27th Apr 2006 10:06
Raven Russia Limited27 April 2006 Raven Russia Limited ("Raven Russia" or the "Company") Results for the period to 31 December 2005 The Board of Raven Russia releases below the results for the period ended 31December 2005. Attached are the Chairman's Statement, Property Review andfinancial results for the period. Copies of the annual report and financialstatements will be available on www.ravenrussia.co.uk and will be posted toshareholders shortly. Highlights • Company incorporated and subsequently admitted to AIM in July 2005,raising £153 million before expenses • First investments made in the warehouse market in the Moscow region • Substantial pipeline of new acquisitions and developments • Company currently does not have any hedging in place • Property manager not earning fees on uncommitted cash balances • Subsequent to the end of the financial period, the Company raised afurther £310 million before expenses and made its first investment in the St.Petersburg region Adrian Collins, Chairman of Raven Russia, said: "The Company has made a strongstart since inception, positioning itself as a leading player in the Russianwarehouse market. This strong start has been reflected by the supportdemonstrated from existing and new investors in our subsequent secondaryfundraising. We believe that given our pipeline and the opportunities availableto us, we should substantially commit the funds from our placing in July 2005 bythe end of 2006." Chairman's Statement We incorporated Raven Russia Limited in Guernsey on 4 July 2005, and itsordinary shares were admitted to AIM in London on the 29 of the same month. Thisis therefore my first formal communication with you and I should like to takethis opportunity of welcoming you all as shareholders. For the record, we raised £153 million (before expenses) with the purpose ofinvesting in freehold and leasehold properties in Russia which offer theprospect of attractive returns to its investors over a long term period.Subsequently, in April 2006, we raised an additional £310 million (beforeexpenses) through the issue of 269,565,210 new ordinary shares at 115 pence pershare to pursue our investment strategy. Our initial focus is on the warehousemarket around the Moscow and St Petersburg areas, where we believe demand forquality property exceeds supply. However, the Company will consider attractiveopportunities in other Russian cities and will also consider other assetcategories if we believe they will generate appropriate returns forshareholders. Warehouse market properties continue to offer a high yield and theprospect of long term capital growth, consistent with the Company's long terminvestment strategy. It is our intention that, over time, the Company shouldendeavour to obtain a spread of property investments. Raven Russia Property Management Ltd, a wholly owned subsidiary of Raven Mountplc, a property company listed on AIM in London, has been appointed propertyadviser to your Company. Raising £463 million to invest in commercial real estate in Russia is aconsiderable achievement and I would like to thank all those professionaladvisers who helped in bringing the Company to life. I will not go into great detail on the current portfolio, as this is explainedin detail in the Property Review, which accompanies this statement. However, Iwould like to reiterate that the property adviser has worked diligently in thefirst few months of the Company's life to secure the first three acquisitions,which, when completed, will secure the Company with some 155,600 square metres(1.67m square feet) of Grade A space. More importantly, the "pipeline" oftransactions, which your Board reviews on a regular basis, is healthy and wouldindicate that the Company should substantially invest the original £153 millionduring the course of this year. It is as a result of this pipeline that the Company raised the additionalcapital to further fund the Company's investment programme. The Company iscurrently in negotiations to invest in or acquire over $1.5 billion ofproperties. Much has been written about the complexity of dealing in Russian real estate.From the discussions that have taken place at the Board meetings with theproperty advisers, it would be fair to say that this has been confirmed by ourexperience since flotation, with the transaction process in Russia being muchmore time consuming than in more mature markets such as the UK. I would like to express my thanks to the Raven Russia Property Management Ltdteam for their tenacity and hard work. Dividend The Company stated in its prospectus that it anticipated a target dividend yieldof 9 per cent. at the issue price of 100 pence, once fully invested, and thatthe Directors' intention is to pay out dividends of not less than 85 per cent.of the distributable profits of the Company. Although the Company has convertedall its share premium account into distributable reserves, as at the end of thisaccounting period, we had