29th Sep 2006 07:00
Raven Russia Limited29 September 2006 RAVEN RUSSIA Limited ("Raven Russia" or the "Company") INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 29 September 2006 HIGHLIGHTS • Group profit before tax was £4.5 million. • Maiden Interim Dividend of 2p per Ordinary share (2005: Nil). • Secondary fund raising in April 2006 raised a further £310 million. • Committed to six separate deals with a projected end value of US$600 million. • Separately, framework joint venture agreement announced with a projected end value of US$775 million. • Substantial deal pipeline. Commenting on the results, Adrian Collins, Chairman, said: "In a very short timescale, the Company has established itself as a significantinvestor in the Russian market and as forecast in my last Chairman's Statement,has fully committed the capital raised in our initial placing. Our everexpanding deal pipeline includes a number of very exciting opportunities whichmeans that we can look to the second half of the year and beyond withconfidence." Enquiries to: Investec Administration Services Limited +44 (0)1481 750507 CHAIRMAN'S STATEMENT Overview The last six months has been a busy period in the life of your Company. In Aprilwe raised a further £310 million from existing and a number of new shareholdersto enable the Company to continue to expand in its chosen area of investment inRussia and take advantage of an attractive deal pipeline. This takes total fundsraised to £463 million, which, with gearing, will give Raven Russia over £1.5billion of investment capacity. Raven Russia Property Management have outlinedthe progress made in spending these funds more fully in the Property Adviser'sreport, but as at today's date we have invested or committed to invest in sixseparate property projects in Moscow and St Petersburg with a projected endvalue of US$600 million. We have also signed a framework agreement withAddington, our development partner in Shushari, St Petersburg, to develop anetwork of logistics warehouses across Russia, which in total, if all sites cometo fruition, could provide around 1million sq m of new build accommodation withan estimated end value of US$775 million. It seems quite clear that the Russian economy continues to power ahead, andwhilst a lot is made of the fabulous wealth of the much reported Oligarchs, I amin no doubt that a great deal of spending power is trickling down the economictree giving rise to greater demand for all manner of goods and services, all ofwhich need to be stored and distributed - giving a positive prognosis for ourinvestment in warehouses. In June the board met in Moscow and visited all three of the properties that wecommitted to purchase last year. These are high quality properties being runefficiently, similar to those you would find in any developed country. At114,000m2 (1.227million sq ft) Krekshino made a mark because of the sheer scaleof the project, equivalent to 28 acres of built space. To give shareholders some idea of the scale of our work in progress we shouldconsider the following. When all properties we already own, or have committed toforward fund and develop, are completed and assuming they are let at an averagerent of US$120 per m2, we will have 644,000m2 (6.9million sq ft) of propertywith an aggregate rent roll of US$77.3 million per annum. This excludes theUS$775 million Addington joint venture. As mentioned in the Property Advisers report the focus of the Company remainsinvestment for the long term in high quality income producing assets. With thecurrent lack of available, finished properties in the investment market, it islikely the Company will pursue more forward funding and development inconjunction with local partners. Moreover, it is anticipated this strategy willdeliver better returns for shareholders over the medium term. By taking onmeasured risk with experienced locals and ensuring that both design andimplementation of projects are properly controlled, the returns to the Company,as determined by yield on cost, should be enhanced. Interim Results The results for the six months to 30 June show a profit before tax of £4.5million (31 December 2005: £633,000), underpinned by interest income of £4.9million (31 December 2005: £2.8 million) on our cash holdings. Net rental income of £1.6 million was generated from our investment properties,giving an annualised yield of 12% on the carrying value and 12.6% on cost. Thisgave earnings per share for the period, both basic and diluted, of 1.67p (31December 2005: 0.12p). The net asset value per share at 30 June was 107p (31 December 2005: 96p) withinvestment properties carried at a value of £26.6 million (31 December 2005: £27.9 million) and forwardfunding assets under construction of £39.5 million (31 December 2005: nil),reflecting the shift in our investment approach. Cash balances at 30 June were£396m (31 December 2005: £141m). The reduction in value of investment property is a factor of the movement in theunderlying US Dollar/£Sterling exchange rate in the period. Our projects andrental income are largely denominated in US Dollars. As we continue to increaseour investment in projects and therefore our US Dollar denominated assets, theGroup is considering a move to Dollar reporting. We have engaged Credit Suisseand Goldman Sachs to manage our treasury function going forward, to