RAVEN PROPERTY GROUP LIMITED 2018 Annual Report RAVEN PROPERTY GROUP LIMITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018 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 6 28 29 30 35 40 44 45 46 52 54 55 58 62 65 72 73 74 77 78 80 117 118 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 4 RESULTS HIGHLIGHTS NET OPERATING INCOME UNDERLYING EARNINGS AFTER TAX £118.3 MILLION £20 MILLION BASIC UNDERLYING EPS 3.12 PENCE DILUTED NAV PER SHARE 48 PENCE DISTRIBUTION PER ORDINARY SHARE FOR THE YEAR 3 PENCE INVESTMENT PROPERTY (SQM) 1.9 MILLION INVESTMENT PROPERTY VALUE ACQUISITIONS DURING THE YEAR RUB 105.5 123,200 SQM BILLION AVERAGE WAREHOUSE RENT RUB 4,900 PER ANNUM PER SQM PORTFOLIO OCCUPANCY TODAY 90% RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 5 CHAIRMAN’S MESSAGE I am pleased to report that we have made significant progress in the year. We now consider ourselves a Rouble operating business and our balance sheet exposure to US Dollar liabilities has greatly reduced. The market fundamentals in the warehouse market have steadily improved and our warehouse occupancy levels have increased from 81% at 1 January 2018 to 89% at 31 December 2018 with a further increase to 90% today. In 2018 we completed two further acquisitions of grade A warehouse space, totalling 123,200sqm, for Roubles 5.3 billion, which should generate an additional Roubles 580 million of income per annum. Since April 2017 we have acquired Roubles 14.6 billion of new assets and, together with increased occupancy, this has supported our top line as legacy US Dollar pegged leases mature. Our exposure to US Dollar financing facilities has reduced from 92% at the beginning of the year to 34% of the Group’s secured debt at 31 December 2018. We still have some work to do but we are confident that 2019 will see the residue of US Dollar balance sheet exposure disappear. The certainty of a long term Rouble rental market and the shift away from a US Dollar financing model has led us to reconsider a number of currency related issues. For the first time our valuers have applied Rouble estimated rental values (“ERVs”) in the valuation model of our investment portfolio and as at 31 December 2018 all of our investment properties are valued in Roubles rather than US Dollars. This has precipitated a review of both the balance sheet functional currency of our subsidiaries and also the presentation currency we use in our Annual Report. The most obvious change being that we have reverted to a Sterling presentation policy for our Annual Report, the currency of our share capital and preference shares. The weak Rouble exchange rate at 31 December 2018 has had a detrimental impact on our property valuations. Rouble valuations of the investment portfolio improved in the year but exchange losses caused a revaluation loss on translation. Underlying earnings of £20.0 million support our distribution for the year. IFRS losses of £120.7 million reflect the impact of the weak Rouble on valuation movements. We welcome Michael Hough to the Board. Michael joined as a non executive director on 9 October 2018 and has a strong commercial pedigree and previous experience of the Russian market. We are sad to say that Stephen Coe will step down from the Board following this year’s AGM. Stephen has been an invaluable member of the non executive team for many years and will be missed. We wish him well. Michael will take over the role of Audit Committee Chairman following Stephen’s retirement. This signals the resumption of our succession planning for the Board. We had put this on hold following the turbulence of the oil and Rouble collapse in late 2014 and expect to make an ordered rotation over the next three years. We have successfully completed two secondary listings of our ordinary shares on the Johannesburg Stock Exchange (“JSE”) and the Moscow Stock Exchange (“MOEX”) during the year and we hope that this will provide an opportunity to widen our shareholder base in the future. It has been another busy year and as always, we are grateful for the support of our shareholders. Richard Jewson Chairman 17 March 2019 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 6 THE PORTFOLIO RUSSIAN FEDERATION INVESTMENT PROPERTY LAND BANK ST PETERSBURG MOSCOW NIZHNY NOVGOROD ROSTOV-ON-DON OMSK NOVOSIBIRSK RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 7 RAVEN PROPERTY GROUP LIMITED 2018 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT THE PORTFOLIO 9 St Petersburg KAD M10 KAD PRIMIUM KELLERMANN KONSTANTA KAD SHUSHARY PULKOVO GORIGO PULKOVO AIRPORT Warehouse Office RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 10 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 • X5 Retail Group • R-Pharm • OBI • Miratorg • O’Key • Major Terminal GLA 253,000 sqm 11 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 • Axioma GLA 214,000 sqm 12 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 • Kerry GLA 206,000 sqm 13 WAREHOUSE Noginsk, Moscow DESCRIPTION LOCATION Grade A Logistics Warehouse Complex with 26ha of land suitable for construction KEY TENANTS • X5 Retail Group • Dixy • Cotton Club • ID Logistics GLA 204,000 sqm 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 Nizhny Novgorod. A rail spur serves the site. 14 WAREHOUSE Klimovsk, Moscow DESCRIPTION GLA Grade A Logistics Warehouse Complex 157,000 sqm KEY TENANTS • Gradient • Private Trade (Kupi VIP) • TM Project (Marvel) • Danone • FARM • Accord Post • Mir Instrumenta 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. 