14th Mar 2016 07:00
14 March 2016
Raven Russia Limited ("Raven Russia" or the "Company")
Results for the year ended 31 December 2015
The Board of Raven Russia releases the results for the year ended 31 December 2015.
Highlights
- Adjusted, fully diluted NAV per share of 70 cents (2014: 106 cents);
- Underlying earnings before tax of $64.9 million (2014: $75.1 million);
- Unrealised losses on revaluation of $256.5 million (2014: loss of $145.4 million);
- IFRS loss after tax $192.4 million (2014: loss of $88.2 million);
- Year end cash balance of $202.3 million (2014: $171.4 million);
- Investment portfolio 82% let at 31 December 2015 (2014: 94%);
- Final distribution of 1p per share by way of a tender offer buy-back (2014: 3.5p).
CEO Glyn Hirsch said "Our general strategy is to batten down the hatches, preserve cash and make sure we are able to participate in the upside when things improve. Any reduction in sanctions or strengthening of the oil price will benefit us."
Enquiries
Raven Russia Limited Tel: + 44 (0) 1481 712955
Anton Bilton
Glyn Hirsch
Novella Communications Tel: +44 (0) 203 151 7008
Tim Robertson
Ben Heath
N+1 Singer Tel: +44 (0) 20 7496 3000
Corporate Finance - James Maxwell / Liz Yong
Sales - Alan Geeves / James Waterlow
Barclays Bank Plc Tel: +44 (0) 20 7623 2323
Tom Boardman / Tom Macdonald
This announcement contains forward-looking statements that involve risk and uncertainties. The Group's actual results could differ materially from those estimated or anticipated in the forward-looking statements as a result of many factors. Information contained in this announcement relating to the Company should not be relied upon as a guide to future performance.
About Raven Russia
Raven Russia was founded in 2005 to invest in class A warehouse complexes in Russia and lease to Russian and International tenants. Its Ordinary Shares, Preference Shares and Warrants are listed on the Main Market of the London Stock Exchange with a market capitalisation of approximately £230 million. The Company operates out of offices in Guernsey, Moscow and Cyprus and has to date completed a portfolio of circa 1.5million square metres of Grade "A" warehouses in Moscow, St Petersburg, Rostov-on-Don and Novosibirsk. For further information visit the Company's website: www.ravenrussia.com
Chairman's Message
My message this year continues to be one of caution and our strategy remains defensive. Macro economic events have again overshadowed our business efforts. The impact of the fall in oil price, corresponding Rouble decline and continuing international sanctions weigh heavily on our results for 2015.
The most obvious outcome is a significant reduction in the value of our investment portfolio. The fall in market value for the year is $256 million which contributes to a reduction in fully diluted, adjusted net asset value ("NAV") per share to 70 cents (2014: 106 cents) and an IFRS loss after tax of $192 million (2014: loss of $88 million).
Despite this, our year end cash balance was $202 million, the investment portfolio is 82% let (2014: 94%) and net operating income ("NOI") for the year was $174 million (2014: $192 million) producing underlying earnings after tax of $55 million (2014: $67 million).
The rapid depreciation of the Rouble has had a fundamental impact on our operating environment. The majority of new lettings are now Rouble denominated rather than US Dollar pegged. There is some compensation in that annual lease indexation is linked to Russian inflation (12.9% for 2015) on these leases. The trend of Rouble denominated leases is likely to continue, at least while the Rouble remains volatile and at current exchange rate levels. The increase in vacancy rate during the year is a result of those tenants with weaker covenants and those smaller businesses exposed primarily to the import market succumbing to the pressures of this new environment.
Our cautious strategy of focusing on cashflow and quality of income means we are not building speculatively nor planning any acquisitions. However, given the underlying profits generated during the year we propose a final distribution of the equivalent of 1p per share (2014: 3.5p) by way of a tender offer buy-back of 1 in every 40 ordinary shares at 40p per share. That will give a distribution for the year equivalent to 2p per share (2014: 6p).
Whilst we expect trading conditions will continue to be difficult throughout 2016, our market has proven to be relatively resilient in the face of such severe events. New supply into our market is very limited and market research forecasts a tightening in vacancy rates over the next 18 months. Any improvement in the Rouble:US Dollar exchange rate will provide us with immediate benefit. Meanwhile we remain a market leading business with excellent investment property assets.
When the market gods smile on you and things are good, it is easy to congratulate your team and applaud their efforts. However, when the markets turn and events are as severe as they have been for the business in the last year, the real qualities of your team come to the fore. We have a talented and robust Executive and Senior Management group who have now been together for over ten years and are steering their way admirably through the obstacles being placed in their way on almost a daily basis. It is a stressful and challenging time for them. They have an experienced and supportive Non Executive Board who understand the business and market environment and they have developed a strong and loyal employee base. They also have the benefit of a group of advisers, some of whom have worked with the Group since its inception, who share in the team's enthusiasm for the Raven Russia brand and culture.
I would like to thank all of those involved for their hard work over the year and for the efforts to come.
Richard Jewson
Chairman
13 March 2016
Strategic Report
Chief Executive's Report
The challenging macro-economic conditions, particularly the oil price, have continued to impact negatively on our business. The weak Rouble has maintained downward pressure on rents and this has had a consequent downward effect on valuations. Particularly frustrating is that when we founded the business at the beginning of 2005, the Brent Crude price was $45 per barrel and the Rouble:US Dollar exchange rate was below 30. Today we have Brent at $40 per barrel and the Rouble at 70 to the US Dollar.
These events have contributed to an extremely difficult operating environment throughout the year and we have focussed on maintaining income at whatever level, and in whatever currency, the market allows us, whilst protecting our cash balances.
The Company's monumental efforts have meant we still have an occupancy level of 82% and our year end cash balance was $202 million.
Whether the trend towards Rouble contracts is temporary or permanent only time will tell. The attraction to tenants today is obvious but whether they will feel the same in the future if the Rouble strengthens, or further inflation develops. remains to be seen. Virtually all Rouble leases increase annually with Russian CPI, which was 12.9% in 2015.
We will remain flexible and alert to market changes and opportunities.
At the year end, 10% of our portfolio space was contracted with Rouble denominated leases. This increasing level of Rouble income means that we have significant upside potential if the Rouble weakness against the dollar reverses, and particularly so if it returns to its ten year trend of around 35 to the US Dollar.
Our general strategy is to batten down the hatches, preserve cash and make sure we are able to participate in the upside when things improve.
That said, underlying profits allow us to continue with a limited distribution policy and we intend to match our interim with a final tender offer buy-back at the equivalent of 1p. As was the case with last year's final distribution, we will not be offering the option to oversubscribe for more than each shareholder's pro rata entitlement.
We remain ready to commence development, pursue acquisitions and do further buy-backs of our own shares at these low levels as soon as we feel that market conditions will support a return to an expansionist strategy. Any reduction in sanctions or strengthening of the oil price will benefit us.
Operationally we are doing all we can and I thank our shareholders for their continued support.
Glyn Hirsch
Chief Executive Officer
13 March 2016
Business Model
Our Strategy
Our long term strategy remains unchanged: to build an investment portfolio of Grade A logistics warehouses in Russia producing rental income that delivers progressive distributions to our shareholders.
Until the end of 2014, to achieve this objective, we planned to grow the business through acquisitions and managed development of new space. The impact of the rapid depreciation in oil prices on the Russian economy and the related Rouble depreciation following the Central Bank of Russia's decision to move to a free float mechanism, has meant that our short to medium term objectives have had to change. The immediate objective is to secure our existing portfolio in an environment where market rents, in US Dollar terms, have fallen.
The severity of the changes in the market dynamics has had a marked effect on our business model and risk appetite as explained below and in our approach to the risk assessment and viability statements.
Business Model
Our business model aims to generate high, US denominated yield from rental income in the under supplied warehouse logistics market in Russia and principally in the Moscow region.
Until 2014, this was achieved, primarily, by entering into US Dollar pegged lease agreements. In essence, tenants took the foreign exchange risk, the majority of the tenant businesses generating Rouble income, in exchange for reduced indexation risk, the leases using US CPI indexation rather than Russian inflation.
Following the depreciation in the Rouble:US Dollar exchange rate, this model is under pressure. The Rouble weakened by 102% in the period following the implementation of sanctions in 2014 until the end of 2015, the majority of that depreciation occurring since November 2014 and the rapid collapse in oil prices followed by the move to a free float mechanism for the Rouble.
On existing leases, Rouble equivalent rents have more than doubled over that timespan forcing current market practice to change. The majority of new leases are now Rouble denominated with Russian inflationary indexation. Therefore, as leases mature, the foreign exchange risk is being passed back to the landlord with the compensation of potentially high indexation over the term of the lease and upside should the Rouble strengthen.
At the year end, 6% of our annualised warehouse income was denominated in Roubles. These leases represent 10% of the Gross Lettable Area ("GLA") of our warehouse portfolio.
Our medium term objective is to manage any change in our model over the next three years as our current leases mature and income potentially drops to new market rental levels driven by a weak currency.
The current mix of Rouble and US Dollar denominated leases gives a natural foreign exchange hedge across the portfolio and high indexation gives a buffer against further Rouble depreciation over the term of a Rouble denominated lease. The risk is focussed on the transition stage between US Dollar pegged rents and Rouble leases and a managed de-gearing of our balance sheet to support potentially lower US Dollar denominated income. Conversely, any appreciation in the Rouble exchange rate, triggered by either the easing of sanctions or higher oil prices, will boost our US Dollar denominated income.
The market turmoil of the last 15 months has tested how robust our model is and will continue to do so, the other key components being:
- Tenant size and covenant;
- Tenant concentration;
- SPV structure; and
- Conservative gearing.
We continue to have relatively high occupancy in our portfolio and the majority of tenants continue to meet their contractual obligations when due. Our tenants tend to be large domestic or international groups with strong covenants which allow them to take large lettings. Our average letting size by tenant is 9,500 sqm . We do not have one tenant with more than 11% (2014: 11%) of our portfolio's GLA and the top ten tenants account for 45% (2014: 49%) of our portfolio in GLA terms and 56% (2014: 50%) in income terms.
Each of our assets sits in a special purpose vehicle ("SPV") with bank debt secured on individual assets with no asset cross collateralisation and minimal recourse to the holding company. Our debt is reasonably highly amortised which means that our gearing levels remain manageable, even at this time of trough valuations. Our asset specific bank debt represents 65% (2014: 55%) loan to value at the year end and consolidated balance sheet gearing is 58.0% (2014: 51.9%) [note 34d] after a drop in property values of 16% over the year. We will work to reduce gearing on our balance sheet over the next three years on the premise that our balance sheet needs to support lower rental income levels.
Key Performance Indicators ('KPIs')
Previously, our KPIs were yield and shareholder distribution focussed, results being driven by increasing rental income and NOI performance.
Given the changes in market dynamics in the last year, the emphasis of our KPIs has now changed. The overriding KPI being targeted is that of occupancy. We cannot influence where market rents will settle in US Dollar terms so we will focus on maintaining high occupancy in the medium term.
Operating cash flow was our primary KPI, being the effective measure for shareholder distributions, but in the current environment, whilst it remains a key performance indicator, it is now a measure of our debt service cover as top line income potentially drops to a new market level.
Underlying this is the portfolio mix between Rouble and US Dollar denominated rents, the continuing ability of tenants to meet their obligations under existing US Dollar pegged leases and the impact of foreign exchange movements on US Dollar income.
The current incentive scheme, introduced in early 2014, was linked to the business model of US Dollar pegged rents. In today's environment the objectives set in 2014 are no longer relevant. We also have no directly comparable peers or indices which is a problem when designing incentive schemes as we cannot easily demonstrate relative performance. We are consulting with key shareholders regarding changes to the remuneration policy and any proposals will be considered at the forthcoming AGM.
Portfolio Review
Geographical
Warehouse | Moscow | St Petersburg | Regions |
Space (000 sqm) | 1,075 (73%) | 185 (12%) | 222 (15%) |
Annualised NOI ($m) | 121 (77%) | 17 (11%) | 20 (12%) |
Office | Moscow | St Petersburg | Regions |
Space (000 sqm) | - | 16 (100%) | - |
Annualised NOI ($m) | - | 4 (100%) | - |
The 2015 financial year began with a very low vacancy rate of 6% and ended the year with vacancy of 18%. Early termination of weaker covenants in the tenant portfolio, principally importers and smaller third party logistics operators whose business models could not adapt to the weak Rouble, account for half of the year end vacancy. Contracted NOI at 1 January 2016 was $162 million.
Leasing and maturities
Letting activity in the year is shown below:
'000 sqm | 2015 | 2016 | 2017 | 2018 | 2019-2023 | Total |
Maturity profile at 1 January 2015 | 140 | 323 | 211 | 98 | 564 | 1,336 |
Renegotiated and extended | 80 | 101 | 22 | 15 | 0 | 218 |
Existing lease maturities | 0 | 176 | 161 | 52 | 532 | 921 |
Vacated/terminated | 60 | 46 | 28 | 31 | 32 | 197 |
218,000sqm of existing leases have been renegotiated and extended in the financial year. Space vacated on maturity and early terminations of weaker covenants will generate additional vacant space of 197,000sqm which, together with existing vacant space, gives 266,000sqm of potential vacancy at 31 December 2015. The result is a new lease maturity profile as follows:
'000 sqm | 2016 | 2017 | 2018 | 2019-2030 | Total |
Existing lease maturities | 176 | 161 | 52 | 532 | 921 |
Extension of existing leases in 2015 | 4 | 49 | 71 | 94 | 218 |
New leases | 6 | 0 | 8 | 28 | 42 |
Pre let agreement* | 42 | 0 | 0 | 0 | 42 |
Maturity profile at 31 December 2015 | 228 | 210 | 131 | 654 | 1,223 |
*In occupation at 31 December 2015
This reflects 42,000sqm of new leases signed in the year in addition to the 218,000sqm of existing lease renegotiations and the upcoming release of space by Dixy under a pre let agreement. There are also potential breaks in the portfolio of 29,000sqm in 2016 and 28,000sqm in 2017.
Since the year end, a further 86,800sqm of renewals and new lettings have been completed and letters of intent on 29,200sqm signed. The average term of these deals is 3.3 years at an average of $73 per sqm with Russian inflationary indexation.
The majority of contracted income continues to be supported by US Dollar pegged leases. However, as shown below, an increasing proportion of warehouse leases are now Rouble denominated or limit tenants' foreign exchange risk with a short term cap on the Rouble:US Dollar exchange rate. For the majority, (95%), of leases which have exchange rate caps, the caps expire by the end of 2017. Annual indexation on Rouble leases is linked to Russian CPI.
Currency exposure of NOI | USD | USD/RUB cap | RUB | EUR | EUR/RUB cap | Total | ||||||
$m | sqm '000 | $m | sqm '000 | $m | sqm '000 | $m | sqm '000 | $m | Sqm '000 |
$m | sqm '000 | |
124 | 871 | 14 | 130 | 10 | 116 | 9 | 76 | 1 | 15 | 158 | 1,208 | |
% of total | 78% | 72% | 9% | 11% | 6% | 10% | 6% | 6% | 1% | 1% | 100.0% | 100.0% |
Investment Portfolio
Moscow
In Moscow there are nine projects totalling 1,075,000sqm, producing an annualised income of $121 million at the year end with 81% of space let.
Moscow Portfolio
Warehouse complex | Space (000 sqm) | Annualised NOI ($m) | Occupancy |
Pushkino | 213 | 22 | 86% |
Istra | 205 | 21 | 82% |
Noginsk | 204 | 30 | 86% |
Klimovsk | 157 | 21 | 94% |
Krekshino | 118 | 15 | 88% |
Nova Riga | 67 | 2 | 23% |
Lobnya | 52 | 6 | 100% |
Sholokhovo | 45 | 3 | 48% |
Southern | 14 | 1 | 51% |
The Moscow portfolio had a net reduction in lettings of 99,700sqm during the year. The increased vacancy is a product of weaker tenants terminating early and some of the larger tenants looking to make supply chain efficiencies on the maturity of their leases.
The lowest occupancy at Nova Riga reflects the new build space that came on line at the beginning of 2015 and the two smallest assets at Sholokovo and Southern are affected by a small number of maturities because of their size. In the case of Sholokovo, the increase in vacancy is down to one tenant consolidating their space at another site on maturity of their lease.
Similarly, at Noginsk, Dixy, one of the leading Russian retailers, took occupation of a new, purpose built building of 42,000sqm at the beginning of 2015. Subsequently, they commenced litigation and did not execute the long term lease, despite accepting the building and being in occupation. After three rounds of court hearings, the Russian State Cassation court has recently ruled that the dispute should be heard in the International Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industry. This is in accordance with the dispute resolution process in the preliminary lease agreement. Dixy vacated the premises in early February 2016 and we are now seeking to re-let the space whilst pursuing the appropriate dispute resolution process.
St Petersburg and Regions
Warehouse complex | Space ('000 sqm) | Annualised NOI ($m) | Occupancy |
St Petersburg | |||
Shushary | 148 | 14 | 86% |
Pulkovo | 37 | 3 | 65% |
Regions | |||
Novosibirsk | 121 | 11 | 86% |
Rostov | 101 | 9 | 79% |
Office | |||
St Petersburg | |||
Constanta | 16 | 4 | 100% |
The regional markets of St Petersburg, Rostov and Novosibirsk have tracked performance in Moscow with a net reduction of 56,000sqm in lettings across the three locations. Lease terms on renewals have shortened, usually to two or three years, as a reaction to market volatility.
Tenant Mix
Warehouse Tenant Type | Distribution | Retail | Manufacturing | Third Party Logistics operators |
Space ('000 sqm) |
135 (11%) |
365 (30%) |
167 (14%) |
541 (45%) |
The letting strategy has always been to lease to the strongest tenants on secure long term leases. This has protected the portfolio from significant numbers of tenant failures, although the early termination of leases on 136,699sqm of space has been completed or is underway, where tenants have failed or their ongoing covenant is questionable. A number of major international businesses, including DHL, Alliance Healthcare and Danone have renewed or extended their leases for the medium term.
Portfolio yields
Warehouse | Moscow (%) | St Petersburg (%) | Regions (%) |
2014 | 12.0 - 12.5 | 13.25 | 14.5 |
2015 | 12.0 | 13.25 | 14.5 |
Weakness in estimated rental values ("ERV"), the change to Rouble rents and the weakness of that currency in US Dollar terms have driven property values down during 2015. Prime yields for warehouses have now stabilised at 12% for rack rented, well let buildings in Moscow. In St Petersburg, yields stand at 13.25% and in the regions, 14.5%. Even in Moscow the combination of capitalisation rates and low Rouble rents generate a capital value which is below replacement cost, effectively constraining supply.
The investment properties and additional phases of existing projects were valued by Jones Lang LaSalle ("JLL") at the year end, in accordance with the RICS Valuation and Appraisal guidelines, and are carried at a market value of $1.4 billion (see note 11 to the financial statements). This has resulted in a decrease of $256 million in portfolio value since the end of 2014.
Land Bank
Location | Property / Warehouse Complex | Land plot size (ha) | |
Additional phases of completed property | Moscow
Regions | Noginsk Nova Riga Lobnya
Rostov-On-Don | 26 25 6
27 |
Land bank |
St Petersburg
Regions |
Pulkovo
Chelyabinsk Omsk Omsk 2 Ufa Novgorod |
10
59 19 9 48 44 |
Total | 273 |
No speculative development is planned at the current time although there is 26ha at Noginsk on which 134,000sqm of space can be built and at Nova Riga there is the potential to add a further 130,000sqm on the additional 25 ha of land there.
The Market
Across all sectors rents are now Rouble denominated for new lettings, although the majority of leases have indexation linked to Russian CPI. The warehouse/logistics sector has been the most defensive with vacancy peaking at 11.2% in the middle of 2015, and falling back to 10.5% at the year end. JLL estimate take up in 2015 of 1,313,128sqm, the majority of this from large retailers improving their supply chains, followed by distributors and logistics companies. E-commerce is expanding with traditional retailers reporting strong growth in online sales. Total sales volumes are expected to double between 2014 and 2017 which should create increased demand for the best, well located warehouses around major cities.