optimise thereturns on our cash resources. Our cash balances continue to be heldpredominantly in Sterling pending investment and no hedging is currently enteredinto. Following our second fundraising in April, we applied to the Royal Court ofGuernsey to have our Share Premium account released as a distributable reserve.The court accepted our application on 16 June 2006 and our special,distributable reserve has increased from £143 million at 31 December 2005 to£443 million at 30 June 2006. The Board is also pleased to announce that it has appointed Credit SuisseSecurities (Europe) Limited as its joint financial adviser and broker withimmediate effect. We have also appointed Jones Lang LaSalle as valuer to theCompany, replacing Knight Frank LLC. The Board are proposing paying an interim dividend of 2p per share toshareholders on the register as at 27 October 2006. It is the current intention of the Board to recommend a final dividend of 2p per share for the year to 31 December 2006. In our fundraising documents we stated that the Board expects to be able to paya dividend of 9p per share, upon the Company becoming fully invested,representing a yield of 9% on the initial flotation price. Whilst we are stillat a relatively early stage in our investment cycle we remain very much oncourse to meet the original dividend expectations. I am mindful of the role of dividends in total returns to shareholders and alsoof the weak stock market conditions experienced across London listed propertyinvestment companies from the end of the first quarter of 2006. The weak stockmarket conditions contrast with the progress made in the business itself, whichis very much on plan. Nonetheless, it is important to be clear about the Board'sintentions as regards capital management. The Company is focused on activelymanaging its capital base so as to maximise shareholder value. When consideringthe appropriate level of dividends to pay at any one point in time, the Boardwill have regard to, inter alia, the Company's ongoing capital commitments,revenue reserves, refinancings and revaluation gains on properties. Dividendswill be considered as part of regular, active management of the Company'scapital base together with share buy backs and tender offers for shares when theopportunity to enhance net assets per shares arises. The Board intends to put inplace a scrip dividend alternative for the 2006 final dividend and for allfuture dividends which should accommodate both the requirement of thoseshareholders who wish to participate in the long term capital appreciation ofthe portfolio of properties and those who require a cash dividend. Much needs to be done in the months ahead to realise the full potential of RavenRussia's mandate and we have come a long way in a relatively short period oftime. The Property Adviser has built up a strong pipeline of potentialacquisitions, which, if they all come to fruition on terms which the Board aresatisfied with, will commit the vast majority of the available funds. Themandate is not simply to become fully invested, but to invest in the bestopportunities. I look forward to the second half of the year with confidence,and should like to thank the team of people who have worked exceedingly hard toget your Company to this point. Adrian CollinsChairman29 September 2006 PROPERTY ADVISERS REPORT Acquisitions In the period ending 30 June 2006, Raven Russia signed two further deals withlocal partners which have a potential end value of some US$400 million oncebuilt and fully let. Since the end of the period the Company also announcedanother deal, taking the projected end value of projects to over US$600 million.In addition, we announced a joint venture framework agreement with a projectedend value of US$775 million. In St Petersburg the Company has jointly acquired 29ha of land and agreed toforward fund the construction of a 128,000 sq m logistics park on the southernoutskirts of the city. The project is 50% pre-let to Avalon Logistics for 10years from completion. Master planning of the project is now almost complete andit is anticipated that work will start on site shortly. In early June the Company signed a Joint Venture and forward funding agreementwith Aldama to acquire and jointly develop a 62ha plot of land to the east ofMoscow for logistics and light industrial use. There is potential to constructcirca 300,000sq m (3.23 million sq ft) of real estate on the site. Theanticipated cost of construction is US$212 million and the potential end valueof the project at today's rents and cap rates is almost US$300 million. Thelocal partner is perhaps the most experienced developer of industrial propertyin the Moscow region and is the developer of the Baltia and Southern propertiesthat the Company acquired at the end of 2005. In July the Company announced that it had signed a joint venture frameworkagreement with Addington, our development partner in Shushari, St Petersburg, toroll out and develop a network of logistics warehouses across 14 cities. Atleast 50% of this space will be prelet to Avalon Logistics on 10 year leaseswithout a break clause. We anticipate this programme could provide 1million sq mof Grade A space over a six year period with a projected end value of US$775million. On behalf of the Company we have already visited a number of thepotential sites in this