16th Jun 2017 07:00
16 June 2017 | |
EASTERN EUROPEAN PROPERTY FUND LIMITED Results for the year ended 31 December 2016 | |
HIGHLIGHTS | |
· Property held at 31 December 2016 was valued at £15.0 million (2015: £15.7 million on a like-for-like basis).
· Net asset value at 31 December 2016 of £14.9 million, equivalent to 95.76p per Ordinary Share (2015: £15.8 million, 101.46p per Ordinary Share).
· Loss for the year ended 31 December 2016 of £1.2 million, equivalent to a loss of 7.80p per Ordinary Share (2015: loss of £1.0 million, 6.30p per Ordinary Share).
· The Romanian subsidiary containing the Bucharest property was sold in December 2016, generating proceeds of £1.3 million.
· All remaining units within the Nil Passage property in Beyoglu, Istanbul were sold during the year, generating aggregate proceeds of £0.7 million.
· Two properties remain in EEP's portfolio; Markiz Passage in Istanbul and The Atrium in Sofia. | |
For further information, please visit www.eepfl.com or contact: | |
Steve Pearce (nominated adviser) Henry Freeman (corporate broker) Liberum Capital Limited Tel: +44 203 100 2000 | Bob Locker CNC Property Fund Management Limited Tel: +44 1784 424 740 |
Keiran Gallagher Pera Pera Tel: +90 212 252 6048 | Oliver Cadogan Walnut Investments OOD Tel: +40 21 451 0823 |
Elysium Fund Management Limited Tel: +44 1481 810 100 | |
| |
CHAIRMAN'S STATEMENT | |
EEP commenced 2016 with the disposal of the final units of the Nil Passage property and we were pleased to end the year with the disposal of the Romanian subsidiary containing the Gara Progresului, Business and Logistics Centre. However, 2016 was a predominantly challenging year in Turkey due to political instability and a number of bombings, including on Istiklal Street where the Markiz Passage is located. This had a particularly damaging effect on business confidence and tourism and, inevitably, negatively affected domestic and foreign interest in the Markiz building.
Activity in the commercial property market in Bulgaria has remained very low, largely due to the business environment and difficulty for potential buyers to obtain commercial loans.
Results and Financial Position EEP reported a net loss for the year ended 31 December 2016 of £1.2 million (2015: loss of £1.0 million), representing a loss per Ordinary Share of 7.80p (2015: loss of 6.30p). A loss of £0.8 million on revaluation of investment properties and a realised loss on the disposal of the Romanian subsidiary of £0.5 million are the main reasons for the deterioration in financial performance during the year.
Operating expenses increased by 8.7% (before accounting for performance fees) during the year ended 31 December 2016, mainly due to increased legal and professional fees arising from the successful settlement of legal action for unpaid rent from a previous tenant (please refer to note 3b).
EEP's consolidated net asset value ("NAV") at 31 December 2016 was £14.9 million, equivalent to 95.76p per Ordinary Share (2015: £15.8 million; 101.46p per Ordinary Share).
The Company's share price decreased by 0.25p during the year to 50.50p at 31 December 2016, with the discount to NAV narrowing from 50.3% at 31 December 2015 to 47.3% at 31 December 2016.
| |
Property Sales, Portfolio and Valuations The Romanian subsidiary containing the Gara Progresului, Business and Logistics Centre was sold in December 2016 for a total of €1.5 million (£1.3 million). €1.2 million was received on completion and the balance is payable in instalments by 30 June 2018. The deferred consideration is secured by a charge on the property. At the date of this report, EEP had received two instalments of the deferred consideration, totalling €40,000.
All remaining units within the Nil Passage property were sold during the first half of 2016 for a total of US$1.0 million (£0.7 million) (including VAT). Disposal proceeds were marginally above the 31 December 2015 independent valuation. EEP no longer has any interest in the Nil Passage property.
EEP's two remaining properties continue to be marketed for sale.
The aggregate value of these two investment properties at 31 December 2016 decreased to the equivalent of £15.0 million during the year and resulted in a net unrealised loss on revaluation of £845,000 (2015: loss of £55,000) (please refer to note 13). Consistent with previous years, independent valuations of the properties were commissioned and these provide the basis of the carrying values used in the accompanying results.
It remains challenging to realise our remaining buildings in the central districts of both Sofia and Istanbul at appropriate valuations. Although illiquidity, opaque market practices and scarcity of buyer finance have been ongoing challenges for the Property Manager and Investment Advisers, to date, most of EEP's property investments have been sold close to the carrying values.
Our valuation of the Markiz building at 31 December 2016 is supported by the pricing achieved in a recent purchase and sale of a neighbouring property of comparable size and location. Although further substantial new activity in the prime Istanbul property market is unlikely during the traditional 'quiet' period spanning Ramadan and the summer months, the Property Manager and Turkish Investment Adviser will continue to negotiate the offers currently on the table and actively pursue any new interests that may materialise. Local business confidence should improve if the recent political calm and stability continue, which the Board hopes will facilitate the sale of the Markiz building.
New efforts in respect of use and different target potential buyers are also being made to improve the marketability of EEP's building in Sofia.
Further details of each property (but not their individual carrying values), the prospects for sales in the foreseeable future, recent market activity and the investment environment are provided 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 It remains the Board's intention to distribute to Shareholders substantially all net proceeds of property sales, subject to the need to retain sufficient funds for EEP's ongoing operation. However, following the disposal of the Romanian subsidiary and receipt of sale proceeds, the Board decided to retain the cash and not to immediately undertake further buybacks of Ordinary Shares whilst options for the disposal of the Markiz property are pursued. This policy remains under regular review.
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 2017. EEP is permitted to repurchase 2,331,132 Ordinary Shares prior to the 2017 AGM.