At current rental levels, minimal new speculative construction is anticipated as capital is scarce, debt expensive and development returns thin. New supply coming to the market is mainly in the form of build to suit developments. Currently there is only 400,000sqm of space under construction for delivery in 2016 of which approximately half is build to suit. With limited new speculative supply, the vacancy rate is forecast to continue to fall during 2016 to 7% or 8% by the year end.
The value of investment transactions fell from $8.2 billion in 2013 to $3.8 billion in 2014 and $2.3 billion in 2015 according to JLL. The 2015 figure equates to less than one third of the number of deals completed in 2014. Approximately 80% of this investment was from Russian sources.
Finance Review
The rapid depreciation of the Rouble at the end of 2014 continues to have a marked effect on the Group's results. This has eroded both operating earnings and balance sheet value. Operating results are best explained by focussing on Underlying Earnings, and the impact of balance sheet movements on results by reviewing IFRS Earnings.
Underlying Earnings | 2015 | 2014 |
(Adjusted non IFRS measure) | $'000 | $'000 |
Net rental and related income | 174,123 | 192,317 |
Administrative expenses | (26,361) | (26,967) |
Bad debt provision | (3,720) | - |
Foreign exchange gains/(losses) | 1,223 | (15,471) |
Share of profits of joint ventures | 2,518 | 955 |
Operating profit | 147,783 | 150,834 |
Net finance charge | (82,836) | (75,707) |
Underlying profit before tax | 64,947 | 75,127 |
Tax | (10,389) | (8,475) |
Underlying profit after tax | 54,558 | 66,652 |
Basic underlying earnings per share (cents) | 8.17 | 9.32 |
At 31 December 2015 our investment portfolio was 82% let (2014: 94%) on a like for like basis and Net Rental and Related Income reduced by $18.2 million in the year compared to 2014. This is a factor of the increase in vacancies, the transition to Rouble income on leases as they mature and the conversion of Roslogistics' Rouble income during the period (see note 4). Underlying administrative costs rose following a bad debt charge for the year of $3.7 million (2014: nil).
Foreign exchange movements through the financial statements were muted this year, the damage being done in the short period between November and December 2014 last year. There is an exchange gain in the Income Statement of $1.2 million in 2015 compared to a loss of $15.5 million in 2014 and a loss of $1.8 million through the Statement of Comprehensive Income (2014: loss of $41 million).
Net finance costs increased following additional draws on debt facilities at the beginning of 2015. Together with an increase in underlying tax cost of $1.9 million this gave a reduction in Underlying profit after tax for the year of $12.1 million to $54.6 million.
Given the drop in market rents during the year, this is a very good operating result but assuming that current market conditions prevail, reduced income and profit will continue as a trend in 2016.
IFRS earnings reflect the significant reduction in the mark to market value of the consolidated balance sheet assets at 31 December 2015. A reconciliation between IFRS and Underlying Earnings is given in note 9 to the financial statements.
IFRS Earnings | 2015 | 2014 |
$'000 | $'000 | |
Net rental and related income | 174,123 | 192,308 |
Administrative expenses | (26,775) | (34,630) |
Bad debt provision | (3,720) | - |
Share based payments | (3,594) | (2,354) |
Foreign exchange profits/( losses) | 1,223 | (15,471) |
Share of joint venture profits | 2,518 | 955 |
Operating profit | 143,775 | 140,808 |
(Loss)/profit on revaluation | (256,548) | (145,404) |
Net finance charge | (92,283) | (93,448) |
IFRS (loss)/profit before tax | (205,056) | (98,044) |
Tax | 12,697 | 9,855 |
IFRS loss after tax | (192,359) | (88,189) |
The significant movement in the IFRS results for the year is the revaluation loss on property assets net of the related deferred tax credit. This accounts for the disparity between underlying earnings and positive operating cashflows and the large IFRS loss after tax shown above.
Investment Properties
The completed property investment portfolio had a market value of $1.36 billion at 31 December 2015 (2014: $1.61 billion), a fall of 16% in value, driven by the fall in US Dollar equivalent market rents. Combined with the revaluation deficit recognised in 2014, the property investment portfolio value has fallen by 22% over the last 24 months.
Investment property under construction, being additional phases of existing projects not yet commenced, has fallen in value by 18% in US Dollar terms during the year.
Cash and Debt
Cash flow Summary | 2015 | 2014 |
$'000 | $'000 | |
Net cash generated from operating activities | 136,152 | 168,797 |
Net cash generated/(used) in investing activities | 12,868 | (98,894) |
Net cash used in financing activities | (110,300) | (71,771) |
Net increase/(decrease) in cash and cash equivalents | 38,720 | (1,868) |
Foreign exchange movements | (7,812) | (28,073) |
Increase/(decrease) in cash | 30,908 | (29,941) |
Operating cash inflows fell by $33 million during the year. This follows the drop in net operating income, a reduction in rents paid in advance around the year end as tenants became sensitive to the exchange rate on the date of payment of US Dollar pegged leases, and increased tax payments as historic deferred tax assets were fully utilised on some projects.
Cash generated from investing activities increased significantly as construction costs wound down and a retention held of $25 million on a prior period acquisition was released.
Net cash used in financing activities increased as the prior year included higher debt draws on refinancings to offset debt amortisation. Interest paid during the year totalled $69 million. Preference coupon paid was $17 million and the Company purchased $42 million of its own shares in 2015.
After foreign exchange losses on Rouble and Sterling funds held to service future costs in those currencies, cash generated in the year totalled $31 million, giving a cash balance of $202 million at the year end.
Debt | 2015 | 2014 |
$m | $m | |
Fixed rate debt | 260 | 220 |
Debt hedged with swaps | 212 | 222 |
Debt hedged with caps | 456 | 395 |
928 | 837 | |
Unhedged debt | - | 68 |
928 | 905 | |
Unamortised loan origination costs and accrued interest | (9) | (12) |
Total debt | 919 | 893 |
Undrawn facilities | - | 36 |
Weighted average cost of debt | 7.26% | 6.99% |
Weighted average term to maturity | 4.0 | 4.8 |
In the first half of the year, further draw downs of $39 million and $27 million were made on the finance facilities secured on the Noginsk and Nova Riga projects respectively. A new facility of $15 million secured on our Pulkovo project was also drawn.
The facility secured on our Istra project was rolled over for a two year term and now matures in April 2018. We hope to do the same with the facility secured on the Pushkino project which matures in 2017.
LIBOR on all debt facilities has now been hedged with a mixture of interest rate swaps, caps or fixed instruments. The quantum and number of facilities maturing each year is shown below.
Year | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022-2024 |
Debt Maturing in US$ millions | 15 | 148 | 175 | 164 | 217 | 80 | 128 |
Percentage of total debt maturing (%) | 1 | 16 | 19 | 18 | 23 | 9 | 14 |
Number of maturing facilities | 1 | 2 | 2 | 3 | 3 | 2 | 3 |
The facility secured on the office block in St Petersburg, Constanta, continues on a cash sweep mechanism following a historic potential loan to value breach in December 2012. A delay in rental payments from the sole tenant in 2015 has also caused the facility to breach debt service requirements but no further action has been taken by the bank. All other finance covenants were met at the year end.
Subsidiaries
The Group's trading subsidiaries have performed well in the year. Raven Mount continues to sell legacy land plots it holds in the UK and the joint venture, Coln, generated a share of profits of $2.5 million (2014: $1 million) from sales of plots at the second home site in the Cotswolds.
The third party logistics subsidiary, Roslogistics, is a good example of the impact of foreign exchange on results. In 2014 the company had turnover of Roubles 937 million, which translated to $24 million at the average exchange rate for the year. In 2015, in a tough market, they have maintained turnover at Roubles 930 million. However, converting at the average exchange rate for the year generates only $15 million of turnover (see note 4). Following new contract wins at the end of 2015, they are looking to grow their Rouble top line in the current year and have taken additional space at the project in St Petersburg to meet the increased demand.
Outlook
Despite increasingly difficult trading conditions in US Dollar terms and a net asset value hit by falling asset values, the Group's balance sheet remains robust with high liquidity. Any improvement in economic conditions will translate directly to an improved bottom line.
Risk Report
Risk Appetite
The Board places significant importance on identifying and managing the risks facing the business and our processes have been suitably tested over the last two years.
Our risk appetite is two tiered. The original decision to focus on the Russian market could be argued to demonstrate a high risk appetite due to the macro economic and political environment we operate in but this is offset by a relatively risk averse approach at the operating level where:
- We have a focus on an undersupplied asset class in one of Europe's largest cities;
- Tenants are a mix of large international and domestic Groups;
- We have minimal speculative development exposure; and
- Our balance sheet is managed conservatively with relatively low gearing, high debt amortisation and single purpose vehicle security structures.
The macro economic environment however has put pressure on our business model, especially following the rapid depreciation in the Rouble exchange rate against the principal currencies at the end of 2014. The effect of this has been discussed elsewhere in the Strategic Report but the outcome is a significantly reduced risk appetite, with our short to medium term objective being the security of and maintenance of cash flow from our existing portfolio in a volatile market.
This is reflected in our viability statement with the manifestation of the risks to the business in the year being significantly more severe than we could have reasonably foreseen or would have sensitised prior to November 2014.
The combination of international sanctions and the recent macro economic upheavals in Russia, together with the introduction of the updated Corporate Governance Code issued by the Financial Reporting Council, has focussed the Board's attention firmly on risk management.
Risk Management and Internal Controls
The business is of a size and culture where risks are discussed and reviewed, formally and informally, at all levels. The Board is responsible for the management of risk and regularly carries out a robust assessment of the principal risks and uncertainties affecting the business, discusses how these impact operations, performance and solvency and what mitigating actions, if any, can be taken. Executive Board members are actively involved in all day to day operational and decision making processes of the business.
The Audit Committee is responsible for ensuring that the internal control procedures are robust and that risk management processes are appropriate. A fuller explanation of the processes is given in the Audit Committee Report.
At an operational level, weekly meetings are held with the seven heads of department, the two members of Senior Management and two Executive Board members to discuss all business matters including the risk environment. A sub committee of seven of this group, including the two Executive Board members, together with the Company Secretary, form a separate Risk Committee which meets bi-monthly to formally review the Group and Company's risk profile and reports to the Audit Committee twice a year.
The Audit Committee has not identified any significant failings or weaknesses in the internal control and risk assessment procedures during the year but as a result of the monitoring process, improvements have been put in place and further projects have just commenced. These include:
- The introduction of a Company intranet to improve communication across the Group, enhance the social culture and give prominence to regulatory requirements with easy access to Group procedural documents;
- The introduction of a formal property database management system, a project which will be completed during the current financial year; and
- A change in emphasis in the financial reporting information with weekly flash reports, monthly management reports and quarterly forecasts reflecting KPIs relevant to the defensive approach the business is taking.
Principal Risks and Uncertainties
We have set out in the following table the principal risks and uncertainties that face our business, our view on how those risks have changed during the year and a description of how we mitigate or manage those risks. We have also annotated those risks that have been considered as part of the viability assessment.
At the beginning of 2015 there was uncertainty as to how the effect of low oil prices and the significantly weakened Rouble would permeate to the day to day operations. Following a volatile year, we have greater clarity on the impact on our business and that is reflected in the principal risks that we now focus on.
Financial Risk
Risk | Impact | Mitigation | Change |
Oil price and Foreign Exchange V Weak oil prices prevail in the medium term leading to a continued weak Rouble.
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The trend towards Rouble-denominated rents will intensify, leading to further falls in US Dollar equivalent income and an increase in the credit risk of those tenants who remain in US Dollar pegged leases.
It also exacerbates the slow down in Russian growth and consumer spending. Reduced consumer demand reduces appetite for new lettings, renewal of existing leases and restricts rental growth.
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The majority of new leases now being signed are Rouble denominated with Russian inflationary indexation. The US Dollar equivalent of these rents is significantly below those achieved prior to the Rouble depreciation at the end of 2014. Higher indexation gives some compensation against further weakening of exchange rates. We still have a high proportion of US Dollar pegged rents but income will potentially reduce as these mature over the next four to five years if the weak Rouble persists.
The logistics market continues to be undersupplied at current levels of consumer demand. A lack of projected investment in new projects has led to market reports forecasting that vacancy levels will remain low, especially in the Moscow Region.
A strengthening of the Rouble will have a commensurate increase in US Dollar income.
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Interest rates- V
Increases in US LIBOR
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Cost of debt increases and Group profitability and debt service cover reduce.
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Our variable cost of debt is hedged with the use of swaps and caps on US LIBOR or fixed rate facilities.
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Bank Covenants- V
The significant drop in market rents impacts on both loan to value ("LTV") and debt service cover ratio ("DSCR") covenants.
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The likelihood of debt facility covenant breaches increases.
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The majority of debt facilities have a relatively high amortisation profile. There is also a focus on reducing Group debt in parallel with US Dollar pegged leases maturing should weak Rouble exchange rates persist.
There is very little recourse to the holding company and no cross collateralisation between projects on events of default.
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Russian Domestic Risk
Risk | Impact | Mitigation | Change |
Legal Framework
The legal framework in Russia is in the early stages of its development.
This could encourage tenants to attack lease terms where they now perceive those to be unfavourable. |
The large volume of new legislation from various state bodies is open to interpretation, puts strain on the judicial system and can be open to abuse.
Increased litigation on existing leases in an attempt to renegotiate US Dollar denominated leases or seek early termination of contracts
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We have an experienced in house legal team which now includes a litigation specialist. We use a variety of external legal advisors when appropriate.
Our lease agreements have previously been challenged and have proven to be robust. They also stipulate that the arbitration process requires a referral to ICAC rather than the Russian Court system.
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Russian Taxation
Russian tax code is changing in line with global taxation trends in areas such as transfer pricing and capital gains tax. |
Tax treaties may be renegotiated and new legislation may increase the Group's tax expense. |
The key tax treaty for the Group is with Cyprus and this was renegotiated between the two countries during 2013 with no significant impact on the business;
Changes in capital gains tax rules have led to a change in our calculation of Adjusted Diluted NAV per share; and
Russia remains a relatively low tax jurisdiction with 20% Corporation tax.
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é |
Personnel Risks
Risk | Impact | Mitigation | Change |
Key Personnel - V
Failing to retain key personnel.
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Strategy becomes more difficult to flex or implement. |
The Remuneration Committee and Executives review remuneration packages against comparable market information where available;
Employees have regular appraisals and documented development plans and targets;
Incentive schemes are based on measurable annual targets and weighted towards share based rewards. However, the macro economic and political events in Russia may make it difficult to achieve even the lowest of these performance targets; and
This has led to the Board and Remuneration Committee to review the current incentive scheme in light of this risk.
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Russian Political and Economic Risk
Risk | Impact | Mitigation | Change |
Ukraine and sanctions
The Minsk agreement is not implemented satisfactorily and sanctions against Russia remain in place for the foreseeable future and are potentially increased.
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Continued isolation of Russia from international markets and exacerbation of the slow down in the Russian economy.
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It is difficult to mitigate against the worst case scenario if escalation were to close Russia's borders to Western markets. However, we have:
- Maximised cash reserves at holding company level; - An organisational structure that would allow us to continue to operate the Russian business autonomously if necessary; and - A special purpose vehicle ("SPV") structure that protects the holding company assets (principally cash) in a worst case scenario.
In the more likely scenario that events continue to weigh on the Russian economy in the medium term, we have dealt with specific risks in the other sections.
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Change key
V - Viability Statement Risk
é Increased risk in the period
è Stable risk in the period
Going Concern
The financial position of the Group, its cash flows, liquidity position and borrowings are described in the Financial Review and the notes to the accompanying financial statements. In addition, in note 34 to the financial statements there is a description of the Group's objectives and policies for managing its capital, financial instruments and hedging activities and its exposure to credit and liquidity risk.
The Board receives monthly updates on future cash flow projections and has regular working capital reports presented, in particular, as part of the half year and full year reporting process. After making appropriate enquiries and examining sensitivities that could give rise to financial exposure, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue operations for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparation of these financial statements.
Directors' Responsibility Statement
The Statement of Directors' Responsibilities below has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 31 December 2015.
The Board confirms to the best of its knowledge:
The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole;
The strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
The Annual Report and Accounts, taken as a whole, are fair balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 13 March 2016 and is signed on its behalf by:
Mark Sinclair Colin Smith
Chief Financial Officer Chief Operating Officer
GROUP INCOME STATEMENT |
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For the year ended 31 December 2015 |
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2015 | 2014 | ||||||||||
Underlying | Capital | Underlying | Capital | ||||||||
earnings | and other | Total | earnings | and other | Total | ||||||
Notes | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | |||||
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Gross revenue | 4 / 5 | 219,704 | - | 219,704 | 257,596 | - | 257,596 |
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Property operating expenditure and cost of sales | (45,581) | - | (45,581) | (65,279) | (9) | (65,288) |
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Net rental and related income | 174,123 | - | 174,123 | 192,317 | (9) | 192,308 |
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Administrative expenses | 4 / 6 | (30,081) | (414) | (30,495) | (26,967) | (7,663) | (34,630) |
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Share-based payments and other long term incentives | 31 | - | (3,594) | (3,594) | - | (2,354) | (2,354) |
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Foreign currency profits / (losses) | 1,223 | - | 1,223 | (15,471) | - | (15,471) |
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Operating expenditure | (28,858) | (4,008) | (32,866) | (42,438) | (10,017) | (52,455) |
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Share of profits of joint ventures | 16 | 2,518 | - | 2,518 | 955 | - | 955 |
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Operating profit / (loss) before profits |
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and losses on investment property | 147,783 | (4,008) | 143,775 | 150,834 | (10,026) | 140,808 |
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Unrealised loss on revaluation of investment |
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property | 11 | - | (251,198) | (251,198) | - | (135,422) | (135,422) |
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Unrealised loss on revaluation of investment |
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property under construction | 12 | - | (5,350) | (5,350) | - | (9,982) | (9,982) |
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Operating profit / (loss) | 4 | 147,783 | (260,556) | (112,773) | 150,834 | (155,430) | (4,596) |
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Finance income | 7 | 2,909 | 1,584 | 4,493 | 3,208 | 2,453 | 5,661 |
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Finance expense | 7 | (85,745) | (11,031) | (96,776) | (78,915) | (20,194) | (99,109) |
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Profit / (loss) before tax | 64,947 | (270,003) | (205,056) | 75,127 | (173,171) | (98,044) |
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Tax | 8 | (10,389) | 23,086 | 12,697 | (8,475) | 18,330 | 9,855 |
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Profit / (loss) for the year | 54,558 | (246,917) | (192,359) | 66,652 | (154,841) | (88,189) |
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Earnings per share: | 9 |
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Basic (cents) | (28.81) | (12.33) |
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Diluted (cents) | (28.81) | (12.33) |
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Underlying earnings per share: | 9 |
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Basic (cents) | 8.17 | 9.32 |
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Diluted (cents) | 7.93 | 8.94 |
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The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS as adopted by the EU. The "underlying earnings" and "capital and other" columns are both supplied as supplementary information permitted by IFRS as adopted by the EU. Further details of the allocation of items between the supplementary columns are given in note 9.
