RAVEN RUSSIA LIMITED
2017 Annual Report
RAVEN RUSSIA LIMITED
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017
CONTENTS
Results Highlights
Chairman’s Message
The Portfolio
STRATEGIC REPORT
Chief Executive’s Report
Business Model
Portfolio Review
Finance Review
Risk Report
Viability Statement
GOVERNANCE REPORT
Directors
Corporate Governance
Corporate Responsibility
Letter from the Remuneration Committee
Directors’ Remuneration Report
Audit Committee Report
Directors’ Report
Independent Auditor’s Report
FINANCIAL STATEMENTS
Group Income Statement
Group Statement of Comprehensive Income
Group Balance Sheet
Group Statement of Changes in Equity
Group Cash Flow Statement
Notes to the Financial Statements
Advisers
Enquiries
3
PAGE
4
5
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26
27
28
33
37
41
42
43
48
50
53
60
64
67
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75
76
79
80
82
121
122
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
4
RESULTS
HIGHLIGHTS
IFRS PROFIT
AFTER TAX
UNDERLYING EARNINGS
AFTER TAX OF
BASIC UNDERLYING
EARNINGS PER SHARE
$57.7 MILLION
$56.8 MILLION
8.56 CENTS
IFRS BASIC EARNINGS
PER SHARE
YEAR END
CASH BALANCE OF
DILUTED NET ASSET
VALUE PER SHARE
8.69 CENTS
$266.7 MILLION
80 CENTS
$209 MILLION
OF ACQUISITIONS
COMPLETED
IN THE YEAR
INVESTMENT
PROPERTY VALUE
$1.6 BILLION
DISTRIBUTION PER
ORDINARY SHARE
FOR THE YEAR
4 PENCE
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
5
CHAIRMAN’S
MESSAGE
I am delighted to report that the results for the year have exceeded our expectations and that we are achieving our objective of an acquisition
driven business model. In addition, and through a doggedly tenacious approach to planning, we have won various planning consents on our
legacy UK land bank and achieved large gains which have added further gloss to the year. I take this opportunity to applaud the executive team
for their hard efforts in this regard.
We were successful in completing two acquisition projects in the year, an office portfolio and a warehouse in St Petersburg in April and a
large logistics complex in Moscow in November. Consideration for the acquisitions totalled $209 million and should generate a minimum
of $24 million of net operating income (“NOI”) in the current year.
The acquisitions were part funded by a second issue of convertible preference shares in July 2017, raising $126 million. With significant cash
reserves and the potential to secure finance on the last acquisition, we are actively pursuing further income producing acquisitions in a number
of different asset classes.
Underlying earnings have increased to $56.8 million (2016: $47.1 million) and basic underlying earnings per share to 8.56 cents (2016: 7.17 cents).
With a revaluation gain of $38.2 million (2016: loss of $43.3 million), the first gain in our portfolio values since 2013, our IFRS earnings increased
to $57.7 million (2016: $7.7 million) and diluted net asset value per share to 80 cents (2017: 71 cents).
We are proposing a final distribution of 3p, paid by way of a tender offer buy back of 1 share in every 17 at 52p. This will give a total distribution
of 4p for the year.
We are again extremely grateful for the continued support of our shareholders over the last twelve months.
Richard Jewson
Chairman
11 March 2018
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
6
THE PORTFOLIO
RUSSIAN FEDERATION
INVESTMENT PROPERTY
LAND BANK
ST PETERSBURG
MOSCOW
NIZHNIY NOVGOROD
ROSTOV-ON-DON
UFA
OMSK
NOVOSIBIRSK
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
7
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
KAD
M10
KAD
KAD
8
THE PORTFOLIO
Moscow
SEVER
LOBNYA
SHOLOKHOVO
SHEREMETIEVO
AIRPORT
PUSHKINO
ISTRA
NOVA RIGA
NOGINSK
KREKSHINO
SOUTHERN
VNUKOVO
AIRPORT
DOMODEDOVO
AIRPORT
KLIMOVSK
Warehouse
Office
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
THE PORTFOLIO
9
St Petersburg
KAD
M10
KAD
PRIMIUM
KELLERMANN
KONSTANTA
KAD
SHUSHARY
PULKOVO
GORIGO
PULKOVO
AIRPORT
Warehouse
Office
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
10
WAREHOUSE
Pushkino, Moscow
DESCRIPTION
LOCATION
The property is located on the
Yaroslavskoe Highway, approximately
15km from the MKAD in the
northeastern part of Moscow Region.
Grade A Logistics Warehouse Complex
KEY TENANTS
• DHL
• Itella
• Makita
• Megapolis
GLA
214,500 sq m
11
WAREHOUSE
Istra, Moscow
DESCRIPTION
LOCATION
The property is directly adjacent to
the Nova Riga highway, approximately
50km from Moscow city centre, 41km
from the MKAD and 8km from the
Betonka A107 motorway.
Grade A Logistics Warehouse Complex
KEY TENANTS
• DSV Solutions
• Azbuka Vkusa
• Major Terminal
• Danom
• Bacardi
GLA
206,000 sq m
12
WAREHOUSE
Noginsk, Moscow
DESCRIPTION
LOCATION
Grade A Logistics Warehouse
Complex with 26ha of land suitable
for construction
KEY TENANTS
• X5 Retail Group
• Dixy
• Sportmaster
• ID Logistics
GLA
203,800 sq m
The property is located approximately
55km from the city centre, 44km from
the MKAD and 3km from the Betonka
A107 motorway. Access is from the
Volga highway, which links Moscow to
Nizhniy Novgorod. A rail spur serves
the site.
13
WAREHOUSE
Sever, Moscow
DESCRIPTION
LOCATION
The property is located north of
Moscow city centre, 35km from the
MKAD, 0.5km from the Betonka A107
motorway and 1.5km from the new
Moscow-St Petersburg toll highway.
Grade A Logistics Warehouse Complex
KEY TENANTS
• R-Pharm
• OBI
• Miratorg
• O’Key
• Major Terminal
GLA
195,000 sq m
14
WAREHOUSE
Klimovsk, Moscow
DESCRIPTION
LOCATION
The property is located to the south
of Moscow, approximately 21km from
the MKAD in the town of Klimovsk.
The project is a short distance from the
M2 Simferopolskoye highway, a major
route to the south of Moscow.
Grade A Logistics Warehouse Complex
KEY TENANTS
• Danone
• Private Trade (Kupi VIP)
• TM Project (Marvel)
• Gradient
• FARM
GLA
157,600 sqm
15
WAREHOUSE
Shushary, St Petersburg
DESCRIPTION
LOCATION
Grade A Logistics Warehouse Complex
KEY TENANTS
• RosLogistics
• Dixy
• Officemag
• Bbraun
• Amway
GLA
148,000 sqm
The property is located in the
Shushary District of St. Petersburg,
approximately 15km south of the city
centre and 5km from the St Petersburg
ring road (KAD) on a motorway linking
St. Petersburg to Moscow, close to
Pulkovo International airport.
16
WAREHOUSE
Novosibirsk
DESCRIPTION
GLA
Grade A Logistics Warehouse Complex
121,300 sq m
KEY TENANTS
• Pepsi
• Sportmaster
• Wildberries
• Roust Russia
• Elektrosystem
• OSG
• Metro
LOCATION
The property is located on Petukhova
Street in the south of the city of
Novosibirsk, close to the M51 highway
to Moscow, with a rail spur serving
the site.
17
WAREHOUSE
Krekshino, Moscow
DESCRIPTION
LOCATION
Grade A Logistics Warehouse Complex
KEY TENANTS
• Itella
• Gorenje
• S-Import
GLA
117,900 sq m
The property is located in Moscow
about 40km to the south west of the
city centre, 24km from the MKAD,
between the Minsk and Kiev highways.
Vnukovo airport, one of the largest
airports in Moscow, is located within
15km of the complex.
18
WAREHOUSE
Rostov-on-Don
DESCRIPTION
Grade A Logistics Warehouse
Complex with 27ha of land suitable
for construction
KEY TENANTS
• Auchan
• Elektrosystem
• Mars
• Mir Instrumenta
• Mobis Parts CIS
• Tarkett
GLA
101,200 sq m
LOCATION
The scheme is located on the Federal
Highway M4 to Moscow, approximately
10km from the city centre and 7km
from the airport.
19
WAREHOUSE
Gorigo, St Petersburg
DESCRIPTION
LOCATION
Grade A Logistics Warehouse Complex
KEY TENANTS
• DB Schenker
• Simba Toys
• Orimi
GLA
84,800 sq m
The property is located south of
St Petersburg close to Pulkovo
International Airport, just 2 km away
from the Ring Road and Tallin highway,
which provides easy access to the city.
20
WAREHOUSE
Nova Riga, Moscow
DESCRIPTION
LOCATION
The property is directly adjacent to
the Nova Riga highway allowing easy
access to the centre of Moscow, 25km
from the MKAD and 5km from the
Betonka A107 motorway.
Grade A Logistics Warehouse
Complex with 25ha of land suitable
for construction
KEY TENANTS
• Pernod Ricard
• McKenzie
• Vadan
GLA
67,600 sq m
21
WAREHOUSE
Lobnya, Moscow
DESCRIPTION
LOCATION
Grade A Logistics Warehouse Complex
KEY TENANTS
• Nippon Express
• RosLogistics
GLA
52,500 sq m
The property is located on the
Rogachevckoe highway approximately
35km to the north of the Moscow
city centre, 20km from the MKAD and
10km north-east of Sheremetyevo
airport.
22
WAREHOUSE
Sholokhovo, Moscow
DESCRIPTION
LOCATION
Grade A Logistics Warehouse Complex
KEY TENANT
• RosLogistics
GLA
45,300 sq m
The property is located in
Myitischensky District of the Moscow
Region, on the Dmitrovskoe highway,
approximately 16km from the MKAD,
and 15km from Sheremetyevo airport.
23
WAREHOUSE
Pulkovo, St Petersburg
DESCRIPTION
GLA
Grade A Logistics Warehouse Complex
36,800 sq m
KEY TENANTS
• SKL
• OSG
• Edil Import
• UPM
LOCATION
The property is located to the south of the city centre on Pulkovskoe highway forming part of
the Finland-Russia-Ukraine corridor and in close proximity to the Ring Road (KAD) and 2km
from Pulkovo International airport.
Southern, Moscow
DESCRIPTION
GLA
Grade A Logistics Warehouse Complex
14,100 sq m
KEY TENANTS
• Lindex
• A&D Rus
• L’Occitane
• Stomatorg
LOCATION
The property is located in an industrial area of the Southern administrative district of
Moscow, approximately 10km from the city centre, around 1km from the Varshavskoye
highway and 5km from the MKAD.
24
OFFICE
Kellermann, St Petersburg
DESCRIPTION
LOCATION
The property is located in
historical centre of St Petersburg in
Admiralteyskiy district, 15 min drive
from the Nevskiy prospect.
High quality Office Complex
KEY TENANTS
• Oracle Development
• Baltiyskiy Leasing
• Melon Fashion
• MAERSK
GLA
21,600 sq m
25
OFFICE
Primium, St Petersburg
DESCRIPTION
Class A Office Complex
KEY TENANT
• YIT
GLA
11,100 sq m
LOCATION
The property is located north-west of St Petersburg in Primorskiy district, close to the new
Gazprom headquarters.
Konstanta, St Petersburg
DESCRIPTION
Grade B+ office building
KEY TENANT
• LenEnergo
GLA
15,800 sq m
LOCATION
The Konstanta office is located on Leninsky Prospekt in the Moskovskiy district of St. Petersburg,
approximately 8km to the south of the city centre. The property is a modernised administrative
building, which was converted in 2005 to provide an eight storey, self contained office building
for Lenenergo.
26
CHIEF EXECUTIVE’S
REPORT
Dear Shareholders,
We are delighted with the overall results for 2017. NOI is up 10% to
$166.7 million, underlying earnings per share are up 19% to 8.56
cents and diluted net asset value per share is up 13% to 80 cents.
As previously indicated, at this stage of the Russian property cycle
and in a quest for income, we have successfully broadened our focus
into property sectors other than logistics warehousing. We anticipate
that this will continue as our strategy of seeking high quality income
producing acquisitions continues alongside active management of
With year end cash balances of $266.7 million, we are increasing
the existing portfolio. The Group’s significant cash balance provides
the distribution per share by 50% to 3p per share. As usual this
us with the financial resource to achieve this. We expect further news
distribution will be made by way of a tender offer buy back of shares,
during the year.
this time for 1 in 17 shares held at a price of 52 pence per share.
We intend to allow shareholders to subscribe for more than their
pro rata entitlement.
We took advantage of the strong UK housing market by selling most
of our UK strategic land holdings. This generated a profit of $20.2
million and cash of $21.6 million for Raven Mount in the year. These
assets were acquired with Raven Mount PLC in 2008 for $0.7 million.
Longstanding shareholders know that our business can, and has
been, significantly affected by geo-political events. Fortunately,
2017 was a year of relative stability.
The Rouble/Dollar remained within a range of 55 to 60. The oil price
has slowly improved and now stands at $64 per barrel. The Russian
economy has stabilised and returned to growth despite sanctions.
2017 GDP growth was 1.5%, inflation fell from 5.4% to 2.5% and
In relation to our joint venture with the Russian CoOp we are at
central bank rates have fallen from 10% to 7.5%. Although we will
the early planning stage of a pilot project. This has potential both
not rely on it, most commentators forecast further improvements in
for property returns and for our third party logistics operator,
2018 and beyond. With some fair economic winds and the continued
Roslogistics, in managing the sites.
Our core business of logistics warehousing has performed well.
implementation of our strategy of acquisitions, alongside organic
growth, we believe that shareholders will be rewarded.
We still fight the medium term “Roubilisation” of rents through
We would like to thank our shareholders for their continued support
letting space (187,100sqm in 2017) and by strategic acquisitions.
and encouragement, particularly those who do not delegate their
voting responsibilities to voting agencies. Compliance, regulation and
political correctness are time consuming issues for businesses and we
continue to deal with them with our customary professionalism and
sense of humour.
Glyn Hirsch
Chief Executive Officer
11 March 2018
Favourable market conditions gave us the opportunity to acquire
four properties in two transactions in Moscow and St Petersburg for
a combined consideration of RUR11.989 billion ($209 million). Both
purchases represent attractive prices per sqm relative to replacement
cost. The St Petersburg acquisition of three separate properties was
completed in April and added 87,000sqm of Grade A warehousing
and 33,000sqm of offices for a total consideration of RUR4.9 billion
($86 million) at an initial yield of 16%. The properties were 98% leased
at acquisition to 68 tenants including Otis, Oracle, YIT, Schenker and
Maersk. In November we completed the acquisition of Logopark
Sever, a new Grade A warehouse complex of 195,000sqm to the north
of Moscow. The property was 73% leased at completion to major
tenants including Obi, Okey, Major Logistics and Miratorg and is
83% let today. Total consideration based on letting of the vacant
space over the next 18 months is estimated at RUR7.089 billion
($123 million) which would produce a yield of 11.38% and a
reversionary yield of 12.51%.
These acquisitions contributed $10 million of NOI to the 2017
results and should contribute at least $24 million of NOI in 2018.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
27
BUSINESS
MODEL
Our Strategy
Key Performance Indicators (‘KPIs’)
We continue with our strategy of acquiring and maintaining our
core investment portfolio of Grade A logistics warehouses in Russia
with the aim of producing rental income that delivers progressive
distributions to our shareholders.
But whilst we remain focussed on the logistics market we will
consider alternative asset class acquisitions if the property and
financial metrics are attractive.
As our lease terms convert from US Dollar pegged to Rouble income,
our evolving acquisition strategy is bearing fruit in supporting our net
operating income through that transition.
We continue to focus on occupancy KPIs together with the currency
mix of income and how that is likely to change over the medium term.
Cash flows after interest and debt amortisation, a measure of debt
service cover, influenced our decision to restructure our existing bank
facilities and issue new convertible preference shares.
The ability to distribute to ordinary shareholders from cash covered
underlying earnings and operating cash-flows after interest remains
our focus when determining distribution policy.
All of the above underpin financial targets set for annual bonus
incentives.
Business Model
The fundamentals of our business model have not changed. We have
a portfolio of assets with a high yield to cost of circa 12% and bank
financing costs of approximately 7%. The significant change in that
model has been our exposure to foreign currency risk. Prior to 2015,
we operated a US Dollar model and today we continue our transition
to a Rouble model.
At the year end, 46% of our warehouse income was denominated in
Roubles (2016: 24%). These leases represent 47% of the Gross Lettable
Area (“GLA”) of our warehouse portfolio (2016: 26%). Our banking
facilities remain predominately US Dollar denominated and over the
past two years we have reduced and restructured facilities to increase
covenant headroom and build in a safety margin on debt service
should exchange rates move against us. Each of the facilities secured
on our warehouse assets sits in a special purpose vehicle (“SPV”)
structure to minimise recourse to the overall portfolio and holding
company. At the year end, asset specific debt represented 53% loan
to value (2016: 55%).
Our office portfolio has a different currency mix. 49% of income is
Rouble denominated, 39% Euro and 12% US Dollar. Two of the assets
have sole tenants and we have refinanced the portfolio of three assets
with a Euro loan.
As Russian Central Bank rates continue to reduce, the plan for the next
stage of adapting our business model is to move banking facilities
to a Rouble/currency mix. This will start the process of reducing our
foreign currency risk while managing the cost of debt. Ultimately, the
Russian Central Bank rates do not have far to fall before we consider
moving to full Rouble facilities and if market commentary is correct,
we may not have long to wait for that to be the case. We are having
an open dialogue with all of our banking partners on this transition
process.
Our average letting size by tenant is 8,760sqm (2016: 11,240sqm).
We do not have one tenant with more than 11% (2016: 11%) of our
portfolio’s GLA and the top ten tenants account for 41% (2016: 46%)
of our portfolio in GLA terms and 54% (2016: 58%) in income terms.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
28
PORTFOLIO
REVIEW
Geographical analysis
Warehouse
13%
15%
11%
14%
72%
75%
Space
NOI
Office
The Group's office portfolio is located in St Petersburg.
Leasing and maturities
Moscow
St Petersburg
Regions
During the year we made two significant acquisitions, three properties in St Petersburg and Logopark Sever, a warehouse complex north of
Moscow, for a total consideration of $209 million. The acquisition of Logopark Sever did not have a material impact in 2017 as this was completed
in November but we expect it to contribute $13.8 million of NOI during 2018.
Vacancy has remained stable on a like for like basis and stands at 19% including acquisitions. Although the statistics have remained broadly static
there has been a considerable amount of activity in the portfolio.
‘000 sqm
2017
2018
2019
2020
2021-2027
Maturity profile at 1 January 2017
Maturities profile of the acquired assets
Subtotal
Lease extensions
Vacated/terminated
Remaining lease maturity profile
215
44
259
(97)
(162)
–
165
31
196
(79)
(14)
103
252
21
273
(22)
(4)
247
179
19
198
–
–
198
392
147
539
–
–
539
Total
1,203
262
1,465
(198)
(180)
1,087
198,100sqm of existing leases have been renegotiated and extended in the financial year. Space vacated on maturity and early terminations of
weaker covenants totalled 179,600sqm which, together with existing vacant space, gives 342,900sqm of vacancy at 31 December 2017. The result
is a new lease maturity profile as follows:
‘000 sqm
Remaining lease maturity profile
Maturity profile of lease extensions
New leases
Maturity profile at 31 December 2017
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
2018
103
51
15
169
2019
247
–
17
264
2020
198
78
32
308
2021-2027
539
69
123
731
Total
1,087
198
187
1,472
PORTFOLIO REVIEW
29
Lease Expiries at 31 December 2017
731
264
308
169
Space (’000 sqm)
2018
2019
2020
2021-2027
This reflects 187,100sqm of new leases signed in the year in addition to the 198,100sqm of existing lease renegotiations. There are also potential
breaks in the portfolio of 78,300sqm in 2018 and 79,000sqm in 2019. Significant new lettings include 27,200sqm to Makita in Moscow, 8,000sqm
to Mars in Rostov and Wildberries (one of the largest Russian internet retailers) doubling their space to 10,000sqm in Novosibirsk.
Since the year end, a further 53,000sqm of renewals, 21,000sqm of new lettings have been completed. In addition, letters of intent on vacant
space of 38,000sqm and lease extensions of 8,400sqm have been signed.
The warehouse and office markets in which we operate are now almost exclusively Rouble denominated and although we still have historic long
term contracts in US Dollars and Euros these are continuing to unwind. New lease terms are shorter, generally contain breaks and are Rouble
denominated but they have the benefit of annual indexation linked to Russian CPI.
At the year end 31% (2016: 50%) of our warehouse GLA had US Dollar denominated leases with an average warehouse rental level of $143 per
sqm (2016: $125 per sqm) and a weighted average term to maturity of 3.0 years (2016: 3.0 years). Rouble denominated or capped leases account
for 47% (2016: 26%) of our total warehouse space with an average warehouse rent of Roubles 5,200 per sqm (2016: 5,120 per sqm) and weighted
average term to maturity of 3.6 years (2016: 4 years). Rouble leases have an average minimum annual indexation of 6.8% (2016: 7.7%). Average
rents on new lettings during the year were Roubles 3,870 per sqm and for renewals Roubles 5,250 per sqm.
19%
3%
45%
Currency exposure of warehouse leases
6%
27%
5%
31%
2%
Space
NOI
USD
EUR
USD/RUB Cap
RUB
Vacant
62%
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
30
PORTFOLIO REVIEW
Investment Portfolio
Warehouse portfolio
Moscow
We have ten projects in Moscow, including Logopark Sever, totalling 1,274,000sqm, and with 78% of space let at the year end.
1%
4%
4%
5%
9%
13%
15%
1%
6%
1%
15%
15%
1%
17%
16%
16%
12%
24%
25%
Space
Pushkino
Istra
Noginsk
Sever
Klimovsk
Krekshino
Nova Riga
Lobnya
Sholokhovo
Southern
NOI
The Moscow portfolio had a net reduction in occupied area of 23,600sqm during the year as lease expiries ran at a faster rate than new lettings.
Moscow remains the most competitive market in which we operate, although the reduction in the amount of new space being built means the
market has certainly stabilised.
St Petersburg
14%
16%
31%
55%
16%
68%
Shushary
Gorigo
Pulkovo
Space
NOI
Regions
45%
38%
55%
62%
Novosibirsk
Rostov
Space
NOI
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
PORTFOLIO REVIEW
31
Occupancy in the regional markets of St Petersburg and Novosibirsk continues to be better than in Moscow, driven by demand from retailers
and a lack of over supply because of less historic speculative development. Although Rostov was more competitive in 2016 and 2017, since
the year end we have secured additional lettings of 9,600sqm and we are now 83% let. We have signed long term agreements with both Metro
in Novosibirsk and Mars in Rostov where we have adapted premises to incorporate temperature controlled sections of the warehouse for the
storage of specialist goods.
21%
28%
Warehouse Tenant Type
Distribution
Retail
Manufacturing
Third Party Logistics
operators
Other
Tenant Mix
3%
36%
12%
Space
Office portfolio
St Petersburg
22%
33%
45%
33%
Space
33%
NOI
34%
Kellermann
Konstanta
Primium
Since the acquisition of the St Petersburg portfolio we have worked hard to extend and enhance the income profile. At Kellerman we have signed
a new six year lease without break with the largest tenant and increased the area they occupy and rental level by 33% and 35% respectively.
We are in discussions with various other tenants on similar deals.
Portfolio yields
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 $1.63 billion (see notes 11 & 12 to the financial statements).
This has resulted in a net profit on revaluation of $38.2 million in portfolio value during the year.
Overall JLL have sharpened their yield assumptions for the portfolio although in general they still quote a range for yield across all sectors to
reflect the difference in quality of assets, leases and differing currencies. The yields used for the portfolio fall within this range.
Estimated rental values (“ERVs”) have remained static during the year, although the consensus is that they have now found their floor and the
next move will be upwards, albeit gradually.
Warehouse
2016
2017
Moscow (%)
St Petersburg (%)
Regions (%)
12.0 – 13.0
11.25 – 12.5
13.25
12.5
13.25
12.5
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
32
PORTFOLIO REVIEW
In the property investment market it is clear that the there is a two way tension. On the one hand the Central Bank of Russia has reduced its key
lending rate from 10% to 7.5% since the start of 2017. Although this does not have a direct and immediate impact on the prices investors will pay
for assets it is clear the risk premium for property assets has become more attractive. The cost of borrowing in Roubles has also fallen, making
local currency funding increasingly attractive. On the other hand there are a number of forced or distressed sellers who wish to leave the market.
This is primarily a function of the negative view of Russia in the Western press and a number of funds set up in 2007 and 2008 reaching the end of
their life. This means there is not yet a clear trend for prices, although domestic buyers remain the most active.
Land Bank
Regions
Moscow
28%
72%
18%
30%
13%
6%
33%
Regions
Rostov-On-Don
Omsk
Omsk 2
Ufa
Novgorod
Space
We continue to hold just over 50ha of land in Moscow for future development where we could build an additional 250,000sqm, although for the
foreseeable future we do not anticipate starting development unless we secure pre-lets.