In order to retain flexibility, at the 2017 AGM, Shareholders will be asked to renew the approval for 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 (valued at approximately £1.0 million at the latest available share price at the date of writing this report) assuming no change in the prevailing number of shares in issue. | |
Outlook and Strategy The Property Manager and Investment Advisers' patient approach to disposals of the property portfolio in recent years has been rewarded with sales at fair prices. The Board and Manager continue to review at each quarterly meeting the appropriateness of continued patience to achieve higher prices and the ongoing costs of operating EEP with its current structure.
The Board, in conjunction with the Manager, Property Manager and Investment Adviser in Turkey, will be working during the 'quiet' period to convert one of the existing indicative offers for the Markiz building into a sale. There will be a further shareholder update on progress in September 2017 as part of the half-yearly report and if the existing offers do not materialise or otherwise progress significantly in the coming months, or renewed interest is not received, the Board intends to carry out a more detailed evaluation of the key strategic alternatives available in respect of the future direction of the Company.
The Board is appreciative of your continued patience. Any shareholder wishing to discuss the Company's affairs is welcome to contact any of the Directors, the Property Manager or one of the Investment Advisers. | |
Martin M. Adams Chairman 15 June 2017 | |
PROPERTY MANAGER AND INVESTMENT ADVISERS' REPORT
|
By 31 December 2016, EEP's property holdings had reduced to the Markiz Passage on Istiklal Street, Istanbul and George Washington Street, Sofia. This followed the sale of the remaining units at Nil Passage, in Beyoglu, Istanbul in April 2016, and Gara Progresului, Business and Logistics Centre in Bucharest at the end of the year. The Romanian property was sold for a total consideration of €1.5 million. The initial payment was €1.16 million with deferred consideration in the form of a secured loan for the remainder, of which, €40,000 had been received by 31 March 2017.
Economic and market conditions have remained subdued and slow in Istanbul following the attempted coup in July 2016. More recently, the referendum on the proposed transition to an executive presidency, held on 16 April 2017, added to the political uncertainty which, together with substantially reduced footfall and tourism, has meant that overall business confidence remained low with limited property transactions taking place.
In Sofia, Bulgaria, although there are indications that the overall economy is improving (albeit at a slow pace), the level of commercial property activity is very limited.
The properties held at 31 December 2016 were as follows:
The Markiz, Istanbul, Turkey There have been fewer enquiries to buy the property during 2016 and while all interest from buyers has been and continues to be considered, it's a reality that prospective buyers' expectations of price have reduced from previous periods and the position deteriorated leading up to the referendum. This reflects the opportunistic nature of the current buyers in the property market and their wish to exploit the recent political uncertainty.
EEP has explored rental options but, as with sale opportunities, there has been less letting activity on Istiklal Street due to its location and the impact of terrorist activity last year with the resultant reduction in tourism. The one remaining tenant, Food Club, went into administration in the autumn and had its lease formally brought to an end by the courts in March 2017. Therefore, the property is currently unoccupied and is available with vacant possession. The Property Manager and Investment Adviser continue to consider and implement procedures to remove conservation and historic planning issues.
Overall, the commercial property market has been quieter than usual, particularly in the months immediately prior to the referendum, with only bargain hunters around, but most sellers have been resistant to price reductions as they fail to see fair value being achieved for their assets. However, the Vastned portfolio (which is predominantly retail orientated property located on or around Istiklal Street) has reportedly been sold for €100 million in February 2017.
The Atrium, George Washington Street, Sofia, Bulgaria In December 2016 it was announced that the Belgian bank, KBC, had acquired UBB Bank (EEP's main tenant in Bulgaria). There are currently no indications as to whether this will impact UBB's occupation of the property.
Although the property has been on the market for sale, there has been very limited interest shown in it. It remains difficult for buyers to obtain commercial loans, a key enabler in the sale of the EEP's property in Bucharest. Other options to improve the potential liquidity of the property are being explored.
Turkey - Economic and Political Commentary The Turkish economy recorded a better than expected fourth quarter 2016 GDP growth of +3.5%. This follows a contraction of -1.8% in the third quarter of 2016, according to data released by the Turkish Statistical Institute, Turkstat, and is a bounce back after the failed coup. This was mainly due to a significant rise in consumption, with auto sales up strongly, along with construction activity, which came ahead of planned tax increases.
GDP growth for 2016 as a whole was 2.9%, as reported by the Turkish Statistics Institute. This was ahead of the 2.4% forecast for 2016 in the Economist poll of forecasters. For 2017, the Economist poll is again forecasting GDP growth of 2.4%. Government finances and debt levels appear to be at reasonable levels, although there are concerns over private sector US Dollar debt. However, the Turkish Lira has been relatively stable against the US Dollar to date this year. Inflation rose to 11.3% in March 2017 and is forecast to average 8.8% this year.
The current account deficit has improved to -4.5% in March 2017 but is expected to deteriorate again. Tourist arrivals appear to be increasing from a low level and the number of visitors increased by 18% in April 2017. The reduction in numbers of Western European visitors is partly offset by increased arrivals from neighbouring countries and Russia. |
As indicated above, the country held a referendum on 16 April 2017 to vote whether to create an executive presidency. The vote in favour was carried by a slim margin and will effectively allow President Erdogan to stay in power until 2029, if he wishes, and subject him to winning further elections in 2019 and 2024.
Bulgaria - Economic and Political Commentary Parliamentary elections, the third since May 2013, took place at the end of March 2017 and the previous Prime Minister Boyko Borissov, leader of the centre-right pro-EU GERB party formed his third cabinet in eight years. This was after his party won 95 of the 240 seats, while the more pro-Russian Socialists won 80 seats. Raiffeisen Bank, Bulgaria, has increased its projection for Bulgaria's economic growth to 3.3% in 2017, from the 3.0% forecast in December 2016. It expects the unemployment rate to be 6.4% in 2017, falling to 6.0% in 2018 and the inflation rate to be contained at 2.0% in 2018.