15 WAREHOUSE Shushary, St Petersburg DESCRIPTION LOCATION Grade A Logistics Warehouse Complex KEY TENANTS • RosLogistics • Dixy • Officemag Sbp • 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 121,000 sqm KEY TENANTS • Pepsi • Sportmaster • Wildberries • Roust Russia • Elektrosystem • OSG • Metro • Ozon 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 • Simple Wines GLA 118,000 sqm 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 102,000 sqm 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 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. Grade A Logistics Warehouse Complex KEY TENANTS • DB Schenker • Simba Toys • Logisan • DNS Retail GLA 87,000 sqm 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 • Maunsfeld • BGLC Group GLA 68,000 sqm 21 WAREHOUSE Volga, Nizhny Novgorod DESCRIPTION LOCATION Grade A warehouse complex with additional 21.5ha of land KEY TENANT • X5 Retail Group • Bristol GLA 64,000 sqm Volga Logistics Park is located on 33 ha land plot 7 km away from Nizhny Novgorod in Kstovo town. There is a direct access provided from the complex to M7 highway (Moscow-Kazan). 22 WAREHOUSE Lobnya, Moscow DESCRIPTION LOCATION 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. Grade A Logistics Warehouse Complex KEY TENANTS • Nippon Express • RosLogistics • SportConcept • Vostok Invest • ProStore GLA 52,000 sqm 23 WAREHOUSE Sholokhovo, Moscow DESCRIPTION LOCATION Grade A Logistics Warehouse Complex KEY TENANT • RedCube • BVK • Perspektiva GLA 45,000 sqm 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. 24 WAREHOUSE Pulkovo, St Petersburg DESCRIPTION GLA Grade A Logistics Warehouse Complex 37,000 sqm KEY TENANTS • SKL • OSG • Edil Import • UPM • Melon Fashion 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 14,000 sqm 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. 25 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 22,000 sqm 26 OFFICE Primium, St Petersburg DESCRIPTION Class A Office Complex KEY TENANT • YIT GLA 11,000 sqm 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 16,000 sqm 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. Fountain at Manezh Square, Moscow 27 28 CHIEF EXECUTIVE’S REPORT Dear Shareholders, We have nearly completed our transition to a Rouble business and in Rouble terms we are performing well. Annoyingly the low year end Rouble exchange rate has not allowed this to be reflected once translated into Sterling. On 1 January 2018 the Rouble/Sterling The business is now well positioned as a local market leader in one of the world’s most appealing property sectors. We are close to having restructured our balance sheet so are in a strong position to benefit from a continued improvement in our market and at some point a significant change in valuations. exchange rate was 77.88. At 31 December 2018 that rate had fallen Our prospects look better than they have at any time since 2014 and 13.4% to 88.35. Today it is 86.12. we are confident about the future. Local market conditions are improving. Vacancy rates are down, rents are rising and the overall performance of the Russian economy is strengthening. Glyn Hirsch Chief Executive Officer In our own portfolio we have seen occupancy rise from 81% to 89% 17 March 2019 in the year with a further increase to 90% today. Rents have firmed consistently through the year and Moscow rents are now at 3,800 – 4,000 Roubles per sqm for standard space. Our average warehouse rental rates are Roubles 4,900 per sqm after taking into account higher tenant specification, office and mezzanine content. We expect these rates to continue to improve as demand and supply is out of balance and there are exceptionally low levels of speculative development. At the year end the portfolio revaluation in Roubles has shown an increase of 8%. We have made good acquisitions in the period and look forward to their full year contribution to results in 2019. We have also invested close to £19 million in Rouble interest rate hedging, capping our Rouble cost of debt at a rate of 8.25% for periods of five to seven years. We are nearly out of dollar debt and by refinancing in Roubles and Euros have maintained a cost of debt of 7.69%. The portfolio valuation yields were between 11% and 12.5% at the year end. In the meantime the Russian e-commerce sector continues to develop successfully with some impressive players emerging. We anticipate that they will soon start to make a significant impact on the logistics real estate market. Frustratingly, since the US sanctions in August, the Rouble fall has resulted in Sterling fully diluted NAV per share dropping to 48p at 31 December 2018. We are pleased to be making a final distribution of 1.75p by way of tender offer buy back of 2 shares in every 51 at 45p, meaning we will have distributed a total of 3p for the year. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 29 BUSINESS MODEL Our Strategy Key Performance Indicators (‘KPIs’) We continue with our strategy of holding an investment portfolio of Occupancy levels and average Rouble rental levels achieved are our Grade A logistics warehouses in Russia for the long term, with the aim primary operating focus. 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. of producing rental income that delivers progressive distributions to our shareholders. We will consider other asset classes in the region if the property and financial metrics are attractive and we have a small office portfolio in St Petersburg which we also intend to hold for long term income returns. Business Model We acquire investment assets typically with yields of between 11% and 14% and have bank financing costs across the Group of 7.69%. We now run a Rouble operating model but continue to have legacy US Dollar pegged leases which will mature over the next three years. As explained in last year’s Annual Report, our aim was to adapt our business model, moving the Group’s secured banking facilities out of US Dollars and to a Rouble/Euro mix to reduce our foreign currency exposure whilst managing the cost of debt. This process is now well underway. At the year end, US Dollar leases account for 26% of the Gross Lettable Area (“GLA”) of our warehouse portfolio (2017: 31%). Our office portfolio has a currency exposure to Euro on 20% (2017: 23%) of its GLA and 9% to US Dollar (2017: 9%). The Group’s secured banking facilities are 31% (2017: 0%) Rouble denominated, 35% (2017: 8%) Euro and 34% (2017: 92%) of US Dollar, at year end exchange rates. We expect to convert all remaining US Dollar facilities in the current year. Each of the facilities secured on our property assets sits in a special purpose vehicle (“SPV”) structure to minimise recourse to the overall portfolio. At the year end, asset specific debt represented 54.1% loan to value (2017: 53%). Our average letting size by tenant is 9,000sqm (2017: 8,760sqm). We do not have one tenant with more than 8% (2017: 11%) of our portfolio’s GLA and the top ten tenants account for 42% (2017: 41%) of our portfolio in GLA terms and 53% (2017: 54%) in income terms. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 30 PORTFOLIO REVIEW Geographical analysis Warehouse 15% 15% 11% 9% 70% 80% Space NOI Office The Group's office portfolio is located in St Petersburg. Leasing and maturities Moscow St Petersburg Regions During the year we completed two acquisitions; the final phase of Logopark Sever, a warehouse complex north of Moscow, and Logopark Volga, a warehouse complex with development land in Nizhny Novgorod. In aggregate these were acquired for a total consideration of Roubles 5.3 billion for 123,200sqm at a blended initial annualised yield of 12.4% assuming the leasing of vacant space. The acquisitions did not have a material impact on income in 2018 but we expect them to contribute Roubles 580 million of NOI during 2019. Occupancy has improved considerably during the year and stands at 90% today with a further 1% covered by letters of intent (“LOIs”). ‘000 sqm 2018 2019 2020 2021 2022-2032 Maturity profile at 1 January 2018 Acquisitions Subtotal Renegotiated and extended Maturity profile of lease extensions Vacated/terminated New Lettings Maturity profile at 31 December 2018 169 – 169 (102) – (67) – – 264 4 268 (64) 41 (5) 15 255 308 – 308 (50) 10 (4) 1 265 236 – 236 – 84 – 39 359 495 107 602 (37) 118 (16) 186 853 Total 1,472 111 1,583 (253) 253 (92) 241 1,732 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT PORTFOLIO REVIEW 31 Lease Expiries at 31 December 2018 853 255 265 359 Space (’000 sqm) 2019 2020 2021 2022-2032 253,000sqm of existing leases have been renegotiated and extended in the financial year and 241,000sqm of new leases signed. Significant new lettings include 11,800sqm to Accord Post, 16,000sqm to Mir Instrumenta, 16,200sqm to Cotton Club and 18,200sqm to Perspectiva, all in Moscow. Space vacated on maturity, breaks exercised and early terminations totalled 92,000sqm which, together with existing vacant space, gives 206,000sqm of vacancy in our warehouse portfolio at 31 December 2018. There are also potential breaks in the portfolio of 91,600sqm in 2019 and 199,900sqm in 2020. For 2019 we currently expect tenants who occupy circa 17,000sqm to exercise their breaks and vacate. Since the year end we have signed a further 31,850sqm of deals of which 23,000sqm were new lettings and 8,850sqm were renewals or extensions. We currently have 79,800sqm of LOIs for renewals, extensions and new lettings. If these are signed vacancy will reduce by a further 24,250sqm. At the year end 26% (2017: 31%) of our warehouse GLA had US Dollar denominated leases with an average warehouse rental level of $148 per sqm (2017: $143 per sqm) and a weighted average term to maturity of 2.1 years (2017: 3.0 years). Rouble denominated leases account for 61% (2017: 47%) of our total warehouse space with an average warehouse rent of Roubles 4,900 per sqm (2017: 5,200 per sqm) and weighted average term to maturity of 4.5 years (2017: 3.6 years). Rouble leases have an average minimum annual indexation of 5.9% (2017: 6.8%). Currency exposure of warehouse leases 7% 26% 42% 51% 11% 2% 61% Space NOI USD RUB EUR Vacant The currency split is based on the year end Sterling presentation so will be somewhat volatile, a weak Rouble, as was the case last year, will increase the contribution of US Dollar pegged leases, a stronger Rouble will reduce that contribution. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 32 PORTFOLIO REVIEW Investment Portfolio Warehouse portfolio Moscow We have ten warehouse projects in Moscow totalling 1,331,000sqm with 88% of space let at the year end, excluding LOIs, up from 78% at the beginning of the year. 1% 3% 4% 5% 9% 12% 19% 16% 1% 0.5% 0.5% 1% 15% 16% 14% 10% 15% 14% 22% 22% *Excludes space let to Roslogistics Space Pushkino Istra Noginsk Sever Klimovsk Krekshino Nova Riga Lobnya Sholokhovo Southern NOI Occupancy has improved in the Moscow portfolio with a net, like for like, increase in occupied area of 132,500sqm during the year, a combination of new letting and successful lease renewals. The Moscow market has seen vacancy decrease and record take up in the past year reflected in a hardening of rents. The market is well set for rental growth in 2019. We expect occupancy to remain in the low 90%’s during the year, held back slightly by over 90,000sqm expiring in Krekshino towards the end of June. We are already working to mitigate this by pro-actively leasing space prior to expiry. St Petersburg 14% 19% 32% 54% 28% 53%* Shushary Gorigo Pulkovo Space NOI *Excludes space let to Roslogistics 1% 42% 40%* Novosibirsk Rostov Nizhny Novgorod 59%* Regions 22% 35% Space NOI *Excludes space let to Roslogistics RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT PORTFOLIO REVIEW 33 Warehouse occupancy in the regional markets of St Petersburg, Rostov and Novosibirsk has strengthened and we have seen a lot of activity. Vacancy has reduced in all three markets as at today’s date and rents have begun to grow, particularly in Novosibirsk where we are now commanding over Roubles 4,000 per sqm. 19% 31% Warehouse Tenant Type Distribution Retail Manufacturing Third Party Logistics operators E-commerce Other Tenant Mix 1% 3% 33% 13% Space Office portfolio St Petersburg We have continued implementing our asset management strategy in the St Petersburg office properties. At Kellerman, we have undertaken cosmetic improvements to the common areas, restructured leases and re-let space at enhanced rents. There is more work to do, but the market is strong and we expect to make additional improvements in value and income. In Primium where the lease of the sole tenant expires in the summer, we have already put in place a comprehensive re-letting plan which will mean we suffer little or no vacancy on expiry, including recently signing a new lease with Tele2 on 4,000sqm. 23% 32% 45% 44% 35% Kellermann Konstanta Primium 21% Space NOI Portfolio yields Warehouse 2017 2018 Office 2017 2018 Moscow (%) St Petersburg (%) 11.25 - 12.5 11.00 - 12.6 12.5 12.30 - 12.5 Regions (%) 12.5 12.25 - 12.5 Moscow (%) St Petersburg (%) Regions (%) – – 11.00 - 12.25 12.00 - 12.25 – – 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 £1.2 billion (see notes 11 & 12 to the financial statements). This has resulted in a net loss on revaluation of £121 million in portfolio value during the year, although in Rouble terms the value of the properties has increased by 8%. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 34 PORTFOLIO REVIEW All significant yield inputs have remained static for the year reflecting a reasonably stable market place. JLL still quote a range of yields 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. The property investment market had a very slow year in 2018 with the volume of transactions dropping by around 40%. The political environment and additional sanctions conspired to make many investors sit on their hands, either waiting for things to get better (sellers) or get worse (buyers). Domestic buyers remain the largest part of the market with western capital almost non existent, foreign investment instead coming from China and the Middle East. The cost of finance has remained broadly flat during the year although the Central Bank of Russia did raise its key lending rate marginally to combat inflation. Land Bank Regions Moscow 32% 68% 54% 22% 16% 8% Regions Rostov-On-Don Omsk Omsk 2 Novgorod In Moscow, as the market tightens, we are considering developing up to an additional 75,000sqm at Nova Riga, subject to pre lets or Build to Space Suit requests. The Market Demand in 2018 was at record levels in Moscow and the Moscow region where we have the majority of our assets. Take up in 2018 was 1,600,000sqm with new supply