Our 6ha of development land at Lobnya, Moscow have been affected by recent changes in local highway planning. Since the year end these
changes have been upheld by the court and as a consequence we have written down the carrying value of the land.
The Market
As indicated a year ago, the level of new development in the warehouse sector in the Moscow region has reduced during the year with new
supply almost halving to just over 500,000sqm. Take up was almost 1.2 million sqm and as a result the vacancy rate in the market has fallen to
around 9%. Demand was strongest from retail and distribution businesses who accounted for 39% and 19% of the take up respectively. The
warehouse market is now almost without exception denominated in Roubles and rents are in the range of Roubles 3,600 per sqm to Roubles
4,000 per sqm for Grade A space.
Vacancy in our portfolio, especially in Moscow, remains higher than the general market as existing leases expire and new letting activity fails
to keep pace. There are still a number of other developers who are leasing space at rents which we feel are below real market levels which is
something we will resist doing as we believe it destroys value. As the economy stabilises we expect to see an improvement in letting activity
in our portfolio during the year. This is already being reflected in the activity we have seen since the year end.
In St Petersburg and our two regional hubs of Rostov and Novosibirsk rental levels are broadly the same, although the lack of completion and
tighter markets mean they are more often at the higher end of this range.
Investment volumes in the year increased to $4.6 billion, with 79% of this in Moscow. Over 80% of all deals were funded by Russian capital,
and only 8% of the total capital or $370 million went into the warehouse sector. JLL indicate prime yields in the range of 11-12.5% for
Moscow warehouses.
There is certainly a general market view that 2018 will be a year of continued improvement on all fronts, including rents, yields and
occupancy driven by a general improvement in the wider economy, lower central bank rates and market forces in the property sector.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
33
FINANCE
REVIEW
We continue to assess our ability to make covered distributions with reference to underlying earnings and operating cash-flows after interest.
The former also allows a comparison of operating results before mark to market valuation movements. The reconciliation between underlying
and IFRS earnings is given in note 9 to the accounts.
Underlying Earnings
(Adjusted non IFRS measure)
Net rental and related income
Administrative expenses
Long term incentives
Bad debt provision
Foreign exchange gains
Share of profits of joint ventures
Operating profit
Net finance charge
Underlying profit before tax
Tax
Underlying profit after tax
Basic underlying earnings per share (cents)
2017
$’000
166,729
(25,343)
(1,635)
–
9,229
2,074
2016
$’000
151,741
(24,221)
(3,133)
(22)
18,079
1,780
151,054
144,224
(78,087)
72,967
(16,157)
56,810
8.56
(81,923)
62,301
(15,179)
47,122
7.17
Our investment portfolio, including the contribution from Roslogistics, shows the continuing effect of the transition from US Dollar pegged
to Rouble leases. On a like for like basis, NOI has dropped from $172 million in 2015, to $150 million in 2016 and $136 million for 2017 but our
acquisition strategy to counteract this fall in income is bearing fruit. We purchased two investment portfolios during the year, one in April and
one in November, which contributed $10 million to NOI, giving investment income for the year of $146 million including the contribution from
Roslogistics (see note 4). A full year of acquisition income should more than compensate for any additional drop in revenues from the existing
portfolio in the current year.
In addition to the positive impact of acquisitions we have been successful in selling off part of the legacy land bank that we hold in the UK.
This generated $21 million of income after costs and boosted our NOI for the year to $167 million.
Underlying administrative expenses increased during the year, predominantly due to general salary costs increasing on a strengthening Rouble
and cash bonuses paid in the year. Bonuses in 2016 had a larger share based element.
As we hold an increasing amount of our free cash in Roubles the strengthening currency created a positive foreign exchange movement in US
Dollar terms. This was countered by strengthening sterling at the end of the year increasing the US Dollar value of our preference share liabilities.
This resulted in a foreign exchange gain of $9 million in the income statement (2016: profit of $18 million) and a foreign currency loss through
reserves of $24.7 million (2016: gain of $10.9 million).
Underlying earnings increased to $56.8 million (2016: $47.1 million) giving Basic Underlying Earnings per Share of 8.56 cents (2016: 7.17 cents).
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
34
FINANCE REVIEW
IFRS Earnings
Net rental and related income
Administrative expenses
Share based payments and other long term incentives
Foreign exchange profits
Share of joint venture profits
Operating profit
Profit/(Loss) on revaluation
Profit on disposal
Net finance charge
IFRS profit before tax
Tax
IFRS profit after tax
2017
$’000
166,729
(28,547)
(4,545)
9,229
2,074
144,940
38,152
–
(92,445)
90,647
(32,961)
2016
$’000
151,741
(25,344)
(9,077)
18,079
1,780
137,179
(43,324)
3,807
(75,416)
22,246
(14,527)
57,686
7,719
IFRS earnings are bolstered by the revaluation gain on the portfolio offset against other mark to market movements on derivatives, amortisation
and depreciation charges and an increased deferred tax liability of $16.7 million on the gains. We also impaired the remaining goodwill of $2
million carried against the Raven Mount subsidiary following the sale of the strategic land bank and this is included in administrative expenses.
Finance costs increased with the issue of new convertible preference shares during the year, the proceeds being used for the acquisition
completed at the end of the year. Finance income from cash balances held increased to $7.2 million (2016: $3.4 million) reflecting the higher
proportion of Rouble cash generating a better interest return. 2016 also had a one off gain of $15.4 million on the redemption of a loan at below
book value which was not repeated this year.
Investment Properties
A tightening of yields and stable ERVs resulted in a revaluation gain of $38.2 million for our investment properties during the year. Together with
acquisitions this increases the carrying value of investment properties to $1.57 billion. The carrying value of land held for development reduced
by $2.8 million, the majority relating to one small site where changes in local highway planning has reduced the possibility of new development
on this site. This gives a carrying value of investment properties under construction of $38.4 million.
Debtors and Creditors
Debtors and creditors are inflated by the most recent acquisition, creditors including a provision for deferred consideration which is dependent
on the leasing of vacant space on the asset and debtors including VAT recoverable on the consideration paid to date. Tax payable is also increased
by uncertain tax provisions made in the year.
Cash and Debt
Cash flow Summary
Net cash generated from operating activities
Net cash used in investing activities
Net cash generated/(used) in financing activities
Net increase/(decrease) in cash and cash equivalents
Effect of foreign exchange rate changes
Increase/(decrease) in cash
Closing cash and cash equivalents
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
2017
$’000
125,487
(199,733)
127,298
53,052
14,993
68,045
2016
$’000
118,012
(992)
(120,759)
(3,739)
69
(3,670)
266,666
198,621
FINANCE REVIEW
35
Cash balances increase by $68 million with a refinancing straddling the year end, a new facility of $62.3 million being drawn on 29 December
2017 but the old facility of the same amount not repaid until 9 January 2018. This artificially increases cash and debt repayable within one year
at the balance sheet date.
In essence, adjusting for above, cash balances are flat for the year, acquisition expenditure of $190 million being financed from the issue of new
convertible preference shares and profits generated.
2016
$m
131
112
469
712
37
749
(9)
740
–
7.48%
4.7
31
5
267
2017
$m
191
–
651
842
14
856
(9)
847
–
7.62%
4.5
19
2
163
Bank Debt
Fixed rate debt
Debt hedged with swaps
Debt hedged with caps
Unhedged debt
Unamortised loan origination costs and accrued interest
Total debt
Undrawn facilities
Weighted average cost of debt
Weighted average term to maturity
The quantum and number of facilities maturing each year is shown below.
Debt maturing
Percentage of total debt maturing (%)
16
3
2
23
Number of maturing facilities
1
3
197
138
9
2
76
350
300
250
200
150
100
50
0
2018
2019
15
2020
2021
2022
2023-2024
Debt maturing ($m)
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
36
FINANCE REVIEW
We continue to extend the maturity dates of our secured facilities, 50% of debt now maturing after 2021. The effective loan to value ratio on theses
facilities is 53% (2016: 55%).
Our cost of debt has increased slightly to 7.62% (2016: 7.48%) with increases in underlying US LIBOR.
Taxation
The tax charge for the year increases with a deferred tax liability charge on the property revaluations. Tax paid in cash terms rose to $14.4 million
(2016: $7.7 million), the majority a result of the introduction of the new tax ruling last year, limiting the offset of deferred tax assets to 50% of
profits.
Subsidiaries
Raven Mount contributed significantly to profits during the year, generating $24.3 million on the sale of legacy land plots held in the UK which
had a book value of $0.7 million.
Roslogistics operated out of 112,700sqm of warehouse space at the year end and has increased its Rouble NOI by 10% to Roubles 724 million.
We are keen to develop this business in the medium term and increased administration costs include investment into the on-going strategy for
operations.
Outlook
Our acquisition strategy is supporting our transition to Rouble rents. Over the coming year we will start to align our foreign currency risk by
introducing elements of Rouble debt into our secured facilities. Should the Central Bank of Russia continue with its reduction in the Central Bank
rate then this exercise will be accelerated.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
37
RISK
REPORT
Risk Appetite
The Group continues to adapt its balance sheet to meet the risks of
the market in which we operate. The key financial risks continue to
be foreign exchange driven, our income model now predominantly
The risk management process is designed to identify, evaluate and
mitigate any significant risk the Group faces. The process aims to
manage rather than eliminate risks and can only provide reasonable
and not absolute assurance.
Rouble based but our financing US Dollar and Sterling based.
The Audit Committee has not identified any significant failings or
Our approach is threefold:
weaknesses in the internal control and risk assessment procedures
•
In the short term we have reduced our amortising US Dollar
during the year.
debt facilities and extended the period of amortisation to build
Principal Risks and Uncertainties
in sufficient covenant headroom to manage adverse foreign
exchange movements;
We have set out in the following tables the principal risks and
uncertainties that face our business, our view on how those risks
• We have embarked on an acquisition strategy to build our Rouble
income streams as our US Dollar pegged income continues to
have changed during the year and a description of how we mitigate
or manage those risks. We have also annotated those risks that have
decline; and
been considered as part of the viability assessment.
• With Russian Central Bank rates reducing, we expect all new and
maturing financing facilities to have an increasing proportion of
Rouble denominated debt, reducing our exposure to US Dollar
financing over the medium term.
With a certain stability returning to the Russian market in 2017, our
risk appetite has increased as we seek income enhancing acquisition
opportunities.
Risk Management and Internal Controls
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 may impact on
operations, performance and solvency and what mitigating
actions, if any, can be taken. 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.
The business recruited additional senior managers in both our Cyprus
and Moscow offices this year. Together with our acquisition and
growth plans it became evident that the current operational review
structure would become less effective with the increased senior team.
Each department now holds its own weekly meeting to review risks
and issues and reports to an operational oversight Group of eight
members comprising two executive directors, two directors of the
intermediate Cypriot holding board and four senior managers.
This group also meets weekly. At least one of the oversight Group
sits on each departmental committee. Departmental meetings cover
the day to day operating issues and refer key issues to the oversight
Group where appropriate. The oversight Group also discusses
business wide issues and risks and reports into the Executive Board
at the formal bi monthly Board meetings. With the addition
of the Company Secretary, the oversight Board also acts as the
Risk Committee, reporting to the Audit Committee.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
38
RISK REPORT
Financial Risk
Risk
Oil price
V
Impact
Mitigation
Change in 2017
Oil price volatility returns
This leads to further falls in US
The percentage of US Dollar pegged leases
in the medium term leading to
Dollar equivalent income and
continues to decline now the market is
a weakening Rouble.
an increase in the credit risk of
predominately Rouble based.
those tenants who remain in
US Dollar pegged leases.
With little or no speculative development in the
market, research continues to forecast a drop in
Reduced consumer demand
vacancy level.
has an impact on appetite for
new lettings, the renewal of
existing leases and restricts
rental growth.
Interest rates
V
Increases in US LIBOR.
Cost of debt increases and
The majority of our variable cost of debt is hedged
Group profitability and debt
with the use of swaps and caps on US LIBOR or
service cover reduce.
fixed rate facilities.
With Russian Central Bank Rates now falling we
are also considering moving away from US Dollar
debt in the medium term.
Foreign exchange
V
The move to a Rouble
A weakening of the Rouble
The high yield that we generate on assets
denominated rental market
against those currencies
has cushioned the impact of severe Rouble
increases foreign exchange
reduces our ability to service
depreciation.
risk as our debt and capital
US Dollar debt, Sterling
bases are US Dollar and
preference share coupon and
Sterling denominated
Sterling distributions.
respectively.
Our acquisition strategy is also allowing us to re-
build our profitability with Rouble denominated
market rental income.
The intention is for all new and maturing bank
facilities to have an increasing element of Rouble
denominated funding to reduce our US Dollar
exposure over the medium term.
Bank covenants
V
The significant drop in US
The likelihood of debt facility
We have completed a restructuring of debt
Dollar equivalent rents
covenant breaches increases.
facilities, extending amortisation periods and
impacts on both loan to value
(“LTV”) and debt service cover
ratio (“DSCR”) covenants on
US Dollar debt facilities.
reducing the principal outstanding to create
additional covenant headroom.
There is very little recourse to the holding
company and other than the new office portfolio
acquisition, no cross collateralisation between
projects on events of default.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
RISK REPORT
39
Property Investment
Risk
Acquisitions
V
Impact
Mitigation
Change in 2017
Our acquisition activity
Legacy issues may erode
We have increased our senior management
has increased significantly
earnings enhancement and
resource in the year with both international and
and we operate in an
immature investment
systems may involve excessive
integration into our existing
Russian experience in real estate acquisitions.
External advisers undertake full detailed due
diligence on any acquisition projects.
market where legacy issues
management resource.
are common with Russian
acquisitions.
Sector focus
Investment is made in new
Lack of experience in the
We have recruited management resource with the
real estate sectors (such as
new sectors may increase
appropriate expertise and are familiar with the
office and retail).
acquisition risks and lead to
external advisors specialising in those sectors.
higher transaction costs and
use of excessive management
resource.
Leases
V
Market practice
This can lead to uncertainty
Proactive property management and continued
increasingly incorporates
of annualised income due to
open dialogue with tenants.
lease break requirements and
lease break clauses.
Dedicated resources assigned to fit-out
landlord fit-out obligations.
Additional landlord risk on
obligations under leases, project management
delivery of tenant fit-out
and management oversight.
requirements.
Joint ventures
Growth plans could include
This could lead to reliance on
Any joint venture will be governed by a joint
entering into joint venture
third parties to help deliver
venture agreement and each joint venture party
arrangements in certain parts
business outcomes.
will be required to sign up to Raven Russia’s code
of the business.
of conduct. Senior management resource has
been enhanced to ensure proper oversight and
experience of any joint venture arrangements
entered into.
NEW
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
40
RISK REPORT
Russian Domestic Risk
Risk
Impact
Mitigation
Change in 2017
Legal framework
The legal framework in Russia
The large volume of new
We have an experienced in-house legal team
continues to develop with a
legislation from various
including a litigation specialist. We use a variety of
number of new and proposed
state bodies is open to
external legal advisors when appropriate.
laws expected to come into
interpretation, puts strain on
force in the near future.
the judicial system and can be
Our lease agreements have been challenged and
have proven to be robust in both ICAC arbitration
open to abuse.
and in Russian Courts.
Russian taxation
Russian tax code is changing
Tax treaties may be
The key tax treaty for the Group is between Russia
in line with global taxation
renegotiated and new
and Cyprus and this was renegotiated during
trends in areas such as transfer
legislation may increase the
2013 with no significant impact on the business;
pricing and capital gains tax.
Group’s tax expense.
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.
Personnel Risks
Risk
Impact
Mitigation
Change in 2017
Key personnel
Failing to retain key personnel.
Strategy becomes more
The Remuneration Committee and Executives
difficult to flex or implement.
review remuneration packages against
comparable market information;
Employees have regular appraisals and
documented development plans and targets; and
A new incentive scheme was approved at the last
AGM.
Political and Economic Risk
Risk
Sanctions
Impact
Mitigation
Change in 2017
The use of economic sanctions
Continued isolation of Russia
The local market has accepted the inevitability of
by the US and EU continues
from international markets
long term economic sanctions and this has played
for the foreseeable future.
and a return to a declining
its part in the fundamental changes to the Russian
Russian economy.
economy. We have adapted our business model
to secure our position in the market. However, the
risk of increased sanctions remains.
Change Key
V
Viability statement risk
Increased risk in the period
Stable risk in the period
Decreased risk in the period
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
VIABILITY
STATEMENT
In accordance with provision C.2.2 of the UK Corporate Governance
Code (April 2016), the Directors have assessed the prospects of the
Company and Group over a longer period than the twelve months
prescribed for the “Going Concern” review in the financial statements.
The Board has reviewed the suitability of the three year viability
period. The weighted average term of leases remains around three
years including the remaining US Dollar pegged leases. Although
2017 has been a period of relative stability in the Russian market,
the potential remains for macro economic and geo political shocks
in the short term.
Key considerations for the Board have been cash flows and solvency,
the effect of exchange rates on earnings and the sensitivity of
covenants on US Dollar debt facilities as the majority of income
streams transition to Roubles.
The full year effect of restructuring debt facilities and resulting
reduction in amortisation costs together with the issue of additional
convertible preference shares has given the Board greater comfort on
cash flows and covenants. The forecast model assumes current market
norms remain static but is then sensitised for those principal risks
and uncertainties highlighted earlier in the “Risks and Uncertainties”
section, the key sensitivities applied to the Group being:
•
Increased vacancy assumptions on lease maturities or breaks and
decreases in Estimated Rental Values;
• Depreciation in the average Rouble exchange rate against US
Dollar, Sterling and Euro;
•
Increases in LIBOR, US LIBOR and EURIBOR and the effect on bank
facility interest cost over the forecast period;
• The impact of potential acquisition activity; and
• The combined impact of all sensitivities on cash balances and
banking covenants.
Where bank facilities mature in the forecast period and term sheets
have not yet been agreed it is assumed that the principal will be
rolled over for a two year period with no further debt draws assumed.
In the case of the Company’s viability and solvency, the key mitigants
are the Group’s special purpose vehicle structure and limited recourse
to the holding company should one asset be subject to default and
the control over ordinary share distributions.
Based on the results of the procedures outlined above, the Board of
Directors has a reasonable expectation that the Company and Group
will be able to continue in operation and meet their liabilities as they
fall due over the period of assessment.
Signed for and on behalf of the Board
Mark Sinclair
Director
11 March 2018
41
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
42
DIRECTORS
Richard Jewson (aged 73)
Non Executive Chairman
Christopher Sherwell (aged 70)
Senior Independent Non Executive Director
Richard Jewson joined Jewson, the timber and building merchant, in
1965 becoming the Managing Director, then Chairman of its holding
group, Meyer International plc, from which he retired in 1993. Since
then he has served as Non Executive Director and Chairman of a
number of public companies. He retired in 2004 after 10 years as
Chairman of Savills plc and in 2005, after 14 years as a Non Executive
Director and Deputy Chairman of Anglian Water plc. He is currently
Chairman of Tritax Big Box REIT Plc, and a Non Executive Director of
Temple Bar Investment Trust plc.
Christopher Sherwell is a Guernsey resident and a former Managing
Director of Schroders in the Channel Islands. Before joining Schroders
in 1993, he was Far East Regional Strategist in London and Hong Kong
for Smith New Court Securities and prior to that spent 15 years as a
journalist, much of them as a foreign correspondent for the Financial
Times. He has considerable public company experience and since
2004 has acted as a Non Executive Director on a number of publicly
listed investment companies. Currently he is a director of Baker Steel
Resources Trust Ltd and NB Distressed Debt Investment Fund Ltd.
He is Chairman of the Nominations Committee and a member of the
Remuneration Committee.
He is Chairman of the Remuneration Committee and a member of the
Audit and Nominations Committees.
Anton Bilton (aged 53)
Executive Deputy Chairman
Stephen Coe (aged 52)
Non Executive Director
Stephen Coe BSc, FCA, a Guernsey resident, is self employed
providing Executive and Non Executive services to public and private
clients. His current public directorships include TOC Property Backed
Lending Trust PLC where he acts as Chairman and Weiss Korea
Opportunity Fund Limited, Leaf Clean Energy Company and Trinity
Capital Ltd where he acts as a Non Executive Director and Chairman
of the Audit Committees. Private clients include investment funds
and a captive insurer. From 2003 to 2006, he was Managing Director
of Investec Trust (Guernsey) Ltd and Investec Administration Services
Ltd, responsible for private client and institutional structures. Between
1997 and 2003 he was a Director of Bachmann Trust Company Ltd and
previously he worked with Price Waterhouse specialising in financial
services.
He is Chairman of the Audit Committee and a member of the
Remuneration Committee.
David Moore (aged 57)
Non Executive Director
David Moore is a Guernsey resident. He is an advocate of the Royal
Court of Guernsey and is currently a consultant with Collas Crill
in Guernsey. He is a former partner of Guernsey law firm Mourant
Ozannes, where he had practised since 1993 and before that spent
10 years practising in the City of London, predominantly with Ashurst
Morris Crisp. He specialises in corporate and financial matters and is
a Non Executive Director of a number of investment, insurance and
finance sector-related companies.
He is a member of the Audit and Remuneration Committees.
Anton Bilton is an economics graduate from The City University in
London. Anton was the founder of The Raven Group. He has also been
a founder and director of three other companies that have floated on
AIM. He is Chairman of Sabina Estates Limited.
He is a member of the Nominations Committee.
Glyn Hirsch (aged 56)
Chief Executive Officer
Glyn Hirsch, a Guernsey resident, qualified as a Chartered Accountant
with Peat, Marwick Mitchell & Co in 1985. Until 1995, he worked in
the corporate finance department of UBS (formerly Phillips & Drew)
latterly as an Executive Director specialising in UK smaller companies.
From 1995 until 2001, he was Chief Executive of CLS Holdings plc,
the listed property investment company, a former Director of Citadel
Holdings plc, the specialist French property investor and former
Chairman of Property Fund Management plc, the listed property fund
management business. He is a director of Sabina Estates Limited.
Mark Sinclair (aged 52)
Chief Financial Officer
Mark Sinclair, a Guernsey resident, is a chartered accountant, and spent
18 years at BDO Stoy Hayward, a leading professional services firm in
the UK. He was a partner in the London real estate group, responsible
for a portfolio of large property companies, both listed and private.
He joined Raven Mount in June 2006 as Finance Director of Raven
Russia Property Management Ltd, the former Property Adviser to the
Company and joined the Board of Raven Russia in March 2009.
Colin Smith (aged 48)
Chief Operating Officer
Colin Smith, a Guernsey resident, qualified as a Chartered
Accountant with Stoy Hayward. Prior to joining the Company, he
was a Director in the audit and assurance division of the chartered
accountant practice of BDO in Guernsey, having joined BDO in 1994.
Colin has also been a Non Executive director of a number of offshore
investment funds and companies.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
43
CORPORATE
GOVERNANCE
Chairman’s introduction
Statement of Compliance with the Code
I am pleased to present our corporate governance report for this year
Responsibility for governance matters lies with the Board.
end. As a Board we are collectively responsible for ensuring that the
It is accountable to shareholders for the activities of the Group.
Group adopts appropriate corporate governance arrangements. This
The Board consider that the Company complies fully with the
is relevant in all facets of the Group’s operations and not restricted
provisions of the Code, save for B.1.1 which sets out the requirements
solely to the activities of the Board itself. This can only be achieved
for Non-Executive Directors to be considered independent from the
through the culture of the Group, set by the Board and consistently
Company. Our non-executive team have all served on the Board
applied and delivered throughout the Group by the executive and
as Non-Executive Directors for more than nine years, in the case of
management team. This culture promotes good governance and
Stephen Coe and David Moore their term began at the Company’s
forms an essential platform to deliver our strategic objectives.
establishment in 2005, with Christopher Sherwell joining shortly after
This section of the report sets out how we have adopted and applied
the principles of the UK Corporate Governance Code (the “Code”),
how we operate as a Board, and along with the strategic report,
our journey through the past financial year. In the opinion of the
Board, we are fully compliant with the principles of the Code save
for B.1.1 which consider the non-executive directors’ independence.
As explained previously, as a Board we do not consider that tenure
should, in itself, be a criterion by which independence is judged.
Our reasons are explained in more detail below.
As a Board, we welcome the opportunity to discuss the business with
our shareholders at road shows, investor and broker briefings and at
our annual general meeting.
Richard Jewson
11 March 2018
in 2008. The Board and the nominations committee have specifically
considered their independence as in past years. The Board is still of
the opinion that length of service is not necessarily a complete or
accurate measure of a Director’s independence, a view the Board
feels is shared by our shareholders. In the Board’s opinion, Stephen,
David and Christopher continue to fulfil the requirements acting
as independent directors and form an essential team with experience
of the Group’s operations and history over their term which is
fundamental in assisting the executives in delivering the Group’s
strategy.
Copies of the Code are available to download free of charge from the
Financial Reporting Council’s website (www.frc.org.uk).