not invested sufficient funds to justify paying adividend for the period ended 31 December 2005. I am, however, pleased to statethat the Company should, in the absence of unforeseen circumstances, be in aposition to commence paying a dividend in the second half of 2006. Share Price Performance The Company was admitted to AIM on 29 July 2005 with the shares being issued at100 pence per share. As at 31 December 2005 the share price was 118.0 pence andover the last 20 business days of our financial year, the share price averaged116.75 pence showing a 16.75 per cent. return over the five-month period underreview (an annualised return of approximately 39 per cent.). As is common incompanies of this nature, performance fees for the managers are structured toalign fees with shareholder returns. As stated in the recent circular sent toshareholders and in light of the recent fundraising, a number of amendments tothe property advisery agreement were agreed including payment of a performancefee of £3.5 million in respect of the period ended 31 December 2005, which willbe settled as £1.05 million in cash and £2.45 million by the allotment of2,098,501 ordinary shares, and also agreeing a minimum performance fee of £2million in respect of the accounting period ending 31 December 2006 which willbe settled as to 70 per cent. in shares and 30 per cent. in cash, in accordancewith the property advisery agreement. Acquisitions The Company announced on 28 November 2005 that it had entered into an agreementto purchase, from a group of international investors, two companies which eachown a logistics warehouse (Baltia and Southern) in the Moscow region. Bothwarehouses are newly constructed and of Grade A standard, comprisingapproximately 41,600 square metres in aggregate. These warehouses are both fullylet to a mixture of international and Russian companies. The acquisition wassubsequently completed on 15 December 2005. Baltia won the Industry categoryaward at the 2006 Russian Property Awards. The Company further announced it had exchanged contracts to forward fund andcommit to buy upon completion a complex of four freehold Grade A, logisticswarehouses on the outskirts of Moscow from RosEuro Developments. In aggregatethey comprise approximately 114,000 square metres (1.23m square feet). Governance As a Guernsey registered company, the Company is not required to comply with theCombined Code on Corporate Governance. However, it is the Company's policy tocomply with best practice on corporate governance where applicable. Share Buy Back Facility While the Company has a buy back facility in place, we did not choose to utiliseit during the period under review but will seek to renew this authority fromshareholders at the next AGM. Post year end events On 23 March 2006, the Board announced its first acquisition in St Petersburg,having signed a binding agreement to forward fund and develop a 128,000 squaremetre (1.38m square feet) logistics and distribution complex in a 50:50 jointventure with Avalon Group, a company with interests in commercial real estate,logistics and consumer goods. When coupled with the first three acquisitions theCompany has now purchased, and announced commitments to purchase or forward fundsome 283,600 square metres (3.05m square feet) of property. We also announced, on 31 March 2006, a fundraising of £310 million of new equityfor the Company to fund the Company's ongoing investment programme. Thisreflected the confidence your Board and the property adviser have in theCompany's strategy and ability to execute it. I hope that we will be in aposition to make further investment announcements in the near future. Property Review prepared by Raven Russia Property Management Limited as Adviser A Strong Start In the five months since the Company was admitted to AIM at the end of July 2005the Company has committed approximately $150 million in property transactions.These properties when fully constructed will provide approximately 155,600square metres (1.67m square feet) of Grade A space. Given the prevailing marketconditions and the complexity of closing deals in Russia, this is exceptionalprogress. All three properties acquired to 31 December 2005 are in Moscow or the Moscowregion. Two of the properties were constructed within the last three years andthe other, Krekshino involves forward funding of a development which will becompleted in early 2007. All three properties are of Grade A quality, by westernstandards, and are located on large plots of land with excellent access to themajor road network. Both the completed properties, Baltia and Southern are fully let to a mixture ofRussian and multinational tenants including Samsung, Rexel, Stockmann andSchneider. The third transaction the Company has entered into, Krekshino, involves theforward funding of and commitment to purchase a development of approximately114,000 square metres (1.23m square feet) of a high quality Grade A logisticspark to the west of