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All items in the above statement derive from continuing operations. |
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All income is attributable to the equity holders of the parent company. There are no non-controlling interests. |
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The accompanying notes are an integral part of this statement. |
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GROUP STATEMENT OF COMPREHENSIVE INCOME | |||||
For the year ended 31 December 2015 | |||||
2015 | 2014 | ||||
$'000 | $'000 | ||||
Loss for the year | (192,359) | (88,189) | |||
Other comprehensive income, net of tax | |||||
Items to be reclassified to profit or loss in subsequent periods: | |||||
Foreign currency translation on consolidation | (1,753) | (41,010) | |||
Total comprehensive income for the year, net of tax | (194,112) | (129,199) | |||
All income is attributable to the equity holders of the parent company. There are no non-controlling interests. | |||||
The accompanying notes are an integral part of this statement. | |||||
GROUP BALANCE SHEET | ||||
As at 31 December 2015 | ||||
2015 | 2014 | |||
Notes | $'000 | $'000 | ||
Non-current assets | ||||
Investment property | 11 | 1,333,987 | 1,593,684 | |
Investment property under construction | 12 | 39,129 | 47,958 | |
Plant and equipment | 3,141 | 4,491 | ||
Goodwill | 14 | 2,245 | 2,375 | |
Investment in joint ventures | 16 | 14,968 | 17,355 | |
Other receivables | 17 | 6,145 | 37,042 | |
Derivative financial instruments | 19 | 5,585 | 6,853 | |
Deferred tax assets | 25 | 25,523 | 35,766 | |
1,430,723 | 1,745,524 | |||
Current assets | ||||
Inventory | 1,381 | 1,389 | ||
Trade and other receivables | 18 | 50,264 | 52,623 | |
Derivative financial instruments | 19 | 233 | 432 | |
Cash and short term deposits | 20 | 202,291 | 171,383 | |
254,169 | 225,827 | |||
Total assets | 1,684,892 | 1,971,351 | ||
Current liabilities | ||||
Trade and other payables | 21 | 53,384 | 84,962 | |
Derivative financial instruments | 19 | 2,097 | 1,253 | |
Interest bearing loans and borrowings | 22 | 104,724 | 55,252 | |
160,205 | 141,467 | |||
Non-current liabilities | ||||
Interest bearing loans and borrowings | 22 | 814,021 | 837,429 | |
Preference shares | 23 | 156,558 | 164,300 | |
Other payables | 24 | 31,653 | 37,595 | |
Derivative financial instruments | 19 | 1,794 | 4,153 | |
Deferred tax liabilities | 25 | 55,619 | 89,118 | |
1,059,645 | 1,132,595 | |||
Total liabilities | 1,219,850 | 1,274,062 | ||
Net assets | 465,042 | 697,289 | ||
Equity | ||||
Share capital | 26 | 12,776 | 13,623 | |
Share premium | 224,735 | 267,992 | ||
Warrants | 27 | 1,167 | 1,195 | |
Own shares held | 28 | (52,101) | (63,649) | |
Capital reserve | (210,176) | 16,597 | ||
Translation reserve | (188,141) | (186,388) | ||
Retained earnings | 676,782 | 647,919 | ||
Total equity | 29 / 30 | 465,042 | 697,289 | |
Net asset value per share (dollars): | 30 | |||
Basic | 0.72 | 1.01 | ||
Diluted | 0.70 | 0.98 | ||
Adjusted net asset value per share (dollars): | 30 | |||
Basic | 0.72 | 1.10 | ||
Diluted | 0.70 | 1.06 | ||
The financial statements were approved by the Board of Directors on 13 March 2016 and signed on its behalf by: | ||||
Mark Sinclair | Colin Smith | |||
Chief Financial Officer | Chief Operating Officer | |||
The accompanying notes are an integral part of this statement. | ||||
GROUP STATEMENT OF CHANGES IN EQUITY | |||||||||
For the year ended 31 December 2015 | |||||||||
Share | Share | Own Shares | Capital | Translation | Retained | ||||
Capital | Premium | Warrants | Held | Reserve | Reserve | Earnings | Total | ||
For the year ended 31 December 2014 | Notes | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
At 1 January 2014 | 13,876 | 287,605 | 1,279 | (22,754) | 146,392 | (145,378) | 610,899 | 891,919 | |
Loss for the year | - | - | - | - | - | - | (88,189) | (88,189) | |
Other comprehensive income | - | - | - | - | - | (41,010) | - | (41,010) | |
Total comprehensive income for the year | - | - | - | - | - | (41,010) | (88,189) | (129,199) | |
Warrants exercised | 26 / 27 | 21 | 587 | (84) | - | - | - | - | 524 |
Own shares acquired | 28 | - | - | - | (48,636) | - | - | - | (48,636) |
Own shares allocated | 28 | - | - | - | 7,141 | - | - | (7,011) | 130 |
Ordinary shares cancelled | 26 / 28 | (274) | (20,200) | - | 600 | - | - | - | (19,874) |
Share-based payments | 31 | - | - | - | - | - | - | 2,425 | 2,425 |
Transfer in respect of capital losses | - | - | - | - | (129,795) | - | 129,795 | - | |
At 31 December 2014 | 13,623 | 267,992 | 1,195 | (63,649) | 16,597 | (186,388) | 647,919 | 697,289 | |
For the year ended 31 December 2015 | |||||||||
Loss for the year | - | - | - | - | - | - | (192,359) | (192,359) | |
Other comprehensive income | - | - | - | - | - | (1,753) | - | (1,753) | |
Total comprehensive income for the year | - | - | - | - | - | (1,753) | (192,359) | (194,112) | |
Warrants exercised | 26 / 27 | 7 | 198 | (28) | - | - | - | - | 177 |
Own shares acquired | 28 | - | - | - | (76) | - | - | - | (76) |
Own shares allocated | 28 | - | - | - | 7,932 | - | - | (9,145) | (1,213) |
Ordinary shares cancelled | 26 / 28 | (854) | (43,455) | - | 3,692 | - | - | - | (40,617) |
Share-based payments | 31 | - | - | - | - | - | - | 3,594 | 3,594 |
Transfer in respect of capital losses | - | - | - | - | (226,773) | - | 226,773 | - | |
At 31 December 2015 | 12,776 | 224,735 | 1,167 | (52,101) | (210,176) | (188,141) | 676,782 | 465,042 | |
The accompanying notes are an integral part of this statement. | |||||||||
GROUP CASH FLOW STATEMENT | |||||
For the year ended 31 December 2015 | |||||
2015 | 2014 | ||||
Notes | $'000 | $'000 | |||
Cash flows from operating activities | |||||
Loss before tax | (205,056) | (98,044) | |||
Adjustments for: | |||||
Depreciation | 6 | 1,599 | 2,142 | ||
Provision for bad debts | 6 | 3,720 | - | ||
Loss on disposal of plant and equipment | - | 9 | |||
Impairment of goodwill | 6 / 14 | - | 3,082 | ||
Share of profits of joint ventures | 16 | (2,518) | (955) | ||
Finance income | 7 | (4,493) | (5,661) | ||
Finance expense | 7 | 96,776 | 99,109 | ||
Loss on revaluation of investment property | 11 | 251,198 | 135,422 | ||
Loss on revaluation of investment property under construction | 12 | 5,350 | 9,982 | ||
Foreign exchange (profits) / losses | (1,223) | 15,471 | |||
Share-based payments and other long term incentives | 31 | 3,594 | 2,354 | ||
148,947 | 162,911 | ||||
(Increase) / decrease in operating receivables | (4,892) | 1,267 | |||
(Increase) / decrease in other operating current assets | (159) | 904 | |||
(Decrease) / increase in operating payables | (2,967) | 7,677 | |||
140,929 | 172,759 | ||||
Receipts from joint ventures | 3,954 | 983 | |||
Tax paid | (8,731) | (4,945) | |||
Net cash generated from operating activities | 136,152 | 168,797 | |||
Cash flows from investing activities | |||||
Payments for investment property under construction | (20,028) | (105,582) | |||
Refunds of VAT on construction | 4,877 | 4,790 | |||
Payments in respect of prior period acquisitions | - | (12,873) | |||
Release of restricted cash | 25,392 | 12,873 | |||
Proceeds from sale of plant and equipment | - | 42 | |||
Purchase of plant and equipment | (755) | (1,625) | |||
Loans repaid | 473 | 273 | |||
Interest received | 2,909 | 3,208 | |||
Net cash generated from / (used in) investing activities | 12,868 | (98,894) | |||
Cash flows from financing activities | |||||
Proceeds from long term borrowings | 80,944 | 298,000 | |||
Repayment of long term borrowings | (57,787) | (208,553) | |||
Bank borrowing costs paid | (69,465) | (70,979) | |||
Exercise of warrants | 26 / 27 | 177 | 524 | ||
Ordinary shares purchased | 26 / 28 | (41,906) | (68,928) | ||
Dividends paid on preference shares | (17,156) | (18,225) | |||
Settlement of derivative financial instruments | - | (339) | |||
Premium paid for derivative financial instruments | (5,107) | (3,271) | |||
Net cash used in financing activities | (110,300) | (71,771) | |||
Net increase / (decrease) in cash and cash equivalents | 38,720 | (1,868) | |||
Opening cash and cash equivalents | 171,383 | 201,324 | |||
Effect of foreign exchange rate changes | (7,812) | (28,073) | |||
Closing cash and cash equivalents | 20 | 202,291 | 171,383 | ||
The accompanying notes are an integral part of this statement. | |||||
NOTES TO THE FINANCIAL STATEMENTS |
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For the year ended 31 December 2015 |
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1. General information
Raven Russia Limited (the "Company") and its subsidiaries (together the "Group") is a property investment group specialising in commercial real estate in Russia.
The Company is incorporated and domiciled in Guernsey under the provisions of the Companies (Guernsey) Law, 2008. The Company's registered office is at La Vieille Cour, La Plaiderie, St Peter Port, Guernsey GY1 6EH.
The audited financial statements of the Group for the year ended 31 December 2015 were authorised by the Board for issue on 13 March 2016. |
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2. Accounting policies
Basis of preparation
The Company has taken advantage of the exemption conferred by the Companies (Guernsey) Law, 2008, section 244, not to prepare company financial statements as group financial statements have been prepared for both current and prior periods. The group financial statements are presented in US Dollars and all values are rounded to the nearest thousand dollars ($'000) except where otherwise indicated.
The principal accounting policies adopted in the preparation of the group financial statements are set out below. The policies have been consistently applied to all years presented, unless otherwise indicated.
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The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3.
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Going concern
The financial position of the Group, its cash flows, liquidity position and borrowings are described in the Financial Review and the notes to these financial statements. After making appropriate enquiries and examining sensitivities that could give rise to financial exposure, the Board has a reasonable expectation that the Group has adequate resources to continue operations for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in the preparation of these financial statements.
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Statement of compliance
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards adopted for use in the European Union ("IFRS") and the Companies (Guernsey) Law, 2008.
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Changes in accounting policies
The accounting policies adopted are consistent with those of the previous financial year. The Group has adopted new and amended IFRS and IFRIC interpretations as of 1 January 2015, which had no impact on the financial position or performance of the Group.
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Certain new standards, interpretations and amendments to existing standards have been published that are mandatory for later accounting periods and which have not been adopted early. Of these, the only three thought to have a possible impact on the Group are:
IFRS 9 Financial Instruments (effective 1 January 2018) IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018) IFRS 16 Leases (effective 1 January 2019)
The Group is currently assessing the impact of these changes on its financial statements and the effect of this, if any, has yet to be determined.
The standards, amendments or revisions are effective for annual periods beginning on or after the dates noted above.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company, its subsidiaries and the special purpose vehicles ("SPVs") controlled by the Company, made up to 31 December each year. Control is achieved where the Company is exposed, or has rights, to variable returns from its involvement with or ownership of the investee entity and has the ability to affect those returns through its power over the investee.
The Group has acquired investment properties through the purchase of SPVs. In the opinion of the Directors, these transactions did not meet the definition of a business combination as set out in IFRS 3 "Business Combinations". Accordingly the transactions have not been accounted for as an acquisition of a business and instead the financial statements reflect the substance of the transactions, which is considered to be the purchase of investment property and investment property under construction.
The results of subsidiaries acquired or disposed of during the year are included in the Income Statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of entities acquired to bring the accounting policies into line with those used by the Group.
All intra-group transactions, balances, income and expenditure are eliminated on consolidation.
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Joint ventures
A joint venture is a contractual arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the activities require unanimous consent of the contracting parties for strategic financial and operating decisions.
The Group's investments in joint ventures are accounted for using the equity method. Under the equity method, the investment in a joint venture is initially recognised at cost. The carrying value of the investment is adjusted to recognise changes in the Group's share of net assets of the joint venture since the acquisition date. Any premium paid for an interest in a joint venture above the fair value of the Group's share of identifiable assets, liabilities and contingent liabilities is determined as goodwill. Goodwill relating to a joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.
The aggregate of the Group's share of profit or loss of joint ventures is shown on the face of the Income Statement within Operating Profit and represents the profit or loss after tax.
Revenue recognition
(a) Property investment
Rental income from operating leases is recognised in income on a straight-line basis over the lease term. Rental increases calculated with reference to an underlying index and the resulting rental income ("contingent rents") are recognised in income as they are determined.
Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the payments are not made on such a basis. The lease term is the non-cancellable period of the lease, together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the directors are reasonably certain that the tenant will exercise that option.
Premiums received to terminate leases are recognised in the Income Statement as they arise.
(b) Roslogistics
Logistics revenue, excluding value added tax, is recognised as services are provided.
(c) Raven Mount
The sale of completed property and land is recognised on legal completion.
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Taxation
The Company is a limited company registered in Guernsey, Channel Islands, and is exempt from taxation. The Group is liable to Russian, UK and Cypriot tax arising on the results of its Russian, UK and Cypriot operations.
The tax expense represents the sum of the tax currently payable and deferred tax.
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| |||||||||||||||||||||||||||||||||||||
(a) Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit (or loss) as reported in the Income Statement because it excludes items of income and expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
|
| |||||||||||||||||||||||||||||||||||||
(b) Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
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| |||||||||||||||||||||||||||||||||||||
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on tax rates that have been enacted or substantively enacted at the reporting date. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
(c) Value added tax
Revenue, expenditure, assets and liabilities are recognised net of the amount of value added tax except: Where the value added tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the value added tax is recognised as part of the cost of acquisition of the asset or as part of the expenditure item as applicable; and Receivables and payables that are stated with the amount of value added tax included.
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| |||||||||||||||||||||||||||||||||||||
The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables, as appropriate, in the Balance Sheet.
|
| |||||||||||||||||||||||||||||||||||||
Investment property and investment property under construction
Investment property comprises completed property and property under construction held to earn rentals or for capital appreciation or both. Investment property comprises both freehold and leasehold land and buildings.
Investment property is measured initially at its cost, including related transaction costs. After initial recognition, investment property is carried at fair value. The Directors assess the fair value of investment property based on independent valuations carried out by their appointed property valuers or on independent valuations prepared for banking purposes. The Group has appointed Jones Lang LaSalle as property valuers to prepare valuations on a semi-annual basis. Valuations are undertaken in accordance with appropriate sections of the current Practice Statements contained in the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards, 9th Edition (the "Red Book"). This is an internationally accepted basis of valuation. Gains or losses arising from changes in the fair value of investment property are included in the Income Statement in the period in which they arise. For the purposes of these financial statements, in order to avoid double counting, the assessed fair value is reduced by the present value of any tenant incentives and contracted rent uplifts that are spread over the lease term and increased by the carrying amount of any liability under a head lease that has been recognised in the balance sheet.
Borrowing costs that are directly attributable to the construction of investment property are included in the cost of the property from the date of commencement of construction until construction is completed.
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| |||||||||||||||||||||||||||||||||||||
Leasing (as lessors)
Leases where the Group does not transfer substantially all the risks and benefits incidental to ownership of the asset are classified as operating leases. All of the Group's properties are leased under operating leases and are included in investment property in the Balance Sheet.
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Financial assets
The Group classifies its financial assets into one of the categories discussed below, depending upon the purpose for which the asset was acquired. The Group has not classified any of its financial assets as held to maturity.
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| |||||||||||||||||||||||||||||||||||||
(a) Fair value through profit or loss
This category comprises only in-the-money derivatives (see financial liabilities policy for out-of-the-money derivatives), which are carried at fair value with changes in the fair value recognised in the Income Statement in finance income or finance expense.
(b) Loans and receivables
These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. In the case of the Group, loans and receivables comprise trade and other receivables, loans, security deposits, restricted cash and cash and short term deposits.
Loans and receivables are initially recognised at fair value, plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows. The amount of the impairment loss is recognised in administrative expenses. If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment is recognised, the previously recognised impairment loss is reversed. Any such reversal of an impairment loss is recognised in the Income Statement.
Cash and short term deposits include cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months or less.
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| |||||||||||||||||||||||||||||||||||||
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity comprises ordinary shares and warrants.
The Group classifies its financial liabilities into one of the categories listed below.
(a) Fair value through profit or loss
This category comprises only out-of-the-money derivatives, which are carried at fair value with changes in the fair value recognised in the Income Statement in finance income or finance expense.
(b) Other financial liabilities
Other financial liabilities include interest bearing loans, trade payables (including rent deposits and retentions under construction contracts), preference shares and other short-term monetary liabilities. Trade payables and other short-term monetary liabilities are initially recorded at fair value and subsequently carried at amortised cost using the effective interest rate method.
Interest bearing loans and preference shares are initially recorded at fair value net of direct issue costs and subsequently carried at amortised cost using the effective interest rate method. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the Income Statement using the effective interest rate method.
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| |||||||||||||||||||||||||||||||||||||
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the Income Statement net of any reimbursement.
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| |||||||||||||||||||||||||||||||||||||
Own shares held
Own equity instruments which are acquired are recognised at cost and deducted from equity. No gain or loss is recognised in the Income Statement on the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration is recognised in retained earnings.
Share-based payments and other long term incentives
The Group rewards its key management and other senior employees by a variety of means many of which are settled by ordinary or preference shares of the Company, these include the Executive Share Option Schemes and the Combined Bonus and Long Term Incentive Scheme 2015 to 2017.
Awards linked to or settled by ordinary shares These are accounted for as equity-settled transactions in accordance with IFRS 2 Share-based Payment. The cost of equity-settled transactions is measured by reference to the fair value at the date at which they are granted. Fair value is determined by an external valuer, using an appropriate pricing model. In valuing equity-settled transactions, no account is taken of any service and performance conditions (vesting conditions), other than performance conditions linked to the price of the shares of the Company (market conditions). Any other conditions, which are required to be met inorder for an employee to become fully entitled to an award are considered to be non-vesting conditions. Like market conditions, non-vesting conditions are taken into account in determining the fair value at grant date.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and service conditions are fulfilled. The cumulative expense that is recognised at each reporting date until the vesting date, reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The Income Statement expense or credit for a period represents the movement in cumulative expense recognised at the beginning and end of that period. Where all of the conditions are communicated to the recipient of the award at the outset, the Group recognises the share-based payment expense on a graded basis.
No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and service conditions are satisfied.
Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met.
Awards linked to or settled by preference shares These awards are accounted for in accordance with IAS 19 Employee Benefits whereby the Group estimates the cost of awards using the projected unit credit method, which involves estimating the future value of the preference shares at the vesting date and the probability of the awards vesting. The resulting expense is charged to the Income Statement over the performance period and the liability is remeasured at each Balance Sheet date.
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| |||||||||||||||||||||||||||||||||||||
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each Group entity are measured in the currency of the primary economic environment in which the entity operates (the "functional currency"). For the Company the directors consider this to be Sterling. The presentation currency of the Group is United States Dollars, which the directors consider to be the key currency for the Group's operations as a whole.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement. Non-monetary assets and liabilities are translated using exchange rates at the date of the initial transaction or when their fair values are reassessed.
(c) On consolidation
The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each Balance Sheet are translated at the closing rate at the date of the Balance Sheet; (ii) income and expenditure for each Income Statement are translated at the average exchange rate prevailing in the period unless this does not approximate the rates ruling at the dates of the transactions in which case they are translated at the transaction date rates; and (iii) all resulting exchange differences are recognised in Other Comprehensive Income.
On consolidation, the exchange differences arising from the translation of the net investment in foreign entities are recognised in Other Comprehensive Income. When a foreign entity is sold, such exchange differences are recognised in the Income Statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
|
| |||||||||||||||||||||||||||||||||||||
Dividends
Dividends to the Company's ordinary shareholders are recognised when they become legally payable. In the case of interim dividends, this is when declared by the directors. In the case of final dividends, this is when they are approved by the shareholders at an AGM.
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| |||||||||||||||||||||||||||||||||||||
3. Critical accounting estimates and judgements
The Group makes certain estimates and judgements regarding the future. Estimates and judgements are continually evaluated and are based on historical experience as adjusted for current market conditions and other factors. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.