Leadership
The Board is charged and responsible for achieving the Group’s
strategic objectives, creating value for shareholders through
sustainable and continued performance. The Board has six scheduled
meetings throughout the year as well as conference calls for specific
matters as required. A committee of the Board comprising any two
or more Directors meet on an ad hoc basis to consider transactional
and related matters concerning the Company’s business. During
2017, there were 16 such committee meetings. The Board’s scheduled
meetings are generally held in Guernsey at the Group’s head office,
however meetings may also be held in Russia or Cyprus to review the
Group’s operations and meet local management.
Matters reserved specifically for the Board’s consideration form
the basis of the scheduled meetings agenda. The main elements
of this policy include Group strategy, material transactions,
financial reporting, capital structure and dividend policy, corporate
governance and internal controls and risk management. The table
below sets out the activities of the Board during the year.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
44
CORPORATE GOVERNANCE
Key activities of the Board during 2017
Q1
Q2
Q3
Q4
• Review of investment
• Review of investment
• Review of investment
• Review of investment
portfolio performance
portfolio performance
portfolio performance
portfolio performance
• Review of medium term
• Review of Q1 2017 reforecast
• Review of medium terms
• Review of Q3 2017 reforecast
forecasts and strategy
• Review of investor feedback
forecasts and strategy
• Approval of 2018 Budget
• Approval of 2016 annual
from investor/broker
• Approval of 2017 interim
report
meetings following results
results
• Approval of distribution to
• Review and consideration of
• Approval of distribution to
shareholders
strategy
shareholders
• Review of medium to longer
term forecasts
• Consideration of Board
constitution, balance of skills
• Approval of principal risks
• Approval of notice of
• Approval of principal risks
and experience
and risk appetite
meeting for 2017’s AGM
• Review of Q2 2017 reforecast
• Board evaluation
• Review of corporate and
• Review of internal controls
regulatory changes and
and risk environment
reporting requirements
• Review of investor feedback
Activities specific for the year
• Approval of fund raising
• Consideration of acquisition
program
from investor/broker
meetings following results
• Review and consideration of
strategy
• Consideration of acquisition
program
• Consideration of Cyber
security measures
The Chairman runs the board and is responsible for ensuring appropriate discussion, challenge and robust practices are integral in the Boards
deliberations and activities. The Chief Executive runs the day to day operations of the Group and is responsible for delivery of the Board’s agreed
strategy. This clear division of duties and responsibilities are set out in writing and reviewed as necessary. The Chief Executive, together with the
executive and management team, delivers the strategic goals of the Group which are set by the Board as a whole. The non-executive directors
with their detailed knowledge and history of the Group and its operations assist the executive team in developing this strategy whilst providing
a sounding board, challenge and rigour to the decisions of the Board.
Board composition
The Board of the Company remains the same as previous years. Our Chairman, Richard Jewson, who was considered independent on
appointment, four Executive Directors; Glyn Hirsch, Chief Executive, Anton Bilton, Executive Deputy Chairman, Mark Sinclair, Chief Financial
Officer and Colin Smith, Chief Operating Officer, and our three Non Executive Directors, Christopher Sherwell, Senior independent Director,
Stephen Coe and David Moore. Biographies for each of the directors are included elsewhere in this Annual Report.
The Board and its Committees
The Board has established Audit, Remuneration and Nominations Committees and delegated certain activities through their terms of reference.
Terms of reference for each Committee can be found on the Company’s website (www.ravenrussia.com). Together, the Committees and the
schedule of reserved matters assist the Board in discharging its duties effectively. The Board and its Committees have regular scheduled
meetings. An overview of the activities of the Board and its Committees is contained within this report and that of the Audit and Remuneration
Committees.
As well as the members of the Board and its committees, other Board members, the Company’s advisors and operational directors are invited
to attend where appropriate to present on a particular matter at hand. Material and briefing papers are supplied in advance of any meeting to
all attendees along with regular management information which is circulated to the Board throughout the year. Should, in the rare occasion, a
director be unable to attend a scheduled meeting, they have the opportunity to discuss matters with the chairman of the Board/committee or
the chief executive. There is an open dialogue between the Chairman, non-executive directors, executive directors and senior management with
regular informal meetings held outside of the scheduled Board meetings to discuss business matters. All Directors also have access to the Group’s
professional advisors should they be required.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
CORPORATE GOVERNANCE
45
Attendance at Board or Committee meetings during the year to 31 December 2017
R Jewson
A Bilton
G Hirsch
M Sinclair
C Smith
S Coe
C Sherwell
D Moore
No. of meetings during the year
(where ‘N/A’ is shown, the Director listed is not a member of the Committee)
Board
Audit
Committee
Nominations
Committee
Remuneration
Committee
6
6
6
6
6
5
6
5
6
N/A
N/A
N/A
N/A
N/A
3
3
2
3
1
1
N/A
N/A
N/A
N/A
1
N/A
1
2
N/A
N/A
N/A
N/A
2
2
1
2
To facilitate the continued growth of the Group in terms of assets and people, the executive team have introduced new reporting lines and a number
of new internal operating committees which have refocused the allocation of management time. These changes have allowed senior management
more time to dedicate to their operational areas, whilst still enabling executive and senior management oversight in all areas of the Group’s
operations. Each of the new internal operating committees has at least two senior managers or an executive director amongst its membership.
The senior management team have formal meetings each week to discuss the Group’s activities and reports from the operating committees.
The chart below shows the relationships between operating committees and the Board.
The Cypriot operations were also consolidated into an intermediate holding company, Raven Russia Holdings Company Limited (“RRHCL”) in 2016.
Whilst there was always a significant presence in Cyprus, this restructuring formalised the operations and the role of the intermediary Board and
management team.
The Board
• Responsible to shareholders and wider stakeholders for the long term success of the Company
• Develops the strategic direction of the Group
• Responsible for determining significant risks and risk appetite
• Responsible for leadership of the Group, Governance arrangements and culture
Chairman
• Responsible for the efficient operations of
Non-executive Directors
• Independent judgement and challenge of
the Board
the executive directors
• Maintains culture of openness, debate and
• Broad range of experience to provide balance
rigour to board decisions
to the skills and experience of the Board
Chief Executive and Executive
Directors
• Responsible for the day to day operations of
the Group to deliver the Board strategy
Nominations Committee
• Making recommendations for succession
planning
• Considers size, structure, skills, experience
and composition of the Board and its
committees
Audit Committee
• Oversees the financial and narrative reporting
• Reviews and monitors the integrity of
the Groups internal controls and risk
management processes
Remuneration Committee
• Sets the remuneration policy of the executive
directors and senior management
• Development of long term incentive schemes
aligned to strategic goals of the Group
• Responsible for auditor engagement,
nomination and retention
Risk Committee
• Delegated responsibility from the Audit
Committee for risk management and
internal controls monitoring, processes
and implementation
Executive Team and Cyprus Holding company subsidiary directors Charged with the day to day running of the business
Management Team Heads of department charged with delivering the strategic goals set by the Board
Operational Committees
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
46
CORPORATE GOVERNANCE
Effectiveness
Board performance evaluation
The Board undertakes annual performance evaluations of its own and of its Committees’ activities. These are led by the Chairman and where dealing
with his own performance, by the Senior Independent Director.
The performance evaluations for the year ended 2017 were undertaken internally, which included group discussions and individual reviews of
performance throughout the year. It was concluded that the performance of the Board, its Committees and individual Directors was effective and
that the Board has the necessary balance of skills, expertise, independence and knowledge required to direct the business.
The Board and Nominations Committee consider the composition of the Board and its Committees with reference to the Group’s needs and also the
requirements of the Code and any regulations. In accordance with the Code, all Directors will be put forward for re-election at the annual general
meeting. Having considered the balance of skills, expertise and performance of the Board, its committees and individual Directors, the Board
recommends each Director for re-appointment at the annual general meeting.
The Nominations Committee comprises Anton Bilton, Christopher Sherwell and Richard Jewson, who is Chairman. Key tasks of the Committee
include reviewing the size, structure and composition of the Board and its Committees to ensure appropriate skill, experience, diversity and
independence, lead processes for new Board and senior management appointments, and finally to review the effectiveness of the Boards and its
committee structure in light of the requirements of the Group, code and regulations.
As explained in the introduction on compliance with the Code, given the tenure of the Non Executive Directors, a detailed review and discussion
was undertaken during the year to consider the succession of the Non Executive team on the Board. The Committee, having considered the current
composition of the Board and its Committees, was of the opinion that the Non Executives had served independently and continue to act so.
The Board’s overriding aim is that the composition of the Board and its Committees are fit for purpose, with the correct constituents, balance of skills,
knowledge, experience and diversity, not limited to gender. The Committee is charged with ensuring this requirement is observed with and where
necessary will recommend changes. The Board recognises the importance of diversity, not only at Board level, but throughout the Group. Diversity is
not a focus of one factor of differentiation, but many factors. Genuine diversity will only occur when no predetermined guidelines, rules or prejudices
are imposed, giving a free reign to appointments solely on the merits of one individual over another for a particular role or situation.
On appointment, a Director receives advice from the Company’s financial and other professional advisers as to the affairs of the Company and their
responsibilities, an estimation of time commitments necessary to undertake the role and a provide a commitment to receive other such training and
induction as may be appropriate.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
CORPORATE GOVERNANCE
47
Diversity
The Nomination Committee consider the experience, background, age and tenure of each individual to contribute to the diversity of the Board, its
Committees and the wider Group. Information about the diversity of the Group’s workforce at 31 December 2017 is set out below.
Gender
70%
Tenure
36%
30%
22%
78%
100%
Employees
Senior Management
Board
Male
Female
33%
67%
33%
100%
Employees
31%
Senior Management
Board
Up to 3 Years
3 to 6 Years
6+ Years
*Length of service for Board members is from date of appointment.
Engagement with Shareholders
The Chief Executive, Executive Deputy Chairman and Chief Financial Officer perform regular road shows, investor and analysts briefings and
shareholder meetings throughout the year. These generally occur after the annual and interim results are published but also when corporate
actions, such as fund raisings, take place. The Board considers the relationship and support of our institutional shareholders of paramount
importance in the delivery of the Group’s strategic goals. Reports on the Group’s shareholder engagement activities are made to the Board as
required.
The Group’s primary method of communication with our investors and wider stakeholders is through the website which was redesigned
recently to provide easier access to relevant information. Results presentations, report and accounts, shareholder circulars as well as the Group’s
governance material is all published on the site. The annual general meeting of the Company provides shareholders with the opportunity to
meet the Board and discuss any matters of interest or concern. The notice of the Company’s annual general meeting is included separately along
with a form of proxy to lodge your votes.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
48
CORPORATE
RESPONSIBILITY
Corporate responsibility
Corporate responsibility covers many different aspects of business but our primary focus is on the environmental impact of our activities
and properties and the social impact in the jurisdictions in which the Group operates. It is the responsibility of the Board to manage the
environmental, economic and social impact of the Group’s business strategy.
The Board recognises that the way its investment properties are designed, built, managed and occupied can significantly influence their impact
on the environment and the community in which they are located and it seeks to manage these issues. Although the Group is not required
by statute to provide detailed reports on its environmental impact, the Board considers this an issue that must be monitored and warrants
disclosure. In 2013 we started to disclose levels of greenhouse gas emissions and in 2014 we also included electricity consumption in our offices
in Moscow, Cyprus and Guernsey, and business travel.
The Board also recognises the social impact of its operations in each of its key jurisdictions, Russia, Guernsey and Cyprus. In Russia, this is
particularly evident in the employment opportunities that are created in the communities where the Group’s properties are located. Staff are
encouraged to participate in community and charitable activities and the Board has established a fund to support local causes or charities, which
meet the corporate values of the Group. During 2017 the Group invested $33,500 in supporting various causes including national and local
charities and local community sports groups. No political donations were made during the year.
Greenhouse Gases
We commissioned Trucost to assist in compiling our report to comply with the Mandatory Greenhouse Gases Reporting Regulations (GHG). Energy
consumption information was collated from all fifteen warehouses and three offices in the portfolio and our four offices in Moscow, Cyprus and
Guernsey. We also collected office car mileage and business travel of the Group’s employees to report on Scope 1, Scope 2 and Scope 3 emissions.
The report covers 100% by warehouse floor area. In 2016 we started to report Scope 2 on a dual-reporting basis using location-based and market
based approaches in accordance with the GHG Protocol Scope 2 Guidance released in January 2015. Since market-based emission factors are not
available for any of our locations, residual emission factors were adopted for offices in Guernsey and Cyprus. Location-based emission factors were
used for Russia due to unavailability of residual emission factors.
The table below sets out the emissions data collated and the intensity ratio agreed at tonnes per square metre of floor area for the last four years.
GHG Emissions
SCOPE 2
71%
SCOPE 3
0.1%
SCOPE 1
29%
Data Point
Scope 1
Scope 2
(location-
based)
Scope 2
(market-
based)
Units Quantity
2017
Quantity
2016**
Quantity
2015
Quantity
2014*
Quantity
2013
tonnes
CO2e
tonnes
CO2e
tonnes
CO2e
22,569
19,948
19,289
20,778
18,138
56,420
54,008
56,914
53,664
44,589
56,423
54,347
56,919
53,666
n/a
Scope 1 + 2
Intensity
(location
based)
tonnes
CO2e /
floor space
(sqm)
Scope 3
tonnes
CO2e
0.05
0.05
0.05
0.05
0.05
194
184
219
342
n/a
*Quantity 2014 were restated in 2016 report given more accurate data available for the Guernsey office.
**Quantity 2016 were restated to include Konstanta.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
CORPORATE RESPONSIBILITY
49
Data collection and methodology protocol
The group used the Greenhouse Gas Protocol methodology for compiling its GHG data, and includes the following material GHG’s: CO2, N2O and
CH4. The Group used the following emission conversion factor sources:
• Direct energy: IPCC 2006 Guidelines for National Greenhouse Gas Inventories
• Natural gas: DEFRA 2017 conversion factor for cubic meters natural gas
• Diesel: DEFRA 2017 conversion factor for litres diesel
• LPG: DEFRA 2017 conversion factor for litres LPG
• Purchased electricity: UK Defra 2017, Russia and Cyprus, IEA Fuel Combustion 2017 and Foreign Electricity Emission Factors
• European market emission factors for electricity: AIB, European Residuals Mixes for 2016
• Office car: DEFRA 2017 conversion factor for kilometres of unknown fuel (average car)
• District heating: electricity factors were adjusted using same ratio as between UK electricity and district heating (from DEFRA 2017
conversion factors for UK electricity, and district heat and steam)
• Business travel:
• DEFRA 2017 GHG Conversion Factors for flights and rail travel
• For Eurostar journeys specifically (between London St Pancras and Paris) Eurostar specific emission factors are used as released by
Eurostar (2017)
• Sawdust emissions calculated by Trucost using FAO and IPCC
Scope 1 emissions increased by 13%, 17%, 9% and 24% compared to 2016, 2015, 2014 and 2013, respectively. Scope 2 emissions (location-based)
are 4%, 5% and 27% higher than in 2016, 2014 and 2013, respectively, and showed 1% decline in comparison to 2015. Overall GHG emissions in
2017 were 7% higher than in 2016 but alongside a 22% increase in floor space due to several property acquisitions in 2017 and accounting for
Konstanta office which was not previously included in the reporting. A direct like-for-like comparison shows an overall decrease in GHG emissions
of 6%.
Although tenants are the end users of the energy consumed, we consider this an important metric to measure. Not only does this make our
buildings more attractive to tenants and funders but also the more energy efficient our buildings are the less greenhouse gas production occurs
at our sites.
As our relations with key tenants become more established we are working with them to anticipate their requirements, with specifically designed
buildings. In the case of energy intensive uses, such as cold storage, this allows a more efficient building to be constructed compared to the
reconfiguration of a standard warehouse unit.
Other examples of increased efficiency include adopting low energy lighting in our new warehouses and more energy efficient lighting and air
conditioning system in Guernsey office. New developments are being assessed by BREEAM (Building Research Establishment Environmental
Assessment Methodology), the worlds longest established and most widely used method of assessing, rating and certifying the sustainability of
buildings. Our aim is to reduce the environmental impact of our developments and use the results of BREEAM assessments to provide practical
ideas for future and existing development projects.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
50
LETTER FROM THE
REMUNERATION
COMMITTEE
Dear Shareholders,
On behalf of the Board, I present our report on Directors’
remuneration for the year ended 31 December 2017.
Overview
All of our Executive and Senior management team have maintained
shareholdings with current values a multiple of annual salary for
many years and the new Five Year Performance Plan will lock in a
significant proportion of these holdings for another five years.
Performance Outcomes
On 12 July 2017 the Company’s shareholders approved a new
Directors’ Remuneration Policy. Of votes cast, over 80% of
shareholders voted in favour of the new policy. The policy comprises
an Annual Performance Incentive structure for the years 2018 to 2020
and a Five Year Performance Plan for the period to 31 March 2023.
The Annual Performance Incentive is measured against targets
The existing Annual Performance Incentive and Retention Scheme
continued in 2017. The final Annual Performance Incentive is payable
on the issue of this Annual Report and the performance outcomes are
described below. The second award of the Retention Scheme vested
on 31 December 2017 and the final award will vest on 31 March
2019 with all participants receiving payment in the Company’s listed
set at the beginning of each year with a maximum award of 50%
securities if conditions are met at that time. No further cash rewards
of salary if the participant elects to take the award in cash and a
will be paid under the Retention Scheme.
maximum equivalent of 175% of salary if the award is taken in any
of the Company’s listed securities. If securities are taken these must
be held for three years. The new policy partly overlaps with the
existing Retention Scheme and it has been agreed that no Annual
At the beginning of the year, the Committee agreed targets for the
Annual Performance Incentive. The targets were grouped into three
areas, with a weighting applied to each:
Performance Incentive will be available to the Executive Directors
Financial targets
40% weighting
in 2018.
The Five Year Performance Plan allows executives to place part of their
Operational targets 15% weighting
Stretch targets
45% weighting
existing holdings of the Company’s securities into the Plan, extending
Details of the outcomes are shown below:
the holding period on those holdings to five years. The Company
agrees to match those holdings up to a maximum of three times the
Financial
value of shares held, based on compound Total Shareholder Returns
Financial targets focussed on headline net operating income, net
of between 4% and 12% over the performance period. Any awards
letting results and cash cover for distributions.
made under the Plan will be satisfied by the issue of ordinary shares.
Net operating results for the year have exceeded expectation as
This plan, as in the past, was discussed with our largest shareholders
to ensure that they agreed with our proposals prior to the AGM.
have the cash cover and earnings per share expectations. These have
translated into an improved, proposed final distribution of 3p.
Certain of the Company’s senior employees are also included in this
Net letting results of a 7,000sqm increase in the portfolio were at the
scheme. It is also intended to implement a three year plan for the
lower end of our targets due mainly to three large tenant maturities
remainder of the management team, incorporating 23 employees
at the beginning of the year where the tenants decided to vacate.
in total.
As the only listed company focused solely on the logistics market
The letting team performed well, with new lets of 187,100sqm
offsetting the 180,000sqm of additional vacancies in the year.
in Russia we have no listed peers or indices that allow relevant
The combination of these results gave a 29% weighting for financial
comparative measurement of business outcomes. This has been
targets.
confirmed by external consultants in two separate reviews we have
undertaken in recent years. We believe that this led to votes against
Operational
our remuneration report last year when we are attempting to
Operational measures considered included:
incorporate the effect of Russian specific issues into our remuneration
schemes. With over 80% of voting shareholders in favour of our new
remuneration policy and five year plan, we are confident that this
returns the Company to a focus on long term share ownership for
its executives and senior management.
• Maintaining the integrity of existing currency leases;
• Management of effective tax rates;
• The integration of acquisitions;
• The refinancing of acquisitions; and
• Maintaining our cost of debt below 8%.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
LETTER FROM THE REMUNERATION COMMITTEE
51
In the majority of instances, our operational targets were met and a
weighting of 14% has been achieved.
‘Stretch’
Stretch targets involve discretion from the Committee. We appraise
those achievements that were not foreseen at the time other targets
were set. The Executive team has worked hard throughout the
period in a challenging environment to push the business on and
counteract the impact of macro economic events on the Company.
The Committee has taken into account in particular the following:
• An income accretive acquisition strategy was devised,
implemented and is being successfully executed, supported by a
successful fundraising of £102 million by way of a further issue of
convertible preference shares. Two successful acquisition projects
of $209 million were completed in the year, underpinning the Net
Operating results;
• The sale of a large part of our UK strategic land bank generating
over $20 million of profits; and
• A large scale restructuring of the Group has taken place to mitigate
increased tax risks following the introduction and clarification of
tax legislation in Russia. No significant issues arose on tax reviews
undertaken on four of the Group’s Russian subsidiaries by the
relevant authorities during the year.
Remuneration Decisions
Given the scale of these achievements the Committee has awarded
the full weighting for the “stretch” targets, giving a total award of
88% of the Annual Incentive Plan for 2017. The maximum that can
be awarded under the Plan is the equivalent of 75% of annual salary.
The award translates to 66% of 2017 annual salaries as follows:
Anton Bilton
Glyn Hirsch
Mark Sinclair
Colin Smith
£374,880
£374,880
£233,640
£207,240
Anton Bilton and Glyn Hirsch have indicated they would be prepared
to accept their award in the Company’s securities. Awards for Mark
Sinclair and Colin Smith will be made in cash. Awards vest on the issue
of this Annual Report.
Christopher Sherwell
Chairman
Remuneration Committee
11 March 2018
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
52
Klimovsk, Moscow
53
DIRECTORS’
REMUNERATION REPORT
(UNAUDITED)
Introduction
Composition
The Remuneration Committee comprises the Board’s Non Executive Directors, Stephen Coe, Richard Jewson, David Moore and Christopher
Sherwell, who is Chairman.
Policy
The Committee engaged Aon Hewitt, independent remuneration consultants, to review the Company’s remuneration policies in 2017.
The conclusion of the exercise was that the Company required a policy which allows flexibility in the short term to react to the impact of any
extraneous events, together with a long term incentive which is mindful of shareholder returns over an extended period. We also consulted
directly with our largest shareholders on the proposed policy prior to presenting the final policy at the 2017 AGM.
On 12 July 2017 shareholders approved the new Remuneration Policy for the period from 1 January 2018 to 31 December 2020. This includes:
Basic Salary, Benefits and Pension Contribution all of which show no change in comparison with the previous policy; an Annual Performance
Incentive which will not be available for calendar year 2018 but will be for the calendar years 2019 and 2020; and a Five Year Performance Plan
which is linked to Total Shareholder Return.
The table below sets out details of the approved policy:
Purpose and
link to strategy
Operation
Opportunity
Performance
Metrics
Discretion
applied
Basic Salary
To retain, attract
and motivate the
right people for
our business.
Salaries are reviewed annually and
fixed for the calendar year reflecting:
• the experience and responsibilities of
each individual;
Benefits
To promote the
well-being of
Executives.
Pension
To reward
continuing
service.
• market comparators for listed
companies; and
• percentage increases in base salary
for the Group as a whole.
Benefits are limited to life insurance,
health insurance, private healthcare
and reimbursement of all professional
and business subscriptions and
membership fees including gym
membership fees.
A contribution is made to personal
pension arrangements or direct to
personal pension plans.
Benefits and pension contributions
are held at the lower end of listed
company comparators.
None
None
Executive
Directors’ basic
salary increases
have been held
to a maximum
of UK RPI since
2012.
None
None
None
None
None
Contributions
of 10% of basic
salary are made
each year.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
54
DIRECTORS’ REMUNERATION REPORT
Purpose and
link to strategy
Operation
Opportunity
Performance
Metrics
Discretion
applied
Annual
performance
incentive
Five Year
Performance
Plan
A simple method
to allow the
Remuneration
Committee
to reward
managements’
performance in
the year which
encourages share
ownership and
reduces the cash
burden to the
Group.
A long term
incentive scheme
designed to
encourage share
ownership and
to directly align
participants’
interests
with ordinary
shareholders.
An annual bonus payable in cash or
listed securities of the Company.
None for calendar
year 2018.
For calendar years
2019 and 2020,
a maximum of
175% of basic
salary, if paid in
the Company’s
listed securities.
Reducing to a
maximum of 50%
of basic salary
if the Executive
elects to receive
the award in cash.
Up to three times
the value of
listed securities
invested.
Other than disposals made to satisfy
tax liabilities arising on the bonus,
listed securities must be held for at
least three years from the date of
receipt.
Alternatively the award can be settled
in cash subject to the lower maximum
award described under “opportunity”.
The Plan allows each Executive
Director to invest into the Plan a
number of listed securities in the
Company that they held as at 31
December 2017 (or which they are or
may become entitled to receive on
31 March 2019 under the Retention
Scheme).
Each participant is allowed to invest
into the Plan listed securities up to a
value of £2 million. To the extent that
any of the prospective participants
does not invest the maximum number
of listed securities permitted, the other
participants will be allowed to increase
the size of their investment provided
that the aggregate value of listed
securities invested in the Plan by all
the participants does not exceed £12
million.
Any securities so invested must
continue to be retained by the relevant
participant until 31 March 2023.