Moscow. The local developer has a successful track recordof completing large logistics properties. They retain all development andletting risk for the project with Raven Russia committed to fund theirconstruction cost against an agreed budget and purchase the completed projectonce it is fully let. Currently, 50 per cent. of the development is prelet tothe National Logistics Company (NLC) the leading Russian logistics operator inwhich Citigroup recently invested $50 million. NLC's clients include Roche,Procter and Gamble and Wrigley's. As announced by the Company on 23 March 2006, the Company has agreed to forwardfund and develop a 128,000 square metres (1.38m square feet) logistics anddistribution complex in St Petersburg in a 50:50 joint venture with AvalonGroup, a company with interests in commercial real estate, logistics andconsumer goods. Looking Forward On behalf of the Company we continue to seek out new investment and developmentopportunities by using the network of local and western agents and our owncontacts. Our focus for new acquisitions falls into four distinct areas: 1. Straight forward investment purchases: the simple purchase of an existingproperty from an investor/developer which is already let to tenants. 2. Sale and leasebacks: the purchase of property from an existing occupier whosimultaneously leases back the property from us for an agreed term at an agreedrent. 3. Tenant partnering: active participation in the land acquisition andsubsequent development of a bespoke building for a specific tenant where weprovide the entire financing and construction management expertise for a tenantwho agrees to a pre-let the building on agreed terms. 4. Forward funding local developers: this can take varied formats, either wefinance independent developers throughout the land acquisition and constructionperiod against pre-lets or speculative development (dependant upon margin) or wecontract to forward purchase a building thus allowing the developer the abilityto "bridge" the transaction with an investor/bank financing. In addition to its investment business, Raven Russia will look at speculativedevelopment/land assembly in conjunction with experienced local partners. The Market Market conditions remain advantageous with high tenant demand and limitedamounts of new supply coming to the market. Protecting Value Whilst the Company remains highly acquisitive it is equally important that weactively manage its property portfolio. Our objective with the portfolio is toincrease lease lengths and tenant security and to minimise operational expenseswhere the Company receives gross rents. We recognise that the tenants are theCompany's customers and are developing relationships with them which we hopewill lead to repeat business and tenant partnering initiatives across Russia. The Company has taken buildings insurance and loss of profits cover with AIGRussia for the two completed properties whilst the developer and contractorremain liable for the insurance of the Krekshino development property until itis completed and handed over. The Company will attempt to insure all theproperties acquired with a recognised insurer. Outlook The search for new acquisitions remains a priority and we remain positive thatwe can build on the excellent start the Company made in 2005. Competition isbound to increase over time, however the Company's reputation for closing dealsand finding innovative ways to acquire property will hold it in good stead. The key to performance in 2006 will be through further significant investmentand forward funding projects and the active management of the existingportfolio. By enhancing the income streams from the properties and buying wellwe will seek to maximise returns to the Company's shareholders. Raven Russia Property Management Limited 24 April 2006 Consolidated Income Statement for the period from 4 July 2005 to 31 December2005 Revenue Capital Total Notes £'000 £'000 £'000 Gross rental income 140 - 140Property operating expenditure (92) - (92)Net rental income 48 - 48 Selling, general and administrative 4 (4,400) - (4,400)expensesNet foreign currency gains 256 - 256Operating expenditure (4,144) - (4,144) Operating (loss) before gains on (4,096) - (4,096)investment properties Unrealised gains on revaluation of 7 - 1,908 1,908investment propertiesOperating (loss) (4,096) 1,908 (2,188) Bank interest receivable 2,797 - 2,797Bank borrowing costs (33) - (33)Loan interest receivable 57 - 57Finance income 2,821 - 2,821 Profit before tax (1,275) 1,908 633 Tax 5 7 (458) (451)Net profit for the period (1,268) 1,450 182 Earnings per share - basic 6 0.12p Earning per share - diluted 6 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. Consolidated Balance Sheet as at 31 December 2005 Notes £'000 Non-current assets Investment properties 7 27,902 Value added tax recoverable 10 1,700 Deferred tax assets 355 Other assets 6 29,963 Current assets Trade and other receivables 11 1,385 Cash and cash