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| |||||||||||||||||||||||||||||||||||||
Judgements other than estimates
In the process of applying the Group's accounting policies the following are considered to have the most significant effect on the amounts recognised in the consolidated financial statements:
|
| |||||||||||||||||||||||||||||||||||||
(a) Acquisitions
Properties can be acquired through the corporate acquisition of a subsidiary company. At the time of acquisition, the Group considers whether the acquisition represents the acquisition of a business. The Group accounts for the acquisition as a business combination where an integrated set of activities is acquired in addition to the property. More specifically, consideration is made of the extent to which significant processes are acquired and the extent of ancillary services provided by the subsidiary.
When the acquisition of a subsidiary does not represent a business, it is accounted for as an acquisition of a group of assets and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based on their relative fair values, and no goodwill or deferred tax is recognised.
|
| |||||||||||||||||||||||||||||||||||||
(b) Recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether it is probable that sufficient and suitable taxable profits will be available in the future, against which the reversal of temporary differences can be deducted. Recognition, therefore, involves judgement regarding the future financial performance of the particular legal entity or tax group in which the deferred tax asset has been recognised.
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| |||||||||||||||||||||||||||||||||||||
Estimates
|
| |||||||||||||||||||||||||||||||||||||
(a) Valuation of investment property and investment property under construction
The best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, the Group determines the amount within a range of reasonable, fair value estimates. In making its estimation the Group considers information from a variety of sources and engages external, professional advisers to carry out third party valuations of its properties. The external valuations are completed in accordance with appropriate sections of the current Practice Statements contained in the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards, 9th Edition (the "Red Book"). This is an internationally accepted basis of valuation and is consistent with the requirements of IFRS 13. In our market, where transactional activity is minimal, the valuers are required to use a greater degree of estimation or judgement than in a market where comparable transactions are more readily available. For the valuations at 31 December 2015 and 31 December 2014 the valuer has highlighted that as a result of market conditions at the valuation date it was necessary to make more judgements than is normally required.
The significant methods and assumptions used in estimating the fair value of investment property and investment property under construction are set out in note 13, along with detail of the sensitivities of the valuations to changes in the key inputs. |
| |||||||||||||||||||||||||||||||||||||
(b) Income tax
As part of the process of preparing its financial statements, the Group is required to estimate the provision for income tax in each of the jurisdictions in which it operates. This process involves an estimation of the actual current tax exposure, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the Balance Sheet.
Russian tax legislation is subject to varying interpretations and changes, which may occur frequently. The interpretation of legislation that the Group applies to its transactions and activities may be challenged by the relevant regional and federal authorities. Additionally there may be inconsistent interpretation of tax regulations by various authorities, creating uncertainties in the taxation environment in Russia. Fiscal periods remain open to review by the authorities for the three calendar years preceding the years of review and in some circumstances may cover a longer period. Additionally, there have been instances where tax regulations have taken effect retrospectively.
Significant judgement is required in determining the provision for income tax and the recognition of deferred tax assets and liabilities.
4. Segmental information
The Group has three operating segments, which are managed and report independently to the Board. These comprise:
Property Investment - acquire, develop and lease commercial property in Russia Roslogistics - provision of warehousing, transport, customs brokerage and related services in Russia Raven Mount - sale of residential property in the UK
Financial information relating to Property Investment is provided to the Board on a property by property basis. The information provided is gross rentals, operating costs, net operating income, revaluation gains and losses and where relevant the profit or loss on disposal of an investment property. The individual properties have similar economic characteristics and are considered to be a single reporting segment.
Information about Raven Mount provided to the Board comprises the gross sale proceeds, inventory cost of sales and gross profit, including the share of profits or losses of its joint venture.
Roslogistics is an independently managed business and the Board is presented with turnover, cost of sales and operating profits or losses after deduction of administrative expenses.
Administrative expenses and foreign currency gains or losses are reported to the Board by segment. Finance income and finance expense are not reported to the Board on a segment basis. Sales between segments are eliminated prior to provision of financial information to the Board.
For the Balance Sheet, segmental information is provided in relation to investment property, inventory, cash balances and borrowings. Whilst segment liabilities includes loans and borrowings, segment loss does not include the related finance costs. If such finance costs were included in segment profit or loss, the loss from Property Investment would have increased by $71,571k (2014: $67,658k). |
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(a) Segmental information for the year ended and as at 31 December 2015 |
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| ||||||||||||||||||||||||||||||||||||||
Year ended 31 December 2015 | Property | Raven | Segment | Central |
| |||||||||||||||||||||||||||||||||
Investment | Roslogistics | Mount | Total | Overhead | Total |
| ||||||||||||||||||||||||||||||||
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Gross revenue | 202,286 | 15,267 | 2,151 | 219,704 | - | 219,704 |
| |||||||||||||||||||||||||||||||
Operating costs / cost of sales | (39,609) | (6,295) | 323 | (45,581) | - | (45,581) |
| |||||||||||||||||||||||||||||||
Net operating income | 162,677 | 8,972 | 2,474 | 174,123 | - | 174,123 |
| |||||||||||||||||||||||||||||||
Administrative expenses |
| |||||||||||||||||||||||||||||||||||||
Running general & administration expenses | (21,722) | (1,243) | (1,123) | (24,088) | (5,993) | (30,081) |
| |||||||||||||||||||||||||||||||
Other acquisition / abortive project costs | 1,185 | - | - | 1,185 | - | 1,185 |
| |||||||||||||||||||||||||||||||
Impairment of goodwill | - | - | - | - | - | - |
| |||||||||||||||||||||||||||||||
Depreciation | (1,352) | (244) | (3) | (1,599) | - | (1,599) |
| |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Share-based payments and other long term incentives | (1,425) | - | - | (1,425) | (2,169) | (3,594) |
| |||||||||||||||||||||||||||||||
Foreign currency profits / (losses) | 1,227 | (4) | - | 1,223 | - | 1,223 |
| |||||||||||||||||||||||||||||||
140,590 | 7,481 | 1,348 | 149,419 | (8,162) | 141,257 |
| ||||||||||||||||||||||||||||||||
Unrealised loss on revaluation of investment property | (251,198) | - | - | (251,198) | - | (251,198) |
| |||||||||||||||||||||||||||||||
Unrealised loss on revaluation of investment property under construction | (5,350) | - | - | (5,350) | - | (5,350) |
| |||||||||||||||||||||||||||||||
Share of profits of joint ventures | - | - | 2,518 | 2,518 | - | 2,518 |
| |||||||||||||||||||||||||||||||
Segment (loss) / profit | (115,958) | 7,481 | 3,866 | (104,611) | (8,162) | (112,773) |
| |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Finance income | 4,493 |
| ||||||||||||||||||||||||||||||||||||
Finance expense | (96,776) |
| ||||||||||||||||||||||||||||||||||||
Loss before tax | (205,056) |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
As at 31 December 2015 | Property | Raven |
| |||||||||||||||||||||||||||||||||||
Investment | Roslogistics | Mount | Total |
| ||||||||||||||||||||||||||||||||||
$'000 | $'000 | $'000 | $'000 |
| ||||||||||||||||||||||||||||||||||
Assets |
| |||||||||||||||||||||||||||||||||||||
Investment property | 1,333,987 | - | - | 1,333,987 |
| |||||||||||||||||||||||||||||||||
Investment property under construction | 39,129 | - | - | 39,129 |
| |||||||||||||||||||||||||||||||||
Investment in joint ventures | - | - | 14,968 | 14,968 |
| |||||||||||||||||||||||||||||||||
Inventory | - | - | 1,381 | 1,381 |
| |||||||||||||||||||||||||||||||||
Cash and short term deposits | 196,861 | 691 | 4,739 | 202,291 |
| |||||||||||||||||||||||||||||||||
Segment assets | 1,569,977 | 691 | 21,088 | 1,591,756 |
| |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Other non-current assets | 42,639 |
| ||||||||||||||||||||||||||||||||||||
Other current assets | 50,497 |
| ||||||||||||||||||||||||||||||||||||
Total assets | 1,684,892 |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Segment liabilities |
| |||||||||||||||||||||||||||||||||||||
Interest bearing loans and borrowings | 918,745 | - | - | 918,745 |
| |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Capital expenditure |
| |||||||||||||||||||||||||||||||||||||
Payments for investment property under construction | 20,028 | - | - | 20,028 |
| |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
(b) Segmental information for the year ended and as at 31 December 2014 |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Year ended 31 December 2014 | Property | Raven | Segment | Central |
| |||||||||||||||||||||||||||||||||
Investment | Roslogistics | Mount | Total | Overhead | Total |
| ||||||||||||||||||||||||||||||||
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Gross revenue | 230,108 | 24,399 | 3,089 | 257,596 | - | 257,596 |
| |||||||||||||||||||||||||||||||
Operating costs / cost of sales | (55,567) | (8,606) | (1,115) | (65,288) | - | (65,288) |
| |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Net operating income | 174,541 | 15,793 | 1,974 | 192,308 | - | 192,308 |
| |||||||||||||||||||||||||||||||
Administrative expenses |
| |||||||||||||||||||||||||||||||||||||
Running general & administration expenses | (16,662) | (1,907) | (1,474) | (20,043) | (6,924) | (26,967) |
| |||||||||||||||||||||||||||||||
Other acquisition / abortive project costs | (2,439) | - | - | (2,439) | - | (2,439) |
| |||||||||||||||||||||||||||||||
Impairment of goodwill | - | (3,082) | - | (3,082) | - | (3,082) |
| |||||||||||||||||||||||||||||||
Depreciation | (1,822) | (314) | (6) | (2,142) | - | (2,142) |
| |||||||||||||||||||||||||||||||
Share-based payments and other long term incentives | (562) | - | - | (562) | (1,792) | (2,354) |
| |||||||||||||||||||||||||||||||
Foreign currency losses | (13,266) | (2,205) | - | (15,471) | - | (15,471) |
| |||||||||||||||||||||||||||||||
139,790 | 8,285 | 494 | 148,569 | (8,716) | 139,853 |
| ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Unrealised loss on revaluation of investment property | (135,422) | - | - | (135,422) | - | (135,422) |
| |||||||||||||||||||||||||||||||
Unrealised loss on revaluation of investment property under construction | (9,982) | - | - | (9,982) | - | (9,982) |
| |||||||||||||||||||||||||||||||
Share of profits of joint ventures | - | - | 955 | 955 | - | 955 |
| |||||||||||||||||||||||||||||||
Segment profit / (loss) | (5,614) | 8,285 | 1,449 | 4,120 | (8,716) | (4,596) |
| |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Finance income | 5,661 |
| ||||||||||||||||||||||||||||||||||||
Finance expense | (99,109) |
| ||||||||||||||||||||||||||||||||||||
Profit before tax | (98,044) |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
As at 31 December 2014 | Property | Raven |
| |||||||||||||||||||||||||||||||||||
Investment | Roslogistics | Mount | Total |
| ||||||||||||||||||||||||||||||||||
$'000 | $'000 | $'000 | $'000 |
| ||||||||||||||||||||||||||||||||||
Assets |
| |||||||||||||||||||||||||||||||||||||
Investment property | 1,593,684 | - | - | 1,593,684 |
| |||||||||||||||||||||||||||||||||
Investment property under construction | 47,958 | - | - | 47,958 |
| |||||||||||||||||||||||||||||||||
Investment in joint ventures | - | - | 17,355 | 17,355 |
| |||||||||||||||||||||||||||||||||
Inventory | - | - | 1,389 | 1,389 |
| |||||||||||||||||||||||||||||||||
Cash and short term deposits | 164,868 | 618 | 5,897 | 171,383 |
| |||||||||||||||||||||||||||||||||
Segment assets | 1,806,510 | 618 | 24,641 | 1,831,769 |
| |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Other non-current assets | 86,527 |
| ||||||||||||||||||||||||||||||||||||
Other current assets | 53,055 |
| ||||||||||||||||||||||||||||||||||||
Total assets | 1,971,351 |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Segment liabilities |
| |||||||||||||||||||||||||||||||||||||
Interest bearing loans and borrowings | 892,681 | - | - | 892,681 |
| |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Capital expenditure |
| |||||||||||||||||||||||||||||||||||||
Payments for investment property under construction | 105,582 | - | - | 105,582 |
| |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
5. Gross revenue | 2015 | 2014 |
| |||||||||||||||||||||||||||||||||||
$'000 | $'000 |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Rental and related income | 202,286 | 230,108 |
| |||||||||||||||||||||||||||||||||||
Proceeds from the sale of inventory property | 2,151 | 3,089 |
| |||||||||||||||||||||||||||||||||||
Logistics | 15,267 | 24,399 |
| |||||||||||||||||||||||||||||||||||
219,704 | 257,596 |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
The Group's leases typically include annual rental increases ("contingent rents") based on a consumer price index in Russia, Europe or the USA, which are recognised in income as they arise. Contingent rents included in rental income for the year amounted to $2,148k (2014: $2,507k).
Details of the Group's contracted future minimum lease receivables are detailed in note 37.
In 2014 there were no single customers accounting for more than 10% of Group revenues. In 2015 there was one customer of the property investment segment which exceeded this threshold. The Group derived revenue of $23.6 million from this customer in the year.
|
| |||||||||||||||||||||||||||||||||||||
6. Administrative expenses |
| |||||||||||||||||||||||||||||||||||||
2015 | 2014 |
| ||||||||||||||||||||||||||||||||||||
(a) Total administrative expenses | $'000 | $'000 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Employment costs | 14,607 | 13,618 |
| |||||||||||||||||||||||||||||||||||
Directors' remuneration | 3,502 | 3,698 |
| |||||||||||||||||||||||||||||||||||
Bad debts | 3,720 | - |
| |||||||||||||||||||||||||||||||||||
Office running costs and insurance | 4,039 | 4,032 |
| |||||||||||||||||||||||||||||||||||
Travel costs | 1,430 | 1,878 |
| |||||||||||||||||||||||||||||||||||
Auditors' remuneration | 851 | 1,006 |
| |||||||||||||||||||||||||||||||||||
Abortive project costs | (1,185) | 2,439 |
| |||||||||||||||||||||||||||||||||||
Impairment of goodwill | - | 3,082 |
| |||||||||||||||||||||||||||||||||||
Legal and professional | 1,430 | 2,252 |
| |||||||||||||||||||||||||||||||||||
Depreciation | 1,599 | 2,142 |
| |||||||||||||||||||||||||||||||||||
Registrar costs and other administrative expenses | 502 | 483 |
| |||||||||||||||||||||||||||||||||||
30,495 | 34,630 |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
(b) Fees for audit and other services provided by the Group's auditor |
| |||||||||||||||||||||||||||||||||||||
2015 | 2014 |
| ||||||||||||||||||||||||||||||||||||
$'000 | $'000 |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Audit services | 686 | 807 |
| |||||||||||||||||||||||||||||||||||
Audit related assurance services | 73 | 74 |
| |||||||||||||||||||||||||||||||||||
759 | 881 |
| ||||||||||||||||||||||||||||||||||||
Other fees: |
| |||||||||||||||||||||||||||||||||||||
Taxation services | 12 | 97 |
| |||||||||||||||||||||||||||||||||||
Other services | 80 | 28 |
| |||||||||||||||||||||||||||||||||||
92 | 125 |
| ||||||||||||||||||||||||||||||||||||
Total fees | 851 | 1,006 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
In 2014 the Group engaged Ernst & Young to undertake due diligence for two investment property acquisitions that were under consideration. These transactions were subsequently aborted. Ernst & Young charged fees amounting to $324k for this work which are included in arbortive project costs.
Ernst & Young also provide audit and taxation services for various SPVs that form part of the property operating costs. Charges for the audit of SPVs in the year amounted to $345k (2014: $338k) and the fees for taxation services were $73k (2014: $82k).
|
| |||||||||||||||||||||||||||||||||||||
7. Finance income and expense | 2015 | 2014 |
| |||||||||||||||||||||||||||||||||||
$'000 | $'000 |
| ||||||||||||||||||||||||||||||||||||
Finance income |
| |||||||||||||||||||||||||||||||||||||
Total interest income on financial assets not at fair value through profit or loss |
| |||||||||||||||||||||||||||||||||||||
Income from cash and short term deposits | 2,909 | 3,208 |
| |||||||||||||||||||||||||||||||||||
Other finance income |
| |||||||||||||||||||||||||||||||||||||
Change in fair value of open forward currency derivative financial instruments | - | 342 |
| |||||||||||||||||||||||||||||||||||
Change in fair value of open interest rate derivative financial instruments | 1,373 | 1,292 |
| |||||||||||||||||||||||||||||||||||
Change in fair value of foreign currency embedded derivatives | 211 | - |
| |||||||||||||||||||||||||||||||||||
Profit on maturing interest rate derivative financial instruments | - | 119 |
| |||||||||||||||||||||||||||||||||||
Profit on maturing forward currency derivative financial instruments | - | 700 |
| |||||||||||||||||||||||||||||||||||
Finance income | 4,493 | 5,661 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Finance expense |
| |||||||||||||||||||||||||||||||||||||
Interest expense on loans and borrowings measured at amortised cost | 71,570 | 67,658 |
| |||||||||||||||||||||||||||||||||||
Interest expense on preference shares | 18,628 | 20,012 |
| |||||||||||||||||||||||||||||||||||
Total interest expense on financial liabilities not at fair value through profit or loss | 90,198 | 87,670 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Change in fair value of open forward currency derivative financial instruments | 2,531 | 4,609 |
| |||||||||||||||||||||||||||||||||||
Change in fair value of open interest rate derivative financial instruments | 4,047 | 3,387 |
| |||||||||||||||||||||||||||||||||||
Change in fair value of foreign currency embedded derivatives | - | 3,443 |
| |||||||||||||||||||||||||||||||||||
Finance expense | 96,776 | 99,109 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Included in the interest expense on loans and borrowings is $3.8 million (2014: $8.1 million) relating to amortisation of costs incurred in originating the loans. Included in the interest expense on preference shares is $0.6 million (2014: $0.7 million) relating to the accretion of premiums payable on redemption of preference shares and amortisation of costs incurred in issuing preference shares.
|
| |||||||||||||||||||||||||||||||||||||
8. Tax | 2015 | 2014 |
| |||||||||||||||||||||||||||||||||||
$'000 | $'000 |
| ||||||||||||||||||||||||||||||||||||
The tax expense for the year comprises: |
| |||||||||||||||||||||||||||||||||||||
Current taxation | 11,151 | 9,149 |
| |||||||||||||||||||||||||||||||||||
Deferred taxation (note 25) |
| |||||||||||||||||||||||||||||||||||||
On the origination and reversal of temporary differences | (22,662) | (4,925) |
| |||||||||||||||||||||||||||||||||||
On unrealised foreign exchange movements in loans | (1,203) | (14,256) |
| |||||||||||||||||||||||||||||||||||
Adjustments recognised in the period for tax of prior periods | 17 | 177 |
| |||||||||||||||||||||||||||||||||||
Tax credit | (12,697) | (9,855) |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
The credit for the year can be reconciled to the loss per the Income Statement as follows: |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
2015 | 2014 |
| ||||||||||||||||||||||||||||||||||||
$'000 | $'000 |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Loss before tax | (205,056) | (98,044) |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Tax at the Russian corporate tax rate of 20% | (41,011) | (19,609) |
| |||||||||||||||||||||||||||||||||||
Tax effect of income not subject to tax and non-deductible expenses | 44,659 | 38,760 |
| |||||||||||||||||||||||||||||||||||
Tax on dividends and other inter company gains | 2,333 | 1,064 |
| |||||||||||||||||||||||||||||||||||
Tax effect of financing arrangements | (30,478) | (123,428) |
| |||||||||||||||||||||||||||||||||||
Movement on unprovided deferred tax | 11,783 | 93,181 |
| |||||||||||||||||||||||||||||||||||
Adjustments recognised in the period for current tax of prior periods | 17 | 177 |
| |||||||||||||||||||||||||||||||||||
(12,697) | (9,855) |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
9. Earnings measures
In addition to reporting IFRS earnings the Group adopts the European Public Real Estate Association ("EPRA") earnings measure, as set out in their Best Practice Policy Recommendations document issued in December 2014 and also reports its own underlying earnings measure.
EPRA earnings The EPRA earnings measure excludes investment property revaluations and gains or losses on disposal of investment property, intangible asset movements, gains and losses on derivative financial instruments and related taxation.