Prospects During the first quarter of the year, the referendum for the transition to an executive presidency has been the dominating issue within Turkey. This followed what had been a long period of economic and political upheaval, coupled with a conflict on Turkey's south eastern border, which added to the overall uncertainty. Together with local acts of terrorism, this has had a cumulative and detrimental effect on the economy in the Pera area of Istanbul where the Markiz property is situated. However, the property remains in a prime location on Istiklal Caddesi, the prime shopping high street in one of the largest and most vibrant cities in the world and has continually generated interest throughout the period of uncertainty. Although the enquiries are not at the potential offer levels previously experienced, since the referendum, more positive news about the economy has gathered pace and local business confidence appears to be growing quite quickly. It is worth noting that the sale of the Vastned portfolio completed before the referendum and was a substantial sale of real estate in a similar area to the Markiz building.
There is renewed hope that the economic and political situation will stabilise for some time now and this will enable the whole country to move forwards positively during the remainder of 2017. As indicated previously, initial feedback from the local business community supports the view that overall activity will improve considerably in 2017. However, due to the timing of Ramadan, followed by Bayram (national holidays), which then blends into the summer holiday period, the pick-up in activity may be subdued before the final quarter of 2017.
In Sofia there are indications that the residential property sector has picked up and in this respect it is hoped that with continued economic growth, the potential for trading will return, but progress is likely to remain slow. The takeover of UBB by KBC does add to the uncertainty of UBB's occupation at EEP's property but is a reflection of KBC's confidence in Bulgaria in the future.
Bob Locker CNC Property Fund Management Limited
Keiran Gallagher Pera Pera
Oliver Cadogan Walnut Investments OOD
15 June 2017 |
The financial information set out in this announcement does not constitute the Company's statutory financial statements for the year ended 31 December 2016. |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||
for the year ended 31 December 2016 | |||
Note | Year ended31 December 2016 | Year ended31 December 2015 | |
£'000 | £'000 | ||
Income | |||
Rental income | 3b | 938 | 626 |
Other income | 74 | 56 | |
Bank interest receivable | 7 | 5 | |
------------ | ------------ | ||
Total income | 1,019 | 687 | |
------------ | ------------ | ||
Expenses | |||
Building maintenance, power and management | (277) | (263) | |
Management fees | 5 | (198) | (194) |
Administration fees | 5 | (110) | (100) |
Directors' remuneration | 7 | (76) | (85) |
Performance fees | 5 | 94 | 61 |
Other operating expenses | 8 | (458) | (387) |
------------ | ------------ | ||
Total expenses | (1,025) | (968) | |
------------ | ------------ | ||
Investment gains and losses | |||
Loss on revaluation of investment properties | 13 | (845) | (55) |
Gain on disposal of investment properties | 13 | 9 | 95 |
Loss on disposal of subsidiary | 16 | (481) | - |
------------ | ------------ | ||
Total investment (losses)/gains | (1,317) | 40 | |
------------ | ------------ | ||
Net loss from operating activities before gains and losses on foreign currency translation | (1,323) | (241) | |
Gain/(loss) on foreign currency translation | 10 | 192 | (42) |
------------ | ------------ | ||
Net loss from operating activities | (1,131) | (283) | |
Provision for estimated liquidation costs | 2b | (59) | - |
Taxation | 19 | (23) | (696) |
------------ | ------------ | ||
Loss for the year | (1,213) | (979) | |
Other comprehensive income that may be reclassified to profit or loss in subsequent periods | |||
Exchange differences arising from translation of foreign operations | 10 | 327 | 372 |
------------ | ------------ | ||
Total other comprehensive income | 327 | 372 | |
------------ | ------------ | ||
Total comprehensive loss for the year attributable to the Owners of the Group |
(886) |
(607) | |
------------ | ------------ | ||
Loss per share - basic and diluted | 11 | (7.80)p | (6.30)p |
------------ | ------------ | ||
These results are unaudited and are not the Group's statutory financial statements. | |||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | |||||
Attributable to Owners of the Group for the year ended 31 December 2016 | |||||
|
Share capital |
Distributable reserve | Foreign currency translation reserve |
Total | |
£'000 | £'000 | £'000 | £'000 | ||
Balance at 1 January 2015 | 155 | 16,753 | (523) | 16,385 | |
Total comprehensive income/(loss) for the year ended 31 December 2015 | |||||
Loss for the year | - | (979) | - | (979) | |
Other comprehensive income | - | - | 372 | 372 | |
---------- | ---------- | ---------- | ---------- | ||
Balance at 31 December 2015 | 155 | 15,774 | (151) | 15,778 | |
Total comprehensive income/(loss) for the year ended 31 December 2016 | |||||
Loss for the year | - | (1,213) | - | (1,213) | |
Other comprehensive income | - | - | 327 | 327 | |
---------- | ---------- | ---------- | ---------- | ||
Balance at 31 December 2016 | 155 | 14,561 | 176 | 14,892 | |
---------- | ---------- | ---------- | ---------- | ||
These results are unaudited and are not the Group's statutory financial statements. | |||||
CONSOLIDATED STATEMENT OF FINANCIAL POSITION | |||
as at 31 December 2016 | |||
Note | 31 December 2016 | 31 December 2015 | |
£'000 | £'000 | ||
Current assets | |||
Freehold investment property | 13 | 14,970 | 17,421 |
Intangible assets | 14 | 3 | 4 |
Trade and other receivables | 17 | 370 | 125 |
Cash and cash equivalents | 1,918 | 848 | |
Property, plant and equipment | 15 | - | 2 |
---------- | ---------- | ||
Total assets | 17,261 | 18,400 | |
---------- | ---------- | ||
Current liabilities | |||
Deferred tax liabilities | 20 | (2,095) | (2,260) |
Provision for estimated liquidation costs | 2b | (59) | - |
Trade and other payables | 18 | (174) | (270) |
Overseas corporate tax | (41) | (18) | |
Rents received in advance | - | (74) | |
---------- | ---------- | ||
Total liabilities | (2,369) | (2,622) | |
---------- | ---------- | ||
Net assets | 14,892 | 15,778 | |
---------- | ---------- | ||
Capital and reserves | |||