equivalents 141,069 142,454 Total assets 172,417 Non-current liabilities Interest bearing bank loans 12 10,106 Rent deposits 325 Deferred revenue 51 Deferred tax liability 13 802 11,284 Current liabilities Trade and other payables 14 13,130 Interest bearing bank loans 12 1,115 14,245 Total liabilities 25,529 Total net assets 146,888 Equity Share capital 15 1,530 Share premium account 16 - Special reserve 17 143,374 Capital reserve 18 1,450 Warrant reserve 19 1,279 Share options reserve 20 523 Revenue reserve 21 (1,268) Total equity 146,888 Net asset value per share 22 96p Company Balance Sheet as at 31 December 2005 Notes £'000 Non-current assetsInvestments in subsidiary undertakings 9 15 Loans receivable from subsidiary 9 9,565undertakings 9,580 Current assets Trade and other receivables 11 903 Cash and cash equivalents 139,010 139,913 Total assets 149,493 Current liabilities Trade and other payables 14 3,800 Total liabilities 3,800 Total net assets 145,693 Equity Share capital 15 1,530Share premium account 16 - Special reserve 17 143,374Capital reserve 18 - Warrant reserve 19 1,279 Share options reserve 20 523 Revenue reserve 21 (1,013) Total equity 145,693 Net asset value per share 22 95p Consolidated Statement of Changes in Equity for the period from 4 July 2005 to31 December 2005 Share Share Share Premium Special Capital Warrant Options Retained Capital Account Reserve Reserve Reserve Reserve Earnings Total Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Issue of ordinary 8, 15,16 1,530 143,374 144,904share capital, netof issue costsConversion of 16,17 (143,374) 143,374 -share premium accountNet profit for the 21 182 182period Transfer in 18,21 1,450 (1,450) -respect of gainson investmentproperties Recognition in 19, 20 1,279 523 1,802respect ofshare-basedpayments At 31 December 1,530 - 143,374 1,450 1,279 523 (1,268) 146,8882005 Consolidated Cash Flow Statement for the period from 4 July 2005 to 31 December2005 Notes £'000 Cash flows from operating activitiesOperating (loss) (2,188)Adjustments for:Unrealised gains on revaluation of 7 (1,908)investment properties Recognised share based payments 23 197Increase in operating trade and other (2,092)receivablesIncrease in operating trade and other 7,357payables 1,366 Bank interest received 2,772Loan interest received 25Bank borrowing costs paid (33)Tax paid -Net cash inflow from operating activities 4,130 Cash flows from investing activitiesPayments to acquire investment properties 7,8 (4,766)Loans advanced 11 (482)Costs incurred for future property purchases (323)Net cash outflow from investing activities (5,571) Cash flows from financing activitiesProceeds from issue of ordinary share 8,15,16 147,027capitalIssue costs 8,16 (519)Loan repayments (3,998)Net cash inflow from financing activities 142,510 Net increase in cash and cash equivalents 141,069 Opening cash and cash equivalents -Closing cash and cash equivalents 141,069 Notes to the Financial Statements 1. General information Raven Russia Limited is a company incorporated in Guernsey. The address of theregistered office is shown on page 30. The nature of the Group's operations andits principal activities are set out in the Chairman's statement on page 5. Thefinancial statements were authorised for issue on 26 April 2006 by John Petersand David Moore on behalf of the board. Foreign operations are included in accordance with the policies set out in note2(e). 2. Accounting policies A summary of the principal accounting policies, all of which have been appliedconsistently throughout the period, is set out below. (a) 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 InterpretationsCommittee interpretations approved by the International Accounting StandardsCommittee ("IASC") that remain in effect, except for disclosure of operatinglease income as required by IAS 17. The Directors believe this information to becommercially sensitive. The financial statements have been prepared on the historical cost basis, exceptfor the revaluation of investment properties. (b) Basis of Consolidation The consolidated financial statements incorporate the financial statements ofthe Company and the entities controlled by the Company (i.e. subsidiaries) madeup to 31 December each year. Control is achieved where the company has the powerto govern the financial and operating policies of an investee entity so as toobtain benefits from its activities. On acquisition, the assets and liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill. Any deficiency of the cost ofacquisition below the fair values of the identifiable net assets acquired (i.e.discount on acquisition) is credited to profit and loss in the period ofacquisition. The results of subsidiaries acquired or disposed of during the period areincluded in the consolidated income statement from the effective date ofacquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. During the financial period the Group acquired two investment properties bymeans of a