On 31 March 2023, based on annual
compound TSR calculations, the
participants will be entitled to up to
three times the value of the securities
invested in the Plan.
Vested entitlements would be settled
in the Company’s ordinary shares with
a value based on the calendar month
average ordinary share price for March
2023.
In order to participate in the Plan, the
participants are required to invest all of
the listed securities received under the
Retention Scheme on 31 December
2017 and 31 March 2019 (other
than disposals to meet tax liabilities
arising). In addition the participants
are required to elect to take the entire
amount of the 31 March 2019 payment
in listed securities.
At the
discretion of the
Remuneration
Committee based
on a framework
of performance
criteria agreed
at the beginning
of each financial
year.
At the
discretion of the
Remuneration
Committee based
on a framework
of performance
criteria agreed
at the beginning
of each financial
year.
None
TSR calculations
will be based on
the comparison
of the average
ordinary share
price for the
period from
12 July 2017
(the date of
the Company’s
2017 AGM) and
31 March 2018
to the highest
30 dealing day
average ordinary
share price
achieved in the
period from 1
April 2018 to 31
March 2023.
Below an annual
compound
equivalent TSR
of 4% the Plan
would lapse;
At an annual
compound TSR
of 12% and
above the Plan
would vest at the
maximum value;
and
A sliding scale
would operate
for an annual
compound TSR of
between 4% and
12%.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
Retention
Scheme
Purpose and
link to strategy
To retain key
management
during the
period of market
turbulence.
DIRECTORS’ REMUNERATION REPORT
55
Operation
Opportunity
Performance
Metrics
Discretion
applied
None
150% of basic
salary in respect
of each of the
three scheduled
payments.
As the purpose
is retention the
sole condition
for vesting is
employment
on the day of
vesting.
An award granted that vests in three
equal instalments; upon approval of
the revised Directors’ remuneration
policy at the Company’s 2016 AGM, on
31 December 2017 and on 31 March
2019.
The participants will receive the
payment of each instalment in a
combination of listed securities of the
Company and cash. The directors of
the Company receive their payments
on the following basis:
A Bilton Entirely in listed securities of
the Company;
G Hirsch Entirely in listed securities of
the Company;
M Sinclair Half in cash and the
remainder in listed securities of the
Company;
C Smith Half in cash and the remainder
in listed securities of the Company;
However as detailed above,
participants are required to elect
to receive the entire amount of the
31 March 2019 payment in listed
securities in order to be eligible for the
Five Year Performance Plan.
The number of listed securities of the
Company is calculated with reference
to the average closing mid-market
share price of the relevant listed
securities of the Company in the 30
trading days up to and including
the trading day immediately prior to
the scheduled payment date of that
instalment.
Listed securities of the Company that
vest are freely transferable and have no
restriction on sale.
Clawback
Financial misstatement which resulted in overstatement of vesting of the Five Year Performance Plan would result in clawback.
Recruitment and Exit Policies
Summary details of the Executive Directors’ and Non-Executive Directors’ service contracts are given later in this report. Recruitment of new
Directors would be based on the same terms as the existing service contracts. No additional remuneration would be offered as an incentive to
join and the composition of remuneration would be based on the same components as existing Directors.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
56
DIRECTORS’ REMUNERATION REPORT
Exit policies for the elements of remuneration are summarised in the table below:
Component
Good Leaver*
Bad Leaver*
Change of Control
Basic Salary and Benefits
12 months notice period
Annual performance incentive
Retention scheme
Five Year Performance Plan
Pro rata payment based on
the performance in the year in
question at the discretion of the
Remuneration Committee
Awards not vested
forfeited except in certain
circumstances**
Will receive the return of their
invested securities together with
a scaled back return, the amount
of which will be at the discretion
of the Remuneration Committee
No notice period or payment in
lieu of notice
150% of the normal notice
provisions for basic salary
No award
Pro rata payment based on the
previous year’s award
Awards not vested forfeited
All subsisting awards vest
Will receive the return of their
invested securities only
The annual compound TSR will
be calculated and measured
between 31 March 2018 and the
date of the change of control
takes effect (rather than the
highest 30 dealing day average
ordinary share price achieved in
the 5 year period of the plan) with
entitlements vesting to the extent
that such annual compound TSR
is between 4 and 12%
*Bad leaver provisions relate to termination of employment for the reason of gross misconduct including breach of obligation, bankruptcy and disqualification as a director. A good leaver covers
all other circumstances.
**If a scheme participant ceases employment due to ill health or disability, redundancy as determined by the Committee or retirement, awards not vested shall vest in full on such date as if the
remaining scheduled payment dates occurred at such time.
Shareholder Views
The view of shareholders is sought prior to any significant change to the Remuneration Policy. The views of shareholders holding 63.47% of ordinary
shares were taken into account prior to presenting the terms of this Remuneration Policy at the 2017 AGM.
Summary of Remuneration for the Financial Year Ended 31 December 2017
In this section we summarise the remuneration packages for the Executive Directors.
Benefits (1)
£’000
Pension (2)
£’000
Retention
scheme –
cash
£’000
Annual
performance
incentive –
cash
£’000
Total cash
remuneration
£’000
Retention
scheme –
shares
No of
convertible
preference
shares
Annual
performance
incentive –
shares
No of
convertible
preference
shares
Retention
Scheme -
shares
No of
preference
shares
36
40
20
20
57
57
35
31
–
–
266
236
–
–
–
–
661
665
675
601
133,236
534,749
133,236
534,749
41,519
166,638
36,828
147,809
–
–
–
–
Benefits (1)
£’000
Pension (2)
£’000
Retention
scheme –
cash
£’000
Annual
performance
incentive –
cash
£’000
Total cash
remuneration
£’000
27
41
17
17
55
55
34
31
–
–
258
229
–
–
258
229
636
650
912
812
Retention
scheme –
shares
No of
convertible
preference
shares
Annual
performance
incentive –
shares
No of
convertible
preference
shares (3)
Retention
Scheme -
shares
No of
preference
shares
–
–
–
–
830,250
364,145
830,250
364,145
258,375
229,500
–
–
Year
ended 31
December
2017
G Hirsch
A Bilton
M Sinclair
C Smith
Year
ended 31
December
2016
G Hirsch
A Bilton
M Sinclair
C Smith
Salary
and
fees
£’000
568
568
354
314
Salary
and
fees
£’000
554
554
345
306
1. Benefits include health cover and insurance, subscriptions and sports memberships. These are not performance related. They have been calculated based on premiums and subscriptions payable.
2. Pensions are cash payments made to executive directors, either directly or to their pension scheme.
3. The amounts shown for year ended 31 December 2016 have been restated from the estimate reported in the 2016 Remuneration Report to the actual number of shares transferred.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
DIRECTORS’ REMUNERATION REPORT
57
2009 Long Term Incentive Plan (“LTIP”)
This scheme is closed to new participants and no further awards can be made.
The Directors’ interests in this scheme are set out below:
LTIP
G Hirsch
A Bilton
M Sinclair
C Smith
Available to exercise
at 1/1/17
1,000,000
–
–
–
Vested in year
Exercised in year
Available to exercise
at 31/12/17
–
–
–
–
(1,000,000)
–
–
–
–
–
–
–
Interests of Executive and Non-Executive Directors in Ordinary Shares, Preference Shares, Convertible Preference Shares and Warrants
The beneficial interests of the Directors in office at 31 December 2017 in the Ordinary Shares, Preference Shares, Convertible Preference Shares
and Warrants of the Company, both at the beginning and the end of the year, are set out below. There have been no changes to the figures below
since 31 December 2017.
Director
R Jewson
G Hirsch (1)
A Bilton (1)
M Sinclair (1)
C Smith (1)
C Sherwell
S Coe
D Moore
Director
R Jewson
G Hirsch (1)
A Bilton (1)
M Sinclair (1)
C Smith (1)
C Sherwell
S Coe
D Moore
Number of
Ordinary Shares
31/12/17
Number of
Preference Shares
31/12/17
Number of Convertible
Preference Shares
31/12/17
Number of
Warrants
31/12/17
252,909
7,505,640
41,367,676
3,193,719
978,031
242,755
105,589
222,501
75,460
2,219,595
5,953,355
762,351
503,719
79,728
73,412
14,172
–
1,729,144
1,729,144
425,013
293,875
–
8,771
–
53,868,820
9,681,792
4,185,947
Number of
Ordinary Shares
31/12/16
Number of
Preference Shares
31/12/16
Number of Convertible
Preference Shares
31/12/16
252,909
7,321,176
43,864,758
3,384,921
1,383,997
242,755
111,965
222,501
75,460
2,143,225
5,820,119
720,832
466,891
79,728
63,004
14,172
–
830,250
830,250
258,375
186,500
–
–
–
–
–
–
–
–
–
–
–
–
Number of
Warrants
31/12/16
–
2,292,817
11,151,075
–
7,385
–
–
–
(1) Includes ordinary, preference and convertible preference shares and warrants held by trusts or pensions schemes where the individual or close family members are beneficiaries.
56,784,982
9,383,431
2,105,375
13,451,277
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
58
DIRECTORS’ REMUNERATION REPORT
Non-Executive Directors
The remuneration of Non-Executive Directors is determined by the Executive Board. No Non-Executive Director is entitled to any form of
performance related remuneration, including share options. Remuneration paid in the year was as follows:
2016
£’000
110
48
48
46
252
Contractual
termination
payment
No provision
for payment
on termination
R Jewson
C Sherwell
S Coe
D Moore
2017
£’000
110
48
48
46
252
The contractual arrangements of the Non-Executive Directors for 2018, following an inflationary increase in fees are:
Fees
£’000
113
50
48
50
Appointment
date
Unexpired
term
Notice
period
29.06.07
Rolling contract
3 months
04.07.05
Rolling contract
3 months
04.07.05
Rolling contract
3 months
01.04.08
Rolling contract
3 months
Non-Executive
Director
R Jewson
S Coe
D Moore
C Sherwell
FTSE
Small Cap
Raven
Russia
Limited*
FTSE 350
440
390
340
290
240
190
140
90
40
2009
2010
2011
2012
2013
2014
2015
2016
2017
*Assuming participation in the tender offer
The graph above shows the performance of the Group’s ordinary shares over the last eight years versus FTSE Small Cap and FTSE 350 indices
(rebased 2009 = 100).
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
DIRECTORS’ REMUNERATION REPORT
59
The contractual arrangements of the Executive Directors for 2018 are:
Director
G Hirsch
A Bilton
M Sinclair
C Smith
Salary
£’000
Appointment
date
Unexpired
term
584
584
364
323
27.11.08
Rolling contract
27.11.08
Rolling contract
23.03.09
Rolling contract
14.11.08
Rolling contract
Contractual
termination
payment
Payment of 12
months salary
and benefits on
termination
Notice
period
12 months
12 months
12 months
12 months
At the 2017 Annual General Meeting the Remuneration Report, changes to the Directors’ Remuneration Policy and new five year plan for the
period 31 March 2018 to 31 March 2023 were subject to an advisory vote. The table below sets out the results for these particular resolutions.
Resolution
Number of votes
%
Number of votes
%
For
Against
Number of
votes withheld
Total votes cast
To approve the
Remuneration Report
To approve the changes
to the Directors’
remuneration policy
To approve the new five
year plan for the period
31 March 2018 to
31 March 2023
405,288,055
77.18
119,800,868
22.82
3,135
525,088,923
427,791,728
81.47
97,297,195
18.53
3,135
525,088,923
430,701,304
82.02
94,389,209
17.98
1,545
525,090,513
Christopher Sherwell
Chairman of the Remuneration Committee
11 March 2018
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
60
AUDIT COMMITTEE
REPORT
Audit Committee Chairman’s Introduction
Dear Shareholders,
I am pleased to present our Audit Committee report for the year ended 31 December 2017. This report sets out the work of the Committee
throughout the year.
During the year, the Committee’s role continued to be the:
• monitoring of the integrity of the Group’s financial statements;
• review of significant areas of judgement included in the financial statements;
• review of the role of the external auditors, including independence and remuneration; and
• monitoring of the quality of the Group’s internal controls and risk management functions.
We have also reported to the Board on whether the Committee believes that the annual report and accounts, taken as a whole, are fair, balanced
and understandable and provide the information necessary for shareholders to assess the Group’s performance, business model and strategy.
This includes advising the Board on the viability and going concern statements.
During the year the Committee met with the external auditors, with and without management present, to assess the audit approach, audit
independence and the working relationship between the Group auditor and management. We also discussed the role and performance of the
Group’s appointed independent valuers with management during the year.
In both cases, we believe that the working relationship is good and that the management approach and estimates are and will continue to be
appropriately challenged. We did think it important, however, given the increase in transaction activity within the Group that the management
team continued to expand their relationships in the advisory sector outwith EY and JLL. We are pleased to see that the team have been doing this
over the past 12 months.
We also discussed the Group’s key IT controls and approach to cyber security during the year and were satisfied with the current approach
adopted by the Group.
As the Group continues to grow we have tasked the Executive team with revisiting and considering whether there is need for a formal internal
audit function and will review their conclusions later in the year.
Steve Coe
Chairman
Audit Committee
11 March 2018
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
AUDIT COMMITTEE REPORT
61
The Audit Committee
The Committee met with the key members of the audit team
The Committee is responsible for ensuring that the financial
throughout the year and EY has formally confirmed its continued
performance of the Group is properly monitored and reported on.
independence as part of the interim and final financial statements
The Committee reviews the annual and interim financial statements,
process. The Chairman of the Committee also meets with the lead
the accounting policies of the Group, key areas of accounting
audit partner outside of the formal meetings to discuss any issues
judgement, management information statements, financial
arising in the course of the audit and to confirm no restrictions
announcements, internal control systems, risk management, the
on scope are placed on them by management. The Chairman also
continuing appointment of the Group auditor and the model
has regular meetings with the CFO and COO to discuss the audit
underpinning the viability statement. It also monitors the whistle
approach, relationship with auditors and fee structure.
blowing policy and procedures for fraud and bribery.
The external auditor prepares a detailed audit plan for the Committee
The Committee comprises David Moore, Christopher Sherwell
which includes their assessment of the key risks impacting the
and Stephen Coe (Chairman). The Chairman is considered to have
financial statements. The Committee actively monitors these risks
recent and relevant financial experience for the purposes of the
and obtains updates from the external auditor on the status of their
Code. The Committee’s members have considerable commercial
procedures covering these risks throughout the year.
experience relevant to the property and financial services sector to
properly discharge their duties The Committee meets at least twice
a year. There are a number of regular attendees at meetings of the
Audit Committee, including other members of the Board, senior
management and the Group’s external auditor. The Chairman of
the Committee also meets with the external Group auditor without
management present.
The Committee met three times during 2017 and addressed:
Given the length of tenure, the Committee did discuss the possibility
of putting the audit out to tender as required by the EU Audit
Directive, even though, as a Guernsey registered Company, this is not
a requirement. It was decided that, as a new audit partner had just
taken over the engagement and there had also been changes in other
senior roles within the audit team, the Committee was comfortable
with EY’s on-going independence.
Local statutory audits of individual subsidiary companies are also
• The recommendation to the Board to approve the 2016 annual and
2017 interim financial statements following consideration of the
required in the jurisdictions in which the Group operates, being
Guernsey, Cyprus, Russia and the UK. EY carry out these audits in
key areas of judgement;
Guernsey and Cyprus but the trading entities in Russia and the UK are
• The appropriateness of the current forecast model as the basis for
audited locally by Baker Tilly and Crowe Clark Whitehill respectively.
the viability statement;
The Committee believes that this gives additional balance to our
• The appointment, remuneration and continued independence of
overall audit provision and added assurance to the audit process.
the external auditor;
• The Group structure and particularly the role of the Board of the
Group’s Cypriot operations; and
• The monitoring of the Group’s internal control procedures and risk
management and specifically, a review of the Group’s IT and cyber
security policies.
Non-Audit Services
EY has also provided non-audit services to the Group where they
are assessed to be best placed to provide the particular service.
The Committee has policies in place for the provision of non-audit
services and the external auditor will not be permitted to carry out
services such as property valuation or accounting services. The
The action taken on these areas is expanded on below.
non-audit services provided are typically assignments, such as a
External Audit and Valuations
External Audit
During the year, the Committee has considered the appointment,
compensation, performance and independence of the Group’s
auditor, Ernst & Young LLP (“EY”).
review of the interim financial statements, tax advisory, or transaction
advisory services. As shown in note 6(b) to the financial statements,
total fees payable to EY in the year to 31 December 2017 amounted
to $1.4 million, of which $0.5 million was for non-audit services.
However, as the Group has increased its transaction activity it is
progressively using other advisory firms to manage EY's level of
EY was appointed in 2008 following a tender process and this is their
non-audit service involvement. During the year both KPMG and PWC
tenth year of tenure as Group auditor.
have been engaged on advisory projects.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
62
AUDIT COMMITTEE REPORT
Committee Conclusions
Valuers
The Committee has recommended a resolution for the re-
As with the external audit process, the Committee monitors the
appointment of EY to be proposed to shareholders at the Annual
objectivity of the Group’s external valuers, Jones Lang LaSalle (“JLL”).
General Meeting. Proposed EU legislation on audit appointments
The external auditor has direct access to JLL as part of the audit
including the approach to non-audit services has been considered
process. We also have the opportunity to see comparable valuations
and relationships with other suppliers of non-audit services have
of part of the portfolio each year, where independent valuations are
been established.
required for banking purposes and these are undertaken by other
external independent valuers. Meetings and site visits with the
valuers in Moscow are planned for later this year.
Significant Issues Considered by the Audit Committee
In recommending the approval of the 2017 financial statements, the Committee considered the following:
Matter Arising
Property Valuations
Action
Valuations for investment property and investment property under
The Committee discussed the valuation approach with management,
construction are conducted by external valuers. The land bank is
and the external auditors.
carried at Directors’ valuation.
Valuation movements can have a significant impact on the Group’s
The Committee also assesses the continuing independence and
net asset value.
Exchange Rate Risk
objectivity of the valuers. The external auditors have direct access
to the external valuer and comment on the key assumptions and
movements on property valuations. The Committee considered and
compared the views of all of the above together with independent
market information available and was satisfied that the judgement
used was appropriate. Given the relative stability in the economic
situation in Russia during the year, JLL have now removed their
uncertainty paragraph in their valuation report.
The Group’s exchange rate risk has increased as income streams
The Committee discussed the continuing impact of the transition
become Rouble denominated and secured debt remains US Dollar
to Rouble leases on the Group’s business with management and
denominated.
Taxation
external auditors. It also discussed the audit approach with the
external auditors and the impact on the viability and going concern
statements. It is satisfied that the annual report and accounts
adequately reflect the impact of the change in market dynamics.
Recent changes to and clarifications of tax law in Russia and
The Committee reviewed the Group’s tax provisioning policies in the
uncertainty as to how local tax authorities will apply these has led to
light of the new legislation and the results of tax reviews undertaken
increased tax risk for the Group.
Viability Statement
by the authorities on the Group during the year and is satisfied
that the tax charge for the year is adequate. It also discussed the
development of the Group structure and the importance of the
Group’s Cypriot operations demonstrating and exerting appropriate
management and control over its Russian subsidiaries.
The period of any viability exercise has to be justified and sensitivities
The Committee again reviewed the reasons for completing a viability
agreed.
period of three years with management and the auditors and
challenged the suitability of the sensitivities applied to the model. It is
satisfied that the model reflects a severe but credible scenario and the
period under review is appropriate.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
AUDIT COMMITTEE REPORT
63
Internal Control and Risk Management
The Risk Committee reports regularly to the Audit Committee on
The Board has overall responsibility for the systems of internal
its deliberations and findings. The risks and uncertainties to which
control and for reviewing their effectiveness throughout the Group.
the Group is subject are reviewed and considered by the Audit
This is a continual process, in accordance with the guidance of the
Committee and the Board at regular intervals, particularly with
Turnbull Committee on internal controls, that identifies, evaluates
reference to the strategic objectives of the business. The principal
and manages the principal risks and uncertainties that may affect
risks and uncertainties facing the Group are included elsewhere in the
the achievement of the Group’s strategic objectives. Such a system
Annual Report.
is designed to manage or reduce the effects of the possible risks
to which the Group’s activities are subject, rather than providing
absolute assurance against material misstatement or loss.
The Audit Committee has reviewed the effectiveness of these
systems of internal control and has reported its findings to the Board
throughout the year and up to the date of the Annual Report and
Consideration of risks and risk management form an integral part of
financial statements.
Due to its size, structure and the nature of its activities, the Group
does not have an internal audit function. However, as the Group
continues to grow the Committee has agreed that this is an area that
should be revisited and the management team will present a report
and their conclusions for consideration later this year.
the Board’s deliberations and are key to its decision making processes.
There are risks which the Board has no control over. These are mainly
overriding external risks such as the wider economic environment,
however the impact of such risks and effect that they have on the
Group are considered and mitigated to the extent possible. The
strategic decisions of the Group are adjusted to address these issues
ensuring that threats are reduced and opportunities are exploited.
Key features of the risk management process in place during the year
and up to the date of the annual report and financial statements
include:
• A comprehensive system of reporting and business planning;
• A defined schedule of matters reserved for the Board;
• An organisational structure chart with clearly defined levels of
authority and division of responsibilities;
• Formal documented policies and procedures throughout the
Group;
• The close involvement of the Executive Directors and senior
management in all aspects of the day-to-day operations, including
regular meetings to review all operational aspects of the business
and risk management systems;
• The role of the Board of the Group’s intermediary Cypriot Holding
Company in exerting proper management and control over the
Group’s Russian trading subsidiaries;
• The Board’s review of Group strategy and progress against
objectives throughout the year;
• A formal whistle blowing policy;
• A comprehensive and robust system of financial reporting which
includes regular management information, such as budgets, re-
forecasts, cash flows, treasury reporting and management accounts
with review of financial KPIs; and
• A regular assessment of risks within the business at all operational
levels.
The Audit Committee has established a Risk Committee to carry out
the review and assessment of risks associated with the business. This
Committee comprises Executive Directors and senior management
involved in each operating jurisdiction and department of the Group.
This engenders a culture of risk assessment within the Group and
reinforces the strategic objectives communicated by the Board.
During the year ended 31 December 2017, the Risk Committee met
four times.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
64
DIRECTORS’
REPORT
The Directors present their report and the audited financial statements of the Group for the year ended 31 December 2017.
Principal activity
The Company is a Guernsey registered company and during the year carried on business as a property investment company.
Business review
A review of the development of the Group’s business during the year, the principal risks and uncertainties facing the Group and its future
prospects are included in the Chairman’s Message and the Strategic Report which should be read in conjunction with this report.
Results and dividends
The results for the year are set out in the attached financial statements.
The Company undertook a tender offer as an interim distribution for 1 in every 52 shares at 52p, equivalent to a dividend of 1p per share (2016:
Distribution of 0.5p by way tender offer 1 share in every 80 at 40p). The Directors are recommending a final distribution of 3p by way of a tender
offer of 1 share in every 17 at 52p (2016: Distribution of 2p by way of tender offer of 1 share in every 26 at 52p).
Directors
The Directors, who served throughout the year, were as follows:
Richard Jewson (Non Executive Chairman)
Anton Bilton (Executive Deputy Chairman)
Glyn Hirsch (Chief Executive Officer)
Mark Sinclair (Chief Financial Officer)
Colin Smith (Chief Operating Officer)
Christopher Sherwell (Senior Independent Non Executive Director)
Stephen Coe (Independent Non Executive Director)
David Moore (Independent Non Executive Director)
Following the provisions of the UK Corporate Governance Code, all the Directors shall be subject to annual re-appointment by shareholders at
the Annual General Meeting of the Company.
Details of the Directors’ remuneration and shareholdings are included within the Remuneration Report.
Substantial shareholdings
The Company has been notified of shareholders, other than Directors, holding 3% or more of the ordinary shares as follows:
Ordinary Shares of £0.01
Name of holder
Invesco Perpetual
Woodford Investment Management
Schroder Investment Management
JO Hambro Capital Management
Old Mutual Global Investors
Number held
31 December 2017
% of share
capital
Number held
24 February 2018
% of share
capital
214,506,762
92,131,841
67,313,604
64,073,105
28,645,408
32.47
13.95
10.19
9.70
4.34
214,506,762
92,131,841
67,613,604
65,816,015
28,645,408
32.47
13.95
10.24
9.96
4.34
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
DIRECTORS’ REPORT
65
Relationship Agreement
In accordance with Listing Rule 9.8.4 (14), the Company can confirm that on 20 November 2015, it entered into a relationship agreement with its
principal shareholder, Invesco Asset Management Limited (“Invesco”).
The principal purpose of this agreement is to ensure that the Company is capable at all times of carrying on its business independently of
Invesco. If the holding of Invesco (together with its associates and/or those it acts in concert with) falls below 30% of the voting rights over the
Company’s ordinary shares, the relationship agreement shall terminate.
The Company has and, in so far as it is aware, Invesco and its associates have, complied with the independence provisions set out in the
relationship agreement during the period. The ordinary shares controlled by Invesco rank pari passu with the other ordinary shares in all respects.