Underlying earnings Underlying earnings consists of the EPRA earnings measure, with additional group adjustments. The Directors consider underlying earnings to be a key performance measure, as this is the measure used by Management to assess the return on holding investment assets for the long term. Adjustments include share-based payments and other long term incentives, the accretion of premiums payable on redemption of preference shares, material non-recurring items, depreciation and amortisation of loan origination costs.
|
| |||||||||||||||||||||||||||||||||||||
The calculation of basic and diluted earnings per share is based on the following data: | 2015 | 2014 |
| |||||||||||||||||||||||||||||||||||
$'000 | $'000 |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Earnings |
| |||||||||||||||||||||||||||||||||||||
Earnings for the purposes of basic and diluted earnings per share being the net loss for the year prepared under IFRS | (192,359) | (88,189) |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Adjustments to arrive at EPRA earnings: |
| |||||||||||||||||||||||||||||||||||||
Unrealised loss on revaluation of investment property | 251,198 | 135,422 |
| |||||||||||||||||||||||||||||||||||
Unrealised loss on revaluation of investment property under construction | 5,350 | 9,982 |
| |||||||||||||||||||||||||||||||||||
Profit on maturing foreign currency derivative financial instruments (note 7) | - | (700) |
| |||||||||||||||||||||||||||||||||||
Profit on maturing interest rate derivative financial instruments (note 7) | - | (119) |
| |||||||||||||||||||||||||||||||||||
Change in fair value of open forward currency derivative financial instruments (note 7) | 2,531 | 4,267 |
| |||||||||||||||||||||||||||||||||||
Change in fair value of open interest rate derivative financial instruments (note 7) | 2,674 | 2,095 |
| |||||||||||||||||||||||||||||||||||
Change in fair value of foreign currency embedded derivatives (note 7) | (211) | 3,443 |
| |||||||||||||||||||||||||||||||||||
Movement on deferred tax thereon | (24,562) | (8,205) |
| |||||||||||||||||||||||||||||||||||
EPRA earnings | 44,621 | 57,996 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Loss on disposal of plant and equipment | - | 9 |
| |||||||||||||||||||||||||||||||||||
Impairment of goodwill | - | 3,082 |
| |||||||||||||||||||||||||||||||||||
Abortive project costs | (1,185) | 2,439 |
| |||||||||||||||||||||||||||||||||||
Share-based payments and other long term incentives | 3,594 | 2,354 |
| |||||||||||||||||||||||||||||||||||
Premium on redemption of preference shares and amortisation of issue costs (note 7) | 614 | 650 |
| |||||||||||||||||||||||||||||||||||
Depreciation (note 6a) | 1,599 | 2,142 |
| |||||||||||||||||||||||||||||||||||
Amortisation of loan origination costs (note 7) | 3,839 | 8,105 |
| |||||||||||||||||||||||||||||||||||
Tax on unrealised foreign exchange movements in loans | 1,476 | (10,125) |
| |||||||||||||||||||||||||||||||||||
Underlying earnings | 54,558 | 66,652 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
2015 | 2014 |
| ||||||||||||||||||||||||||||||||||||
Number of shares | No '000 | No '000 |
| |||||||||||||||||||||||||||||||||||
Weighted average number of ordinary shares for the purposes of basic EPS (excluding own shares held) | 667,758 | 714,986 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Effect of dilutive potential ordinary shares: |
| |||||||||||||||||||||||||||||||||||||
Warrants (note 27) | 11,727 | 17,011 |
| |||||||||||||||||||||||||||||||||||
ERS (note 31) | 300 | 325 |
| |||||||||||||||||||||||||||||||||||
LTIP (note 31) | 2,478 | 3,832 |
| |||||||||||||||||||||||||||||||||||
CBLTIS (note 31) | 1,926 | 9,375 |
| |||||||||||||||||||||||||||||||||||
New CBLTIS (note 31) | 2,994 | - |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Weighted average number of ordinary shares for the purposes of diluted EPS (excluding own shares held) | 687,183 | 745,529 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
2015 | 2014 |
| ||||||||||||||||||||||||||||||||||||
Cents | Cents |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
EPS basic | (28.81) | (12.33) |
| |||||||||||||||||||||||||||||||||||
Effect of dilutive potential ordinary shares: |
| |||||||||||||||||||||||||||||||||||||
Warrants | - | - |
| |||||||||||||||||||||||||||||||||||
ERS | - | - |
| |||||||||||||||||||||||||||||||||||
LTIP | - | - |
| |||||||||||||||||||||||||||||||||||
CBLTIS | - | - |
| |||||||||||||||||||||||||||||||||||
New CBLTIS | - | - |
| |||||||||||||||||||||||||||||||||||
Diluted EPS | (28.81) | (12.33) |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
EPRA EPS basic | 6.68 | 8.11 |
| |||||||||||||||||||||||||||||||||||
Effect of dilutive potential ordinary shares: |
| |||||||||||||||||||||||||||||||||||||
Warrants | (0.11) | (0.20) |
| |||||||||||||||||||||||||||||||||||
ERS | - | - |
| |||||||||||||||||||||||||||||||||||
LTIP | (0.03) | (0.04) |
| |||||||||||||||||||||||||||||||||||
CBLTIS | (0.02) | (0.10) |
| |||||||||||||||||||||||||||||||||||
New CBLTIS | (0.03) | - |
| |||||||||||||||||||||||||||||||||||
EPRA EPS diluted | 6.49 | 7.78 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Underlying EPS basic | 8.17 | 9.32 |
| |||||||||||||||||||||||||||||||||||
Effect of dilutive potential ordinary shares: |
| |||||||||||||||||||||||||||||||||||||
Warrants | (0.15) | (0.22) |
| |||||||||||||||||||||||||||||||||||
ERS | - | - |
| |||||||||||||||||||||||||||||||||||
LTIP | (0.03) | (0.05) |
| |||||||||||||||||||||||||||||||||||
CBLTIS | (0.02) | (0.11) |
| |||||||||||||||||||||||||||||||||||
New CBLTIS | (0.04) | - |
| |||||||||||||||||||||||||||||||||||
Underlying EPS diluted | 7.93 | 8.94 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
10. Ordinary dividends |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
The Company did not declare a final dividend for the year ended 31 December 2014 or an interim dividend for 2015 and instead implemented two tender offer buy backs of ordinary shares.
In the place of a final dividend for 2014 the Company implemented a tender offer buy back of ordinary shares on the basis of 1 in every 15 shares held at a tender price of 52 pence per share, the equivalent of a final dividend of 3.5 pence per share. Instead of an interim dividend for 2015 the Company implemented a tender offer buy back of ordinary shares on the basis of 1 in every 47 shares at a tender price of 47 pence per share, the equivalent of a dividend of 1 pence per share.
|
| |||||||||||||||||||||||||||||||||||||
11. Investment property |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Asset class | Logistics | Logistics | Logistics | Office |
| |||||||||||||||||||||||||||||||||
Location | Moscow | St Petersburg | Regions | St Petersburg | 2015 |
| ||||||||||||||||||||||||||||||||
Fair value hierarchy * | Level 3 | Level 3 | Level 3 | Level 3 | Total |
| ||||||||||||||||||||||||||||||||
$'000 | $'000 | $'000 | $'000 | $'000 |
| |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Market value at 1 January 2015 | 1,222,101 | 170,074 | 191,576 | 28,852 | 1,612,603 |
| ||||||||||||||||||||||||||||||||
Property improvements and movement in completion provisions | (2,768) | (1,194) | 114 | (266) | (4,114) |
| ||||||||||||||||||||||||||||||||
Unrealised loss on revaluation | (175,381) | (29,774) | (43,041) | (3,446) | (251,642) |
| ||||||||||||||||||||||||||||||||
Market value at 31 December 2015 | 1,043,952 | 139,106 | 148,649 | 25,140 | 1,356,847 |
| ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Tenant incentives and contracted rent uplift balances | (16,547) | (5,332) | (1,318) | (1,394) | (24,591) |
| ||||||||||||||||||||||||||||||||
Head lease obligations (note 24) | 1,731 | - | - | - | 1,731 |
| ||||||||||||||||||||||||||||||||
Carrying value at 31 December 2015 | 1,029,136 | 133,774 | 147,331 | 23,746 | 1,333,987 |
| ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Revaluation movement in the year ended 31 December 2015 |
| |||||||||||||||||||||||||||||||||||||
Gross revaluation | (175,381) | (29,774) | (43,041) | (3,446) | (251,642) |
| ||||||||||||||||||||||||||||||||
Effect of tenant incentives and contracted rent uplift balances | (236) | (433) | 1,005 | 108 | 444 |
| ||||||||||||||||||||||||||||||||
Revaluation reported in the Income Statement | (175,617) | (30,207) | (42,036) | (3,338) | (251,198) |
| ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Asset class | Logistics | Logistics | Logistics | Office |
| |||||||||||||||||||||||||||||||||
Location | Moscow | St Petersburg | Regions | St Petersburg | 2014 |
| ||||||||||||||||||||||||||||||||
Fair value hierarchy * | Level 3 | Level 3 | Level 3 | Level 3 | Total |
| ||||||||||||||||||||||||||||||||
$'000 | $'000 | $'000 | $'000 | $'000 |
| |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Market value at 1 January 2014 | 1,198,986 | 189,090 | 217,113 | 40,922 | 1,646,111 |
| ||||||||||||||||||||||||||||||||
Transfer from investment property under construction (note 12) | 105,553 | - | - | - | 105,553 |
| ||||||||||||||||||||||||||||||||
Property improvements and movement in completion provisions | (7,667) | 312 | 348 | 877 | (6,130) |
| ||||||||||||||||||||||||||||||||
Unrealised loss on revaluation | (74,771) | (19,328) | (25,885) | (12,947) | (132,931) |
| ||||||||||||||||||||||||||||||||
Market value at 31 December 2014 | 1,222,101 | 170,074 | 191,576 | 28,852 | 1,612,603 |
| ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Tenant incentives and contracted rent uplift balances | (16,311) | (4,899) | (2,323) | (1,501) | (25,034) |
| ||||||||||||||||||||||||||||||||
Head lease obligations (note 24) | 6,115 | - | - | - | 6,115 |
| ||||||||||||||||||||||||||||||||
Carrying value at 31 December 2014 | 1,211,905 | 165,175 | 189,253 | 27,351 | 1,593,684 |
| ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Revaluation movement in the year ended 31 December 2014 |
| |||||||||||||||||||||||||||||||||||||
Gross revaluation | (74,771) | (19,328) | (25,885) | (12,947) | (132,931) |
| ||||||||||||||||||||||||||||||||
Effect of tenant incentives and contracted rent uplift balances | (2,633) | (393) | 269 | 266 | (2,491) |
| ||||||||||||||||||||||||||||||||
Revaluation reported in the Income Statement | (77,404) | (19,721) | (25,616) | (12,681) | (135,422) |
| ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
*Classified in accordance with the fair value hierarchy, see note 35. There were no transfers between fair value hierarchy in 2014 or 2015. |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
The movement in completion provisions for Moscow Logistics in 2014 includes the release of the completion provision in respect of the acquisition of Pushkino upon the conclusion of the litigation inherited with the asset. At 31 December 2015 the Group has pledged investment property with a value of $1,348 million (2014: $1,541 million) to secure banking facilities granted to the Group (note 22).
|
| |||||||||||||||||||||||||||||||||||||
12. Investment property under construction |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Asset class | Assets under construction | Land Bank |
| |||||||||||||||||||||||||||||||||||
Location | Moscow | Regions | Moscow | St Petersburg | Regions | 2015 |
| |||||||||||||||||||||||||||||||
Fair value hierarchy * | Level 3 | Level 3 | Sub-total | Level 3 | Level 3 | Level 3 | Sub-total | Total |
| |||||||||||||||||||||||||||||
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| ||||||||||||||||||||||||||||||
Market value at 1 January 2015 | 34,000 | 9,500 | 43,500 | - | - | 3,216 | 3,216 | 46,716 |
| |||||||||||||||||||||||||||||
Costs incurred | 789 | - | 789 | - | 413 | 283 | 696 | 1,485 |
| |||||||||||||||||||||||||||||
Effect of foreign exchange rate changes | (2,369) | (1,570) | (3,939) | - | - | (785) | (785) | (4,724) |
| |||||||||||||||||||||||||||||
Transfer between asset classes | - | - | - | - | - | - | - | - |
| |||||||||||||||||||||||||||||
Unrealised loss on revaluation | (4,720) | (630) | (5,350) | - | - | - | - | (5,350) |
| |||||||||||||||||||||||||||||
Market value at 31 December 2015 | 27,700 | 7,300 | 35,000 | - | 413 | 2,714 | 3,127 | 38,127 |
| |||||||||||||||||||||||||||||
Head lease obligations (note 24) | 1,002 | - | 1,002 | - | - | - | - | 1,002 |
| |||||||||||||||||||||||||||||
Carrying value at 31 December 2015 | 28,702 | 7,300 | 36,002 | - | 413 | 2,714 | 3,127 | 39,129 |
| |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Asset class | Assets under construction | Land Bank |
| |||||||||||||||||||||||||||||||||||
Location | Moscow | Regions | Moscow | St Petersburg | Regions | 2014 |
| |||||||||||||||||||||||||||||||
Fair value hierarchy * | Level 3 | Level 3 | Sub-total | Level 3 | Level 3 | Level 3 | Sub-total | Total |
| |||||||||||||||||||||||||||||
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Market value at 1 January 2014 | 79,535 | 13,800 | 93,335 | - | 3,668 | 18,963 | 22,631 | 115,966 |
| |||||||||||||||||||||||||||||
Costs incurred | 66,669 | 58 | 66,727 | - | 175 | 284 | 459 | 67,186 |
| |||||||||||||||||||||||||||||
Effect of foreign exchange rate changes | (7,032) | (4,908) | (11,940) | - | (1,286) | (7,675) | (8,961) | (20,901) |
| |||||||||||||||||||||||||||||
Transfer between asset classes | - | - | - | - | - | - | - | - |
| |||||||||||||||||||||||||||||
Transfer to investment property (note 11) | (105,553) | - | (105,553) | - | - | - | - | (105,553) |
| |||||||||||||||||||||||||||||
Unrealised profit / (loss) on revaluation | 381 | 550 | 931 | - | (2,557) | (8,356) | (10,913) | (9,982) |
| |||||||||||||||||||||||||||||
Market value at 31 December 2014 | 34,000 | 9,500 | 43,500 | - | - | 3,216 | 3,216 | 46,716 |
| |||||||||||||||||||||||||||||
Head lease obligations (note 24) | 1,242 | - | 1,242 | - | - | - | - | 1,242 |
| |||||||||||||||||||||||||||||
Carrying value at 31 December 2014 | 35,242 | 9,500 | 44,742 | - | - | 3,216 | 3,216 | 47,958 |
| |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
*Classified in accordance with the fair value hierarchy, see note 35. There were no transfers between fair value hierarchy in 2014 or 2015. |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
2015 | 2014 |
| ||||||||||||||||||||||||||||||||||||
$'000 | $'000 |
| ||||||||||||||||||||||||||||||||||||
Revaluation movement in the year |
| |||||||||||||||||||||||||||||||||||||
Unrealised (loss) / profit on revaluation of assets carried at external valuations | (5,350) | 931 |
| |||||||||||||||||||||||||||||||||||
Unrealised loss on revaluation of assets carried at directors' valuation | - | (10,913) |
| |||||||||||||||||||||||||||||||||||
(5,350) | (9,982) |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
No borrowing costs were capitalised in the year (2014: $ 2.7 million).
At 31 December 2015 the Group has pledged investment property under construction with a value of $35.0 million (2014: $43.5 million) to secure banking facilities granted to the Group (note 22).
|
| |||||||||||||||||||||||||||||||||||||
13. Investment property and investment property under construction - Valuation |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
It is the Group's policy to carry investment property and investment property under construction at fair value in accordance with IFRS 13 "Fair Value Measurement" and IAS 40 "Investment Property": - investment property consists of the completed, income producing, portfolio; and - investment property under construction consists of potential development projects and land bank. The latter is sub-categorised as: - assets under construction - current development projects and the value of land on additional phases of existing investment property; and - land bank - land held for potential development.
|
| |||||||||||||||||||||||||||||||||||||
For the purposes of IFRS 13 disclosure, we have analysed these categories by the geographical market they are located in being Moscow, St Petersburg and the Regions (the other Russian regional cities). These form distinct markets for valuation purposes as the fundamentals differ in each. |
| |||||||||||||||||||||||||||||||||||||
The fair value of the Group's investment property and assets under construction at 31 December 2015 has been arrived at on the basis of market valuations carried out by Jones Lang Lasalle ("JLL"), external valuers to the Group. JLL have consented to the use of their name in these financial statements.
The Group's land bank in St Petersburg and the Regions is valued by the Directors.
|
| |||||||||||||||||||||||||||||||||||||
Valuation process
The executive management team members responsible for property matters determine the valuation policies and procedures for property valuations in consultation with the Chief Executive Officer and Chief Financial Officer.
|
| |||||||||||||||||||||||||||||||||||||
The Group has four qualified RICS members on the management team, one of whom is the Chairman of RICS in Russia and the CIS. All have relevant valuation and market experience and are actively involved in the valuation process. They also regularly meet with agents and consultants to obtain additional market information.
|
| |||||||||||||||||||||||||||||||||||||
The effectiveness and independence of the external valuer is reviewed each year. The cirteria considered include market knowledge, reputation, independence and professional standards. The Audit Committee also meets the external valuer at least once a year. Executive management and the Directors have determined that the external valuer is experienced in the Russian market and acts as an "External Valuer" as defined in the "RICS Valuation - Professional Standards".
|
| |||||||||||||||||||||||||||||||||||||
The external valuers perform their valuations in accordance with the "RICS Valuation - Professional Standards", the 2014 Edition (the "Red Book"). This is an internationally accepted basis of valuation and is consistent with the principles of IFRS 13.
|
| |||||||||||||||||||||||||||||||||||||
For investment properties and assets under construction, the executive team members consult with the external valuers and the valuers then determine: - whether a property's fair value can be reliably determined; - which valuation method should be applied for each asset; and - the assumptions made for unobservable inputs that are used in valuation methods.
|
| |||||||||||||||||||||||||||||||||||||
The land bank is valued by the Directors. The process followed includes regular site inspections, meetings with local real estate experts, comparison to any local land sale information and comparison to transactions in other regional cities including those where the Group has income producing assets. Updated acquisition appraisals and any indication of value for alternative use are also considered.
|
| |||||||||||||||||||||||||||||||||||||
Valuations are prepared on a biannual basis. At each valuation date the executive team members review the information prepared by the property department for valuation purposes being submitted to the external valuers. Each property valuation is then reviewed and discussed with the external valuer in detail, adjustments made as necessary and results discussed with the Chief Executive Officer and Chief Financial Officer.
|
| |||||||||||||||||||||||||||||||||||||
The executive management also present the valuation results to the Audit Committee and hold discussions with the Group's auditors. Both the Audit Committee and the auditors also have discussions with the external valuers.