share purchase scheme. In the opinion of the directors, thesetransactions did not meet the definition of a business combination as set out inIFRS 3 "Business Combinations". Accordingly the transactions have not beenaccounted for as business combinations and instead the financial statementsreflect the substance of the transactions which is considered to be thepurchases of investment properties and associated net assets. (c) 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. (d) 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. (e) Foreign Currencies Transactions in currencies other than pounds sterling are recorded at the ratesof exchange prevailing on the dates of the transactions. At each balance sheetdate, monetary assets and liabilities that are denominated in foreign currenciesare retranslated at the rates prevailing on the balance sheet date. Non-monetaryassets and liabilities carried at fair value that are denominated in foreigncurrencies are translated at the rates prevailing at the date when the fairvalue was determined. Gains and losses arising on retranslation are included innet profit or loss for the period, except for exchange differences arising onnon-monetary assets and liabilities where the changes in fair value arerecognised directly to equity. On consolidation, the assets and liabilities of the Group's overseas operationsare translated at exchange rates prevailing on the balance sheet date. Incomeand expenses are translated at the average exchange rates for the period unlessexchange rates fluctuate significantly. Exchange differences arising, if any,are classified as equity and transferred to the Group's translation reserve.Such translation differences are recognised as income or expenses in the periodin which the operation is disposed of. 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. (f) 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 taxationarises on capital gains. The Group is liable to Russian tax arising on its investment activities. The Group is liable to Cypriot tax arising on the activities of its CypriotSubsidiaries. 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. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries, except where the Group is able tocontrol the reversal of the temporary difference and it is probable that thetemporary difference will not reverse in the foreseeable future. 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 toapply in the period when the liability is settled or the asset realised.Deferred tax is charged or credited in the income statement, except when itrelates to items charged or credited directly to equity, in which case thedeferred tax is also dealt within equity. (g) Investment properties Investment property, which is property held to earn rentals and/or for capitalappreciation, is stated at its fair value plus transaction costs at the balancesheet date. Gains or losses arising from changes in fair value of investmentproperty are included in profit or loss for the period in which they arise. The Group has appointed Knight Frank LLC as property valuers to preparevaluations on a semi-annual basis. Valuations will be undertaken in accordancewith either the European Valuations Standards as published by the European Groupof Valuers Associations or the International Valuations Standards Committee. (h) Borrowing costs Borrowing costs that are directly attributable to the construction of propertyin progress are capitalised as incurred. All other borrowing costs are recognised in profit or loss in the period inwhich they are incurred. (i) Interest Bearing Bank Loans and Borrowings Interest bearing bank 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. (j) Expenses Expenses are accounted for on an accruals basis. The Group's property managementand administration fees, finance costs and all other expenses are chargedthrough the income statement. Transaction costs directly attributable to the purchase of the investmentproperties are included within the cost of the property. (k) 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. (l) Cash and Cash Equivalents Cash in banks and short term deposits that are held to maturity are carried atcost. Cash and cash equivalents consist of cash in hand and short term depositsin banks with an original maturity of three months or less. (m) 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 23. A liability equal to the portion of goods or services received is recognised atthe current fair value determined at each balance sheet date for cash-settled,share-based payments. (n) 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. (o) 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. (p) Trade payables Trade payables are not interest bearing and are stated at their nominal value. 