Purchase of own shares
The Company was granted authority at the 2017 AGM to make market purchases of its own ordinary and preference shares. This authority will
expire on 11 October 2018. A resolution will be proposed at the 2018 AGM to renew this authority.
Auditor
Ernst & Young LLP have expressed their willingness to continue in office and a resolution to re-appoint them will be proposed at the forthcoming
Annual General Meeting.
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 35 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, fund raising and acquisition activity. 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’ responsibilities
Guernsey company law requires the Directors to prepare financial statements for each financial year, which give a true and fair view of the state
of affairs of the Group at the end of the year and of the profit or loss of the Group for that period. In preparing those financial statements, the
Directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and estimates that are reasonable and prudent;
• State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial
statements; and
• Prepare the financial statements on the going concern basis unless it is inappropriate to assume that the Group will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of
the Group and to enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008 and IFRS as adopted by
the EU. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
So far as each of the Directors is aware, there is no relevant audit information of which the Company’s auditor is unaware and each has taken
all the steps he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s
auditor is aware of that information.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
66
DIRECTORS’ REPORT
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 2017.
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 11 March 2018 and is signed on its behalf by:
Mark Sinclair
Chief Financial Officer
Colin Smith
Chief Operating Officer
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
67
INDEPENDENT
AUDITOR’S REPORT
Independent Auditor’s Report to the Members
of Raven Russia Limited
Opinion
In our opinion:
• Raven Russia Limited Group financial statements (the “financial statements”) give a true and fair view of the state of the Group’s affairs as at
31 December 2017 and of the Group’s profit for the year then ended;
• the financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the
European Union; and
• the financial statements have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements of Raven Russia Limited which comprise:
• The Group Balance Sheet as at 31 December 2017;
• The Group Income Statement for the year then ended;
• The Group Statement of Comprehensive Income for the year then ended;
• The Group Statement of Changes in Equity for the year then ended;
• The Group Cash Flow Statement for the year then ended; and
• Related notes 1 to 39 to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards
as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below.
We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs(UK) require us to report to
you whether we have anything material to add or draw attention to:
• the disclosures in the annual report set out on pages 38 to 40 that describe the principal risks and explain how they are being managed or
mitigated;
• the directors’ confirmation set out on page 66 in the annual report that they have carried out a robust assessment of the principal risks facing
the entity, including those that would threaten its business model, future performance, solvency or liquidity;
• the directors’ statement set out on page 65 in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements;
• whether the directors’ statement in relation to going concern required under the Listing Rules is materially inconsistent with our knowledge
obtained in the audit; or
• the directors’ explanation set out on page 41 in the annual report as to how they have assessed the prospects of the entity, over what period
they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation
that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications or assumptions.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
68
INDEPENDENT AUDITOR’S REPORT
Overview of our audit approach
Key audit matters
• Economic and financial uncertainties in Russia and their impact
• Misstatement of the fair value of investment properties and investment properties under construction
• Revenue recognition with respect to rental revenue, service charge income, Raven Mount sales and logistics income
Audit scope
• We performed an audit of the complete financial information of the Russian and Guernsey components and audit
procedures on specific balances for the Cyprus and United Kingdom components
• The components where we performed full or specific audit procedures accounted for 100% of Revenue and 100%
of Total assets.
Materiality
• Overall group materiality of $10.0m which represents 0.5% of total assets.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in
our opinion thereon, and we do not provide a separate opinion on these matters.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
INDEPENDENT AUDITOR’S REPORT
69
Key observations communicated
to the Audit Committee
We have completed the additional
procedures we designed in order to respond
to the heightened political and economic
uncertainty in Russia.
We have no significant findings to report
from the completion of these procedures.
We conclude that the balances and
disclosures in the financial statements and
notes thereto, appropriately reflect the risk
factors identified.
As a result of the procedures performed in
relation to the provision for uncertain tax
positions we concluded that the uncertain
tax provisions and related disclosures have
been appropriately recognised in accordance
to the Group’s accounting policy and IFRS.
Risk
Our response to the risk
Economic and financial uncertainties in
Russia and their impact (as described in the
Strategic Report)
We performed the following audit procedures
around the impact of uncertainties over the current
economic environment in Russia:
The current geopolitical situation remains an
important area of focus for the Group and
our audit. Continuing political and economic
tension between the US, EU and Russia,
together with movements in the oil price
and foreign exchange rate, have resulted in
continuing economic uncertainty, including
deterioration of liquidity in Russia’s banking
sector.
Business practice in Russia may differ from
business practices in more developed
economies. There is a risk that inappropriate
inducements may be sought by third parties
which may be undetected by the board and
management. Areas where inappropriate
payments may be made include: payments
to secure favourable development land;
payments for planning permits; construction
payments; payments to resolve ongoing
litigations; or payments in connection with the
acquisition or disposal of assets.
We have assessed that, whilst the risk remains,
the uncertainty has lessened since prior year
and therefore the impact on the financial
statements will be less significant due to
greater planning and consideration of the
potential impact on valuation of investment
property and cash flow forecasts.
Another financial risks of conducting business
in Russia includes responding to legislative
changes, particularly tax laws.
There have been changes to the Russian tax
legislation in recent years. There is uncertainty
around the application of this law as it is
evolving through court practice. As a result,
there is judgment and estimation required
to estimate the potential magnitude of tax
liabilities and provisions.
We updated our understanding of the current
economic environment in Russia through:
• Discussions with management and EY real estate
valuation specialists in Russian and the UK;
• Undertaking press searches in Russia and the UK
and reviewing economic forecasts.
We evaluated whether the assumptions
underpinning the Group’s property valuations
(separately addressed below) and going concern
assessment are consistent with our above
understanding. For going concern, this included
validating key assumptions such as rental rates and
interest rates to publically available information.
We performed the following audit procedures
around the potential risk of inducement payments
to third parties:
• We held fraud discussions with Raven Russia
staff of various levels and also with the audit
committee, throughout the audit. We enquired
with management as to whether they were
aware of any evidence of fraud, or were aware
of any whistle blowing or other fraud related
matters or instances of any non-compliance with
laws and regulations.
• We confirmed our understanding of the controls
in place to prevent and detect transactions
involving inducements payments by performing
walkthroughs.
•
In order to address the remaining risk over
inappropriate payments, we tested on a sample
basis (based on material items and a random
sample):
- payments made in respect of capital
expenditure;
- that journal transactions have a valid business
purpose and are on an arm’s length basis.
We performed the following audit procedures
around the uncertain tax positions arising from the
tax laws in Russia:
• We reviewed correspondence with the tax
authorities regarding recent inspections in
Russia;
• Enquired with management about their
response to the tax authorities and their
assessment of the potential exposure;
• Considered the results from recent tax
inspections;
• Obtained management’s calculation of the
provision for uncertain tax positions;
• Using our tax specialists in Russia and the UK,
we discussed and challenged management’s
provision. We inspected recent court cases and
challenges by the tax authority to determine if
the risk assessment made by management is
appropriate.
• We have reviewed the disclosures made in notes
2, 3 and 8 regarding the uncertain tax provision.
We performed full scope audit procedures over this
risk area in the one location, Moscow, affected by
this risk, which covered 100% of the risk amount.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
Key observations communicated
to the Audit Committee
We have completed our planned
audit procedures over the valuation of
investment property and investment
property under construction.
We have no significant findings to
report from the completion of these
procedures.
We conclude that the balances and
disclosures in the financial statements
and notes appropriately reflect the risk
factors identified.
We have concluded that the assessment
of fair values performed by JLL and the
directors are within an acceptable range
and the carrying values of investment
property and investment property
under construction are fairly stated at 31
December 2017.
70
INDEPENDENT AUDITOR’S REPORT
Risk
Our response to the risk
Misstatement of the fair value of
investment properties and investment
properties under construction (as
described in the Audit Committee
Report and notes 2, 3, 11, 12 and 13 of
the financial statements)
Material misstatements that could occur in
relation to this risk would primarily affect
the investment property and investment
property under construction balance at
year end.
This account has a $1.6bn balance in the
2017 annual report (2016: $1.3bn).
The valuation of investment property and
investment property under construction
requires significant judgements and
estimates by management and the
external valuer.
This estimate is impacted by the
uncertainties over the current economic
environment in Russia, as described
above.
Due to the increasing stability in the
Russian economy and more activity in the
real estate market, the level of estimation
uncertainty has decreased from prior year,
however this remains an area of significant
estimation.
We performed the following audit procedures
around the valuation of investment properties
and investment properties under construction:
We documented and assessed the adequacy
of the Group’s valuation process and controls
over data used in the valuation of its property
portfolio.
We performed testing over source
documentation provided by the Group to the
external valuer. On a sample basis, we:
Inspected lease agreements and agreed the
key terms to the tenancy schedule provided to
the valuer; and
Performed site visits to see if the occupancy
matches that presented in the tenancy
schedule. We also inspected the asset to
determine if the overall condition of the asset
aligns to that stated in the external valuer’s
report.
We assessed the competence, capabilities and
objectivity of the external valuer.
For a sample of the Group’s investment
property and investment property under
construction, we performed detailed testing
on the valuations performed by the external
valuer. This sample represented 94% of
the total value of investment property and
investment property under construction.
With the support of EY’s real estate valuation
experts in Russia and the UK, we:
Assessed the valuation approach and the
assumptions made by the external valuer and
the directors in performing their valuation of
each property against industry benchmarks.
The key assumptions included estimated rental
values, yields and other assumptions that
impact the value which were benchmarked to
market data.
For the remaining properties comprising 6% of
the valuation, we:
Conducted analytical procedures on the
movement in the valuation of each property
compared to the prior year by reference
to external market data to evaluate the
appropriateness of the valuations adopted by
the Group.
The audit team, together with the EY
Chartered Surveyor performed site visits
of certain assets in the Group’s portfolio,
inspecting their condition and level of tenancy.
We assessed the adequacy of the disclosures of
estimates in note 2 and valuation assumptions
in note 13 that were made in accordance with
IFRS 13 – Fair Value Measurement.
We performed full scope audit procedures
over this risk area in the one location affected
by this risk, which covered 100% of the risk
amount.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
INDEPENDENT AUDITOR’S REPORT
71
Key observations communicated
to the Audit Committee
As a result of the procedures performed
we concluded that revenue has been
appropriately recognised in accordance
to the Group’s accounting policy and
IFRS.
Risk
Our response to the risk
Revenue recognition (as described
in note 2 and 5 of the financial
statements).
Total revenue of $228m in the 2017 annual
report (2016: $195m).
We have identified the following risks
related to the recognition of revenue:
Rental revenue & service charge income
from the property investment portfolio:
is not recorded correctly, including the
effect of tenant incentives and contracted
rent uplift balances.
Roslogistics: risk that the logistics revenue
is not recorded in the correct period.
Raven Mount income from sales of
property: the risk is that sales may not be
recognised in the correct period.
The risk is unchanged from the prior year.
We performed the following audit procedures
around revenue recognition:
We documented the Group’s revenue
recognition process and assessed the
adequacy of the controls in place to prevent
and detect fraud and errors in revenue
recognition.
We performed analytical procedures over
rental, service charge and logistics income to
identify significant fluctuations and trends. We
corroborated any significant fluctuations to
new / terminated lease agreements.
On a sample basis, we recomputed the
revenue recognised by the company in the
year, based on the contractual lease terms,
including the treatment of rent incentives.
We obtained and examined the trade
receivable ageing to assess the recoverability
of receivables by testing subsequent cash
receipts and confirming the credit worthiness
of the tenants with outstanding rent.
We agreed the calculation of the IFRS rent
straight-lining adjustment to underlying lease
and tenancy data as well as the arithmetical
accuracy of the calculation.
We performed cut-off procedures on all
revenue streams to confirm they had been
recorded in the correct period.
Lease and service charge invoice from
investment properties in Russia, and the
Roslogistics business were full scope locations
and contributed 89% of the Group’s revenue.
The remaining revenue (11%) relates to Raven
Mount and was subject to specific audit
procedures. On a sample basis, we obtained
the executed sales contracts and checked that
the sales were recognised in the correct period.
An overview of the scope of our audit
which were selected based on their size or risk characteristics.
Tailoring the scope
For the remaining 2 components (“specific scope components”),
Our assessment of audit risk, our evaluation of materiality and our
we performed audit procedures on specific accounts within that
allocation of performance materiality determine our audit scope
component that we considered had the potential for the greatest
for each entity within the Group. Taken together, this enables us
impact on the significant accounts in the financial statements either
to form an opinion on the consolidated financial statements. We
because of the size of these accounts or their risk profile.
take into account size, risk profile, the organisation of the group
and effectiveness of group-wide controls, changes in the business
environment and other relevant factors when assessing the level of
work to be performed at each entity.
In establishing our overall approach to the Group audit we
determined the type of work that needed to be undertaken at each
of the components by us, as the Group engagement team, or by
component auditors from another EY global network firm operating
The Group has operations in Russia, Cyprus, the United Kingdom
under our instructions. Audits of the Russia, United Kingdom and
and Guernsey. Our testing is performed on a consolidated basis
Guernsey components, which address all of the material risks
using thresholds which are determined with reference to the Group
of misstatement noted above, were performed by the Group
performance materiality and the risks of material misstatement
engagement team. The Group audit partner is based in the UK but,
identified.
In assessing the risk of material misstatement to the Group financial
statements, and to ensure we had adequate quantitative coverage
of significant accounts in the financial statements, of the 4 reporting
components of the Group, we performed an audit of the complete
financial information of 2 components (“full scope components”)
since the Group has operations in Russia and Guernsey, the Group
audit team includes members from the UK, Guernsey and Russia.
Members of the Group team in these jurisdictions work together as
an integrated team throughout the audit process. The Group audit
procedures relating to the valuation of investment property and
income taxes were also supported by EY Russia experts.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
72
INDEPENDENT AUDITOR’S REPORT
For the Group entities incorporated in the United Kingdom, specific
The performance materiality set for each component is based on the
scope procedures on revenue, cash, goodwill and investment in joint
relative scale and risk of the component to the Group as a whole and
venture balances were performed by the Group team.
our assessment of the risk of misstatement at that component. In the
For the Group entities incorporated in Cyprus, specific scope
procedures on cash, intercompany, debt, derivatives and tax balances
current year, the range of performance materiality allocated to EY
Cyprus is $4.5 million (2016: $3.0 million).
were performed by EY Cyprus. We determined the appropriate level of
Reporting threshold
involvement to enable us to determine that sufficient audit evidence
An amount below which identified misstatements are considered as
had been obtained as a basis for our opinion on the Group as a whole.
being clearly trivial.
The reporting components where we performed audit procedures
We agreed with the Audit Committee that we would report to them
accounted for 100% of the Group’s Profit before tax, Revenue and
all uncorrected audit differences in excess of $0.5 million (2016:
Total assets for both the current and prior years. For the current
$0.4 million), which is set at 5% of planning materiality, as well
year, the full scope components contributed 75% (2016: 99%) of the
as differences below that threshold that, in our view, warranted
Group’s Profit before tax, 89% (2016: 99%) of the Group’s Revenue and
reporting on qualitative grounds. We evaluate any uncorrected
91% (2016: 92%) of the Group’s Total assets, with the remainder being
misstatements against both the quantitative measures of
addressed by specific scope procedures.
materiality discussed above and in light of other relevant qualitative
Involvement with component teams
considerations in forming our opinion.
During the current year’s audit cycle a visit was undertaken by the
Other information
Group team, including the Group audit partner, to the component
team in Cyprus. This visit involved discussing the audit approach with
the component team and local management and any issues arising
from the work. The Group audit team interacted regularly with the
component team during various stages of the audit, reviewed key
working papers and was responsible for the scope and direction
of the audit process. This, together with the additional procedures
The other information comprises the information included in the
annual report including Results highlights, the Chairman’s message,
the Portfolio review, the Strategic Report and the Governance Report
set out on pages 4 through 66, other than the financial statements
and our auditor’s report thereon. The directors are responsible for the
other information.
performed at Group level, gave us appropriate audit evidence for our
Our opinion on the financial statements does not cover the other
opinion on the Group financial statements.
Our application of materiality
We apply the concept of materiality in planning and performing the
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
audit, in evaluating the effect of identified misstatements on the audit
In connection with our audit of the financial statements, our
and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually
or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent of
our audit procedures.
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement
in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude
We determined materiality for the Group to be $10.0 million (2016: $8
that there is a material misstatement of the other information, we are
million), which is 0.5% (2016: 0.5%) of total assets. We believe that the
required to report that fact.
basis of materiality that is the primary measure of performance for
shareholders is a capital measure total assets.
We have nothing to report in this regard.
During the course of our audit, we reassessed initial materiality and
there was no change from the original assessment made at planning.
Performance materiality
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of
the other information where we conclude that those items meet the
The application of materiality at the individual account or balance
following conditions:
level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
• Fair, balanced and understandable set out on page 66 – the
statement given by the directors that they consider the annual
report and financial statements taken as a whole is fair, balanced
On the basis of our risk assessments, together with our assessment
and understandable and provides the information necessary for
of the Group’s overall control environment, our judgement was
shareholders to assess the group’s performance, business model
that performance materiality was 75% (2016: 75%) of our planning
and strategy, is materially inconsistent with our knowledge
materiality, namely $7.5 million (2016: $6.0 million).
obtained in the audit; or
Audit work at component locations for the purpose of obtaining
• Audit committee reporting set out on pages 60 to 63 – the
audit coverage over significant financial statement accounts is
section describing the work of the audit committee does not
undertaken based on a percentage of total performance materiality.
appropriately address matters communicated by us to the audit
committee; or
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
INDEPENDENT AUDITOR’S REPORT
73
• Directors’ statement of compliance with the UK Corporate
This report is made solely to the company’s members, as a body, in
Governance Code set out on page 43 – the parts of the
accordance with Article 262 of the Companies (Guernsey) Law, 2008.
directors’ statement required under the Listing Rules relating to
Our audit work has been undertaken so that we might state to the
the company’s compliance with the UK Corporate Governance
company’s members those matters we are required to state to them
Code containing provisions specified for review by the auditor in
in an auditor’s report and for no other purpose. To the fullest extent
accordance with Listing Rule 9.8.10R(2) do not properly disclose
permitted by law, we do not accept or assume responsibility to anyone
a departure from a relevant provision of the UK Corporate
other than the company and the company’s members as a body, for our
Governance Code.
audit work, for this report, or for the opinions we have formed.
Matters on which we are required to report by exception
A further description of our responsibilities for the audit of the
We have nothing to report in respect of the following matters in
relation to which the Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
• proper accounting records have not been kept by the company, or
proper returns adequate for our audit have not been received from
Peter McIver
branches not visited by us; or
for and on behalf of Ernst & Young LLP
• the financial statements are not in agreement with the company’s
accounting records and returns; or
London
11 March 2018
• we have not received all the information and explanations we
require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set
out on page 66, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible
for assessing the group and parent company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company
or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Notes:
1. The maintenance and integrity of the Raven Russia Limited web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.
2. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
74
GROUP INCOME
STATEMENT
For the year ended 31 December 2017
Underlying
earnings
$’000
Notes
4 / 5
228,083
(61,354)
166,729
2017
Capital
and other
$’000
–
–
–
Underlying
earnings
$’000
Total
$’000
228,083
195,294
(61,354)
(43,553)
166,729
151,741
2016
Capital
and other
$’000
–
–
–
Total
$’000
195,294
(43,553)
151,741
Gross revenue
Property operating expenditure
and cost of sales
Net rental and related income
Administrative expenses
4 / 6
(25,343)
(3,204)
(28,547)
(24,243)
(1,101)
(25,344)
Share-based payments and
other long term incentives
Foreign currency profits
Operating expenditure
32
(1,635)
9,229
(2,910)
–
(4,545)
9,229
(17,749)
(6,114)
(23,863)
Share of profits of joint ventures
16
2,074
–
2,074
(3,133)
18,079
(9,297)
1,780
(5,944)
–
(9,077)
18,079
(7,045)
(16,342)
–
1,780
Operating profit / (loss) before profits
and losses on investment property
Unrealised profit / (loss) on revaluation
of investment property
Profit on disposal of investment
property under construction
Unrealised loss on revaluation of
investment property under construction
Operating profit / (loss)
Finance income
Finance expense
Profit / (loss) before tax
Tax
Profit / (loss) for the year
Earnings per share:
Basic (cents)
Diluted (cents)
Underlying earnings per share:
Basic (cents)
Diluted (cents)
11
12
12
4
7
7
8
9
9
151,054
(6,114)
144,940
144,224
(7,045)
137,179
–
–
–
42,320
42,320
–
-
(4,168)
(4,168)
–
–
–
(40,192)
(40,192)
3,807
3,807
(3,132)
(3,132)
151,054
32,038
183,092
144,224
(46,562)
7,248
914
8,162
3,436
18,086
97,662
21,522
(85,335)
(15,272)
(100,607)
(85,359)
(11,579)
(96,938)
72,967
17,680
90,647
62,301
(40,055)
22,246
(16,157)
(16,804)
(32,961)
(15,179)
652
(14,527)
56,810
876
57,686
47,122
(39,403)
7,719
8.69
8.30
1.17
1.16
8.56
7.41
7.17
6.81
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.
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 non-controlling interests.
The accompanying notes are an integral part of this statement.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
75
GROUP STATEMENT OF
COMPREHENSIVE INCOME
For the year ended 31 December 2017
Profit for the year
Other comprehensive income, net of tax
Items to be reclassified to profit or loss in subsequent periods:
Foreign currency translation on consolidation
Total comprehensive income for the year, net of tax
All income is attributable to the equity holders of the parent company. There are no non-controlling interests.