Called-up share capital | 21 | 155 | 155 |
Distributable reserve | 14,561 | 15,774 | |
Foreign currency translation reserve | 176 | (151) | |
---------- | ---------- | ||
Total equity attributable to owners of the Group | 14,892 | 15,778 | |
---------- | ---------- | ||
NAV per Ordinary Share - basic and diluted | 22 | 95.76p | 101.46p |
---------- | ---------- | ||
These results are unaudited and are not the Group's statutory financial statements. | |||
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2016 | |||
Note | Year ended31 December 2016 | Year ended31 December 2015 | |
£'000 | £'000 | ||
Net loss from operating activities | (1,131) | (283) | |
Adjustments for: | |||
Bank interest receivable | (7) | (5) | |
Loss on revaluation of investment properties | 13 | 845 | 55 |
Gain on disposal of investment properties | 13 | (9) | (95) |
Loss on disposal of subsidiary | 16 | 481 | - |
(Gain)/loss on foreign currency exchange | 10 | (192) | 42 |
Amortisation and depreciation | 8 | 3 | 3 |
---------- | ---------- | ||
Net cash outflow from operating activities before working capital changes | (10) | (283) | |
Increase in trade and other receivables | (29) | (10) | |
Decrease in trade and other payables and other current liabilities | (138) | (88) | |
---------- | ---------- | ||
Net cash outflow from operating activities after working capital changes | (177) | (381) | |
Interest received in the year | 7 | 5 | |
Tax paid in the year | (152) | (186) | |
---------- | ---------- | ||
Net cash outflow from operating activities | (322) | (562) | |
Investing activities | |||
Proceeds from sale of subsidiary | 16 | 982 | - |
Sale of investment property | 569 | 916 | |
Acquisition and development of investment property | (174) | (3) | |
---------- | ---------- | ||
Net cash inflow from investing activities | 1,377 | 913 | |
---------- | ---------- | ||
Increase in cash and cash equivalents | 1,055 | 351 | |
---------- | ---------- | ||
Cash and cash equivalents at beginning of year | 848 | 511 | |
Increase in cash and cash equivalents | 1,055 | 351 | |
Foreign exchange movement | 15 | (14) | |
---------- | ---------- | ||
Cash and cash equivalents at end of year | 1,918 | 848 | |
---------- | ---------- | ||
These results are unaudited and are not the Group's statutory financial statements. | |||
NOTES TO THE CONSOLIDATED RESULTS for the year ended 31 December 2016
|
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. |
|
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 IASB (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 15 June 2017. |
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. Certain amounts relating to 2015 in these results have been reclassified to better conform to the current year presentation. The re-classification does not affect the previously reported loss or equity.
The Board has considered cash flow 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. However, a £59,000 provision (2015: £nil) for the estimated costs of winding up the Group has been included in the results.
It is possible that corporate income tax will arise on capital gains on the disposal of the remaining Turkish property. This liability has been provided for in these consolidated results as deferred tax and calculated on the assumption that the property is realised at its current carrying value. However, additional taxes, such as a 15% withholding tax, may arise on the repatriation to Guernsey of non-capital reserves from Turkey. |
c) Functional and presentation currency |
These consolidated results are presented in Sterling, which is also the Company's functional currency (please refer to note 3p for further details). All amounts are rounded to the nearest thousand. |
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, 2c, 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 2016. 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).
|
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.
At the date of disposal, the Company derecognises the assets and liabilities of the subsidiary and other components of equity. The Consolidated Statement of Comprehensive Income includes the results of the subsidiary up to the date of sale. The gain or loss on disposal is the difference between the consideration received and the carrying amount of the subsidiary at the date of the sale.
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 profit or loss in 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. Lease incentives granted are recognised as an integral part of the total rental income over the terms of the lease. 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.
Rental income in the year ended 31 December 2016 includes £281,000 received from the settlement of a legal claim for unpaid rent from a previous tenant.
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 profit or loss in the Consolidated Statement of Comprehensive Income in the period in which they are incurred. |
d) Taxation |
Investment income is recorded gross of applicable taxes. Tax expense is recognised through profit or loss in 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 profit or loss in 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 profit or loss in 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 the valuation method outlined below. Such estimates are inherently subjective and actual values can only be determined in a sales transaction.
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 2016. Cushman & Wakefield, which merged with DTZ Debenham Tie Leung in 2015, has relevant professional qualification for the provision of property services and has longstanding experience in the valuation of properties in Bulgaria and Turkey, having been engaged by the Company for that purpose since 2007.
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"). 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.
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 profit or loss in 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 profit or loss 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 held in treasury are presented as a deduction from equity. When shares held in treasury 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 reserve |
| 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 profit or loss in the Consolidated Statement of Comprehensive Income. | |
q) Translation 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 prevailing 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.