3. Financial instruments 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 risk The Group's exposure to interest rate risk relates to the Group's long-term debtobligations. Interest rate risk is the risk that the value of financialinstruments will fluctuate due to changes in market interest rates. Borrowingsissued at variable rates expose the Group to cash flow interest rate risk.Borrowings issued at fixed rates expose the Group to fair value interest raterisk. To date the Group has borrowed funds at variable rates. The Group monitorsthis situation on an on-going basis. (b) Credit risk Credit 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 propertyuntil it is re-let. The property adviser monitors the tenants in order toanticipate, and minimise the impact of, defaults by occupational tenants. 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 three financial institutions, withbroadly similar amounts at each institution. The Group monitors the placement ofcash balances on an ongoing basis. (c) Liquidity risk Liquidity 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 by having availablean adequate amount of committed credit facilities. Cash and cash equivalents areplaced with financial institutions on a short term basis reflecting the Group'sdesire to maintain high level of liquidity in order to enable timely completionof investment transactions. (d) Currency risk Currency 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 Dollars and Sterling. The Group'smanagement monitors the exchange rate fluctuations on an on-going basis. (e) Fair value estimation The fair values of the Group's financial assets and liabilities approximatetheir carrying amounts at the balance sheet date. 4. Expenditure 2005 £'000 Property adviser management fees 146Property adviser performance fees 3,500Recognised option share based payments (see note 23) 197Directors' remuneration 40Auditors' remuneration 38Administration, registrar & other operating expenditure 479Total expenditure 4,400 5. Tax 2005 £'000The tax expense for the year comprises:- Guernsey taxation - Cypriot taxation - Russian taxation 7 Deferred tax (458)Total (451) Tax expense reconciliation Profit before tax 633 Less: Income not taxable (3,099) Add: Expenditure not taxable 4,344 1,878 Gain multiplied by Russian corporation tax at rate of 24% 451 6. Earnings per share 2005 £'000The calculation of the basic and diluted earnings per share is based on the followingdata:EarningsEarnings for the purposes of basic and diluted earnings per share beingnet profit attributable to equity holders of the parent. 182 Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per 153,000share Effect of dilutive potential ordinary shares: Options 3 Warrants 11 Other equity based payments (note 23) 2,099Weighted average number of ordinary shares for the purposes of diluted earnings per share 155,113 7. Investment properties 2005 £'000Acquisitions during the period 25,994Fair value adjustment in the period 1,908Balance as at 31 December 2005 27,902 The fair value of the Group's investment property at 31 December 2005 has beenarrived at on the basis of valuations carried out at that date by Knight FrankLLC, independent valuers not connected with the group. The valuation basis hasbeen by Market Value as defined by the International Valuation StandardsCommittee (IVSC). The approved IVSC 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 knowledgably, prudently and without compulsion." The Group has pledged all of its investment property to secure bankingfacilities granted to the Group (see note 12). The consideration payable in respect of each acquisition is dependant uponcertain future events. In calculating the cost of each acquisition the directorshave assessed the most probable outcome as at the balance sheet date. Thedirectors will reconsider the consideration payable at each financial period endand adjust accordingly. 8. Significant non-cash transactions Investing activities Upon acquisition of its investment properties the Group acquired/assumed variousassets and liabilities including borrowings of £11.7 million. Financing activities Included within issue costs shown in the statement of changes in equity is thecost of issuing certain options and warrants for value £1.6 million. Theproceeds from the issue of ordinary share capital were received after deductionof commissions totalling £5.9 million. 9. Investment in subsidiary undertakings A list of the significant investments in subsidiaries, including name, countryof incorporation, proportion of ownership interest is shown below: Name of subsidiary Class of share % of class held Country of Principal Activityundertaking incorporation Raven Russia Holdings Ordinary 100% Guernsey Holding CompanyLimitedRaven Russia Acquisition Ordinary 100% Cyprus Holding Company(Southern) Company(Cyprus) LimitedRaven Russia Cyprus Ordinary 100% Cyprus Holding Company(Baltia) Company LimitedRaven Russia Finance Ordinary 100% Cyprus Group FinanceCompany (Cyprus) Limited Company Subsidiary undertakings are carried at cost. In addition to its investment in the shares of subsidiaries, the Company haslent the