|
| |||||||||||||||||||||||||||||||||||||
Valuation assumptions and key inputs |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Class of property | Carrying amount | Valuation | Input | Range |
| |||||||||||||||||||||||||||||||||
2015 | 2014 | technique | 2015 | 2014 |
| |||||||||||||||||||||||||||||||||
$'000 | $'000 |
| ||||||||||||||||||||||||||||||||||||
Completed investment property |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Moscow - Logistics | 1,029,136 | 1,211,905 |
Income capitalisation | Long term ERV per sqm for existing tenants | $90 to $110 | $110 to $135 | ||||||||||||||||||||||||||||||||
Short term ERV per sqm for vacant space | $64 to $110 | $110 to $135 |
| |||||||||||||||||||||||||||||||||||
Initial yield | 11.2% to 14.9% | 11.3% to 12.8% |
| |||||||||||||||||||||||||||||||||||
Equivalent yield | 10.8% to 12.7% | 10.5% to 13.7% |
| |||||||||||||||||||||||||||||||||||
Vacancy rate | 13.9% to 100.0% | 0.9% to 69.0% |
| |||||||||||||||||||||||||||||||||||
Passing rent per sqm | $54 to $191 | $68 to $231 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
St Petersburg - Logistics | 133,774 | 165,175 |
Income capitalisation | Long term ERV per sqm for existing tenants | $75 | $110 |
| |||||||||||||||||||||||||||||||
Short term ERV per sqm for vacant space | $57 to $75 | $110 |
| |||||||||||||||||||||||||||||||||||
Initial yield | 13.3% to 14.1% | 13.0% to 13.8% |
| |||||||||||||||||||||||||||||||||||
Equivalent yield | 12.7% to 13.3% | 12.8% to 13.6% |
| |||||||||||||||||||||||||||||||||||
Vacancy rate | 11.7% to 40.0% | 0% to 8.4% |
| |||||||||||||||||||||||||||||||||||
Passing rent per sqm | $60 to $146 | $96 to $129 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Regional - Logistics | 147,331 | 189,253 |
Income capitalisation | Long term ERV per sqm for existing tenants | $75 | $105 |
| |||||||||||||||||||||||||||||||
Short term ERV per sqm for vacant space | $57 to $75 | $105 |
| |||||||||||||||||||||||||||||||||||
Initial yield | 12.2% to 13.1% | 14.3% to 14.6% |
| |||||||||||||||||||||||||||||||||||
Equivalent yield | 12.7% | 13.0% to 13.3% |
| |||||||||||||||||||||||||||||||||||
Vacancy rate | 13.0% to 21.0% | 0.9% to 5.2% |
| |||||||||||||||||||||||||||||||||||
Passing rent per sqm | $63 to $214 | $99 to $214 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
St Petersburg - Office | 23,746 | 27,351 | Income | ERV per sqm | $235 | $235 |
| |||||||||||||||||||||||||||||||
capitalisation | Initial yield | 15.8% | 19.5% |
| ||||||||||||||||||||||||||||||||||
Equivalent yield | 13.0% | 13.0% |
| |||||||||||||||||||||||||||||||||||
Vacancy rate | 0% | 0% |
| |||||||||||||||||||||||||||||||||||
Passing rent per sqm | $294 | $323 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Range |
| |||||||||||||||||||||||||||||||||||||
Other key information | Description | 2015 | 2014 |
| ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Moscow - Logistics | Land plot ratio | 31% - 65% | 34% - 65% |
| ||||||||||||||||||||||||||||||||||
Age of building | 1 to 11 years | 0 to 10 years |
| |||||||||||||||||||||||||||||||||||
Outstanding costs (US$'000) | 6,931 | 9,131 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
St Petersburg - Logistics | Land plot ratio | 51% - 57% | 51% - 57% |
| ||||||||||||||||||||||||||||||||||
Age of building | 1 to 7 years | 0 to 6 years |
| |||||||||||||||||||||||||||||||||||
Outstanding costs (US$'000) | 743 | 1,573 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Regional - Logistics | Land plot ratio | 48% - 61% | 48% - 61% |
| ||||||||||||||||||||||||||||||||||
Age of building | 6 years | 5 years |
| |||||||||||||||||||||||||||||||||||
Outstanding costs (US$'000) | 81 | - |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
St Petersburg - Office | Land plot ratio | 320% | 320% |
| ||||||||||||||||||||||||||||||||||
Age of building | 9 years | 8 years |
| |||||||||||||||||||||||||||||||||||
Outstanding costs (US$'000) | 53 | 400 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Investment property under construction | Carrying amount | Valuation | Input | Range |
| |||||||||||||||||||||||||||||||||
2015 | 2014 | technique | 2015 | 2014 |
| |||||||||||||||||||||||||||||||||
$'000 | $'000 |
| ||||||||||||||||||||||||||||||||||||
Moscow - Logistics | 28,702 | 35,242 | Comparable | Value per ha ($m) | $0.29 - $0.61 | $0.42 - $0.89 |
| |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Regional - Logistics | 7,300 | 9,500 | Comparable | Value per ha ($m) | $0.29 | $0.37 |
| |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
The fair value of investment property is determined using the income capitalisation method where a property's fair value is estimated based on the normalised net operating income of the asset divided by the capitalisation (discount) rate. Each income stream from every tenant is valued based on capitalising the contracted rent for the term of the lease, including any fixed increases in rent but excluding any future indexation. Allowance at lease end is made for any potential letting void and an assessment is made of the estimated rental value on re-letting (ERV). These elements are determined based on current market conditions and values.
|
| |||||||||||||||||||||||||||||||||||||
Assets under construction (development projects) are valued on a residual value basis using the future anticipated costs to complete construction, a provision for letting costs, a letting void period and an assessment of ERV. Depending on the status of the development, and how much of development process has been completed an allowance will also be made for developer's profit.
|
| |||||||||||||||||||||||||||||||||||||
Assets under construction (additional phases of existing sites) are valued on a comparable basis. The value of these plots is estimated based on comparable transactions in the same market. This approach is based on the principle that a buyer will not pay more for an asset than it will cost to buy a comparable substitute property. The unit of comparison applied is the price per square metre.
|
| |||||||||||||||||||||||||||||||||||||
All of the above valuations are completed by JLL.
The land bank is valued by the Directors using the comparable basis.
|
| |||||||||||||||||||||||||||||||||||||
Sensitivity analysis of significant changes in unobservable inputs within Level 3 of the hierarchy
|
| |||||||||||||||||||||||||||||||||||||
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity's portfolio of investment property are: - ERV; - Void period on re-letting; - Initial yield; and - Specific to property under development: construction costs, letting void, construction period and development profit.
|
| |||||||||||||||||||||||||||||||||||||
In preparing their valuations at 31 December 2015 and 31 December 2014, JLL have specifically referred to the uncertainty in the market caused by sanctions and by an oil price that is low compared with recent history. The Rouble exchange rate exhibited both volatility and further weakness, inflation remained a concern and debt is comparatively expensive. Investment in all sectors of the economy is depressed. There is a resulting lack of clarity as to pricing levels and market drivers. JLL comment that prices agreed during negotiation are typically reduced prior to exchange of contracts as purchasers bring to bear their greater negotiating position and ability to complete transactions in an uncertain market. They further say that in this environment, prices and values are going through a period of heightened volatility and as a result there is less certainty with regard to valuations and that market values can change rapidly in the current conditions. Where the numbers of genuine third party, arm's length, transactions are severely limited it is challenging to draw conclusions on current market yields and to accurately assess ERVs where landlord and tenants are continuing to negotiate to find the new equilibrium due to the Rouble devaluation. This corresponds to the Group's experience.
Further significant increases (or decreases) in any of the main inputs to the valuation, being yield, ERV (per sqm p.a.) and letting void, would result in a significantly lower (or higher) fair value measurement.
|
| |||||||||||||||||||||||||||||||||||||
14. Goodwill | Roslogistics | Raven Mount | Total |
| ||||||||||||||||||||||||||||||||||
$'000 | $'000 | $'000 |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Balance at 1 January 2014 | 5,383 | 2,523 | 7,906 |
| ||||||||||||||||||||||||||||||||||
Effect of foreign exchange rate changes | (2,301) | (148) | (2,449) |
| ||||||||||||||||||||||||||||||||||
Impairment of goodwill | (3,082) | - | (3,082) |
| ||||||||||||||||||||||||||||||||||
Balance at 31 December 2014 | - | 2,375 | 2,375 |
| ||||||||||||||||||||||||||||||||||
Effect of foreign exchange rate changes | - | (130) | (130) |
| ||||||||||||||||||||||||||||||||||
Balance at 31 December 2015 | - | 2,245 | 2,245 |
| ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Goodwill acquired through the Raven Mount and Roslogistics business combinations has been allocated for impairment purposes to their operating segments. These represent the lowest level within the Group at which goodwill is monitored for internal management purposes. The recoverable amount of goodwill has been determined based on value in use calculations using cash flow projections and project appraisals approved for internal management reporting and discounted at rates appropriate to each of the segments.
|
| |||||||||||||||||||||||||||||||||||||
15. Investment in subsidiary undertakings |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
The principal subsidiary undertakings of Raven Russia Limited, all of which have been included in these consolidated financial statements, are as follows: |
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
Name | Country of incorporation | Proportion of ownership interest |
| |||||||||||||||||||||||||||||||||||
2015 | 2014 |
| ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
CJSC Kulon Development | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Fenix LLC | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Petroestate LLC | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
EG Logistics LLC | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
CJSC Kulon Istra | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Soyuz-Invest LLC | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
CJSC Noginsk Vostok | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Resource Economia LLC | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Kulon Spb LLC | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Logopark Don LLC | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Logopark Ob LLC | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Delta LLC | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
CJSC Toros | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Dorfin Limited | Cyprus | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
League LLC | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Roslogistics Holdings (Russia) Limited | Cyprus | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Avalon Logistics Company LLC | Russia | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Raven Mount Group Limited | England | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Raven Russia Property Advisors Limited | England | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
Raven Russia (Service Company) Limited | Guernsey | 100% | 100% |
| ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||
The Group's investment property and investment property under construction are held by its subsidiary undertakings. |
| |||||||||||||||||||||||||||||||||||||
16. Investment in joint ventures |
| ||||||||||
| |||||||||||
The principal joint venture of the Group is as follows: |
| ||||||||||
| |||||||||||
Name | Country of incorporation | Proportion of ownership interest |
| ||||||||
2015 | 2014 |
| |||||||||
Coln Park LLP | England | 50% | 50% |
| |||||||
| |||||||||||
Coln Park LLP is the entity through which the Group undertakes its second home development activity in the UK. In addition to Coln Park LLP, the Group has a number of other small joint ventures associated with the second home development activity. The Group's interest in each joint venture has been accounted for using the equity method. None of the Group's joint ventures are individually material. Summarised aggregated financial information of the joint ventures, prepared under IFRS, and a reconcilation with the carrying amount of the investments in the consolidated financial statements are set out below:
|
| ||||||||||
2015 | 2014 |
| |||||||||
Summarised Balance Sheet | $'000 | $'000 |
| ||||||||
| |||||||||||
Non-current assets | 4,833 | 5,333 |
| ||||||||
Inventory | 16,262 | 17,030 |
| ||||||||
Cash and short term deposits | 2,289 | 2,120 |
| ||||||||
Other current assets | 505 | 497 |
| ||||||||
Current liabilities | (4,221) | (1,133) |
| ||||||||
Net assets | 19,668 | 23,847 |
| ||||||||
| |||||||||||
Investment in joint ventures |
| ||||||||||
Goodwill on acquisition | 5,134 | 5,431 |
| ||||||||
Share of net assets at 50% | 9,834 | 11,924 |
| ||||||||
Carrying value | 14,968 | 17,355 |
| ||||||||
| |||||||||||
Carrying value at 1 January | 17,355 | 18,464 |
| ||||||||
Share of profit for the year | 2,518 | 955 |
| ||||||||
Share of distributions paid | (3,954) | (983) |
| ||||||||
Effect of foreign exchange rate changes | (951) | (1,081) |
| ||||||||
Carrying value at 31 December | 14,968 | 17,355 |
| ||||||||
| |||||||||||
2015 | 2014 |
| |||||||||
Summarised Income Statement | $'000 | $'000 |
| ||||||||
| |||||||||||
Gross revenue | 18,575 | 8,779 |
| ||||||||
Cost of sales | (12,628) | (6,026) |
| ||||||||
Administrative expenses | (943) | (787) |
| ||||||||
Profit before tax | 5,004 | 1,966 |
| ||||||||
Tax | 32 | (56) |
| ||||||||
Profit for the year | 5,036 | 1,910 |
| ||||||||
| |||||||||||
Group's share of profit for the year | 2,518 | 955 |
| ||||||||
| |||||||||||
The joint ventures had no contingent liabilities or capital commitments as at 31 December 2015 and 2014. The joint ventures cannot distribute their profits until they obtain the consent from the joint venture partners.
The Group charged its joint ventures $92k (2014: $132k) for services rendered to them during the year. The joint ventures recharged certain costs back to the Group that for the year amounted to $104k (2014: $178k) of which $10k (2014: $11k) was included in payables at the balance sheet date. During the year the Group advanced a loan to Coln Park LLP of $368k.
|
| ||||||||||
17. Other receivables | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
| |||||||||||
Loans receivable | 606 | 1,029 |
| ||||||||
VAT recoverable | 3,024 | 4,907 |
| ||||||||
Security deposits | 2,391 | 4,596 |
| ||||||||
Prepayments and other receivables | 124 | 181 |
| ||||||||
Restricted cash | - | 26,329 |
| ||||||||
6,145 | 37,042 |
| |||||||||
| |||||||||||
VAT recoverable arises from the payment of value added tax on construction of investment property, which will be recovered through the offset of VAT paid on future revenue receipts or repayment direct from the taxation authority. VAT recoverable has been split between current and non-current assets based on the Group's assessment of when recovery will occur.
|
| ||||||||||
18. Trade and other receivables | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
| |||||||||||
Trade receivables | 38,682 | 36,459 |
| ||||||||
Prepayments | 3,149 | 3,505 |
| ||||||||
Security deposits | 2,041 | - |
| ||||||||
VAT recoverable | 4,482 | 10,637 |
| ||||||||
Other receivables | 202 | 778 |
| ||||||||
Tax recoverable | 1,708 | 1,244 |
| ||||||||
50,264 | 52,623 |
| |||||||||
| |||||||||||
19. Derivative financial instruments | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
Interest rate derivative financial instruments |
| ||||||||||
Non-current assets | 2,900 | 5,819 |
| ||||||||
Current assets | 12 | - |
| ||||||||
Non-current liabilities | (210) | (1,963) |
| ||||||||
Current liabilities | (413) | - |
| ||||||||
| |||||||||||
Forward currency derivative financial instruments |
| ||||||||||
Non-current assets | 2,685 | 1,034 |
| ||||||||
Current assets | 184 | 432 |
| ||||||||
| |||||||||||
Foreign currency embedded derivatives |
| ||||||||||
Current assets | 37 | - |
| ||||||||
Non-current liabilities | (1,584) | (2,190) |
| ||||||||
Current liabilities | (1,684) | (1,253) |
| ||||||||
| |||||||||||
The Group has entered into a series of interest rate derivative financial instruments to manage the interest rate and resulting cash flow exposure from the Group's banking facilities. At 31 December 2015 the instruments have a notional value of $667 million (2014: $678 million) and a weighted average fixed or capped rate of 1.51% (2014: 1.49%).
The Group had also entered into a series of forward currency derivative financial instruments to hedge interest payments due to preference shareholders against sterling strengthening. The instruments have a notional amount of $91.0 million (2014: $70.4 million), a weighted average capped rate of $1.6 to £1 (2014: $1.6 to £1) and quarterly maturities with the final instruments maturing on 18 December 2019 (2014: 21 December 2016).
Several of the Group's leases incorporate collars and caps on US Dollar and Russian Rouble exchange rates. These have been categorised as embedded derivatives and their fair values calculated resulting in the liability disclosed above.
|
| ||||||||||
20. Cash and short term deposits | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
| |||||||||||
Cash at bank and on call | 84,732 | 146,054 |
| ||||||||
Short term deposits | 117,559 | 25,329 |
| ||||||||
202,291 | 171,383 |
| |||||||||
| |||||||||||
Cash at bank and on call attracts variable interest rates, whilst short term deposits attract fixed rates but mature and re-price over a short period of time. The weighted average interest rate at the balance sheet date is 1.21% (2014: 1.39%).
|
| ||||||||||
21. Trade and other payables | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
| |||||||||||
Trade and other payables | 5,196 | 7,374 |
| ||||||||
Construction payables | 3,913 | 19,477 |
| ||||||||
Advanced rentals | 25,801 | 35,182 |
| ||||||||
Other payables | 2,165 | 9,005 |
| ||||||||
Current tax payable | 5,217 | 3,286 |
| ||||||||
Other tax payable | 11,080 | 10,604 |
| ||||||||
Head leases (note 24) | 12 | 34 |
| ||||||||
53,384 | 84,962 |
| |||||||||
| |||||||||||
22. Interest bearing loans and borrowings | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
Bank loans |
| ||||||||||
Loans due for settlement within 12 months | 104,724 | 55,252 |
| ||||||||
Loans due for settlement after 12 months | 814,021 | 837,429 |
| ||||||||
918,745 | 892,681 |
| |||||||||
| |||||||||||
The Group's borrowings have the following maturity profile: |
| ||||||||||
On demand or within one year | 104,724 | 55,252 |
| ||||||||
In the second year | 162,222 | 174,646 |
| ||||||||
In the third to fifth years | 527,861 | 406,066 |
| ||||||||
After five years | 123,938 | 256,717 |
| ||||||||
918,745 | 892,681 |
| |||||||||
| |||||||||||
The amounts above include unamortised loan origination costs of $11.3 million (2014: $13.3 million) and interest accruals of $2.3 million (2014: $1.4 million). |
| ||||||||||
| |||||||||||
The principal terms of the Group's interest bearing loans and borrowings on a weighted average basis are summarised below: |
| ||||||||||
| |||||||||||
As at 31 December 2015 | Interest | Maturity |
| ||||||||
Rate | (years) | $'000 |
| ||||||||
| |||||||||||
Secured on investment property and investment property under construction | 7.2% | 4.0 | 894,995 |
| |||||||
Unsecured facility of the Company | 7.9% | 4.7 | 23,750 |
| |||||||
918,745 |
| ||||||||||
As at 31 December 2014 |
| ||||||||||
| |||||||||||
Secured on investment property and investment property under construction | 6.9% | 4.8 | 863,931 |
| |||||||
Unsecured facility of the Company | 7.9% | 5.7 | 28,750 |
| |||||||
892,681 |
| ||||||||||
| |||||||||||
The interest rates shown above are the weighted average cost, including US LIBOR, as at the Balance Sheet dates.
During the year there were the following changes to the Group's financing arrangements:
The remaining $39 million of the facility secured on the Noginsk project was drawn, as was a further $27 million on the facility secured on the Nova Riga project.
On 21 August 2015, a two year extension was agreed on the facility secured on the Istra project, extending the maturity to April 2018.
The Group agreed and has drawn down in full a $15 million facility secured on its Pulkovo project. The facility has a one year term.
The facility secured on the office block in St Petersburg was in breach of its debt service obligations during the year. In accordance with accounting standards, the amount outstanding of $33 million has been moved to loans due for settlement within 12 months. However, as previously disclosed, this facility has been subject to a full cash sweep since December 2012 following a potential loan to value covenant breach that was subsequently waived. The cash sweep continues and no further action has been taken.
At 31 December the Group had no undrawn loan facilities available (2014: $89 million).
The Group has entered into hedging arrangements in respect of its exposure to interest rates (note 19). $212 million (2014: $222 million) of Group bank borrowings have been swapped into fixed rates with one year remaining (2014: two years) at a weighted average swap rate of 1.44% (2014: 1.44%), $456 million (2014: $457 million) capped at 1.55% (2014: 1.52%) for two years (2014: three years) and $260 million (2014: $220 million) are fixed rate loans with a weighted average rate of 7.21% (2014: 7.14%) for four years (2014: five years). This gave a weighted average cost of debt to the Group of 7.3% (2014: 7.0%) at the year end.
The Group has entered into a two-year forward dated cap starting in April 2016 to extend the existing Istra hedging arrangement on expiry.
|
| ||||||||||
23. Preference shares | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
Authorised share capital |
| ||||||||||
400,000,000 (2014: 400,000,000) preference shares of 1p each | 5,981 | 5,981 |
| ||||||||
| |||||||||||
Issued share capital: |
| ||||||||||
At 1 January | 164,300 | 172,205 |
| ||||||||
Reissued/ issued in the year | - | 593 |
| ||||||||
Premium on redemption of preference shares and amortisation of issue costs | 614 | 650 |
| ||||||||
Scrip dividends | 643 | 935 |
| ||||||||
Effect of foreign exchange rate changes | (8,999) | (10,083) |
| ||||||||
At 31 December | 156,558 | 164,300 |
| ||||||||
| |||||||||||
2015 | 2014 |
| |||||||||
Number | Number |
| |||||||||
Issued share capital: |
| ||||||||||
At 1 January | 98,012,427 | 97,379,362 |
| ||||||||
Reissued / issued in the year | - | 258,197 |
| ||||||||
Scrip dividends | 315,590 | 374,868 |
| ||||||||
At 31 December | 98,328,017 | 98,012,427 |
| ||||||||
| |||||||||||
Shares in issue | 98,365,066 | 98,049,476 |
| ||||||||
Held by the Company's Employee Benefit Trusts | (37,049) | (37,049) |
| ||||||||
At 31 December | 98,328,017 | 98,012,427 |
| ||||||||
| |||||||||||
The preference shares entitle the holders to a cumulative annual dividend of 12 pence per share.