Upon derecognition of a foreign operation, foreign currency gains and losses relating to the foreign operation are recycled from other comprehensive income to profit or loss. | |||
r) 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 2016 and the 31 December 2015 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 2016: | |||
IFRS 5 | Non-current Assets Held for Sale and Discontinued Operations - changes in methods of disposal | ||
IFRS 7 | Financial Instruments: Disclosures - annual improvements | ||
IFRS 10 | Consolidated Financial Statements - amendments regarding the application of the consolidation exception | ||
IFRS 12 | Disclosure of Interests in Other Entities - amendments regarding the application of the consolidation exception | ||
IAS 1 | Presentation of Financial Statements - amendments resulting from the disclosure initiative | ||
IAS 16 | Property, Plant and Equipment - various amendments | ||
IAS 34 | Interim Financial Reporting - annual improvements | ||
IAS 38 | Intangible Assets - amendments regarding the clarification of acceptable methods of depreciation and amortisation | ||
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 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 Group have been excluded. The Board has chosen not to early adopt these standards and interpretations and they do not anticipate that they would have a material impact on the Group's results in the period of initial application. | |||
| Effective date | ||
| IFRS 7 | Financial Instruments: Disclosures - annual improvements and additional hedge accounting disclosures | 1 January 2018 |
| IFRS 9 | Financial Instruments | 1 January 2018 |
| IFRS 12 | Disclosure of Interests in Other Entities - annual improvements | 1 January 2017 |
| IFRS 15 | Revenue from Contracts with Customers | 1 January 2018 |
| IFRS 16 | Leases | 1 January 2019 |
| IAS 7 | Statement of Cash Flows - amendments as a result of the disclosure initiative | 1 January 2017 |
| IAS 12 | Income Taxes -amendments regarding the recognition of deferred tax assets for unrealised losses | 1 January 2017 |
| IAS 40 | Investment Property - amendments to clarify transfers of property to, or from, investment property | 1 January 2018 |
In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments that replaces IAS 39, Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.
The Group plans to adopt the new standard on the required effective date. The Group has performed a high-level impact assessment of all three aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information being made available to the Group in the future. Overall, the Group expects no significant impact on the consolidated results or equity, and will perform a more detailed assessment in 2017. | |||
i) Classification and measurement The Group does not expect a significant impact on the consolidated results or equity on applying the classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value all financial assets and liabilities currently held at fair value.
ii) Impairment IFRS 9 requires the Group to record expected credit losses on any loans and trade receivables, either on a 12-month or lifetime basis. The Group expects to apply the simplified approach and record lifetime expected losses on all investment income and other receivables. Given that investment income and other receivables have not been impaired to date, the Group does not expect there to be a significant impact on its equity from reviewing the expected credit losses on investment income and other receivables over their lifetimes, but it will need to perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements to determine the extent of the impact.
iii) Hedge accounting The Group does not currently designate any hedges as effective hedging relationships which qualify for hedge accounting. Therefore, the Group does not expect there to be any impact with respect to hedge accounting as a result of applying IFRS 9. | |||
The impact that IFRS 15 will have on the Group's consolidated results is also considered to be immaterial because the Group does not have any contracts with customers which meet the definition under IFRS 15. | |||
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") 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 property. | |
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 fees paid to Elysium relating to the year ended 31 December 2016 amounted to £110,000 (2015: £100,000), which included £10,000 (2015: £nil) for work performed outside of the scope of the administration agreement. | |
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 2016 was £198,000 (2015: £194,000).
The Manager is responsible for the payment of the fees to 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 Company in relation to liabilities incurred by the Manager in the discharge of its duties other than those arising by reason of any fraud, wilful 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 Company 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 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. |
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. | |
During the year ended 31 December 2016, the performance fee provision decreased by £94,000 to £27,000 (2015: the provision decreased by £61,000 to £121,000). | |
| |
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 2016 | Year ended31 December 2015 | Amount due at31 December 2016 | Amount due at31 December 2015 | |
£'000 | £'000 | £'000 | £'000 | |
Martin M. Adams | 36 | 45 | 8 | 11 |
Carol Goodwin | 20 | 20 | 5 | 5 |
Hugh Ward | 20 | 20 | 5 | 5 |
---------- | ---------- | ---------- | ---------- | |
76 | 85 | 18 | 21 | |
---------- | ---------- | ---------- | ---------- | |
No bonuses or pension contributions were paid or were payable on behalf of the Directors. | ||||
8. Other operating expenses | ||
Year ended31 December 2016 | Year ended31 December 2015 | |
£'000 | £'000 | |
Legal, professional and consultancy fees | 129 | 85 |
Auditor's remuneration | 55 | 62 |
Administration of subsidiaries | 54 | 53 |
Nominated Adviser and Broker fees | 45 | 45 |
Property sales commission | 27 | 11 |
Property insurance | 26 | 23 |
Registrar fees | 15 | 15 |
Depreciation and amortisation (notes 14 and 15) | 3 | 3 |
Other expenses | 104 | 84 |
Property conveyance fees | - | 6 |
---------- | ---------- | |
458 | 387 | |
---------- | ---------- | |