programme and are hopeful that we can begin acquiringthem in the next few months. If all 14 projects are realised, it is estimatedthat the total project costs would be US$660 million including the cost of land,construction and finance. The projected yield on cost to the joint venture is15.75%. At the start of August the Company entered into another joint venture withAldama and acquired a well located site of 10ha on the outskirts of St.Petersburg, close to the international airport, on which it plans to develop atleast 60,000 sq m of Grade A logistics warehouses and ancillary offices. Thejoint venture expects the costs of the project to be approximately US$44million, including land, construction and finance. The anticipated yield on costto the joint venture is 15.5%. Raven Russia has the right to and intends to buyAldama's share in the development joint venture once the project is built andlet, at a fixed cap rate which is anticipated will create an end value of inexcess of US$52 million. The Market and Sourcing deals As mentioned at the year end the Company's main focus has been on four distinctbusiness areas namely: - Straightforward investment purchases; - Sale and Leasebacks; - Tenant Partnering; and - Forward funding local developers. On behalf of the Company we consider a significant number of propertyopportunities across Russia, favouring off market deals with local partners.Those which are actively marketed by international agents are generally offeredat terms which we believe are too aggressive in today's market to interest us,albeit that we see a positive valuation trend in this for Raven Russia's ownassets. The high cost of debt, which is generally priced at a margin over USLibor, and the complex structures with which these deals are often marketed,deter us from bidding for product that we do not believe will deliver the bestreturns for shareholders. Whilst our initial focus on behalf of the Company has been logistics warehousingproperty in Moscow and St Petersburg, we are considering a number ofopportunities in large, strategically located, regional cities with populationsin excess of 500,000. These cities have a dearth of high quality real estatedespite there being very strong tenant demand and local political support. Most of the major real estate agents are reporting signs of yield compressionand a significant strengthening of domestic and international investor demandfor property in Russia. This demand from investors is focused on a small numberof properties that are actively openly marketed and in most cases we believethat better deals can be achieved off market. The rental market, particularly in the logistics warehouse sector remains strongwith the level of requirements ahead of both the available space and that whichis actually expected to come to the market over the next 12-18 months. Rents arestill showing signs of growth and despite their relatively high level (to otherestablished markets) we remain confident about the rental market. An encouragingsign is that more tenants are now prepared to sign leases of five years durationwithout break and 10 years is no longer uncommon. Existing Properties and Projects The two standing investments the Company acquired last year remain fully let andperforming as expected, with net operating income, if anything, slightly aheadof our expectations. In March 2006 the Baltia Warehouse was named winner of theindustrial category at the 2006 Russian Property Awards. Progress at Krekshino where the Company committed to forward fund theconstruction of a 114,000 sq m (1.227 million sq ft) is on programme and budgetand we expect it to be fully let and income producing to the Company by Spring2007. Outlook The search for new properties continues on behalf of the Company. The Managernow employs a team of over 20 people sourcing and closing deals and running theexisting buildings. The market remains opaque and it is the skill and knowledgeof our local employees and partners which makes closing deals possible. By building on these relationships and our network of contacts we are confidentthat we will continue to unearth property projects for Raven Russia to acquire. Raven Russia Property Management LimitedProperty Adviser Consolidated Income Statement For the period to 30 June 2006 Unaudited Audited 01/01/06 to 04/07/05 to 30/06/06 31/12/05 Revenue Capital Total Revenue Capital Total Notes £'000 £'000 £'000 £'000 £'000 £'000 Gross rental income 2,441 - 2,441 140 - 140 Property operating (851) - (851) (92) - (92) expenditure Net rental income 1,590 - 1,590 48 - 48 Selling, general and (1,538) - (1,538) (4,400) - (4,400) administrative expenses Net foreign currency (21) - (21) 256 - 256 (losses) / gains Operating expenditure (1,559) - (1,559) (4,144) - (4,144) Operating profit / (loss) 31 - 31 (4,096) - (4,096) before gains on investment properties Unrealised gains on revaluation - - - - 1,908 1,908 of investment properties Operating profit / (loss) 31 - 31 (4,096) 1,908 (2,188) Bank interest receivable 4,954 - 4,954 2,797 - 2,797 Bank borrowing costs (524) - (524) (33) - (33) Loan interest receivable 47 - 47 57 - 57 Finance income 4,477 - 4,477 2,821 - 2,821 Profit / (loss) before tax 4,508 - 4,508 (1,275) 1,908 633 Tax (370) - (370) 7 (458) (451) Net profit/(loss) for the period 4,138 - 4,138 (1,268) 1,450 182 Earnings