2017
$’000
57,686
2016
$’000
7,719
(24,712)
10,942
32,974
18,661
The accompanying notes are an integral part of this statement.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
76
GROUP BALANCE
SHEET
As at 31 December 2017
Non-current assets
Investment property
Investment property under construction
Plant and equipment
Goodwill
Investment in joint ventures
Other receivables
Derivative financial instruments
Deferred tax assets
Current assets
Inventory
Trade and other receivables
Derivative financial instruments
Cash and short term deposits
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Interest bearing loans and borrowings
Non-current liabilities
Interest bearing loans and borrowings
Preference shares
Convertible preference shares
Other payables
Derivative financial instruments
Deferred tax liabilities
Total liabilities
Net assets
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
Notes
2017
$’000
2016
$’000
11
12
14
16
17
19
26
18
19
20
21
19
22
22
23
24
25
19
26
1,568,126
1,300,643
38,411
41,253
4,248
–
9,983
5,625
7,948
3,044
1,882
9,731
3,724
5,012
34,629
27,451
1,668,970
1,392,740
423
771
78,946
52,669
445
358
266,666
198,621
346,480
252,419
2,015,450
1,645,159
107,357
65,408
35
943
106,697
40,787
214,089
107,138
740,485
699,038
146,458
131,703
269,031
119,859
34,566
25,259
–
67
81,063
61,869
1,271,603
1,037,795
1,485,692
1,144,933
529,758
500,226
GROUP BALANCE SHEET
77
Notes
2017
$’000
2016
$’000
27
28
29
24
12,479
12,578
207,746
216,938
441
1,161
(5,742)
(7,449)
14,497
8,453
(217,782)
(245,426)
(201,911)
(177,199)
720,030
691,170
30 / 31
529,758
500,226
31
31
81
80
78
77
76
71
71
68
Equity
Share capital
Share premium
Warrants
Own shares held
Convertible preference shares
Capital reserve
Translation reserve
Retained earnings
Total equity
Net asset value per share (cents):
Basic
Diluted
Adjusted net asset value per share (cents):
Basic
Diluted
The financial statements were approved by the Board of Directors on 11 March 2018 and signed on its behalf by:
Mark Sinclair
Chief Financial Officer
Colin Smith
Chief Operating Officer
The accompanying notes are an integral part of this statement.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
78
Saint Basil's Cathedral, Moscow
GROUP STATEMENT OF
CHANGES IN EQUITY
For the year ended 31 December 2017
Share
Share
For the year ended
31 December 2016
Capital Premium Warrants
$’000
$’000
$’000
Notes
Own Convertible
Shares
Held
$’000
Preference Capital Translation Retained
Reserve Earnings
$’000
Shares Reserve
$’000
$’000
$’000
79
Total
$’000
At 1 January 2016
12,776
224,735
1,167
(52,101)
– (210,176)
(188,141)
676,782
465,042
Profit for the year
Other comprehensive income
Total comprehensive
income for the year
Warrants exercised
27 / 28
Convertible preference
shares issued
24
Conversion of convertible
preference shares
24 / 27
Own shares acquired
Own shares disposed
Own shares allocated
29
29
29
–
–
–
2
–
–
–
–
–
Ordinary shares cancelled
27 / 29
(200)
(7,838)
Share-based payments
32 c
Transfer in respect of capital losses
–
–
–
–
–
–
–
–
–
–
41
(6)
–
–
–
–
–
–
–
–
–
–
–
(133)
43,161
1,543
81
–
–
–
–
–
–
8,453
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(35,250)
–
7,719
7,719
10,942
–
10,942
10,942
7,719
18,661
–
–
–
–
–
–
–
–
–
–
–
–
–
37
8,453
–
(133)
(28,549)
14,612
(1,441)
102
–
(7,957)
1,409
1,409
35,250
–
–
–
–
–
–
–
–
–
At 31 December 2016
12,578
216,938
1,161
(7,449)
8,453 (245,426)
(177,199) 691,170 500,226
For the year ended
31 December 2017
Profit for the year
Other comprehensive income
Total comprehensive
income for the year
–
–
–
–
–
–
–
–
–
Warrants exercised
27 / 28
180
5,037
(720)
Convertible preference
shares issued
24
Conversion of convertible
preference shares
24 / 27
Own shares acquired
Own shares disposed
Own shares allocated
29
29
29
–
6
–
–
–
–
348
–
–
–
Ordinary shares cancelled
27 / 29
(285)
(14,577)
Share–based payments
32
Transfer in respect of capital losses
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(158)
–
1,818
47
–
–
–
–
–
–
6,067
(23)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
27,644
–
57,686
57,686
(24,712)
–
(24,712)
(24,712)
57,686
32,974
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,182)
–
–
(27,644)
4,497
6,067
331
(158)
–
636
(14,815)
–
–
At 31 December 2017
12,479
207,746
441
(5,742)
14,497 (217,782)
(201,911) 720,030 529,758
The accompanying notes are an integral part of this statement.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
80
GROUP CASH FLOW
STATEMENT
For the year ended 31 December 2017
Cash flows from operating activities
Profit before tax
Adjustments for:
Impairment of goodwill
Depreciation
Provision for bad debts
Share of profits of joint ventures
Finance income
Finance expense
Profit on disposal of investment property under construction
(Profit) / loss on revaluation of investment property
Loss on revaluation of investment property under construction
Foreign exchange profits
Non-cash element of share-based payments and other long term incentives
Changes in operating working capital
(Increase) / decrease in operating receivables
Decrease in other operating current assets
Decrease in operating payables
Receipts from joint ventures
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Payments for property improvements
Refunds of VAT on construction
Acquisition of subsidiaries
Cash acquired with subsidiaries
Acquisition of investment property
Proceeds from disposal of investment property under construction
Purchase of plant and equipment
Loans repaid
Interest received
Net cash used in investing activities
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
Notes
2017
$’000
2016
$’000
6
6
6
16
7
7
12
11
12
32
90,647
22,246
2,061
1,143
(93)
–
1,101
22
(2,074)
(1,780)
(8,162)
(21,522)
100,607
96,938
–
(3,807)
(42,320)
40,192
4,168
3,132
(9,229)
(18,079)
2,910
5,944
139,658
124,387
(1,148)
429
4,419
391
(1,449)
(8,026)
137,490
121,171
16
2,711
4,521
(14,714)
(7,680)
125,487
118,012
39
39
11
12
(14,793)
(9,163)
–
493
(86,606)
4,088
(107,481)
–
–
–
–
4,595
(2,196)
–
7,255
(199,733)
(653)
337
3,399
(992)
GROUP CASH FLOW STATEMENT
81
Cash flows from financing activities
Proceeds from long term borrowings
Repayment of long term borrowings
Loan amortisation
Bank borrowing costs paid
Exercise of warrants
Preference shares purchased
Ordinary shares purchased
Ordinary shares sold
Dividends paid on preference shares
Dividends paid on convertible preference shares
Issue of convertible preference shares
Premium paid for derivative financial instruments
Net cash generated from / (used in) financing activities
Net increase / (decrease) in cash and cash equivalents
Opening cash and cash equivalents
Effect of foreign exchange rate changes
Closing cash and cash equivalents
Notes
2017
$’000
2016
$’000
271,457
–
(125,371)
(108,150)
(38,322)
(56,343)
(64,171)
(66,808)
4,497
(112)
37
(713)
27 / 28
23
27 / 29
(14,337)
(7,988)
29
–
14,612
(14,732)
(15,088)
(13,143)
(4,349)
24
126,402
128,327
(4,870)
(4,296)
127,298
(120,759)
53,052
(3,739)
198,621
202,291
14,993
69
20
266,666
198,621
The accompanying notes are an integral part of this statement.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
82
NOTES TO THE
FINANCIAL STATEMENTS
1. General information
Changes in accounting policies
Raven Russia Limited (the "Company") and its subsidiaries (together
The accounting policies adopted are consistent with those of the
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 2017 were authorised by the Board for issue on
11 March 2018.
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
previous financial year. The Group has adopted new and amended
IFRS and IFRIC interpretations as of 1 January 2017, which had no
impact on the financial position or performance of the Group.
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 five thought to have a possible impact on the Group are:
IFRS 9 Financial Instruments (effective 1 January 2018)
IFRS 2 Classification and Measurement of Share-based Payment
Transactions (Amendments to IFRS 2 effective 1 January 2018)
IAS 40 Transfer of Investment Property (Amendments to IAS 40
effective 1 January 2018)
IFRS 15 Revenue from contracts with customers (effective 1
January 2018)
IFRS 16 Leases (effective 1 January 2019)
been prepared for both current and prior periods. The group
The Group has assessed the impact of these changes and does
financial statements are presented in US Dollars and all values are
rounded to the nearest thousand dollars ($'000) except where
not expect them to significantly impact on the financial position
or performance of the Group. There may, however, be changes to
otherwise indicated.
disclosures within the financial statements.
The principal accounting policies adopted in the preparation of
The standards, amendments or revisions are effective for annual
the group financial statements are set out below. The policies
periods beginning on or after the dates noted above.
have been consistently applied to all years presented, unless
otherwise indicated.
Basis of consolidation
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.
Going concern
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
The financial position of the Group, its cash flows, liquidity position
meet the definition of a business combination as set out in IFRS 3
and borrowings are described in the Financial Review and the notes
"Business Combinations". Accordingly the transactions have not
to these financial statements. After making appropriate enquiries
been accounted for as an acquisition of a business and instead
and examining sensitivities that could give rise to financial exposure,
the financial statements reflect the substance of the transactions,
the Board has a reasonable expectation that the Group has adequate
which is considered to be the purchase of investment property and
resources to continue operations for the foreseeable future.
investment property under construction.
Accordingly, the Group continues to adopt the going concern basis
in the preparation of these financial statements.
Statement of compliance
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.
The financial statements of the Group have been prepared in
Where necessary, adjustments are made to the financial statements of
accordance with International Financial Reporting Standards
entities acquired to bring the accounting policies into line with those
adopted for use in the European Union ("IFRS") and the Companies
used by the Group.
(Guernsey) Law, 2008.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
83
All intra-group transactions, balances, income and expenditure are
Taxation
eliminated on consolidation.
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 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 joint venture. Joint control is the contractually agreed sharing of
The tax expense represents the sum of the tax currently payable and
control of an arrangement, which exists only when decisions about
deferred tax.
the activities require unanimous consent of the contracting parties for
strategic financial and operating decisions.
(a) Current tax
The tax currently payable is based on taxable profit for the year.
The Group's investments in joint ventures are accounted for using
Taxable profit differs from net profit (or loss) as reported in the
the equity method. Under the equity method, the investment in a
Income Statement because it excludes items of income and
joint venture is initially recognised at cost. The carrying value of the
expenditure that are taxable or deductible in other years and
investment is adjusted to recognise changes in the Group's share
it further excludes items that are never taxable or deductible.
of net assets of the joint venture since the acquisition date. Any
The Group's liability for current tax is calculated using tax rates
premium paid for an interest in a joint venture above the fair value
that have been enacted or substantively enacted by the balance
of the Group's share of identifiable assets, liabilities and contingent
sheet date.
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.
(b) Tax provisions
A current tax provision is recognised when the Group has a present
obligation as a result of a past event and it is probable that the Group
The aggregate of the Group's share of profit or loss of joint ventures
will be required to settle that obligation. A provision for uncertain
is shown on the face of the Income Statement within Operating Profit
taxes is recorded within current tax payable (see note 21).
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.
(c) 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
Incentives for lessees to enter into lease agreements are spread
profits will be available against which deductible temporary
evenly over the lease term, even if the payments are not made on
differences can be utilised. Such assets and liabilities are not
such a basis. The lease term is the non-cancellable period of the lease,
recognised if the temporary difference arises from goodwill or from
together with any further term for which the tenant has the option to
the initial recognition (other than in a business combination) of other
continue the lease, where, at the inception of the lease, the directors
assets and liabilities in a transaction that affects neither the taxable
are reasonably certain that the tenant will exercise that option.
profit nor the accounting profit.
Premiums received to terminate leases are recognised in the Income
The carrying amount of deferred tax assets is reviewed at each
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.
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
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
84
NOTES TO THE FINANCIAL STATEMENTS
directly to equity, in which case the deferred tax is also dealt with in
Financial assets
equity.
The Group classifies its financial assets into one of the categories
Deferred tax assets and deferred tax liabilities are offset, if a legally
discussed below, depending upon the purpose for which the asset
enforceable right exists to set off current tax assets against current tax
was acquired. The Group has not classified any of its financial assets
liabilities and the deferred income taxes relate to the same taxable
as held to maturity.
entity and the same taxation authority.
(d) 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
(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.
services is not recoverable from the taxation authority, in which
(b) Loans and receivables
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
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 and payables that are stated with the amount of value
receivables, loans, security deposits, restricted cash and cash and
added tax included.
short term deposits.
The net amount of value added tax recoverable from, or payable to,
Loans and receivables are initially recognised at fair value, plus
the taxation authority is included as part of receivables or payables,
transaction costs that are directly attributable to their acquisition
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
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.
for banking purposes. The Group has appointed Jones Lang LaSalle
Cash and short term deposits include cash in hand, deposits held at
as property valuers to prepare valuations on a semi-annual basis.
call with banks and other short term highly liquid investments with
Valuations are undertaken in accordance with appropriate sections of
original maturities of three months or less.
the current Practice Statements contained in the Royal Institution of
Chartered Surveyors Appraisal and Valuation Standards, 2014 Edition
Financial liabilities and equity instruments
(the "Red Book"). This is an internationally accepted basis of valuation.
Financial liabilities and equity instruments are classified according to
Gains or losses arising from changes in the fair value of investment
the substance of the contractual arrangements entered into.
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
The Group classifies its financial liabilities into one of the categories
listed below.
present value of any tenant incentives and contracted rent uplifts that
(a) Fair value through profit or loss
are spread over the lease term and increased by the carrying amount
This category comprises only out-of-the-money derivatives, which are
of any liability under a head lease that has been recognised in the
carried at fair value with changes in the fair value recognised in the
Balance Sheet.
Income Statement in finance income or finance expense.
Borrowing costs that are directly attributable to the construction of
(b) Other financial liabilities
investment property are included in the cost of the property from
Other financial liabilities include interest bearing loans, trade payables
the date of commencement of construction until construction is
(including rent deposits and retentions under construction contracts),
completed.
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.
preference shares, convertible 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, convertible preference shares 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
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
85
settlement or redemption and direct issue costs, are charged to the
end exchange rates of monetary assets and liabilities denominated
Income Statement using the effective interest rate method.
in foreign currencies are recognised in the Income Statement.
An equity instrument is any contract that evidences a residual
interest in the assets of the Group after deducting all of its liabilities.
The Group considers the convertible preference shares to be a
Non-monetary assets and liabilities are translated using exchange
rates at the date of the initial transaction or when their fair values are
reassessed.
compound financial instrument, that is they have a liability and equity
(c) On consolidation
component. On the issue of convertible preference shares the fair
The results and financial position of all the Group entities that have
value of the liability component is determined and the balance of the
a functional currency different from the presentation currency are
proceeds of issue is deemed to be equity. The Group's other equity
translated into the presentation currency as follows:
instruments are its ordinary shares and warrants.
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.
(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
Share-based payments and other long term incentives
Comprehensive Income.
The Group rewards its key management and other senior employees
by a variety of means many of which are settled by ordinary,
preference shares or convertible preference shares of the Company.
Awards linked to or that may be settled by ordinary shares
The share component of the 2016 Retention Scheme may be
settled in any of the Company's listed securities, including ordinary
shares, and as a consequence falls within the scope of IFRS 2 Share-
based payments. To date the instalments have been settled by
preference shares and convertible preference shares and therefore
are cash-settled transactions. The cost of cash-settled transactions
is recognised as an expense over the vesting period, measured by
reference to the fair value of the corresponding liability, which is
recognised on the Balance Sheet. The liability is remeasured at fair
value at each balance sheet date until settlement, with changes in the
fair value recognised in the Income Statement.
Awards not linked to or settled by ordinary 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 or convertible preference shares, as
appropriate, 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.
The cash component of the 2016 Retention Scheme has been
accounted for in this way.
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
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.
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.
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.
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-
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
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
86
NOTES TO THE FINANCIAL STATEMENTS
retrospectively. The Group is and has been subject to tax reviews
which are worked through with the relevant authorities to resolve.
The Group, in making its tax provision judgements, is confident
that an appropriate level of management and control is exerted in
each of the jurisdictions in which it operates, all companies are tax
resident in their relevant jurisdictions and are the beneficial owners
of any income they receive. Local management use their in-house
tax knowledge and previous experience as well as independent
professional experts when assessing tax risks and the resultant
provisions required. For the current year, the Group has specifically
reviewed the potential impact that new regulations may have on its
financing arrangements and the provision reflects probabilities of
between 25% and 100% of possible outcomes.
4. Segmental information
The Group has three reportable segments, which are managed and
report independently to the Board. These comprise:
Property Investment - acquire or develop and lease commercial
property in Russia;
Roslogistics - provision of warehousing, transport, customs brokerage
and related services in Russia; and
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.
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.
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.
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
profit does not include the related finance costs. If such finance costs
were included in segment profit or loss, the profit from Property
Investment would have decreased by $62,918k (2016: $68,631k).
deferred tax liabilities are recognised. As detailed in note 39, the
Group purchased Gorigo Logistics Park, Primium Business Centre and
Kellerman Business Centre by acquiring all of the issued share capital
of the corporate vehicles that owned the properties.
(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.
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, 2014 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 valuation at 31 December 2016 the valuer
highlighted that as a result of market conditions at the valuation date
it was necessary to make more judgements than is normally required.
Following the improvement in the Russian economy and commercial
property market and an increase in activity in the investment market,
they no longer highlight this uncertainty.
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. New legislation and
clarifications have been introduced over recent years, but it remains
unclear as to how these will be applied in practice. The interpretation
of the legislation that the Group adopts for its transactions and
activities may be challenged by the relevant regional and federal
authorities from time to time. Additionally, there may be inconsistent
interpretation of tax regulations by each local authority, creating
uncertainties in the correct application of the taxation regulations
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 new tax regulations have been applied
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
87
(a) Segmental information for the year ended and as at 31 December 2017
Year ended 31 December 2017
Property
Investment Roslogistics
$’000
$’000
Raven
Mount
$’000
Segment
Total
$’000
Central
Overhead
$’000
Gross revenue
179,986
23,145
24,952
228,083
Operating costs / cost of sales
(46,710)
(10,775)
(3,869)
(61,354)
Net operating income
133,276
12,370
21,083
166,729
–
–
–
Total
$’000
228,083
(61,354)
166,729
Administrative expenses
Running general and administration expenses
(16,407)
(2,204)
(851)
(19,462)
(5,881)
(25,343)
Impairment of goodwill
Depreciation
Share–based payments and other
long term incentives
Foreign currency profits
Profit on disposal of investment
property under construction
Unrealised profit on revaluation of
investment property
Unrealised loss on revaluation of
investment property under construction
Share of profits of joint ventures
–
(697)
(775)
9,225
–
(2,061)
(446)
–
4
–
–
–
(2,061)
(1,143)
(775)
9,229
–
–
(3,770)
–
(2,061)
(1,143)
(4,545)
9,229
124,622
9,724
18,171
152,517
(9,651)
142,866
–
42,320
(4,168)
–
–
–
–
–
–
–
–
2,074
–
42,320
(4,168)
2,074
–
–
–
–
–
42,320
(4,168)
2,074
Segment profit / (loss)
162,774
9,724
20,245
192,743
(9,651)
183,092
Finance income
Finance expense
Profit before tax
As at 31 December 2017
Assets
Investment property
Investment property under construction
Investment in joint ventures
Inventory
Cash and short term deposits
Segment assets
Other non–current assets
Other current assets
Total assets
Segment liabilities
Interest bearing loans and borrowings
Capital expenditure
Corporate acquisitions
Other acquisition
Property improvements
8,162
(100,607)
90,647
Property
Investment Roslogistics
$’000
$’000
Raven
Mount
$’000
Total
$’000
1,568,126
38,411
–
–
258,908
1,865,445
847,182
86,173
122,730
16,286
225,189
–
–
–
–
907
907
–
–
–
–
–
–
–
9,983
423
1,568,126
38,411
9,983
423
6,851
266,666
17,257
1,883,609
52,450
79,391
2,015,450
847,182
86,173
122,730
16,286
225,189
–
–
–
–
–
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
88
NOTES TO THE FINANCIAL STATEMENTS
(b) Segmental information for the year ended and as at 31 December 2016
Year ended 31 December 2016
Gross revenue
Operating costs / cost of sales
Net operating income
Administrative expenses
Property
Investment Roslogistics
$’000
$’000
Raven
Mount
$’000
Segment
Total
$’000
Central
Overhead
$’000
175,661
17,806
1,827
195,294
(35,023)
140,638
(7,991)
9,815
(539)
(43,553)
1,288
151,741
–
–
–
Total
$’000
195,294
(43,553)
151,741
Running general and administration expenses
(13,887)
(1,355)
(920)
(16,162)
(8,081)
(24,243)
Impairment of goodwill
Depreciation
Share–based payments and other
long term incentives
Foreign currency profits / (losses)
Profit on disposal of investment
property under construction
Unrealised loss on revaluation of
investment property
Unrealised loss on revaluation of
investment property under construction
Share of profits of joint ventures
–
(823)
(2,224)
18,136
–
(278)
–
(38)
141,840
8,144
3,807
(40,192)
(3,132)
–
–
–
–
–
Segment profit / (loss)
102,323
8,144
–
–
–
(19)
349
–
–
–
1,780
2,129
–
(1,101)
–
–
(2,224)
(6,853)
18,079
–
–
(1,101)
(9,077)
18,079
150,333
(14,934)
135,399
3,807
(40,192)
(3,132)
1,780
–
–
–
–
3,807
(40,192)
(3,132)
1,780
112,596
(14,934)
97,662
Finance income
Finance expense
Profit before tax
As at 31 December 2016
Assets
Investment property
Investment property under construction
Investment in joint ventures
Inventory
Cash and short term deposits
Segment assets
Other non–current assets
Other current assets
Total assets
Segment liabilities
Interest bearing loans and borrowings
Capital expenditure
Property improvements
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
21,522
(96,938)
22,246
Total
$’000
Property
Investment Roslogistics
$’000
$’000
Raven
Mount
$’000
1,300,643
41,253
–
–
–
–
–
–
–
–
9,731
771
1,300,643
41,253
9,731
771
192,995
1,534,891
1,014
1,014
4,612
198,621
15,114
1,551,019
41,113
53,027
1,645,159
739,825
7,127
–
–
–
739,825
–
7,127
NOTES TO THE FINANCIAL STATEMENTS
89
5. Gross revenue
Rental and related income
Proceeds from the sale of inventory property
Logistics
2017
$’000
2016
$’000
179,986
175,661
24,952
23,145
1,827
17,806
228,083
195,294
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 $10k (2016: $172k).
Details of the Group's contracted future minimum lease receivables are detailed in note 37.
The Group recognised revenue of $25.9 million (2016: $24.6 million) from a single tenant of the property investment segment that amounted to
more than 10% of Group revenue.
6. Administrative expenses
(a) Total administrative expenses
Employment costs
Directors’ remuneration
Bad debts
Office running costs and insurance
Travel costs
Auditors’ remuneration
Impairment of goodwill (note 14)
Legal and professional
Depreciation
Registrar costs and other administrative expenses
(b) Fees for audit and other services provided by the Group’s auditor
Audit services
Audit related assurance services
Other fees:
Taxation services
Other services
Total fees
2017
$’000
13,341
3,073
(93)
4,057
1,944
711
2,061
1,931
1,143
379
2016
$’000
11,700
4,882
22
3,218
1,540
617
–
1,814
1,101
450
28,547
25,344
2017
$’000
2016
$’000
535
62
597
72
42
114
711
508
65
573
44
–
44
617
The Group engaged Ernst & Young to undertake due diligence in respect of the investment property acquisitions in the year, incurring $403k
(2016: $nil) of fees, which were included in the cost of the relevant investment property.
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 $303k (2016: $306k) and the fees for taxation services were $75k (2016: $170k).
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
90
NOTES TO THE FINANCIAL STATEMENTS
7. Finance income and expense
Finance income
Total interest income on financial assets not at fair value through profit or loss
Income from cash and short term deposits
Interest receivable from joint ventures
Other finance income
Profit on purchase and cancellation of loans and borrowings
Change in fair value of open interest rate derivative financial instruments
Change in fair value of foreign currency embedded derivatives
Finance income
Finance expense
Interest expense on loans and borrowings measured at amortised cost
Interest expense on preference shares
Interest expense on convertible preference shares
Total interest expense on financial liabilities not at fair value through profit or loss
Change in fair value of open forward currency derivative financial instruments
Change in fair value of open interest rate derivative financial instruments
2017
$’000
2016
$’000
7,218
29
–
48
867
3,399
37
15,365
169
2,552
8,162
21,522
62,918
15,825
20,058
98,801
156
1,650
68,631
16,518
7,475
92,624
2,324
1,990
Finance expense
100,607
96,938
In 2016, the Group agreed to pay $16.3 million to HSH Nordbank to fully repay and discharge $31.7 million of loans secured on the Konstanta
office block, generating a profit for the Group of $15.4 million.
Included in the interest expense on loans and borrowings is $5.5 million (2016: $3.8 million) relating to amortisation of costs incurred in
originating the loans. Included in the interest expense on preference shares is $0.5 million (2016: $0.6 million) relating to the accretion of
premiums payable on redemption of preference shares and amortisation of costs incurred in issuing preference shares. Included in the interest
expense on convertible preference shares is $7.1 million (2016: $2.8 million) relating to the accretion of premiums payable on redemption and
amortisation of costs incurred in issuing the convertible preference shares of $0.3 million (2016: $0.1 million).
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
91
8. Tax
The tax expense for the year comprises:
Current taxation
Deferred taxation (note 26)
On the origination and reversal of temporary differences
On unrealised foreign exchange movements in loans
Over provision in prior year
Tax charge
The charge for the year can be reconciled to the profit per the Income Statement as follows:
Profit before tax
Tax at the Russian corporate tax rate of 20%
Tax effect of financing arrangements
Tax effect of non deductible preference share coupon
Tax effect of foreign exchange movements
Tax effect of debt repurchase not subject to tax
Movement in provision for uncertain tax positions
Tax effect of other income not subject to tax and non-deductible expenses
Tax effect of property depreciation on revaluations
Tax on dividends and other inter company gains
Movement on previously unprovided deferred tax assets
Over provision in prior year
2017
$’000
2016
$’000
19,346
10,816
15,228
3,694
191
(1,804)
17
–
32,961
14,527
2017
$’000
2016
$’000
90,647
22,246
18,129
4,449
(4,977)
12,524
7,177
1,150
4,841
10,959
–
(2,990)
7,038
4,525
2,878
3,473
3,917
1,738
4,397
1,235
(4,628)
(26,543)
(1,804)
–
32,961
14,527
The tax effect of financing arrangements reflects the impact of intra group funding in each jurisdiction. Foreign exchange movements on intra
group financing are taxable or tax deductible in Russia but not in other jurisdictions. In accordance with its accounting policy, the Group is
required to estimate its provision for uncertain tax positions. During the year the provision has increased, as shown in the reconciliation above,
as a consequence of tax clarifications and interpretations. Other income and expenditure not subject to tax arises in Guernsey.