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 (2015: £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 2016 amounted to a net gain of £192,000 (2015: loss of £42,000). 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 £327,000 for the year ended 31 December 2016 (2015: income of £372,000), adjusted for £28,000 relating to historic foreign exchange translation gains of the Romanian subsidiary. 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 £1,213,000 (2015: loss of £979,000) and on a weighted average number of 15,551,250 (2015: 15,551,250) 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 2016 (2015: £nil). |
13. Freehold investment property | ||
Year ended31 December 2016 | Year ended31 December 2015 | |
£'000 | £'000 | |
Brought forward | 17,421 | 18,294 |
Additions | 177 | 3 |
Disposals | (1,792) | (916) |
Realised gain on disposal of investment properties | 9 | 95 |
Loss on revaluation of investment properties | (845) | (55) |
---------- | ---------- | |
Carried forward | 14,970 | 17,421 |
---------- | ---------- | |
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 and Bulgaria 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 (please refer to note 3h). | ||
All investment properties are classified as Level 3 (2015: Level 3) in accordance with the fair value hierarchy levels set in IFRS 13: Fair value measurement. Apart from the property disposals in the year, 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 and Bulgaria. 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. | ||
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 2016 | Year ended31 December 2015 | |
£'000 | £'000 | |
Cost | ||
Brought forward | 10 | 11 |
Foreign exchange movement | - | (1) |
---------- | ---------- | |
Carried forward | 10 | 10 |
---------- | ---------- | |
Accumulated Amortisation | ||
Brought forward | (6) | (6) |
Provided during the year | (1) | (1) |
Foreign exchange movement | - | 1 |
---------- | ---------- | |
Carried forward | (7) | (6) |
---------- | ---------- | |
Net book value | 3 | 4 |
---------- | ---------- | |
15. Property, plant and equipment | ||
Year ended31 December 2016 | Year ended31 December 2015 | |
£'000 | £'000 | |
Cost | ||
Brought forward | 24 | 28 |
Foreign exchange movement | - | (4) |
---------- | ---------- | |
Carried forward | 24 | 24 |
---------- | ---------- | |
Accumulated Depreciation | ||
Brought forward | (22) | (23) |
Provided during the year | (2) | (2) |
Foreign exchange movement | - | 3 |
---------- | ---------- | |
Carried forward | (24) | (22) |
---------- | ---------- | |
Net book value | - | 2 |
---------- | ---------- | |
16. Investments in subsidiary undertakings | ||||||
Details of the subsidiary undertakings held by the Company at 31 December 2016 were as follows: | ||||||
31 December 2016 | 31 December 2015 | |||||
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 (1) | Romania | Property investment | 0% | 100% | ||
(1) | Until Southern Properties SRL was sold, effective 23 December 2016, Sarnia Eastern Property (Cyprus) Limited and Sarnia Real Estate (Cyprus) Limited each held a 50% shareholding 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 subsidiary and will not suffer withholding tax on the repatriation of funds from that entity until the intercompany loans have been repaid in full. Withholding tax on dividends paid to overseas companies from companies in Bulgaria is currently 5%. 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. | ||||||
Effective 23 December 2016, EEP sold Southern Properties SRL for a total consideration of €1.5 million (£1.3 million), of which €1.3 million was for the repayment of the intercompany loan immediately prior to the disposal of the shares in Southern Properties SRL and €0.2 million was received for the sale of the shares. Of the total consideration of €1.5 million, €1.2 million was received on completion and the remaining balance is payable in instalments, with the balance to be paid in full by 30 June 2018. | ||||||
£'000 | ||||||
Consideration for shares (post settlement of the intercompany loan) | 136 | |||||
Less carrying amount of subsidiary sale (after repayment of the intercompany loan) at date of sale | (617) | |||||
---------- | ||||||
Loss on disposal of subsidiary | (481) | |||||
---------- | ||||||
£'000 | ||||||
Freehold investment property | 1,337 | |||||
Cash and cash equivalents | 66 | |||||
Other assets | 84 | |||||
Liabilities | (870) | |||||
---------- | ||||||
Carrying amount of subsidiary at date of sale (after repayment of the intercompany loan) | 617 | |||||
---------- | ||||||
17. Trade and other receivables | |||
31 December 2016 | 31 December 2015 | ||
£'000 | £'000 | ||
Deferred consideration (1) | 290 | - | |
VAT control account | 22 | 15 | |
Prepaid tax | 6 | 10 | |
Management fees paid in advance (2) | 5 | - | |
Other receivables and prepayments | 47 | 100 | |
---------- | ---------- | ||
370 | 125 | ||
---------- | ---------- | ||
| |||
(1) | The deferred consideration is due for the disposal of Southern Properties SRL and is payable in instalments up to 30 June 2018 (refer to note 16). Effective 1 January 2017, the balance of the outstanding deferred consideration attracts interest at a fixed rate of 4% per annum. At the date of signing these results, €40,000 of the deferred consideration had been received. The deferred consideration is secured by a charge on the property. | ||
(2) | £5,000 was paid to Pera Pera during the year as an advance of the fees due to Pera Pera for the quarter ending 31 March 2017. | ||
18. Trade and other payables | ||||
31 December 2016 | 31 December 2015 | |||
£'000 | £'000 | |||
Administration fee | 35 | - | ||
Withholding taxes payable | 32 | 15 | ||
Performance fee | 27 | 121 | ||
Directors' fees | 18 | 21 | ||
Other payables and accruals | 62 | 113 | ||
---------- | ---------- | |||
174 | 270 | |||
---------- | ---------- | |||
| ||||
19. Taxation | ||||
The taxation charge in the Consolidated Statement of Comprehensive Income is made up as follows:
| ||||
Year ended31 December 2016 | Year ended31 December 2015 | |||
£'000 | £'000 | |||
Deferred taxation (note 20) | (147) | 520 | ||
Overseas corporate tax | 91 | 50 | ||
Other taxes and duties charged overseas (1) | 44 | 43 | ||
Withholding tax | 35 | 83 | ||
---------- | ---------- | |||
Taxation payable | 23 | 696 | ||
---------- | ---------- | |||
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.