following as at 31 December 2005. £'000 Raven Russia Finance Company (Cyprus) Limited 2,082Raven Russia Cyprus Acquisition (Baltia) Company Limited 3,988Raven Russia Acquisition (Southern) Company (Cyprus) Limited 3,482Other 13Total 9,565 The loan to Raven Russia Finance Company (Cyprus) Limited is unsecured, with noset repayment date and is subject to interest at the rate of 14.5% per annum. The loan to Raven Russia Cyprus Acquisition (Baltia) Company Limited isunsecured, with no set repayment date and is interest free. The loan to Raven Russia Acquisition (Southern) Company (Cyprus) Limited isunsecured, with no set repayment date and is interest free. In addition to the above the Group holds its investment properties in whollyowned Russian limited liability companies. The Group's shareholding in thesecompanies has been pledged as security to the Group's principal lender (see note12). 10. Value added tax recoverable Value added tax ("VAT") paid on construction of investment properties will berecovered through the offset of VAT paid on future revenue receipts. VATrecoverable has been split between current and non-current assets based on theGroup's assessment of when recovery will occur. 11. Trade and other receivables 2005 2005 £'000 £'000 Company GroupDeferred costs 321 321Prepaid expenditure 42 307Value added tax and other taxes recoverable - 224Loan advanced 482 482Bank interest receivable 25 25Loan interest receivable 33 26Total 903 1,385 Deferred costs relates to expenditure incurred for potential future investmentsthat had not been completed at 31 December 2005. The loan advanced is repayable on 9 May 2006, secured and bears interest at17.5% per annum. The loan is secured by way of a guarantee and a share pledge. 12. Interest bearing bank loans 2005 £'000 Amount due for settlement within 12 months 1,115Amount due for settlement after 12 months 10,106Total 11,221 Bank loans were arranged at variable interest rates and expose the group to cashflow interest rate risk. The Group has loans with ZAO Raiffeisenbank, Austria, on the following terms:- a) A loan in the amount of US$10,220,000 bearing interest at 5% plus US LIBOR.The loan is repayable in 39 instalments starting December 2005. b) A loan in the amount of $4,900,000 bearing interest at 5.5% plus US LIBORmaturing December 2009. c) A loan in the amount of $4,900,000 bearing interest at 5.5% plus US LIBORmaturing September 2006. All bank loans are sourced in United States dollars and the Group has notentered into any hedging arrangements in respect of its foreign currencyobligations or interest rate exposures. 13. Deferred tax liability 2005 £'000Temporary differences resulting in deferred tax liability:Fair value of investment properties 458Accelerated annual allowances and other temporary differences 344Total 802 14. Trade and other payables 2005 2005 £'000 £'000 Company Group Investment property acquisition costs payable - 6,426 Prepaid rent - 386 Investment property construction fees payable - 2,096 Property adviser fee payable 3,646 3,646Other accrued expenditure 154 576Total 3,800 13,130 15. Share capital 2005 £'000Authorised share capital:750,000,000 Ordinary Shares of 1p each: 7,500 Issued share capital:153,000,0000 Ordinary Shares of 1p each: 1,530 The company has one class of Ordinary Shares which carry no right to fixedincome. 16. Share premium account 2005 2005 £'000 £'000 Company Group Premium arising on issue of ordinary shares 151,470 151,470Transaction costs on issue of ordinary shares (8,096) (8,096)Conversion to special distributable reserve (143,374) (143,374)Balance as at 31 December 2005 - - On 25 July 2005 the Royal Court of Guernsey confirmed the reduction of thecapital by way of cancellation of the Company's share premium account. Theamount cancelled has been credited as a distributable reserve. 17. Special reserve 2005 2005 £'000 £'000 Company Group On conversion from share premium 143,374 143,374Balance as at 31 December 2005 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. 18. Capital reserve 2005 2005 £'000 £'000 Company Group Net fair value adjustment in the period on investment properties - 1,450 Balance as at 31 December 2005 - 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 theperiod end. - Deferred taxation on the increase in fair value of investment properties. 19. Warrant reserve 2005 2005 £'000 £'000 Company Group Recognised fair value of share-based payments for the period 1,279 1,279Balance as at 31 December 2005 1,279 1,279 Details of share-based payments in the period are shown in note 23. 20. Share options reserve 2005 2005 £'000 £'000 Company Group Recognised fair value of share-based payments for the period 523 523Balance as at 31 December 2005 523 523 Details of share-based payments in the period are shown in note 23. 21. Revenue reserve 2005 2005 £'000 £'000 Company Group Net (loss)/profit for the period (1,013) 182Transfer to capital reserves - (1,450)Balance as at 31 December 2005 (1,013) (1,268) Any surplus arising from the net profit for the period after payment ofdividends is taken to this reserve. 