9. Earnings measures
In addition to reporting IFRS earnings the Group also reports its own underlying earnings measure. 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 and the Group's ability to declare covered distributions. As a consequence the underlying earnings measure excludes investment property
revaluations, gains or losses on the disposal of investment property, intangible asset movements, gains and losses on derivative financial
instruments, share-based payments and other long term incentives (to the extent not settled in cash), the accretion of premiums payable
on redemption of preference shares and convertible preference shares, material non-recurring items, depreciation and amortisation of loan
origination costs, together with any related tax.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
92
NOTES TO THE FINANCIAL STATEMENTS
The calculation of basic and diluted earnings per share is based on the following data:
Earnings
Net profit for the year prepared under IFRS
Adjustments to arrive at underlying earnings:
Impairment of goodwill (note 6a)
Depreciation (note 6a)
Share-based payments and other long term incentives (note 32c)
Unrealised (profit) / loss on revaluation of investment property
Profit on disposal of investment property under construction
Unrealised loss on revaluation of investment property under construction
Profit on purchase and cancellation of loans and borrowings (note 7)
Change in fair value of open forward currency derivative financial instruments (note 7)
Change in fair value of open interest rate derivative financial instruments (note 7)
Change in fair value of foreign currency embedded derivatives (note 7)
Premium on redemption of preference shares and amortisation of issue costs (note 23)
Premium on redemption of convertible preference shares and amortisation of issue costs (note 24)
Amortisation of loan origination costs (note 7)
Movement on deferred tax thereon
Tax on unrealised foreign exchange movements in loans
Underlying earnings
2017
$’000
2016
$’000
57,686
7,719
2,061
1,143
2,910
–
1,101
5,944
(42,320)
40,192
–
4,168
–
156
1,602
(867)
537
7,448
5,481
16,718
86
(3,807)
3,132
(15,365)
2,324
1,821
(2,552)
562
2,892
3,811
212
(864)
56,809
47,122
IFRS
Basic
Effect of dilutive potential ordinary shares:
Warrants (note 28)
LTIP (note 32)
2016 Retention scheme (note 32)
CBLTIS 2015 (note 32)
ERS (note 32)
Convertible preference shares (note 24)
Diluted
2017
Weighted
average
shares
No. ‘000
Earnings
$’000
57,686
663,493
2016
Weighted
average
shares
No. ‘000
Earnings
$’000
7,719
657,468
EPS
Cents
8.69
EPS
Cents
1.17
–
–
–
–
–
7,669
1,382
2,513
–
–
20,058
77,744
261,369
936,426
–
–
–
–
–
–
7,651
1,294
1,009
275
21
–
8.30
7,719
667,718
1.16
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
93
Underlying earnings
Basic
Effect of dilutive potential ordinary shares:
Warrants (note 28)
LTIP (note 32)
2016 Retention scheme (note 32)
CBLTIS 2015 (note 32)
ERS (note 32)
Convertible preference shares (note 24)
Diluted
2017
Weighted
average
shares
No. ‘000
Earnings
$’000
EPS
Cents
Earnings
$’000
2016
Weighted
average
shares
No. ‘000
56,809
663,493
8.56
47,122
657,468
EPS
Cents
7.17
–
–
–
–
–
7,669
1,382
2,513
–
–
12,610
69,419
261,369
936,426
–
–
–
–
–
7,651
1,294
1,009
275
21
4,584
91,851
7.41
51,706
759,569
6.81
The finance expense for 2016 relating to the convertible preference shares was greater than IFRS basic earnings per share and thus the
convertible preference shares were not dilutive for IFRS fully diluted earnings per share. This was not the case in 2017 nor for underlying earnings
per share where the convertible preference shares are dilutive and have been incorporated into the calculation of diluted earnings per share.
10. Ordinary dividends
In the place of a final dividend for 2016 the Company implemented a tender offer buy back of ordinary shares on the basis of 1 in every 26 shares
held at a tender price of 52 pence per share, the equivalent of a final dividend of 2 pence per share. Instead of an interim dividend for 2017 the
Company implemented a tender offer buy back of ordinary shares on the basis of 1 in every 52 shares at a tender price of 52 pence per share, the
equivalent of a dividend of 1 pence per share.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
94
NOTES TO THE FINANCIAL STATEMENTS
11. Investment property
Asset class
Location
Fair value hierarchy*
Market value at 1 January 2017
Corporate acquisitions (note 39)
Other acquisition
Property improvements
Unrealised profit on revaluation
Logistics
Moscow
Level 3
$’000
Logistics
St Petersburg
Level 3
$’000
Logistics
Regions
Level 3
$’000
Office
St Petersburg
Level 3
$’000
2017
Total
$’000
1,005,449
141,431
151,846
24,818
1,323,544
–
35,994
122,730
11,155
16,346
–
1,738
16,872
–
–
3,081
4,477
50,179
86,173
–
122,730
312
16,286
6,834
44,529
Market value at 31 December 2017
1,155,680
196,035
159,404
82,143
1,593,262
Tenant incentives and contracted rent uplift balances
(18,552)
(5,749)
(1,711)
(550)
(26,562)
Head lease obligations (note 25)
1,426
–
–
–
1,426
Carrying value at 31 December 2017
1,138,554
190,286
157,693
81,593
1,568,126
Revaluation movement in the year ended 31 December 2017
Gross revaluation
Effect of tenant incentives and contracted rent uplift balances
16,346
(1,057)
16,872
4,477
6,834
44,529
(417)
(339)
(396)
(2,209)
Revaluation reported in the Income Statement
15,289
16,455
4,138
6,438
42,320
Asset class
Location
Fair value hierarchy*
Market value at 1 January 2016
Property improvements
Logistics
Moscow
Level 3
$’000
Logistics
St Petersburg
Level 3
$’000
Logistics
Regions
Level 3
$’000
Office
St Petersburg
Level 3
$’000
2016
Total
$’000
1,043,952
139,106
148,649
25,140
1,356,847
4,906
2,022
378
(179)
7,127
Unrealised (loss) / profit on revaluation
(43,409)
303
2,819
(143)
(40,430)
Market value at 31 December 2016
1,005,449
141,431
151,846
24,818
1,323,544
Tenant incentives and contracted rent uplift balances
(17,495)
(5,332)
(1,372)
(154)
(24,353)
Head lease obligations (note 25)
1,452
–
–
–
1,452
Carrying value at 31 December 2016
989,406
136,099
150,474
24,664
1,300,643
Revaluation movement in the year ended 31 December 2016
Gross revaluation
Effect of tenant incentives and contracted rent uplift balances
Revaluation reported in the Income Statement
(43,409)
(948)
(44,357)
303
–
303
2,819
(54)
2,765
(143)
(40,430)
1,240
238
1,097
(40,192)
*Classified in accordance with the fair value hierarchy, see note 36. There were no transfers between fair value hierarchy in 2016 or 2017.
During the year the Group acquired four new investment properties. As corporate acquisitions it acquired Gorigo Logistics Park, Kellerman
Business Centre and Primium Business Centre (see note 39) and also, as a direct purchase of real estate, Logopark Sever, a newly completed
logistics park in Moscow.
At 31 December 2017 the Group has pledged investment property with a value of $1,435 million (2016: $1,288 million) to secure banking
facilities granted to the Group (note 22).
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
95
12. Investment property under construction
Asset class
Location
Fair value hierarchy*
Assets under construction
Regions
Level 3 Sub–total
$’000
Moscow
Level 3
$’000
$’000
St Petersburg
Level 3
$’000
Land Bank
Regions
Level 3 Sub–total
$’000
$’000
2017
Total
$’000
Market value at 1 January 2017
29,600
7,500
37,100
Costs incurred
Disposal
Effect of foreign exchange rate changes
57
–
686
12
–
69
–
341
1,027
Unrealised loss on revaluation
(3,643)
(253)
(3,896)
Market value at 31 December 2017
26,700
7,600
34,300
Head lease obligations (note 25)
515
–
515
Carrying value at 31 December 2017
27,215
7,600
34,815
–
–
–
–
–
–
–
–
3,662
3,662
40,762
–
–
–
–
69
–
206
206
1,233
(272)
(272)
(4,168)
3,596
3,596
37,896
–
–
515
3,596
3,596
38,411
Asset class
Location
Fair value hierarchy*
Assets under construction
Regions
Level 3 Sub–total
$’000
Moscow
Level 3
$’000
$’000
St Petersburg
Level 3
$’000
Market value at 1 January 2016
27,700
7,300
35,000
Costs incurred
Disposal
2,353
–
33
–
2,386
–
Effect of foreign exchange rate changes
1,774
1,072
2,846
Unrealised loss on revaluation
(2,227)
(905)
(3,132)
Market value at 31 December 2016
29,600
7,500
37,100
Head lease obligations (note 25)
491
–
491
Carrying value at 31 December 2016
30,091
7,500
37,591
413
49
(543)
81
–
–
–
–
Land Bank
Regions
Level 3 Sub–total
$’000
$’000
2016
Total
$’000
2,714
3,127
38,127
355
–
593
–
404
2,790
(543)
(543)
674
3,520
–
(3,132)
3,662
3,662
40,762
–
–
491
3,662
3,662
41,253
*Classified in accordance with the fair value hierarchy, see note 36. There were no transfers between fair value hierarchy in 2016 or 2017.
In 2016 the Group sold a land plot in St Petersburg for $4.6 million, generating a profit of $3.8 million after costs.
No borrowing costs were capitalised in the year (2016: $nil).
At 31 December 2017 the Group has pledged investment property under construction with a value of $34.3 million (2016: $37.1 million) to secure
banking facilities granted to the Group (note 22).
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
96
NOTES TO THE FINANCIAL STATEMENTS
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 2017 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 was a former 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 criteria 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.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
97
Valuation assumptions and key inputs
Class of property
Carrying amount
2017
$’000
2016
$’000
Completed investment
property
Valuation
technique
Input
Range
2017
2016
Moscow - Logistics
1,138,554
989,406
Income
capitalisation
St Petersburg - Logistics
190,286
136,099
Income
capitalisation
Regional - Logistics
157,693
150,474
Income
capitalisation
St Petersburg - Office
81,593
24,664
Income
capitalisation
Other key information
Moscow - Logistics
St Petersburg - Logistics
Regional - Logistics
St Petersburg - Office
Description
Land plot ratio
Age of building
Outstanding costs (US$’000)
Land plot ratio
Age of building
Outstanding costs (US$’000)
Land plot ratio
Age of building
Outstanding costs (US$’000)
Land plot ratio
Age of building
Outstanding costs (US$’000)
Long term ERV per sqm
for existing tenants
Short term ERV per sqm
for vacant space
Initial yield
Equivalent yield
Vacancy rate
Passing rent per sqm
Passing rent per sqm
Long term ERV per sqm
for existing tenants
Short term ERV per sqm
for vacant space
Initial yield
Equivalent yield
Vacancy rate
Passing rent per sqm
Passing rent per sqm
Long term ERV per sqm
for existing tenants
Short term ERV per sqm
for vacant space
Initial yield
Equivalent yield
Vacancy rate
Passing rent per sqm
Passing rent per sqm
ERV per sqm
Initial yield
Equivalent yield
Vacancy rate
Passing rent per sqm
Passing rent per sqm
Passing rent per sqm
Rub 4,500 to
Rub 4,896
Rub 3,500 to
Rub 3,800
2.5% to 15.45%
10.54% to 12.04%
1% to 94%
$110 to $166
Rub 3,104 to
Rub 11,847
Rub 4,320 to
Rub 4,608
$85 to $105
Rub 4,000
2.0% to 16.0%
10.7% to 12.2%
9% to 77%
$70 to $158
Rub 3,500 to
Rub 6,744
$80
Rub 3,800
5.96% to 13.42%
12.11% to 13.4%
3% to 19%
$69 to $140
Rub 2,339 to
Rub 4,916
Rub 3,700
11.3% to 13.2%
12.3% to 12.6%
3% to 31%
$105 to $138
Rub 3,500 to
Rub 4,500
Rub 4,608
$80
Rub 3,800
8.99% to 11.33%
12.14% to 12.53%
6% to 27%
$104 to $133
Rub 3,720 to
Rub 6,707
$173 to $215
12.53% to 24.25%
11.0% to 12.25%
0% to 1%
$388
€390
Rub 8,124 to
Rub 16,271
Rub 3,700
9.0% to 12.4%
12.4% to 12.5%
22% to 33%
$102 to $129
Rub 3,900 to
Rub 6,547
$235
20.0%
13.0%
0%
Rub 19,545
n/a
n/a
Range
2017
2016
34% - 65%
1 to 13 years
9,436
34% - 65%
2 to 12 years
6,803
48% - 57%
3 to 9 years
826
48% - 61%
8 years
154
148% to 496%
9 to 11 years
81
51% - 57%
2 to 8 years
1,102
48% - 61%
7 years
665
320%
10 years
–
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
98
NOTES TO THE FINANCIAL STATEMENTS
Carrying amount
2017
$’000
2016
$’000
Valuation
technique
Input
Range
2017
2016
Investment property
under construction
Moscow - Logistics
27,215
30,091
Comparable Value per ha ($m)
$0.32 - $0.53
$0.29 - $0.61
Regional - Logistics
7,600
7,500
Comparable Value per ha ($m)
$0.30
$0.29
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;
•
• Specific to property under development: construction costs, letting void, construction period and development profit.
Initial yield; and
In preparing their valuations in prior periods JLL specifically referred to the uncertainty in the market caused by sanctions, economic contraction
and an oil price that was low compared with recent history and the difficulties this caused in drawing conclusions as to market yields and ERVs.
Following the improvement in the Russian economy and commercial property market and an increase in activity in the investment market, they
no longer highlight this uncertainty.
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.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
99
14. Goodwill
Balance at 1 January 2016
Effect of foreign exchange rate changes
Balance at 31 December 2016
Effect of foreign exchange rate changes
Impairment of goodwill
Balance at 31 December 2017
$’000
2,245
(363)
1,882
179
(2,061)
–
As a consequence of the sale of the majority of Raven Mount's land bank in the year, goodwill has been impaired.
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
Dorfin Limited
Raven Russia Holdings Cyprus Limited
Roslogistics Holdings (Russia) Limited
Raven Mount Group Limited
Raven Russia Property Advisors Limited
Raven Russia (Service Company) Limited
Avalon Logistics Company LLC
Delta LLC
EG Logistics LLC
Fenix LLC
Gorigo LLC
CJSC Kulon Development
CJSC Kulon Istra
Kulon Spb LLC
League LLC
Logopark Don LLC
Logopark Ob LLC
CJSC Noginsk Vostok
Pervomayskay Zarya LLC
Petroestate LLC
Primium LLC
Resource Economia LLC
Sever Estate LLC
Soyuz-Invest LLC
CJSC Toros
Country of
Incorporation
Cyprus
Cyprus
Cyprus
England
England
Guernsey
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Proportion of ownership interest
2017
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2016
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
100%
100%
100%
100%
100%
100%
100%
–
100%
–
100%
–
100%
100%
The Group's investment property and investment property under construction are held by its subsidiary undertakings.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
100
NOTES TO THE FINANCIAL STATEMENTS
16. Investment in joint ventures
The principal joint ventures of the Group are as follows:
Name
Coln Park LLP
Coln Park Construction LLP
Country of
Incorporation
England
England
Proportion of ownership interest
2017
50%
50%
2016
50%
50%
Coln Park LLP and Coln Park Construction LLP are the entities through which the Group undertakes its second home development activity in
the UK. In addition, 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 reconciliation with the carrying amount of the
investments in the consolidated financial statements are set out below:
Summarised Balance Sheet
Non-current assets
Inventory
Cash and short term deposits
Other current assets
Current liabilities
Non-current liabilities
Net assets
Investment in joint ventures
Goodwill on acquisition
Share of net assets at 50%
Carrying value
Carrying value at 1 January
Share of profit for the year
Share of distributions paid
Effect of foreign exchange rate changes
Carrying value at 31 December
Summarised Income Statement
Gross revenue
Cost of sales
Administrative expenses
Finance expense
Profit before tax
Tax
Profit for the year
Group’s share of profit for the year
2017
$’000
4,355
8,330
4,780
2,656
(6,094)
(3,484)
2016
$’000
4,141
10,960
2,558
1,625
(4,686)
(3,746)
10,543
10,852
4,712
5,271
9,983
9,731
2,074
(2,711)
889
9,983
4,305
5,426
9,731
14,968
1,780
(4,521)
(2,496)
9,731
2017
$’000
2016
$’000
30,758
25,430
(24,060)
(19,807)
(2,305)
(1,932)
(236)
4,157
(10)
4,147
2,074
(125)
3,566
(5)
3,561
1,780
The joint ventures had no contingent liabilities or capital commitments as at 31 December 2017 and 2016. The joint ventures cannot distribute
their profits until they obtain the consent from the joint venture partners.
The Group charged its joint ventures $93k (2016: $97k) for services rendered to them during the year. The joint ventures recharged certain costs back to
the Group that for the year amounted to $175k (2016: $146k) of which $9k (2016: $9k) was included in payables at the balance sheet date. In addition
to the investment shown above the Group has provided a loan to Coln Park LLP of $406k (2016: $342k) generating interest income of $30k (2016: $37k).
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
101
17. Other receivables
Loans receivable
Security deposits
VAT recoverable
Prepayments and other receivables
2017
$’000
665
1,305
3,337
318
5,625
2016
$’000
611
–
2,982
131
3,724
VAT recoverable arises from the payment of value added tax on construction or purchase 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
Trade receivables
Prepayments
Security deposits
VAT recoverable
Other receivables
Tax recoverable
19. Derivative financial instruments
Interest rate derivative financial instruments
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Forward currency derivative financial instruments
Non-current assets
Current assets
Foreign currency embedded derivatives
Non-current assets
Current assets
Non-current liabilities
Current liabilities
2017
$’000
44,315
5,397
–
23,429
284
5,521
2016
$’000
37,732
4,257
2,393
4,893
319
3,075
78,946
52,669
2017
$’000
7,729
303
–
–
123
17
96
125
–
(35)
2016
$’000
4,694
95
–
(25)
269
8
49
255
(67)
(918)
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 2017 the instruments have a notional value of $651 million (2016: $581 million) and a
weighted average fixed or capped rate of 1.61% (2016: 1.51%).
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 $37.2 million (2016: $55.8 million), a weighted
average capped rate of $1.55 to £1 (2016: $1.55 to £1) and quarterly maturities with the final instruments maturing on 18 December 2019
(2016: 18 December 2019).
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 assets or liabilities disclosed above.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
102
NOTES TO THE FINANCIAL STATEMENTS
20. Cash and short term deposits
Cash at bank and on call
Short term deposits
2017
$’000
2016
$’000
173,244
74,708
93,422
123,913
266,666
198,621
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 on short term deposits at the balance sheet date is 5.04% (2016: 5.06%).
21. Trade and other payables
Trade and other payables
Construction payables
Advanced rentals
Deferred consideration on property acquisition
Other payables
Current tax payable
Other tax payable
Head leases (note 25)
22. Interest bearing loans and borrowings
Bank loans
Loans due for settlement within 12 months
Loans due for settlement after 12 months
The Group’s borrowings have the following maturity profile:
On demand or within one year
In the second year
In the third to fifth years
After five years
2017
$’000
6,762
10,497
26,467
24,166
6,949
19,829
12,678
9
2016
$’000
8,667
5,905
28,304
–
3,770
9,471
9,283
8
107,357
65,408
2017
$’000
2016
$’000
106,697
40,787
740,485
699,038
847,182
739,825
106,697
148,390
40,787
53,292
383,582
440,432
208,513
205,314
847,182
739,825
The amounts above include unamortised loan origination costs of $10.6 million (2016: $12.3 million) and interest accruals of $1.7 million
(2016: $3.8 million).
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
103
The principal terms of the Group's interest bearing loans and borrowings on a weighted average basis are summarised below:
As at 31 December 2017
Secured on investment property and investment property under construction
Unsecured facility of the Company
As at 31 December 2016
Secured on investment property and investment property under construction
Unsecured facility of the Company
Interest
Rate
Maturity
(years)
7.6%
8.9%
7.5%
8.9%
4.5
2.7
4.7
3.7
$’000
832,405
14,777
847,182
725,123
14,702
739,825
The interest rates shown above are the weighted average cost, including US LIBOR and Euribor, as at the Balance Sheet dates.
There were a number of refinancings completed during the year. On 19 January 2017 the Group refinanced a secured debt facility, drawing down
$80 million under the new facility and repaying $74.8 million on the old facility. The new facility has a seven year term. A second secured debt
facility was refinanced, drawing $50.6 million on 21 September 2017 and a further $14.5 million on 26 October 2017, repaying the old facility of
$50.6 million on the initial draw. The new facility has a term of seven years. A third refinancing straddled the year end, $62.3 million was drawn
on 29 December 2017 and the old facility of the same amount repaid on 9 January 2018. Again the term is seven years.
The Group entered into two new secured debt facilities towards the end of the year. On 9 November 2017 the Group entered into one facility
drawing €21.6 million and then €42.8 million in two tranches drawn on 20 December 2017 and 5 January 2018 on the second facility. Both of
these facilities have a seven year term.
In June 2017 the Group entered into two four year forward dated caps to extend existing hedging arrangements on expiry. In October 2017 the
Group entered into a four year forward dated cap starting in March 2018 to extend existing hedging arrangements on expiry. In December 2017
the Group entered into three interest rate caps to hedge floating interest rates on three facilities drawn in the year. In February 2018 the Group
sold a cap hedging the facility that was fully repaid in January 2018.
As at 31 December 2017 the Group had interest rate hedges for $651 million of borrowings (2016: $469 million) capped at 1.61% (2016: 1.61%) for
three years (2016: two years) and $191 million of fixed rate loans (2016: $131 million) with a weighted average rate of 6.90% (2016: 7.10%) for five
years (2016: six years). At 31 December 2017 the Group had no interest rate swaps (2016: $112 million with 3 months remaining at a weighted
average swap rate of 1.08%). This gave a weighted average cost of debt to the Group of 7.6% (2016: 7.5%) at the year end.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
104
NOTES TO THE FINANCIAL STATEMENTS
23. Preference shares
Issued share capital:
At 1 January
Purchased in the year
Reissued in the year
Premium on redemption of preference shares and amortisation of issue costs
Scrip dividends
Effect of foreign exchange rate changes
At 31 December
Issued share capital:
At 1 January
Purchased in the year
Reissued in the year
Scrip dividends
At 31 December
Shares in issue
Held by the Company’s Employee Benefit Trusts
At 31 December
The preference shares entitle the holders to a cumulative annual dividend of 12 pence per share.
24. Convertible preference shares
Issued share capital:
At 1 January
Issued in the year
Allocated to equity
Acquired by Company’s Employee Benefit Trust
Reissued in the year
Converted to ordinary shares (note 27)
Premium on redemption of preference shares and amortisation of issue costs
Movement on accrual for preference dividends
Effect of foreign exchange rate changes
At 31 December
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
2017
$’000
2016
$’000
131,703
156,558
(112)
(713)
961
537
863
–
562
614
12,506
(25,318)
146,458
131,703
2017
Number
2016
Number
98,265,327
98,328,017
(56,866)
(450,000)
487,047
–
447,684
387,310
99,143,192
98,265,327
99,200,060
98,752,376
(56,868)
(487,049)
99,143,192
98,265,327
2017
$’000
2016
$’000
119,859
–
130,290
138,705
(6,067)
(8,453)
(3,888)
(10,378)
4,376
(331)
7,448
22
2,779
–
2,892
24
17,322
(5,710)
269,031
119,859
NOTES TO THE FINANCIAL STATEMENTS
105
Issued share capital:
At 1 January
Issued in the year
Acquired by Company’s Employee Benefit Trust
Reissued in the year
Converted to ordinary shares (note 27)
At 31 December
Shares in issue
Held by the Company’s Employee Benefit Trusts
At 31 December
2017
Number
2016
Number
102,837,876
–
89,766,361
108,689,501
(2,631,578)
(8,000,000)
2,683,075
2,148,375
(266,848)
–
192,388,886 102,837,876
198,189,014
108,689,501
(5,800,128)
(5,851,625)
192,388,886 102,837,876
On 4 July 2017 the Company created and issued a further 89,766,361 convertible preference shares at a placing price of 114p per share. The new
convertible preference shares rank pari passu with the existing convertible preference shares in issue. One of the Company's Employee Benefit
Trusts participated in the placing and subscribed for a further 2,631,578 convertible preference shares.
The convertible preference shares entitle the holders to a cumulative annual dividend of 6.5 pence per share and are redeemable by the
Company on 6 July 2026 at £1.35 per share. The convertible preference shares are convertible to ordinary shares at the holder's request at any
time prior to redemption at a rate that is currently 1.759 ordinary shares for each convertible preference share.
In applying its accounting policies the Group has determined that the convertible preference shares are a compound financial instruments in
that it has a liability component and an equity component. The Group has determined the fair value of the liability component, which is reflected
above, and the residual amount of the fair value of the consideration received on issue is equity. The fair value of the liability component has
been calculated using a discounted cash flow model.
25. Other payables
Rent deposits
Deferred consideration on property acquisition
Head leases
2017
$’000
22,626
10,008
1,932
2016
$’000
23,324
–
1,935
34,566
25,259
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 $5.9 million (2016: $5.9 million) and have a present value at 31 December 2017,
as reflected above and in note 21, of $1.9 million (2016: $1.9 million).
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
106
NOTES TO THE FINANCIAL STATEMENTS
26. Deferred tax
(a) Deferred tax assets
Balance at 1 January 2016
Effect of foreign exchange rate changes
(Charge) / credit for the year
Balance at 31 December 2016
Effect of foreign exchange rate changes
Credit for the year
On acquisition (note 39)
Balance at 31 December 2017
Tax losses
$’000
Other
$’000
25,479
4,838
(3,517)
26,800
1,682
3,207
1,856
44
–
607
651
–
433
–
Total
$’000
25,523
4,838
(2,910)
27,451
1,682
3,640
1,856
33,545
1,084
34,629
The Group has tax losses in Russia of $353 million (2016: $346 million) and tax losses in the UK of $72 million (2016: $87 million) for which
deferred tax assets have not been recognised. The losses in the UK do not have an expiry date. The losses in Russia can be carried forward
indefinitely, however there is a restriction on the use of losses in that taxable profits cannot be reduced by more than 50% in any one year.