| ||||
(1) Other taxes and duties charged overseas relate to taxes imposed in the Turkish and Bulgarian subsidiaries for expenses such as withholding tax, property tax, stamp tax and legal tax. | ||||
Year ended31 December 2016 | Year ended31 December 2015 | |||
£'000 | £'000 | |||
Loss before tax | (1,190) | (283) | ||
---------- | ---------- | |||
Tax calculated at domestic rates applicable to the respective countries | (48) | 613 | ||
Current year tax losses on which deferred tax asset previously recognised | - | (33) | ||
Other taxes | 71 | 116 | ||
---------- | ---------- | |||
Taxation payable | 23 | 696 | ||
---------- | ---------- | |||
Domestic tax rates in the other jurisdictions in which the Group operates was as follows: | ||||
Year ended31 December 2016 | Year ended31 December 2015 | |||
Turkey | 20% | 20% | ||
Bulgaria | 10% | 10% | ||
Romania | n/a | 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 2016 the following movements occurred: · The Turkish subsidiary's deferred tax liabilities decreased by TRY 600,000 (2015: increased by TRY 2,166,000); and · The Bulgarian subsidiary's deferred tax was unchanged (2015: 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%. | ||||
Corporate income tax may arise on capital gains generated on the disposal of the remaining Turkish property. The corporate income tax likely to arise, if the property is realised at its current carrying value, 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 2016 | 31 December 2015 | |||||
£'000 | £'000 | |||||
Deferred tax asset | 1 | 2 | ||||
Deferred tax liability | (2,096) | (2,262) | ||||
---------- | ---------- | |||||
Net deferred tax liability | (2,095) | (2,260) | ||||
---------- | ---------- | |||||
The deferred tax assets and deferred tax liabilities at 31 December 2016 and 31 December 2015 were as follows: | ||||||
31 December 2016 | 31 December 2015 | |||||
Assets | Liabilities | Assets | Liabilities | |||
£'000 | £'000 | £'000 | £'000 | |||
Gains on freehold investment property | - | (2,096) | - | (2,262) | ||
Trade and other payables | 1 | - | 2 | - | ||
---------- | ---------- | -------- | ---------- | |||
Total | 1 | (2,096) | 2 | (2,262) | ||
Amount netted off | (1) | 1 | (2) | 2 | ||
---------- | ---------- | -------- | ---------- | |||
Deferred tax liability | - | (2,095) | - | (2,260) | ||
---------- | ---------- | -------- | ---------- | |||
21. Share capital and reserves | ||
31 December 2016 | 31 December 2015 | |
£'000 | £'000 | |
Authorised: | ||
200,000,000 Ordinary Shares of 1 pence each | 2,000 | 2,000 |
---------- | ---------- | |
Issued and fully paid: | ||
15,551,250 (2015: 15,551,250) Ordinary Shares of 1 pence each | 155 | 155 |
---------- | ---------- | |
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 7 December 2016, was circulated. In addition, the Company has the authority to purchase up to 10% of the Ordinary Shares in issue and hold them in treasury until a time when they are either re-issued or cancelled.
No shares were purchased to be held in treasury during the year (2015: nil). | ||
22. NAV per Ordinary Share |
The NAV, in pence per Ordinary Share, is based on the net assets attributable to equity Shareholders of £14,892,000 at 31 December 2016 (2015: £15,778,000) and on 15,551,250 Ordinary Shares in issue at the end of the year (2015: 15,551,250). |
23. Related parties |
The relationship and transactions between the Group, Elysium, CNC, Pera Pera and Walnut are disclosed in the Report of the Directors and 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 a commission equivalent to 2% of the sales proceeds of properties 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 Walnut. If a property sale is executed solely by Walnut, 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 Walnut.
The disposal of the remaining units within the Nil Passage property during the year incurred total sales commission of £9,000 (2015: £11,000), which was paid to Pera Pera. The disposal of the subsidiary containing the Gara Progresului, Business & Logistics Centre in Bucharest in December 2016 incurred sales commission of £19,000, which was paid to Walnut.
The relationship between the Company and each of its subsidiaries is disclosed in note 16. |
The Board is not aware of any immediate parent or ultimate controlling party. |
24. Maturity of financial liabilities | ||||||||
The maturity of the Group's financial liabilities at 31 December 2016 was as follows:
| ||||||||
31 December 2016 | 31 December 2015 | |||||||
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 | 174 | 60 | 87 | 27 | 270 | 39 | 108 | 123 |
Overseas tax | 41 | 35 | 6 | - | 18 | 18 | - | - |
Rents received in advance | - | - | - | - | 74 | 3 | 1 | 70 |
---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
215 | 95 | 93 | 27 | 362 | 60 | 109 | 193 | |
---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
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 factors 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 2016 would have increased net assets by £1,497,000 (2015: £1,742,000; or £1,566,000 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. Please refer to 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.