Preference shares reissued are where the Company's Employee Benefit Trusts transfer preference shares previously acquired or subscribed to employees in accordance with the terms of the CBLTIS (see note 31b).
|
| ||||||||||
24. Other payables | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
| |||||||||||
Rent deposits | 28,932 | 30,249 |
| ||||||||
Head leases | 2,721 | 7,323 |
| ||||||||
Other payables | - | 23 |
| ||||||||
31,653 | 37,595 |
| |||||||||
| |||||||||||
The Group has leasehold properties that it classifies as investment property and investment property under construction. Minimum lease payments due over the remaining term of the leases totalled $8.5 million (2014: $22.3 million) and have a present value at 31 December 2015, as reflected above and in note 21, of $2.733 million (2014: $7.357 million).
|
| ||||||||||
25. Deferred tax |
| ||||||||||
Tax losses | Other | Total |
| ||||||||
(a) Deferred tax assets | $'000 | $'000 | $'000 |
| |||||||
| |||||||||||
Balance at 1 January 2014 | 48,402 | (310) | 48,092 |
| |||||||
Effect of foreign exchange rate changes | (23,723) | - | (23,723) |
| |||||||
Credit for the year | 11,104 | 293 | 11,397 |
| |||||||
Balance at 31 December 2014 | 35,783 | (17) | 35,766 |
| |||||||
Effect of foreign exchange rate changes | (7,750) | - | (7,750) |
| |||||||
(Charge) / credit for the year | (2,554) | 61 | (2,493) |
| |||||||
Balance at 31 December 2015 | 25,479 | 44 | 25,523 |
| |||||||
| |||||||||||
The Group has tax losses in Russia of $417 million (2014: $481 million) and tax losses in the UK of $117 million (2014: $119 million) for which deferred tax assets have not been recognised. The losses in Russia expire in 10 years (2014: 10 years) whilst the UK losses do not have an expiry date.
|
| ||||||||||
Accelerated | Revaluation |
| |||||||||
tax | of investment |
| |||||||||
allowances | property | Total |
| ||||||||
(b) Deferred tax liabilities | $'000 | $'000 | $'000 |
| |||||||
| |||||||||||
Balance at 1 January 2014 | 44,627 | 70,859 | 115,486 |
| |||||||
Effect of foreign exchange rate changes | (18,761) | - | (18,761) |
| |||||||
Charge / (credit) for the year | 8,002 | (15,609) | (7,607) |
| |||||||
Balance at 31 December 2014 | 33,868 | 55,250 | 89,118 |
| |||||||
Effect of foreign exchange rate changes | (7,158) | - | (7,158) |
| |||||||
Charge / (credit) for the year | 3,435 | (29,776) | (26,341) |
| |||||||
Balance at 31 December 2015 | 30,145 | 25,474 | 55,619 |
| |||||||
| |||||||||||
26. Share capital | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
Authorised ordinary share capital |
| ||||||||||
1,500,000,000 (2014: 1,500,000,000) ordinary shares of 1p each | 27,469 | 27,469 |
| ||||||||
| |||||||||||
Issued share capital: |
| ||||||||||
At 1 January | 13,623 | 13,876 |
| ||||||||
Issued in the year for cash on warrant exercises (note 27) | 7 | 21 |
| ||||||||
Repurchased and cancelled in the year | (854) | (274) |
| ||||||||
At 31 December | 12,776 | 13,623 |
| ||||||||
| |||||||||||
2015 | 2014 |
| |||||||||
Number | Number |
| |||||||||
Issued share capital: |
| ||||||||||
At 1 January | 737,598,353 | 753,379,368 |
| ||||||||
Issued in the year for cash on warrant exercises (note 27) | 457,589 | 1,281,506 |
| ||||||||
Repurchased and cancelled in the year | (55,495,566) | (17,062,521) |
| ||||||||
At 31 December | 682,560,376 | 737,598,353 |
| ||||||||
| |||||||||||
Of the authorised ordinary share capital at 31 December 2015, 25,008,823 (2014: 25,466,412) are reserved for warrants.
Details of own shares held are given in note 28.
|
| ||||||||||
27. Warrants | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
| |||||||||||
At 1 January | 1,195 | 1,279 |
| ||||||||
Exercised in the year (note 26) | (28) | (84) |
| ||||||||
At 31 December | 1,167 | 1,195 |
| ||||||||
| |||||||||||
2015 | 2014 |
| |||||||||
Number | Number |
| |||||||||
| |||||||||||
At 1 January | 25,466,412 | 26,747,918 |
| ||||||||
Exercised in the year (note 26) | (457,589) | (1,281,506) |
| ||||||||
At 31 December | 25,008,823 | 25,466,412 |
| ||||||||
| |||||||||||
The Company has issued warrants, which entitle each holder to subscribe for ordinary shares in the Company at an exercise price of 25 pence per share. The warrants expire on 25 March 2019.
No warrants have been exercised in the period since 31 December 2015.
|
| ||||||||||
28. Own shares held | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
| |||||||||||
At 1 January | (63,649) | (22,754) |
| ||||||||
Acquired under tender offers | - | (48,095) |
| ||||||||
Other acquisitions | (76) | (541) |
| ||||||||
Cancelled | 3,692 | 600 |
| ||||||||
Allocation to satisfy ERS options exercised (note 31a) | 258 | - |
| ||||||||
Allocation to satisfy LTIP options exercised (note 31a) | 901 | 1,189 |
| ||||||||
Allocation to satisfy CBLTIS awards vested (note 31b) | 6,773 | 5,952 |
| ||||||||
At 31 December | (52,101) | (63,649) |
| ||||||||
| |||||||||||
2015 | 2014 |
| |||||||||
Number | Number |
| |||||||||
| |||||||||||
At 1 January | 49,048,873 | 22,199,776 |
| ||||||||
Acquired under tender offers | - | 35,000,000 |
| ||||||||
Other acquisitions | 98,040 | 449,014 |
| ||||||||
Cancelled | (3,395,130) | (768,220) |
| ||||||||
Allocation to satisfy ERS options exercised (note 31a) | (237,146) | - |
| ||||||||
Allocation to satisfy LTIP options exercised (note 31a) | (828,515) | (1,272,447) |
| ||||||||
Allocation to satisfy CBLTIS awards vested (note 31b) | (6,229,528) | (6,559,250) |
| ||||||||
At 31 December | 38,456,594 | 49,048,873 |
| ||||||||
| |||||||||||
Allocations are transfers by the Company's Employee Benefit Trusts to settle bonus awards made in the year, CBLTIS awards that vest and to satisfy ERS and LTIP options exercised in the year following the vesting of the options. The amounts shown for share movements are net of the Trustees' participation in tender offers during the period from grant to exercise. Details of outstanding ERS and LTIP options, which are vested but unexercised, are given in note 31a.
|
| ||||||||||
29. Equity |
| ||||||||||
| |||||||||||
The following describes the nature and purpose of each component within equity: |
| ||||||||||
| |||||||||||
Component | Description and purpose |
| |||||||||
Share capital | The amount subscribed for ordinary share capital at nominal value. |
| |||||||||
Share premium | The amount subscribed for ordinary share capital in excess of the nominal value. |
| |||||||||
Warrants | The consideration attributed to the subscription of warrants less associated costs of issuance. |
| |||||||||
Own shares held | The cost to the Company of acquiring the own shares held by the Company and its subsidiary undertakings or Employee Benefit Trusts. |
| |||||||||
Capital reserve | The amount of any capital profits and losses, including gains and losses on the disposal of investment properties (after taxation), increases and decreases in the fair value of investment properties held at each period end, foreign exchange profits and losses on capital items, profits and losses on forward currency financial instruments relating to capital items and deferred taxation on the increase in fair value of investment properties. |
| |||||||||
Translation reserve | The amount of any gains or losses arising on the retranslation of net assets of overseas operations. |
| |||||||||
Retained earnings | The amount of any profit or loss for the year after payment of dividend, together with the amount of any equity-settled share-based payments, and the transfer of capital items described above. Retained earnings also includes distributable reserves created when in 2005 and 2006 the Company applied to the Royal Court of Guernsey to cancel its share premium at that time and create a reserve which is distributable. |
| |||||||||
30. Net asset value per share | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
| |||||||||||
Net asset value | 465,042 | 697,289 |
| ||||||||
Goodwill | (2,245) | (2,375) |
| ||||||||
Goodwill in joint ventures | (5,134) | (5,431) |
| ||||||||
Deferred tax on revaluation gains (note 25b) | - | 55,250 |
| ||||||||
Unrealised foreign exchange losses on preference shares | 4,956 | 13,955 |
| ||||||||
Fair value of interest rate derivative financial instruments (note 19) | (2,289) | (3,856) |
| ||||||||
Fair value of embedded derivatives (note 19) | 3,231 | 3,443 |
| ||||||||
Fair value of foreign exchange derivative financial instruments (note 19) | (2,869) | (1,466) |
| ||||||||
Adjusted net asset value | 460,692 | 756,809 |
| ||||||||
Assuming exercise / vesting of all dilutive potential ordinary shares |
| ||||||||||
- Warrants (note 27) | 9,215 | 9,927 |
| ||||||||
- ERS (note 31) | - | - |
| ||||||||
- LTIP (note 31) | 1,611 | 2,099 |
| ||||||||
- CBLTIS (note 31) | - | - |
| ||||||||
- New CBLTIS (note 31) | - | - |
| ||||||||
Adjusted fully diluted net asset value | 471,518 | 768,835 |
| ||||||||
| |||||||||||
Number of ordinary shares (note 26) | 682,560,376 | 737,598,353 |
| ||||||||
Less own shares held (note 28) | (38,456,594) | (49,048,873) |
| ||||||||
644,103,782 | 688,549,480 |
| |||||||||
Assuming exercise / vesting of all dilutive potential ordinary shares |
| ||||||||||
- Warrants (note 27) | 25,008,823 | 25,466,412 |
| ||||||||
- ERS (note 31) | 75,000 | 325,000 |
| ||||||||
- LTIP (note 31) | 4,372,973 | 5,383,784 |
| ||||||||
- CBLTIS (note 31) | - | 7,401,158 |
| ||||||||
- New CBLTIS (note 31) | 2,993,670 | - |
| ||||||||
Number of ordinary shares assuming exercise of all potential ordinary shares | 676,554,248 | 727,125,834 |
| ||||||||
| |||||||||||
2015 | 2014 |
| |||||||||
$ | $ |
| |||||||||
Net asset value per share | 0.72 | 1.01 |
| ||||||||
Fully diluted net asset value per share | 0.70 | 0.98 |
| ||||||||
Adjusted net asset value per share | 0.72 | 1.10 |
| ||||||||
Adjusted fully diluted net asset value per share | 0.70 | 1.06 |
| ||||||||
| |||||||||||
As the preference shares are considered to be capital for capital risk management (see note 34d) unrealised foreign exchange movements on these have been adjusted when calculating adjusted NAV per share. Following recent changes in Russian tax legislation the Group now accounts for deferred tax provisions on revaluation gains when calculating adjusted NAV per share. This assumes that assets would be sold on an individual basis rather than a sale of the Group as a whole.
The number of potential ordinary shares is the total number of ordinary shares assuming the exercise of all potential ordinary shares less those not expected to vest.
31. Share-based payments and other long term incentives
The Group utilises a number of different Share Schemes to reward and incentivise the Group's executives and senior staff. The Share Schemes operated in the year are as follows:
Executive Share Option Schemes ("ESOS") The Group operates two ESOS, the Employee Retention Scheme ("ERS") and the Long Term Incentive Plan ("LTIP"). Both schemes involved the grant of options over the Company's ordinary shares by the Company's Employee Benefit Trusts. The ERS vested in full on the publication of the audited financial statements of the Company for the year ended 31 December 2010 and the ERS options do not have an exercise price. The LTIP options vested in three equal tranches, subject to performance criteria, on 24 March 2012, 2013 and 2014. The LTIP options have an exercise price of 25p per option and have vested in full. Both the ERS and LTIP schemes are closed and further awards cannot be made under either scheme. Awards made under the ERS and LTIP have been accounted for in accordance with the Group's accounting policy for Share-based payments.
Combined Bonus and Long Term Incentive Scheme 2012 to 2014 ("CBLTIS") During 2012 the Group implemented the CBLTIS and contingent awards were made in respect of 14.3 million ordinary shares and 3.7 million preference shares and which cover the calendar years 2012 to 2014. The awards are subject to performance criteria linked to operating cash income. Awards in respect of ordinary shares are accounted for in accordance with the Group's accounting policy for Share-based payments. Awards to be settled by preference shares do not meet the criteria under IFRS for a share-based payment and are instead accounted for in accordance with IAS 19 - Employee Benefits. Combined Bonus and Long Term Incentive Scheme 2015 to 2017 ("New CBLTIS") During 2015 the Group implemented the New CBLTIS. Contingent awards were made in respect of 35 million ordinary shares, which cover the calendar years 2015 to 2017. The awards are subject to preformance criteria; three quarters of the award have performance conditions linked to operating cash flows and the remainder have a share price target. The awards made have been accounted for in accordance with the Group's accounting policy for share-based payments.
|
| ||||||||||
(a) Movements in Executive Share Option Schemes | 2015 | 2014 |
| ||||||||
Weighted | Weighted |
| |||||||||
average | average |
| |||||||||
No of | exercise | No of | exercise |
| |||||||
options | price | options | price |
| |||||||
| |||||||||||
Outstanding at the beginning of the period | 5,708,784 | 24p | 7,037,613 | 24p |
| ||||||
Exercised during the year |
| ||||||||||
- ERS | (250,000) | 0p | - | 0p |
| ||||||
- LTIP | (1,010,811) | 25p | (1,328,829) | 25p |
| ||||||
Outstanding at the end of the period | 4,447,973 | 25p | 5,708,784 | 24p |
| ||||||
| |||||||||||
Represented by: |
| ||||||||||
- ERS | 75,000 | 325,000 |
| ||||||||
- LTIP | 4,372,973 | 5,383,784 |
| ||||||||
4,447,973 | 5,708,784 |
| |||||||||
| |||||||||||
Exercisable at the end of the period | 4,447,973 | 25p | 5,708,784 | 24p |
| ||||||
| |||||||||||
The weighted average remaining contractual life of options was 2 years (2014: 3 years). |
| ||||||||||
| |||||||||||
(b) Movements in Combined Bonus and Long Term Incentive Scheme 2012 to 2014 Awards |
| ||||||||||
2015 | 2014 |
| |||||||||
No of award | No of award |
| |||||||||
shares | shares |
| |||||||||
| |||||||||||
Awards of Ordinary shares: |
| ||||||||||
- Outstanding at the beginning of the period | 7,401,158 | 14,201,085 |
| ||||||||
- Granted during the year | - | - |
| ||||||||
- Lapsed during the year | - | (45,259) |
| ||||||||
- Vested during the year | (7,401,158) | (6,754,668) |
| ||||||||
- Outstanding at the end of the period | - | 7,401,158 |
| ||||||||
| |||||||||||
2015 | 2014 |
| |||||||||
No of award | No of award |
| |||||||||
shares | shares |
| |||||||||
Awards of Preference shares: |
| ||||||||||
- Outstanding at the beginning of the period | - | 314,906 |
| ||||||||
- Granted during the year | - | - |
| ||||||||
- Lapsed during the year | - | - |
| ||||||||
- Vested during the year | - | (314,906) |
| ||||||||
- Outstanding at the end of the period | - | - |
| ||||||||
| |||||||||||
| |||||||||||
(c) Movements in Combined Bonus and Long Term Incentive Scheme 2015 to 2017Awards |
| ||||||||||
2015 | 2014 |
| |||||||||
No of award | No of award |
| |||||||||
shares | shares |
| |||||||||
| |||||||||||
Awards of Ordinary shares: |
| ||||||||||
- Outstanding at the beginning of the period | - | - |
| ||||||||
- Granted during the year | 34,800,000 | - |
| ||||||||
- Lapsed during the year | - | - |
| ||||||||
- Vested during the year | - | - |
| ||||||||
- Outstanding at the end of the period | 34,800,000 | - |
| ||||||||
| |||||||||||
2015 | 2014 |
| |||||||||
(d) Income Statement charge for the year | $'000 | $'000 |
| ||||||||
| |||||||||||
Expense attributable to ERS and LTIP awards in prior periods | - | 136 |
| ||||||||
Combined Bonus and Long Term Incentive Scheme 2012 to 2014 awards | (39) | 2,218 |
| ||||||||
Combined Bonus and Long Term Incentive Scheme 2015 to 2017 awards | 3,633 | - |
| ||||||||
3,594 | 2,354 |
| |||||||||
| |||||||||||
To be satisfied by allocation of: |
| ||||||||||
Ordinary shares (IFRS 2 expense) | 3,594 | 2,425 |
| ||||||||
Preference shares (IAS 19 expense) | - | (71) |
| ||||||||
3,594 | 2,354 |
| |||||||||
| |||||||||||
The fair values at grant of the Combined Bonus and Long Term Incentive Scheme 2015 to 2017 awards were assessed using valuation models. Details of the fair values, models used and key inputs thereto are set out in the table below:
|
| ||||||||||
Tranche with operating cash flow targets | Tranche with share price target |
| |||||||||
| |||||||||||
| |||||||||||
Fair value at grant date | 62p | 18p |
| ||||||||
Expected volatility | 26% | 27% |
| ||||||||
Risk free rate | 1.05% | 1.51% |
| ||||||||
Dividend yield | 0% | 0% |
| ||||||||
Model used | Black Scholes | Monte Carlo |
| ||||||||
| |||||||||||
32. Capital commitments
The Group has committed to fund the construction of certain additional investment property. At 31 December 2015, $2.6 million of funding was required (2014: $3.0 million), excluding VAT.
|
| ||||||||||
33. 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. Further disclosures concerning transactions with the Company's directors are made in the Remuneration Report and note 6. There are no loan balances with directors.
|
| ||||||||||
Remuneration of Directors and other key management personnel | 2015 | 2014 |
| ||||||||
$'000 | $'000 |
| |||||||||
| |||||||||||
Short term employee benefits | 6,287 | 4,613 |
| ||||||||
Post employment benefits | 322 | 341 |
| ||||||||
Share-based payments and other long term incentives | 2,582 | 2,181 |
| ||||||||
9,191 | 7,135 |
| |||||||||
| |||||||||||
34. Financial instruments - risk management
The Group's activities expose it to a variety of financial risks in relation to the financial instruments it uses: market risk (including currency risk, price risk and cash flow interest rate risk), credit risk and liquidity risk. The financial risks relate to the following financial instruments: trade receivables, cash and short term deposits, trade and other payables, borrowings, preference shares and derivative financial instruments.
Risk management parameters are established by the Board on a project by project basis and overseen by management in conjunction with professional advisers. Reports are provided to the Board formally on a weekly basis and also when authorised changes are required.
|
| ||||||||||
(a) Market risk |
| ||||||||||
Currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from a variety of currency exposures, primarily with respect to US Dollars, Sterling and Russian Rouble. Foreign exchange risk arises from future commercial transactions (including lease receivables), recognised monetary assets and liabilities and net investments in foreign entities.
The majority of the Group's transactions are denominated in US Dollars, which is also the reporting currency for the Group. The functional currency of the Company is Sterling, however the functional currencies of the Company's subsidiaries vary. The analysis that follows considers the impact of Russian Rouble and Sterling on the Group.
Russian Rouble
The rapid depreciation of the Rouble since November 2014 has heightened the Group's currency risk. New leases are now predominantly Rouble denominated rather than pegged to US Dollars, which will increase the Group's foreign currency risk when servicing US Dollar denominated debt.
The Group holds sufficient Rouble currency to cover Rouble denominated overheads and any future construction cost commitments.
The weak Rouble also has an impact on property values as explained in note 13 to the accounts and increased credit risk as explained below.
