their Warrants. 2006 2005 No. of No. of options options Outstanding at beginning of period 21,037,500 -Granted during the Equity-settled options 13,583,187 13,387,500period: Equity-settled warrants - 7,650,000 --------- ---------Outstanding at the end of the period 34,620,687 21,037,500 ========= ========= Exercisable options at the end of the period 1,912,500 1,912,500 ========= ========= Exercisable warrants at the end of the period 7,650,000 7,650,000 ========= ========= The weighted average exercise price of outstanding options at 31 December 2006was 106.30p (2005: 103.67p) with a weighted average remaining contractual lifeof eleven years. The weighted average exercise price of outstanding warrants at 31 December 2006was £1.00, with a weighted average remaining contractual life of 4 years. Following the issue of additional shares during the year, options were grantedto Raven Mount Plc Employees Benefit Trust to maintain its right to 7.5% of theissued share capital of the Company. (b) Calculation of the fair value of equity settled share based payments All share based payments have been valued using a binomial model. The key inputs to this model are: Options Warrants Weighted average share price 102.46p 98.88pWeighted average exercise price 104.92p 100.00pExpected volatility 26% 26%Risk free rate 4.16% 4.16%Weighted average expected dividend yield 4.72% 4.55% • No discount is applied to the option granted to the Raven Mount Employee Benefit Trust • Expected volatility was calculated on the one year volatility of an appropriate comparator company. • The risk free rate is based on the yield on a zero coupon government security at grant date. The Group recognised a total share-based payment expense of £707,690 (2006:£196,579). Of the share-based payment costs relating to warrants and options£138,914 (2005: £196,579) was expensed and £568,776 (2005: £nil) was included ininvestment property under construction. (c) Other equity-settled payments Any performance fee payable to the Property Adviser is to be settled as to 30%in cash and as to the balance in ordinary shares allotted by reference to theaverage closing mid-market price of such shares over the last 20 trading daysfor the relevant accounting period for which the performance relates. 30. Capital commitment From incorporation until 31 December 2006, the Company had committed to fund thedevelopment of and/or purchase assets with an estimated end value of US$889million (£453 million) (2005: US$111 million). Since the year end the Companyhas committed to additional projects with an estimated end value of US$111million. The actual value of total commitments may differ due to changingconstruction budgets and phasing, the share of development profits whereappropriate and the set off of accrued mezzanine finance interest receivable. At31 December 2006, US$177 million (£90.5 million) of the above commitment havebeen incurred. 31. Related party transactions Transactions between the Company and its subsidiaries which are related partieshave been eliminated on consolidation and are not disclosed in this note. As disclosed in the Directors' Report the Property Adviser received £2.9 millionfor the services of property management and a £2 million performance fee whichwas settled as £0.6 million in cash and £1.4 million by allotment of 1,222,841shares to be issued after the year end. As at 31 December 2006, £3.1 million of the above fees remains outstanding and£3.9 million has been capitalised in investment property under construction. This information is provided by RNS The company news service from the London Stock Exchange

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