|
| ||||
The bank accounts held by the Group are principally with HSBC Bank plc and Garanti Bank. At the year end a total of £1,439,000 (2015: £260,000) was held with HSBC Bank plc and £425,000 (2015: £484,000) 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 (2015: AA- and BB+, respectively). |
| ||||
| |||||
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 | Fixed rate | Floating rate | Assets on which no interest is received | ||
£'000 | £'000 | £'000 | £'000 | ||
Assets as at 31 December 2016 | |||||
Cash and cash equivalents | 1,918 | - | 413 | 1,505 | |
Other current assets | 15,343 | 290 | - | 15,053 | |
------------ | ------------ | ----------- | ------------ | ||
Total assets | 17,261 | 290 | 413 | 16,558 | |
------------ | ------------ | ----------- | ------------ | ||
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 |
------------ | ------------ | ----------- | ------------ | |
Total as per Consolidated Statement of Financial Position | Liabilities on which no interest is paid | |||
£'000 | £'000 | |||
Liabilities as at 31 December 2016 | ||||
Current liabilities | 2,310 | 2,310 | ||
----------- | ----------- | |||
Total liabilities | 2,310 | 2,310 | ||
----------- | ----------- | |||
Liabilities as at 31 December 2015 | |||
Current liabilities | 2,622 | 2,622 | |
----------- | ----------- | ||
Total liabilities | 2,622 | 2,622 | |
----------- | ----------- |
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 £7,000 (2015: decreased loss by £3,000). 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 and Bulgaria 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 and Bulgaria are freely convertible, 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 following foreign currency sensitivity analysis reflects only sensitivity of monetary items. At 31 December 2016, the Group had exposure to the Turkish Lira amounting to net assets of £8,000 (2015: net assets of £61,000). | |||||||||||
Currency split of financial assets and liabilities as at 31 December 2016
| |||||||||||
Total | GBP | EUR | US$ | TRY | BGN | LEU | |||||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||
Financial assets: | |||||||||||
Cash and cash equivalents | 1,918 | 454 | 1,040 | 420 | 4 | - | - | ||||
Trade and other receivables | 370 | 8 | 290 | - | 53 | 19 | - | ||||
------------ | ------------ | ------------ | ------------ | --------- | ------------ | ------------ | |||||
Total financial assets | 2,288 | 462 | 1,330 | 420 | 57 | 19 | - | ||||
------------ | ------------ | ------------ | ------------ | --------- | ------------ | ------------ | |||||
Financial liabilities: | |||||||||||
Trade and other payables | (174) | (105) | (40) | - | (9) | (20) | - | ||||
Overseas corporate tax | (41) | - | - | - | (40) | (1) | - | ||||
------------ | ------------ | ------------ | ------------ | --------- | ------------ | ------------ | |||||
Total financial liabilities | (215) | (105) | (40) | - | (49) | (21) | - | ||||
------------ | ------------ | ------------ | ------------ | --------- | ------------ | ------------ | |||||
Net financial assets/(liabilities) | 2,073 | 357 | 1,290 | 420 | 8 | (2) | - | ||||
------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | |||||
Net exposure to currency | 100% | 17.2% | 62.2% | 20.3% | 0.4% | (0.1)% | - | ||||
------------ | ------------ | ------------ | ------------ | --------- | ------------ | ------------ | |||||
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% | ||||
------------ | ------------ | ------------ | ------------ | --------- | -------- | ------------ | |||||
Foreign currency sensitivity analysis A 15% strengthening of Sterling against each currency would have decreased the net assets at 31 December 2016 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 15% against each currency is shown below. The level of sensitivity is based on movements of Sterling against currencies during the preceding twelve month period, which is considered indicative of possible future moves. The comparative period was based on a strengthening of Sterling by 5% against each currency (20% against the Turkish Lira) as that was indicative of possible movements in currencies at that time.
| |||||||||||
Financial assets and liabilities only | |||||||||||
31 December 2016 | 31 December 2015 | ||||||||||
£'000 | £'000 | ||||||||||
Euro | (193) | 1 | |||||||||
US Dollar | (63) | (19) | |||||||||
Turkish Lira | (1) | (12) | |||||||||
Romanian Leu | - | (5) | |||||||||
Bulgarian Lev | - | - | |||||||||
------------ | ------------ | ||||||||||
Total | (257) | (35) | |||||||||
------------ | ------------ | ||||||||||
A weakening of Sterling against each currency would have an equal but opposite effect. | |||||||||||
In order to manage the Group's exposure to foreign currency risk, rather than purchase properties in local currency, the Group agreed prices for the properties and subsequently values the properties in either US Dollars or Euros. However, all payments for the properties were made in the relevant local currency, namely the Bulgarian Lev 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 and Turkish Lira. | |||||||||||
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 and Bulgaria. 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 and Bulgaria. In particular, changes in the rates of inflation, currencies and interest in Turkey and Bulgaria 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 and Bulgaria 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 and Bulgaria differ from those prevailing in certain other countries in Western Europe. With 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 and Bulgaria and potentially on property values and the level of rents in those countries. | |||||||||||
Risks of property ownership Investments in property may be difficult, slow or impossible to realise. The Company will be subject to the general risks incidental to the ownership of real 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 rental income generated from the property and the expenses incurred in the development or redevelopment and management of the property, as well as changes in its market value.
| |||||||||||
Rental income and the market value for properties are generally affected by overall conditions in the local economy, such as growth in GDP, employment trends, inflation and changes in interest rates. Changes in GDP may also impact employment levels, which in turn may impact demand for premises, especially for office space for commercial enterprises. Furthermore, movements in interest rates may also affect the cost of financing for real estate companies.
Both rental income and property values may also be affected by other factors relevant to the real estate market, such as competition from other property owners and developers, the perceptions of prospective tenants on the attractiveness, convenience and safety of properties, the inability to collect rents because of the bankruptcy or insolvency of tenants or otherwise, the periodic need to renovate, repair or re-lease space and the costs thereof, the costs of maintenance and insurance, and increased operating costs. In addition, the owner must meet certain significant expenditures, including operating expenses, even if the property is vacant.
Investments in property are relatively illiquid and more difficult to realise than investments in equities or bonds. The comparative illiquidity has been exacerbated following the disposal to date of easier to realise properties in the Company's portfolio. | |||||||||||
| |||||||||||
26. Capital commitments | |||||||||||
All contracted capital commitments have been provided for. | |||||||||||
27. Subsequent events |
There were no material events after the financial reporting date that required disclosure as at 15 June 2017. |
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. |
29. Operating leases |
The Group leases out its freehold investment property under operating leases. At 31 December 2016, the future minimum lease receipts under non-cancellable leases were as follows: |
31 December 2016 | 31 December 2015 | |
£'000 | £'000 | |
Less than one year | 184 | 522 |
Between one and five years | 31 | 369 |
------------ | ------------ | |
215 | 891 | |
------------ | ------------ | |
The total above comprises the total contracted rent receivable as at 31 December 2016.
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. | ||
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. |
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 £14,892,000 at 31 December 2016 (2015: £15,778,000). |
--- ENDS ---
Related Shares:
Eastern European Property