Sterling
The Group's exposure to Sterling is primarily driven by the Sterling denominated preference shares and the related quarterly preference dividends, but also head office costs and ordinary share distributions. Whilst there are no Sterling foreign exchange gains and losses arising in the parent company itself, in preparing the group financial statements these Sterling amounts are translated to the Group's US Dollar presentation currency and the resulting exchange gains and losses are included in the translation reserve.
|
| ||||||||||
The table below summarises the currency in which the Group's financial instruments are denominated:
|
| ||||||||||
Russian |
| ||||||||||
As at 31 December 2015 | US Dollar | Sterling | Rouble | Other | Total |
| |||||
$'000 | $'000 | $'000 | $'000 | $'000 |
| ||||||
Non-current assets |
| ||||||||||
Loans receivable | - | 606 | - | - | 606 |
| |||||
Security deposits | 2,391 | - | - | - | 2,391 |
| |||||
Derivative financial instruments | 2,900 | 2,685 | - | - | 5,585 |
| |||||
Current assets |
| ||||||||||
Trade receivables | 32,519 | 6 | 6,157 | - | 38,682 |
| |||||
Security deposits | 2,041 | - | - | - | 2,041 |
| |||||
Derivative financial instruments | 49 | 184 | - | - | 233 |
| |||||
Other current receivables | - | 76 | 126 | - | 202 |
| |||||
Cash and short term deposits | 155,996 | 14,286 | 28,771 | 3,238 | 202,291 |
| |||||
195,896 | 17,843 | 35,054 | 3,238 | 252,031 |
| ||||||
| |||||||||||
Non-current liabilities |
| ||||||||||
Interest bearing loans and borrowings | 814,021 | - | - | - | 814,021 |
| |||||
Preference shares | - | 156,558 | - | - | 156,558 |
| |||||
Derivative financial instruments | 210 | - | 1,584 | - | 1,794 |
| |||||
Rent deposits | 27,366 | - | 1,126 | 440 | 28,932 |
| |||||
Other payables | - | - | 2,721 | - | 2,721 |
| |||||
Current liabilities |
| ||||||||||
Interest bearing loans and borrowings | 104,724 | - | - | - | 104,724 |
| |||||
Derivative financial instruments | 413 | - | 1,684 | - | 2,097 |
| |||||
Rent deposits | 6,676 | - | 151 | - | 6,827 |
| |||||
Other payables | - | 1,814 | 4,254 | 22 | 6,090 |
| |||||
953,410 | 158,372 | 11,520 | 462 | 1,123,764 |
| ||||||
| |||||||||||
Russian |
| ||||||||||
As at 31 December 2014 | US Dollar | Sterling | Rouble | Other | Total |
| |||||
$'000 | $'000 | $'000 | $'000 | $'000 |
| ||||||
Non-current assets |
| ||||||||||
Loans receivable | - | 1,029 | - | - | 1,029 |
| |||||
Security deposits | 4,596 | - | - | - | 4,596 |
| |||||
Restricted cash | 10,640 | - | 15,689 | - | 26,329 |
| |||||
Derivative financial instruments | 5,819 | 1,034 | - | - | 6,853 |
| |||||
Current assets | - |
| |||||||||
Trade receivables | 33,116 | 10 | 3,333 | - | 36,459 |
| |||||
Derivative financial instruments | - | 432 | - | - | 432 |
| |||||
Other current receivables | - | 71 | 703 | 4 | 778 |
| |||||
Cash and short term deposits | 116,502 | 11,070 | 38,632 | 5,179 | 171,383 |
| |||||
170,673 | 13,646 | 58,357 | 5,183 | 247,859 |
| ||||||
| |||||||||||
Non-current liabilities |
| ||||||||||
Interest bearing loans and borrowings | 837,429 | - | - | - | 837,429 |
| |||||
Preference shares | - | 164,300 | - | - | 164,300 |
| |||||
Derivative financial instruments | 1,963 | - | 2,190 | - | 4,153 |
| |||||
Rent deposits | 28,373 | - | 1,281 | 595 | 30,249 |
| |||||
Other payables | 23 | - | 7,323 | - | 7,346 |
| |||||
Current liabilities | - |
| |||||||||
Interest bearing loans and borrowings | 55,252 | - | - | - | 55,252 |
| |||||
Derivative financial instruments | - | - | 1,253 | - | 1,253 |
| |||||
Rent deposits | 8,053 | - | 14 | - | 8,067 |
| |||||
Other payables | - | 2,354 | 25,600 | 22 | 27,976 |
| |||||
931,093 | 166,654 | 37,661 | 617 | 1,136,025 |
| ||||||
| |||||||||||
The sensitivity analyses below are based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur and changes in some of the assumptions may be correlated, for example a change in interest rate and a change in foreign currency exchange rates. The Group principally manages foreign currency risk on a project by project basis. The sensitivity analysis prepared by management of foreign currency risk illustrates how changes in the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The table below shows the impact on consolidation if the US Dollar weakened or strengthened by 10% against the Russian Rouble or Sterling, with all other variables in each case remaining constant, then:
|
| ||||||||||
2015 | 2014 |
| |||||||||
Post tax profit or loss would change by: | $'000 | $'000 |
| ||||||||
| |||||||||||
Russian Rouble | 412 | 1,435 |
| ||||||||
Sterling | 10,502 | 4,358 |
| ||||||||
| |||||||||||
Net asset value would change by: |
| ||||||||||
| |||||||||||
Russian Rouble | 2,355 | 635 |
| ||||||||
Sterling | 11,184 | 7,512 |
| ||||||||
| |||||||||||
The majority of sterling sensitivity relates to the retranslation of the value of irredeemable preference shares.
Accounting standards also require disclosure of monetary assets and liablities that are denominated in currencies different from the functional currency of the specific subsidiary or entity in the Group. These are set out in the tables below. |
| ||||||||||
Russian |
| ||||||||||
As at 31 December 2015 | US Dollar | Sterling | Rouble | Other |
| ||||||
$'000 | $'000 | $'000 | $'000 |
| |||||||
Current assets |
| ||||||||||
Trade receivables | 5,257 | - | - | - |
| ||||||
Cash and short term deposits | 128,769 | - | - | 2,508 |
| ||||||
134,026 | - | - | 2,508 |
| |||||||
| |||||||||||
Current liabilities |
| ||||||||||
Interest bearing loans and borrowings | 5,020 | - | - | - |
| ||||||
Rent deposits | 6,676 | - | - |
| |||||||
11,696 | - | - | - |
| |||||||
Non-current liabilities |
| ||||||||||
Interest bearing loans and borrowings | 18,466 | - | - | - |
| ||||||
Rent deposits | 27,366 | - | - |
| |||||||
45,832 | - | - | - |
| |||||||
| |||||||||||
Russian |
| ||||||||||
As at 31 December 2014 | US Dollar | Sterling | Rouble | Other |
| ||||||
$'000 | $'000 | $'000 | $'000 |
| |||||||
Current assets |
| ||||||||||
Trade receivables | 3,070 | - | - | - |
| ||||||
Cash and short term deposits | 72,333 | - | - | 5,251 |
| ||||||
75,403 | - | - | 5,251 |
| |||||||
| |||||||||||
Current liabilities |
| ||||||||||
Interest bearing loans and borrowings | 5,000 | - | - | - |
| ||||||
Rent deposits | 8,053 | - | - | - |
| ||||||
13,053 | - | - | - |
| |||||||
| |||||||||||
Non-current liabilities |
| ||||||||||
Interest bearing loans and borrowings | 23,750 | - | - | - |
| ||||||
Rent deposits | 28,373 | - | - | - |
| ||||||
52,123 | - | - | - |
| |||||||
| |||||||||||
| |||||||||||
The Group's interest rate risk arises from long-term borrowings (note 22), which include preference shares issued (note 23). Borrowings issued at variable rates expose the Group to cash flow interest rate risk, whilst borrowings issued at a fixed rate expose the Group to fair value risk. The Group's cash flow and fair value risk is reviewed monthly by the Board. The cash flow and fair value risk is approved monthly by the Board.
The Group analyses its interest rate exposure on a dynamic basis. It takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest costs may increase as a result of such changes. They may reduce or create losses in the event that unexpected movements arise. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios the Group calculates the impact on profit and loss of a defined interest rate shift. The simulation is run on an on-going basis to verify that the maximum potential impact is within the parameters expected by management. Formal reporting to the Board on cash flows is made on a monthly basis.
To date the Group has sought to fix its exposure to interest rate risk on borrowings through fixed rate debt facilities, the use of a variety of interest rate derivatives and the issue of preference shares at a fixed coupon. This gives certainty over future cash flow but exposure to fair value movements, which amounted to an accumulated unrealised loss of $10.6 million at 31 December 2015 (2014: loss of $7.9 million).
Sensitivity analysis on the Group's interest rate borrowings, net of interest bearing deposits, indicate that a 1% increase in LIBOR rates would increase the loss for the year and decrease net assets by $2.0 million (2014: $2.2 million). If LIBOR rates were to drop to zero then there would be an decrease in the loss for the year and an increase in net assets of $2.8 million (2014: increase of $0.7 million) as the loss on income from cash would be greater than gains on interest expense because of the low LIBOR rates prevailing at this time and the interest rate hedges in place.
|
| ||||||||||
(b) Credit risk
|
| ||||||||||
The Group's principal financial assets are cash and short term deposits, trade and other receivables and derivative financial instruments.
Credit risk associated with the Group's trade and other receivables has increased during the year. The Group historically transacted with tenants using US Dollar pegged leases, passing foreign exchange risk on to the tenant in exchange for lower US CPI indexation. The rapid weakening of the Rouble has meant that the foreign exchange risk carried by tenants has increased significantly. This may result in some tenants struggling to meet rental obligations. The Group has policies in place to ensure that rental contracts are made with tenants meeting appropriate Balance Sheet covenants, supplemented by rental deposits or bank guarantees from international banks. No significant doubtful receivables existed at the year end and the amounts presented in the Balance Sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is objective evidence that the Group will not be able to collect all amounts due according to the terms of the receivables concerned. Details of the movements in provision for impairment of trade receivables is provided in the table below.
|
| ||||||||||
2015 | 2014 |
| |||||||||
$'000 | $'000 |
| |||||||||
| |||||||||||
At 1 January | 591 | 377 |
| ||||||||
Charge for the year | 3,720 | 214 |
| ||||||||
Utilised in the year | - | - |
| ||||||||
Unused amounts reversed | - | - |
| ||||||||
At 31 December | 4,311 | 591 |
| ||||||||
| |||||||||||
At 31 December 2015 there were no significant amounts of unimpaired trade receivables that were past due for collection (2014: $ nil).
The Group has VAT recoverable of $7.5 million (2014: $16 million). The timing of recovery of these balances is subject to future revenue receipts and application to the Russian Courts. The Group forecasts the recovery of these balances based upon the timing of future revenue receipts and its experience of successful application to the Russian Courts. No balances are considered past due or impaired at 31 December 2015 (2014: $ nil) based upon this assessment of the timing of future cash receipts. The Group believes its only exposure is in relation to the timing of recovery.
The credit risk of the Group's cash and short term deposits and derivative financial instruments is limited to the Group's policy of monitoring counterparty exposures.
|
| ||||||||||
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Board and its advisers seek to have appropriate credit facilities in place on a project by project basis, either from available cash resources or from bank facilities.
Management monitor the Group's liquidity position on a daily basis and formal liquidity reports are issued from all jurisdictions on a weekly basis and are reviewed monthly by the Board, along with cash flow forecasts. A summary table with maturity of financial liabilities is presented below.
All amounts shown are gross undiscounted cash flows.
|
| ||||||||||
Financial liabilities | Years |
| |||||||||
As at 31 December 2015 | Total | Current | Year 2 | Years 3 to 5 | 6 to 10 |
| |||||
$'000 | $'000 | $'000 | $'000 | $'000 |
| ||||||
| |||||||||||
Interest bearing loans and borrowings | 1,136,455 | 167,551 | 214,778 | 613,384 | 140,742 |
| |||||
Preference shares | 173,977 | 17,398 | 17,398 | 52,193 | 86,988 |
| |||||
Derivative financial instruments | 3,891 | 2,097 | 284 | 1,510 | - |
| |||||
Head leases | 2,083 | 208 | 208 | 625 | 1,042 |
| |||||
Trade and other payables | 41,850 | 12,917 | 6,521 | 19,007 | 3,405 |
| |||||
1,358,256 | 200,171 | 239,189 | 686,719 | 232,177 |
| ||||||
| |||||||||||
Years |
| ||||||||||
Total | Current | Year 2 | Years 3 to 5 | 6 to 10 |
| ||||||
As at 31 December 2014 | $'000 | $'000 | $'000 | $'000 | $'000 |
| |||||
| |||||||||||
Interest bearing loans and borrowings | 1,184,565 | 124,394 | 234,590 | 531,967 | 293,614 |
| |||||
Preference shares | 183,468 | 18,347 | 18,347 | 55,040 | 91,734 |
| |||||
Derivative financial instruments | 5,406 | 1,253 | - | 4,153 | - |
| |||||
Head leases | 5,617 | 562 | 562 | 1,685 | 2,808 |
| |||||
Trade and other payables | 66,294 | 36,044 | 7,395 | 14,756 | 8,099 |
| |||||
1,445,350 | 180,600 | 260,894 | 607,601 | 396,255 |
| ||||||
| |||||||||||
Details of the interest rates applicable to the Group's long term borrowings and preference shares are given in notes 22 and 23. The Group is subject to interest costs in perpetuity in respect of preference shares, which have no contractual maturity date. The table above does not show cash flows beyond 10 years.
The Group monitors its risk to a shortage of funds by forecasting cash flow requirements for future years. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of short term borrowing facilities, bank loans and equity fund raisings.
Fair values Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial instruments in the financial statements.
|
| ||||||||||
2015 | 2014 | ||||||||||
Carrying | Fair | Carrying | Fair |
| |||||||
Value | Value | Value | Value |
| |||||||
$'000 | $'000 | $'000 | $'000 |
| |||||||
Non-current assets |
| ||||||||||
Loans receivable | 606 | 567 | 1,029 | 958 |
| ||||||
Security deposits | 2,391 | 2,391 | 4,596 | 4,596 |
| ||||||
Restricted cash | - | - | 26,329 | 26,329 |
| ||||||
Derivative financial instruments | 5,585 | 5,585 | 6,853 | 6,853 |
| ||||||
| |||||||||||
Current assets |
| ||||||||||
Trade receivables | 38,683 | 38,683 | 36,459 | 36,459 |
| ||||||
Security deposits | 2,041 | 2,041 | - | - |
| ||||||
Other current receivables | 202 | 202 | 778 | 778 |
| ||||||
Derivative financial instruments | 233 | 233 | 432 | 432 |
| ||||||
Cash and short term deposits | 202,291 | 202,291 | 171,383 | 171,383 |
| ||||||
| |||||||||||
Non-current liabilities |
| ||||||||||
Interest bearing loans and borrowings | 814,021 | 623,340 | 837,429 | 593,480 |
| ||||||
Preference shares | 156,558 | 184,705 | 164,300 | 183,467 |
| ||||||
Derivative financial instruments | 1,794 | 1,794 | 4,153 | 4,153 |
| ||||||
Rent deposits | 28,932 | 21,999 | 30,249 | 22,736 |
| ||||||
Other payables | 2,721 | 2,721 | 7,346 | 7,346 |
| ||||||
| |||||||||||
Current liabilities |
| ||||||||||
Interest bearing loans and borrowings | 104,724 | 104,724 | 55,252 | 55,252 |
| ||||||
Derivative financial instruments | 2,097 | 2,097 | 1,253 | 1,253 |
| ||||||
Rent deposits | 6,827 | 6,827 | - | - |
| ||||||
Other payables | 6,090 | 6,090 | 27,977 | 27,977 |
| ||||||
| |||||||||||
The fair values of loans receivable and borrowings have been calculated based on a discounted cash flow model using a discount rate based on the Group's weighted average cost of capital. The valuation technique falls within level 3 of the fair value hierarchy (see note 35 for definition). The fair value of short term deposits, other assets, trade and other receivables, trade and other payables is assumed to approximate to their book values. The fair value of preference shares is assumed to be their last quoted price, which is considered to be level 1 of the fair value hierarchy. The fair value of derivatives is determined by a model with market based inputs.
|
| ||||||||||
(d) Capital risk management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
For capital risk management, the Directors consider both the ordinary and preference shares to be permanent capital of the Company, with similar rights as to cancellation.
To maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, under take tender offers, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in its industry, the Group monitors capital on the basis of its gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total liabilities but excluding provisions, head lease obligations and preference shares, which for capital risk management is considered to be capital rather than debt, less cash and short term deposits. Total capital is calculated as equity, as shown in the balance sheet, plus preference shares and net debt. Where the Group has a net cash position, the gearing ratio will be zero.
|
| ||||||||||
2015 | 2014 |
| |||||||||
$'000 | $'000 |
| |||||||||
| |||||||||||
Non-current liabilities | 900,366 | 960,972 |
| ||||||||
Current liabilities | 160,193 | 141,433 |
| ||||||||
Total borrowings | 1,060,559 | 1,102,405 |
| ||||||||
Less: cash and short term deposits | 202,291 | 171,383 |
| ||||||||
Net debt | 858,268 | 931,022 |
| ||||||||
| |||||||||||
Equity | 465,042 | 697,289 |
| ||||||||
Preference shares | 156,558 | 164,300 |
| ||||||||
Total capital | 1,479,868 | 1,792,611 |
| ||||||||
| |||||||||||
Gearing ratio | 58.00% | 51.94% |
| ||||||||
| |||||||||||
35. Fair value measurement
The following table provides the fair value measurement hierarchy* of the Group's assets and liabilities.
|
| ||||||||||
Total Fair |
| ||||||||||
Level 1 | Level 2 | Level 3 | Value |
| |||||||
As at 31 December 2015 | $'000 | $'000 | $'000 | $'000 |
| ||||||
| |||||||||||
Assets measured at fair value |
| ||||||||||
Investment property | - | - | 1,333,987 | 1,333,987 |
| ||||||
Investment property under construction | - | - | 39,129 | 39,129 |
| ||||||
Derivative financial instruments | - | 5,818 | - | 5,818 |
| ||||||
| |||||||||||
Liabilities measured at fair value |
| ||||||||||
Derivative financial instruments | - | 3,891 | - | 3,891 |
| ||||||
| |||||||||||
As at 31 December 2014 |
| ||||||||||
| |||||||||||
Assets measured at fair value |
| ||||||||||
Investment property | - | - | 1,593,684 | 1,593,684 |
| ||||||
Investment property under construction | - | - | 47,958 | 47,958 |
| ||||||
Derivative financial instruments | - | 7,285 | - | 7,285 |
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Liabilities measured at fair value |
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Derivative financial instruments | - | 5,406 | - | 5,406 |
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* Explanation of the fair value hierarchy: |
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Level 1 - Quoted prices in active markets for identical assets or liabilities that can be accessed at the balance sheet date.
Level 2 - Use of a model with inputs that are directly or indirectly observable market data.
Level 3 - Use of a model with inputs that are not based on observable market data.
The Group's foreign currency derivative financial instruments are call options and are measured based on spot exchange rates, the yield curves of the respective currencies as well as the currency basis spreads between the respective currencies. The Group's interest rate derivative financial instruments comprise swap contracts and interest rate caps. These contracts are valued using a discounted cash flow model and where not cash collateralised consideration is given to the Group's own credit risk.
There have been no transfers between level 1 and level 2 during the year or the prior year.
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36. Subsequent events
There have been no subsequent events.
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37. Operating lease arrangements
The Group earns rental income by leasing its investment properties to tenants under non-cancellable operating leases, which are discussed in detail in the Strategic Report and note 13. At the Balance Sheet date the Group had contracted with tenants for the following future minimum lease payments:- |
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2015 | 2014 |
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$'000 | $'000 |
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Within one year | 136,416 | 172,108 |
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In the second year | 113,410 | 142,252 |
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In the third to fifth year (inclusive) | 208,901 | 252,843 |
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After five years | 59,127 | 79,540 |
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517,854 | 646,743 |
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Related Shares:
RAV.L