(b) Deferred tax liabilities
Balance at 1 January 2016
Effect of foreign exchange rate changes
Charge / (credit) for the year
Balance at 31 December 2016
Effect of foreign exchange rate changes
Charge for the year
Balance at 31 December 2017
27. Share capital
Issued share capital:
At 1 January
Issued in the year for cash on warrant exercises (note 28)
On conversion of convertible preference shares (note 24)
Repurchased and cancelled in the year
At 31 December
Issued share capital:
At 1 January
Issued in the year for cash on warrant exercises (note 28)
On conversion of convertible preference shares (note 24)
Repurchased and cancelled in the year
At 31 December
Accelerated
Revaluation
tax of investment
property
$’000
allowances
$’000
Total
$’000
30,145
25,474
55,619
5,448
5,069
–
(4,267)
5,448
802
40,662
21,207
61,869
1,937
6,749
49,348
-
10,508
31,715
1,937
17,257
81,063
2017
$’000
2016
$’000
12,578
12,776
180
6
2
–
(285)
(200)
12,479
12,578
2017
Number
2016
Number
667,968,463
682,560,376
13,946,387
114,084
474,722
–
(21,817,729)
(14,705,997)
660,571,843 667,968,463
Of the authorised ordinary share capital of 1,500,000,000 at 31 December 2017, 10,948,352 (2016: 24,894,739) are reserved for warrants.
Details of own shares held are given in note 29.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
28. Warrants
At 1 January
Exercised in the year (note 27)
At 31 December
At 1 January
Exercised in the year (note 27)
At 31 December
NOTES TO THE FINANCIAL STATEMENTS
107
2017
$’000
1,161
(720)
441
2016
$’000
1,167
(6)
1,161
2017
Number
2016
Number
24,894,739
25,008,823
(13,946,387)
(114,084)
10,948,352
24,894,739
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.
315 warrants have been exercised in the period since 31 December 2017 (2016: 66,193).
29. Own shares held
At 1 January
Acquisitions
Disposal
Cancelled
Allocation to satisfy ERS options exercised (note 32a)
Allocation to satisfy LTIP options exercised (note 32a)
Allocation to satisfy CBLTIS 2015 awards vesting (note 32b)
At 31 December
At 1 January
Acquisitions
Disposal
Cancelled
Allocation to satisfy ERS options exercised (note 32a)
Allocation to satisfy LTIP options exercised (note 32a)
Allocation to satisfy CBLTIS 2015 awards vesting (note 32b)
At 31 December
2017
$’000
2016
$’000
(7,449)
(52,101)
(158)
(133)
–
47
–
1,818
–
43,161
81
68
598
877
(5,742)
(7,449)
2017
Number
2016
Number
6,444,080
38,456,594
257,703
282,468
–
(30,937,631)
(39,472)
(64,987)
–
(62,756)
(1,512,189)
(500,000)
–
(729,608)
5,150,122
6,444,080
Allocations are transfers by the Company's Employee Benefit Trusts to settle 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 LTIP options, which are vested but unexercised, are given in note 32a.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
108
NOTES TO THE FINANCIAL STATEMENTS
30. Equity
The following describes the nature and purpose of each component within equity:
Component
Share capital
Share premium
Warrants
Description and purpose
The amount subscribed for ordinary share capital at nominal value.
The amount subscribed for ordinary share capital in excess of the nominal value.
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.
Convertible preference shares The amount subscribed for convertible preference shares which the Directors consider to be Equity.
Capital reserve
The amount of any capital profits and losses, including gains and losses on the disposal of investment properties
Translation reserve
Retained earnings
(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.
The amount of any gains or losses arising on the retranslation of net assets of overseas operations.
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.
31. Net asset value per share
As well as reporting IFRS net asset value and net asset value per share, the Group also reports its own adjusted net asset value and adjusted net
asset value per share measure. The Directors consider that the adjusted measure provides more relevant information to shareholders as to the
net asset value of a property investment group with a strategy of long term investment. The adjustments remove or adjust assets and liabilities,
including goodwill and amounts relating to irredeemable preference shares, that are not expected to crystallise in normal circumstances.
Net asset value
Goodwill
Goodwill in joint ventures
Unrealised foreign exchange profits on preference shares
Fair value of interest rate derivative financial instruments (note 19)
Fair value of embedded derivatives (note 19)
Fair value of foreign exchange derivative financial instruments (note 19)
Adjusted net asset value
Number of ordinary shares (note 27)
Less own shares held (note 29)
2017
$’000
2016
$’000
529,758
500,226
–
(4,712)
(7,856)
(8,032)
(186)
(140)
(1,882)
(4,305)
(20,362)
(4,764)
681
(277)
508,832
469,317
Number
Number
660,571,843
667,968,463
(5,150,122)
(6,444,080)
655,421,721 661,524,383
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
109
IFRS
2017
Ordinary
shares
No. ‘000
Net asset
value
$’000
Net asset
value per
share
Cents
Net asset
value
$’000
2016
Ordinary
shares
No. ‘000
Net asset
value per
share
Cents
Net asset value per share
529,758
655,422
81
500,226
661,524
76
Effect of dilutive potential ordinary shares:
Convertible preference shares (note 24)
269,031
338,412
119,859
186,959
Warrants (note 28)
LTIP (Note 32)
2016 Retention Scheme (note 32)
3,703
633
1,714
10,948
1,873
4,616
7,691
1,196
1,498
24,895
3,873
10,898
Fully diluted net asset value per share
804,839
1,011,271
80
630,470
888,149
71
Adjusted
2017
Ordinary
shares
No. ‘000
Net asset
value
$’000
Net asset
value per
share
Cents
Net asset
value
$’000
2016
Ordinary
shares
No. ‘000
Net asset
value per
share
Cents
Net asset value per share
508,832
655,422
78
469,317
661,524
71
Effect of dilutive potential ordinary shares:
Convertible preference shares (note 24)
Warrants (note 28)
LTIP (Note 32)
2016 Retention Scheme (note 32)
–
3,703
633
1,714
–
10,948
1,873
4,616
119,859
186,959
7,691
1,196
1,498
24,895
3,873
10,898
Fully diluted net asset value per share
514,882
672,859
77
599,561
888,149
68
As the preference shares are considered to be capital for capital risk management (see note 35d) unrealised foreign exchange movements on these
have been adjusted when calculating adjusted NAV per share. As explained in note 24 the convertible preference shares are a compound financial
instrument and their carrying value is split between non-current liabilities and equity. Further more the convertible preference shares have a finite
life and thus no adjustment has been made for unrealised foreign exchange gains and losses in calculating the Group's adjusted NAV.
The balance sheet carrying value of the liability portion of the convertible preference shares divided by the number of ordinary shares that would be
issued on their conversion is greater than the adjusted NAV per share and thus the convertible preference shares are not dilutive for adjusted diluted
NAV per share. In the case of IFRS NAV per share the convertible preference shares are dilutive and have been incorporated into the calculation of
IFRS diluted NAV per share.
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.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
110
NOTES TO THE FINANCIAL STATEMENTS
32. Share-based payments and other long term incentives
The Group has utilised a number of different share schemes to reward and incentivise the Group's executives and senior staff.
Share Option Schemes ("SOS")
The Group operated two SOS, 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 did 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 2015 to 2017 ("CBLTIS 2015")
During 2015 the Group implemented the CBLTIS 2015. Contingent awards were made in respect of 35 million ordinary shares, which covered
the calendar years 2015 to 2017. The awards are subject to performance criteria; three quarters of the award had performance conditions
linked to operating cash flows and the remainder had a share price target. The awards made were accounted for in accordance with the Group's
accounting policy for share-based payments. During 2016 the executive directors and certain senior managers waived their entitlement to
rewards under this scheme. Additionally after the initial vesting in 2016 the scheme was cancelled. In accordance with the Group's accounting
policy the charge to the Income Statement in respect of the share price tranche was accelerated following cancellation of the scheme.
2016 Retention Scheme
During 2016 the Group terminated the CBLTIS 2015 and the Company's shareholders approved the introduction of the 2016 Retention Scheme.
Awards under the scheme were made to the executive directors of the Company and two senior managers of the Group. The awards entitled the
participants to three equal payments each equivalent to 150% of their basic salary. The first instalment was paid on approval of the scheme and
the second on 31 December 2017. The third instalment will be paid on 31 March 2019. The sole condition for each instalment being paid is the
continuing employment of the participant at the relevant payment date.
Participants will receive payment of an instalment in a combination of the Company's listed securities and cash. The numbers of listed securities
to be issued to satisfy such payments will be calculated with reference to the average price of the relevant security prior to the payment date.
On 13 July 2016 an employment benefit trust ("EBT") of the Company transferred 2,148,375 convertible preference shares to participants of the
scheme in satisfaction of the first instalment. On 31 December 2017 the EBT transferred 487,049 preference shares and 1,957,775 convertible
preference shares in respect of the second instalment. It is intended that convertible preference shares held by the EBT will also be used to satisfy
the third instalment.
(a) Movements in Share Option Schemes
2017
2016
Weighted
average
exercise
price
Weighted
average
exercise
price
No. of
options
No. of
options
Outstanding at the beginning of the year
3,872,973
25p
4,447,973
Exercised during the year
– ERS
– LTIP
Outstanding at the end of the year
Represented by:
– LTIP
–
(2,000,000)
1,872,973
1,872,973
1,872,973
0p
25p
25p
(75,000)
(500,000)
3,872,973
3,872,973
3,872,973
25p
0p
25p
25p
Exercisable at the end of the year
1,872,973
25p
3,872,973
25p
The weighted average remaining contractual life of options was 1 year (2016: 2 years).
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
111
(b) Movements in Combined Bonus and Long Term Incentive Scheme 2015 Awards
2017
No. of award
shares
2016
No. of award
shares
Awards of Ordinary shares:
Outstanding at the beginning of the year
Granted during the year
Unvested awards waived during the year
Vested during the year (of which entitlement to 2,150,626 was waived)
Lapsed during the year
Cancelled during the year
Outstanding at the end of the year
(c) Income Statement charge for the year
CBLTIS 2015
2016 Retention scheme
To be satisfied by allocation of:
Ordinary shares (IFRS 2 expense)
Convertible preference shares / preference shares (IFRS 2 expense)
Cash
–
–
–
–
–
–
–
34,800,000
–
(18,750,000)
(2,942,060)
(6,207,940)
(6,900,000)
–
2017
$’000
–
4,545
4,545
–
2,910
1,635
4,545
2016
$’000
1,409
7,668
9,077
1,409
4,535
3,133
9,077
Of the IFRS 2 expense for the year $1.5 million (2016: $1.5 million) is included in current liabilities.
33. Capital commitments
The Group had no significant capital commitments at 31 December 2016 and 2017.
34. 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
Short term employee benefits
Post employment benefits
Share-based payments and other long term incentives
2017
$’000
3,933
282
4,545
2016
$’000
6,821
288
7,668
8,760
14,777
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
112
NOTES TO THE FINANCIAL STATEMENTS
35. 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, convertible 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, Russian Rouble and Euro. 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, Sterling and Euro 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 and increased credit risk as explained below.
Sterling
The Group's exposure to Sterling is primarily driven by the Sterling denominated preference shares and convertible preference shares and the
related quarterly 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.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
113
The table below summarises the currency in which the Group's financial instruments are denominated:
US Dollar
$’000
Sterling
$’000
–
1,305
6,345
665
–
123
Russian
Rouble
$’000
–
–
96
Euro
$’000
–
–
1,384
Total
$’000
665
1,305
7,948
21,989
4,397
15,536
2,393
44,315
As at 31 December 2017
Non-current assets
Loans receivable
Security deposits
Derivative financial instruments
Current assets
Trade receivables
Security deposits
Derivative financial instruments
Other current receivables
Cash and short term deposits
–
303
677
112,440
143,059
–
17
118
11,795
17,115
–
146,458
269,031
–
–
–
–
–
–
6,051
806,944
421,540
Non–current liabilities
Interest bearing loans and borrowings
680,555
Preference shares
Convertible preference shares
Derivative financial instruments
Rent deposits
Other payables
Current liabilities
Interest bearing loans and borrowings
Derivative financial instruments
Rent deposits
Other payables
–
–
–
17,718
–
103,906
–
4,765
–
–
125
546
99,945
116,248
–
–
–
–
4,908
1,932
–
35
1,857
11,382
20,114
–
–
168
42,486
46,431
59,930
–
–
–
–
–
–
445
1,509
266,666
322,853
740,485
146,458
269,031
–
22,626
1,932
2,791
106,697
–
–
22
35
6,622
17,455
62,743
1,311,341
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
114
NOTES TO THE FINANCIAL STATEMENTS
As at 31 December 2016
Non-current assets
Loans receivable
Security deposits
Restricted cash
Derivative financial instruments
Current assets
Trade receivables
Security deposits
Derivative financial instruments
Other current receivables
Cash and short term deposits
US Dollar
$’000
Sterling
$’000
Russian
Rouble
$’000
Euro
$’000
Total
$’000
611
–
–
269
38
–
8
98
–
–
–
49
–
–
–
–
6,068
2,137
–
255
217
–
–
–
4,694
29,489
2,393
95
–
61,846
98,517
Non–current liabilities
Interest bearing loans and borrowings
699,038
Preference shares
Convertible preference shares
Derivative financial instruments
Rent deposits
Other payables
Current liabilities
Interest bearing loans and borrowings
Derivative financial instruments
Rent deposits
Other payables
–
–
–
21,264
23
40,787
25
5,375
–
19,841
20,865
116,287
122,876
–
131,703
119,859
–
–
–
–
–
–
2,769
–
–
–
67
1,432
1,912
–
918
1,265
6,078
611
–
–
5,012
37,732
2,393
358
318
198,621
245,045
699,038
131,703
119,859
67
23,324
1,935
40,787
943
6,640
8,869
1,033,165
–
–
3
647
2,787
–
–
–
–
628
–
–
–
–
22
650
766,512
254,331
11,672
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, Sterling or
Euro, with all other variables in each case remaining constant, then:
Post tax profit or loss would change by:
Russian Rouble
Sterling
Euro
Net asset value would change by:
Russian Rouble
Sterling
Euro
The sterling sensitivity relates to the retranslation of the value of preference shares and convertible preference shares.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
2017
$’000
5,156
896
4,488
2016
$’000
6,619
1,455
214
6,196
39,960
1,631
11,121
22,967
214
NOTES TO THE FINANCIAL STATEMENTS
115
Accounting standards also require disclosure of monetary assets and liabilities 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.
As at 31 December 2017
Current assets
Trade receivables
Cash and short term deposits
Current liabilities
Interest bearing loans and borrowings
Rent deposits
Non–current liabilities
Interest bearing loans and borrowings
Rent deposits
As at 31 December 2016
Current assets
Trade receivables
Cash and short term deposits
Current liabilities
Interest bearing loans and borrowings
Rent deposits
Non–current liabilities
Interest bearing loans and borrowings
Rent deposits
US Dollar
$’000
Sterling
$’000
2,399
12,797
15,196
67
4,765
4,832
15,000
17,719
32,719
–
–
–
–
–
–
–
–
–
US Dollar
$’000
Sterling
$’000
5,767
35,501
41,268
63
5,375
5,438
15,000
21,264
36,264
–
–
–
–
–
–
–
–
–
Russian
Rouble
$’000
–
54,998
54,998
–
–
–
–
–
–
Russian
Rouble
$’000
–
79,660
79,660
–
–
–
–
–
–
Euro
$’000
–
42,486
42,486
2,791
2,791
59,930
59,930
Euro
$’000
–
–
–
–
–
–
–
–
–
The Group's interest rate risk arises from long-term borrowings (note 22), which include preference shares issued (note 23) and convertible
preference shares (note 24). 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 and convertible 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 $14.0 million at 31 December 2017 (2016: loss of
$12.4 million).
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
116
NOTES TO THE FINANCIAL STATEMENTS
Sensitivity analysis on the Group's interest rate borrowings, net of interest bearing deposits, indicate that a 1% increase in benchmark rates would
increase the loss for the year and decrease net assets by $2.6 million (2016: $2.1 million). If benchmark rates were to drop to zero then there
would be a decrease in the loss for the year and an increase in net assets of $8.6 million (2016: increase of $4.2 million) as the loss on income from
cash would be greater than gains on interest expense because of the low 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 over recent years. 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.
At 1 January
Effect of foreign exchange rate changes
Charge for the year
Unused amounts reversed
At 31 December
2017
$’000
4,586
128
105
(198)
4,621
2016
$’000
4,311
254
742
(721)
4,586
At 31 December 2017 there were no significant amounts of unimpaired trade receivables that were past due for collection (2016: $ nil).
The Group has VAT recoverable of $26.8 million (2016: $7.9 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 2017 (2016: $ 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
As at 31 December 2017
Total
$’000
Current
$’000
Year 2
$’000
Years 3 to 5
$’000
Years 6 to 10
$’000
Interest bearing loans and borrowings
1,072,072
166,325
197,846
478,065
229,836
Preference shares
Convertible preference shares
Derivative financial instruments
Head leases
Trade and other payables
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
160,943
495,150
35
1,553
46,705
16,094
16,917
35
155
16,094
16,917
–
155
48,283
50,751
–
466
24,078
7,736
13,981
80,472
410,565
–
777
910
1,776,458
223,604
238,748
591,546
722,560
NOTES TO THE FINANCIAL STATEMENTS
117
Financial liabilities
As at 31 December 2016
Interest bearing loans and borrowings
Preference shares
Convertible preference shares
Derivative financial instruments
Head leases
Trade and other payables
Total
$’000
964,900
145,711
254,153
1,010
1,447
Current
$’000
96,014
14,571
8,260
943
145
Year 2
$’000
Years 3 to 5
$’000
Years 6 to 10
$’000
106,721
542,826
219,339
14,571
8,260
67
145
43,713
24,780
–
434
72,856
212,853
–
723
2,356
38,832
15,509
5,471
15,496
1,406,053
135,442
135,235
627,249
508,127
Details of the interest rates applicable to the Group's long term borrowings, preference shares and convertible preference shares are given in
notes 22, 23 and 24. 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.
Non-current assets
Loans receivable
Security deposits
Derivative financial instruments
Current assets
Trade receivables
Security deposits
Other current receivables
Derivative financial instruments
Cash and short term deposits
Non–current liabilities
Interest bearing loans and borrowings
Preference shares
Convertible preference shares
Derivative financial instruments
Rent deposits
Other payables
Current liabilities
Interest bearing loans and borrowings
Derivative financial instruments
Rent deposits
Other payables
2017
2016
Carrying
Value
$’000
665
1,305
7,948
Fair
Value
$’000
621
1,220
7,948
44,315
44,315
–
1,509
445
–
1,509
445
Carrying
Value
$’000
611
–
5,012
37,732
2,393
318
358
Fair
Value
$’000
577
–
5,012
37,732
2,393
318
358
266,666
266,666
198,621
198,621
740,485
146,458
269,031
–
22,626
1,932
743,488
195,816
317,521
–
19,838
1,932
699,038
131,703
119,859
67
23,324
1,935
706,682
165,140
143,596
67
19,838
1,935
106,697
106,697
40,787
45,458
35
6,622
17,455
35
6,622
17,455
943
6,640
8,869
943
6,640
8,869
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 36 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 and convertible preference shares are 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.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
118
NOTES TO THE FINANCIAL STATEMENTS
(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.
Non-current liabilities
Current liabilities
Total borrowings
Less: cash and short term deposits
Net debt
Equity
Preference shares
Total capital
Gearing ratio
36. Fair value measurement
The following table provides the fair value measurement hierarchy* of the Group's assets and liabilities.
2017
$’000
2016
$’000
1,123,213
904,157
214,080
107,130
1,337,293
1,011,287
266,666
198,621
1,070,627
812,666
529,758
500,226
146,458
131,703
1,746,843
1,444,595
61.29%
56.26%
As at 31 December 2017
Assets measured at fair value
Investment property
Investment property under construction
Derivative financial instruments
Liabilities measured at fair value
Derivative financial instruments
As at 31 December 2016
Assets measured at fair value
Investment property
Investment property under construction
Derivative financial instruments
Liabilities measured at fair value
Derivative financial instruments
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total Fair
Value
$’000
–
–
–
–
–
–
–
–
–
–
8,393
35
–
–
5,370
1,010
1,568,126
1,568,126
38,411
–
–
38,411
8,393
35
1,300,643
1,300,643
41,253
–
–
41,253
5,370
1,010
NOTES TO THE FINANCIAL STATEMENTS
119
* Explanation of the fair value hierarchy:
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.
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:-
Within one year
In the second year
In the third to fifth year (inclusive)
After five years
38. Reconciliation of liabilities arising from financing activities
Interest bearing loans and borrowings
Preference shares
Convertible preference shares
Derivative financial instruments
2016
$’000
739,825
131,703
119,859
(5,041)
986,346
224,595
Cash flows relating to interest bearing loans and borrowings comprise:
Proceeds from long term borrowings
Repayment of long term borrowings
Loan amortisation
Bank borrowing costs paid
Add: Interest paid
Loan origination costs incurred
Non-cash changes
Fair
value
$’000
Foreign
exchange
$’000
Cash
flows
$’000
103,175
(112)
126,402
(4,870)
–
–
–
1,758
1,758
(143)
12,506
17,322
(19)
2017
$’000
153,733
129,165
191,718
43,466
2016
$’000
124,505
108,852
196,800
53,140
518,082
483,297
Other
$’000
4,325
2,361
5,448
–
2017
$’000
847,182
146,458
269,031
(8,172)
29,666
12,134
1,254,499
(64,171)
59,582
271,457
(125,371)
(38,322)
(4,589)
103,175
Other non-cash changes include amortisation of origination costs, movements in interest accruals, accretion of premiums payable on
redemption of preference and convertible preference shares and the allocation to equity on issue of convertible preference shares.
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
120
NOTES TO THE FINANCIAL STATEMENTS
39. Acquisitions in the period
The Group made three corporate acquisitions in the period; Gorigo Logistics Park, Primium Business Centre and Kellerman Business Centre
from the same investment fund. The Group purchased the properties by acquiring all of the issued share capital of the corporate vehicles that
owned the properties. In accordance with its accounting policy, the Group considered each acquisition in turn, assessing whether an integrated
set of activities had been acquired in addition to the property. In each case it was concluded a business had not been purchased but rather the
acquisition of a group of assets and related liabilities.
Analyses of the consideration payable for the properties and the incidental assets and liabilities are provided below:
Primium
$’000
Kellermann
$’000
Offices Total
$’000
Gorigo
$’000
Total
$’000
Non-current assets
Investment property (note 11)
Deferred tax assets (note 26a)
Current assets
Trade and other receivables
Cash and short term deposits
Current liabilities
Trade and other payables
Discharged by:
Cash consideration paid
Acquisition costs
29,216
20,963
50,179
–
–
–
234
1,930
440
1,016
674
2,946
35,994
1,856
282
1,142
(1,983)
29,397
(2,523)
19,896
(4,506)
49,293
(1,961)
37,313
86,173
1,856
956
4,088
(6,467)
86,606
85,778
828
86,606
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
121
ADVISERS
Registered Office:
UK Solicitors:
Registrars:
P.O. Box 522
Second Floor
La Vieille Cour
La Plaiderie
St. Peter Port
Guernsey
GY1 6EH
Joint Broker & Financial Adviser:
Nplus1 Singer Advisory LLP
One Hanover Street
London
W1S 1AX
Joint Broker:
Numis Securities Limited
10 Paternoster Square
London
EC4M 7LT
Principal Bankers:
Bryan Cave Leighton Paisner
Link Market Services (Guernsey) Limited
Adelaide House
London Bridge
London
EC4R 9HA
Guernsey Advocates:
Carey Olsen
Carey House
Les Banques
St. Peter Port
Guernsey
GY1 4BZ
Company Secretary:
Benn Garnham
Valuer:
Jones Lang LaSalle
2 Letnikovskaya St.
Bldg. 1
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey
GY2 4LH
UK Transfer Agent:
Link Market Services Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Independent Auditors:
Ernst & Young LLP
1 More London Place
London
SE1 2AF
Royal Bank of Scotland International
Business centre Vivaldi Plaza
Moscow
P.O. Box 62
2nd Floor
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4BQ
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
122
ENQUIRIES
Raven Russia Limited
Tel: + 44 (0) 1481 712955
Anton Bilton
Glyn Hirsch
Novella Communications
Tel: +44 (0) 203 151 7008
Tim Robertson
Toby Andrews
Nplus1 Singer
Tel: +44 (0) 20 7496 3000
Corporate Finance - James Maxwell / Liz Yong
Sales - Alan Geeves / James Waterlow
Numis Securities Limited
Tel: +44 (0) 20 7260 1000
Alex Ham / Jamie Loughborough / Alasdair Abram
Ravenscroft
Jade Cook
Tel: +44 (0) 1481 729100
RAVEN RUSSIA LIMITED 2017 ANNUAL REPORT
RAVEN RUSSIA LIMITED
www.ravenrussia.com
Registered Office
P.O. Box 522, Second Floor, La Vieille Cour, La Plaiderie, St. Peter Port, Guernsey, GY1 6EH