22. Net asset value per share Company Group £ £ Net asset value 145,693,000 146,888,000Number of ordinary shares at the 31 December 2005 153,000,000 153,000,000Net asset value per share 95p 96p 23. Share based payment (a) Terms The Company has granted options to Cenkos and Kinmont pursuant to whichrespectively they have the right to subscribe for 1,530,000 and 382,500 OrdinaryShares at £1.00 per share, such options to be exercisable at any time during theperiod of five years from the date of Admission. In order to incentivise Raven Mount personnel 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 per cent. of its issued OrdinaryShare capital from time to time (less the number of shares under option infavour of Adrian Collins referred in the Directors' Report). The option is inthree tranches. The options are exercisable over a period of 3 to 10 yearsfollowing admission dependent on cumulative performance criteria of between 9per cent. and 12 per cent. per annum having been met. 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 five years from the date ofAdmission. The Warrant Instrument provides that the Warrant Holder from time totime may transfer all or part of its Warrant. (b) Change in the period Options Weighted average exercise price (in £) Outstanding at beginning of period -Granted during the periodEquity settled options 13,387,500 1.04Equity settled warrants 7,650,000 1.00 Outstanding at the end of the period 21,037,500 Exercisable options at the end of the period 1,912,500Exercisable warrants at the end of the period 7,650,000 The weighted average exercise price of outstanding options at 31 December 2005was 103.67 pence, and a weighted average remaining contractual life of tenyears. The weighted average exercise price of outstanding warrants at 31 December 2005was £1.00, and a weighted average remaining contractual life of five years. (c) Calculation of the fair value of equity settled share based payments All share based payments have been valued using a binomial model. The key inputsto this model that drive the option value are: Options Warrants Weighted average share price 102.46p 98.8pWeighted average exercise price 103.63p 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 EmployeeBenefit Trust. • Expected volatility was calculated on the one year volatility of anappropriate comparator company. • The risk free rate is based on the yield on a zero coupon government securityat grant date. Other equity-settled payments The performance fee is to be settled as to 30 per cent. in cash and as to thebalance in Ordinary Shares allotted by reference to the average closing midmarket price of such shares over the last 20 trading days for the relevantaccounting period for which the performance fee is being paid. The Group recognised total expenses of £1.8 million relating to equity-settledshare-based payment transaction in the period. £1.6 million was recognised asissue costs of the Company and taken to equity. 24. Capital commitment The Company agreed a maximum facility of US$111m which may be drawn in stagesproviding the developer meets certain criteria. The facility is for theacquisition and forward funding of the property at Krekshino. This facilityremained undrawn at 31 December 2005. 25. Events after the balance sheet date The Company announced on the 23 March 2006 a 50:50 joint venture with AvalonGroup to forward fund a logistics and distribution complex with an estimatedvalue of US$113m once built. The Company announced on 31 March 2006 proposals to raise an additional £310million (before expenses) through the issue of 269,565,210 new ordinary sharesat 115 pence per share. 26. Related party transactions Transactions between the Company and its subsidiaries which are related parties,have been eliminated on consolidation and are not disclosed in this note. Raven Russia Property Management Limited received fees for its services asproperty managers. Further details are provided in note 4 and the Directors'Report. The total charge to the income statement during the period was£3,646,009 which remains payable at the period end. The directors of the Company received fees for their services and furtherdetails are provided in the Directors Report. The total charge to the incomestatement during the period was £40,000. Other director related partytransactions are provided in the Directors' Report. Raven Mount assigned a loan receivable from Aldama (Overseas) Limited to theCompany during the period of US$1,230,000. Raven Mount received payment of £500,000 during the period in respect of timecosts and expenses incurred by Raven Mount in connection with the initialplacing and admission to AIM and negotiations in respect of the initialinvestments of Raven Russia. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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