per share - basic 2 1.67p 0.12p Earning per share - diluted 2 1.67p 0.12p The total column of this statement represents the Group's Income Statement,prepared in accordance with IFRS. The revenue and capital columns are bothsupplied as supplementary information permitted by IFRS.All items in the above statement derive from continuing operations. All income is attributable to the equity holders of the parent company. There are no minority interests. The accompanying notes are an integral part of this statement. Consolidated Balance SheetAs at 30 June 2006 Unaudited Audited 30/06/06 31/12/05 £'000 £'000Non-current assetsGoodwill 932 -Investment properties 26,636 27,902Assets under construction 39,486 -Value added tax recoverable 655 1,700Deferred tax assets 223 355Other assets 74 6 68,006 29,963Current assets Trade and other receivables 1,554 1,385 Loan receivables 4,439 -Cash and cash equivalents 396,480 141,069 402,473 142,454Total assets 470,479 172,417 Non-current liabilitiesInterest bearing bank loans 8,641 10,106Rent deposits 806 325Deferred revenue 62 51Deferred tax liability 822 802 10,331 11,284 Current liabilitiesTrade and other payables 6,169 13,130Interest bearing bank loans 1,121 1,115 7,290 14,245Total liabilities 17,621 25,529 Net assets 452,858 146,888 EquityShare capital 4,247 1,530Share premium account - -Shares to be issued 700 -Special reserve 443,099 143,374Capital reserve 1,450 1,450Warrant reserve 1,279 1,279Share options reserve 751 523Revenue reserve 2,870 (1,268)Translation reserve (1,538) -Total equity 452,858 146,888 Net asset value per share 107p 96p The accompanying notes are an integral part of this statement. Consolidated Statement of Changes in EquityFor the period to 30 June 2006 Share Share Shares to Share Premium Special Capital Warrant Options Retained Translation be Capital Account Reserve Reserve Reserve Reserve Earnings Reserve issued Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Issue ofordinary share capital, net of issue costs 1,530 143,374 144,904 Conversion of share premium account (143,374) 143,374 - Net profit forthe period 182 182 Transfer in respect of gains oninvestmentproperties 1,450 (1,450) - Recognition inrespect of share-basedpayments 1,279 523 1,802 Audited balances as at 31 December 2005 1,530 - 143,374 1,450 1,279 523 (1,268) - - 146,888 Issue costsincurred (12) (12) Issue ofordinary share capital, net of issue costs 2,696 297,308 300,004 Issue inrespect of propertyadvisors fees 21 2,429 2,450 Conversion of share premium (299,737) 299,737 -account Shares to beissued in respect ofpropertyadvisors feespayable 700 700 Net profit forthe period 4,138 4,138 Recognition inrespect of share-basedpayments 228 228 Translation onconsolidation (1,538) (1,538) Unaudited balances as at 30 June 2006 4,247 - 443,099 1,450 1,279 751 2,870 (1,538) 700 452,858 The accompanying notes are an integral part of this statement. Consolidated Cash Flow StatementFor the period to 30 June 2006 Unaudited Audited 01/01/06 to 04/07/05 to 30/06/06 31/12/05 £'000 £'000Cash flows from operating activitiesOperating gain / (loss) 31 (2,188)Adjustments for: -Unrealised gains on revaluation of investment properties - (1,908)Recognised share based payments 228 197Decrease /(increase) in operating trade and other receivables 1 (2,092)(Decrease) / increase in operating trade and other payables (853) 7,357 (593) 1,366Bank interest received 4,944 2,772Loan interest received 65 25Bank borrowing costs paid (389) (33)Tax paid (285) -Net cash inflow from operating activities 3,742 4,130 Cash flows from investing activitiesPayments to acquire investment properties and assets under construction (43,003) (4,766)Loans advanced (4,505) (482)Loans repaid 463 -Costs incurred for future property purchases (50) (323) Net cash outflow from investing activites (47,095) (5,571) Cash flows from financing activitiesProceeds from issue of ordinary share capital 310,000 147,027Issue costs (10,009) (519)Loan repayments (1,143) (3,998) Net cash inflow from financing activities 298,848 142,510Net increase in cash and cash equivalents 255,495 141,069Opening cash and cash equivalents 141,069 -Effect of foreign exchange rate changes (84) - Closing cash and cash equivalents 396,480 141,069 The accompanying notes are an integral part of this statement. Notes to the Interim ResultsFor the period to 30 June 2006 1. Basis of consolidation and preparation The unaudited interim financial statements have been consolidated and prepared on a basis consistent with accounting policies set out in the Raven Russia Limited audited annual report and accounts for the period ended 31 December 2005. 2. Earnings per share Unaudited Audited 30/06/06 31/12/05 £'000 £'000The calculation of the basic and diluted earnings per share is based on the following data: Earnings Earnings for the purposes of basic and diluted earningsper share being net profit attributable to equity holders 4,138 182of the parent. Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 247,383 153,000 Effect of dilutive potential ordinary shares: Options 2 3 Warrants 10 11 Other equity based payments 612 2,099 Weighted average number of ordinary shares for the purposes of diluted earnings per share 248,007 155,113 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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