at 918,000sqm, causing the vacancy rate to shrink. Demand was strongest from the retail and distribution businesses which accounted for 40% and 14% respectively. E-commerce is now an increasing area of demand with total space of 208,000sqm taken by the sector in 2018. This is a strengthening trend and already in 2019 we have seen Ozon lease 122,000sqm in Moscow and Yandex negotiating for up to 80,000sqm. We expect take up from the e-commerce sector to accelerate over the next few years, mirroring other European markets. The vacancy rate in the market is now around 5% and rents have clearly started to grow. Whilst there are still specific sub markets where demand is weaker and rents lower, the general consensus is that the market is poised for another strong year. A lot will depend on the supply side and the volume of build to suit projects (“BTS”) that are actually delivered. Preliminary estimates show that new delivery will be circa 990,000sqm and demand expected to be circa 1,400,000sqm. Of that only 416,000sqm or 42% will be speculative. History tells us the supply side is generally over estimated or delayed, so all things being equal rents should continue to grow. Construction cost inflation is starting to develop, driven partly by the currency effect of imported specialist materials and also by rising labour costs. This will result in less space being built or rents increasing as developers look to maintain their profit levels. Last year prime rents were in a range from Roubles 3,600 per sqm to Roubles 4,000 per sqm for Grade A space. Today the bottom end of that range has increased to closer to Roubles 3,800 per sqm and the top end is pushing above Roubles 4,000 per sqm. We are already negotiating deals around Roubles 4,000 per sqm and as vacancy continues to decline tenants will be faced with less choice hopefully causing rents to rise further. In St Petersburg and our two regional hubs of Rostov and Novosibirsk rental levels are broadly the same as in Moscow. Investment volumes in the year decreased to $2.9 billion, with 66% of this in Moscow. Over 72% of all deals were funded by Russian capital, and only 14% of the total capital or $400 million went into the warehouse sector. JLL predict prime yields in the range of 10.75-12.25% for Moscow warehouses. We are seeing a number of new acquisition opportunities, although our preference is to acquire newly completed or recently let properties as these generally offer the best long term prospects for value appreciation and sustainable cash flows. 2019 has started positively and all local indicators seem to point to improvements in occupancy and rents. Yields will remain a function of interest rates and the strength of investor appetite, but if rents begin to grow then yields should certainly begin to adjust downwards to reflect the potential of rental growth from under rented leases expiring. In any other European market yields would be considerably lower than we see today, and in the medium term this must be an opportunity. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 35 FINANCE REVIEW Asset acquisitions and increased occupancy in the investment portfolio have supported our net rental income. The second half of the year has also seen a concerted effort to reduce our exposure to US Dollar financing, moving to a Rouble/Euro mix. The balance sheet at 31 December 2018 gives a snapshot of the business part way through that process and we are very pleased with progress so far. In the current year we expect to convert all remaining US Dollar debt facilities and then move steadily to a Rouble balance sheet in the medium term, with an eye on managing the dynamic between the cost of debt and currency exposure as we go along. At 31 December 2018, JLL have undertaken Rouble valuations of our investment portfolio for the first time, rather than US Dollar. Combined with the Group’s balance sheet debt transitioning out of US Dollars, this has triggered a review of all of the functional currencies of our subsidiaries. Where previously some of our asset owning subsidiaries had a mix of Rouble and US Dollar functional currency, they are now wholly Rouble functional currency from 31 December 2018. As the US Dollar has a reducing impact on both our operating results and balance sheet, we have also made the decision to revert to Sterling as our presentation currency, being the currency of our capital instruments. Income Statement 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 Foreign exchange (losses)/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) 2018 £’000 118,285 (22,714) – (2,480) 1,630 94,721 (68,510) 26,211 (6,197) 20,014 3.12p 2017 £’000 129,696 (19,688) (1,257) 6,132 1,611 116,494 (60,592) 55,902 (12,524) 43,378 6.54p When comparing to 2017, this year’s results are distorted by two items. Firstly, the one off income of £16.4 million generated from UK land bank sales in 2017 and a negative swing of £8.6 million on unrealised foreign exchange movements, the latter being the effect of the weak Rouble rate at 31 December 2018 of 88.3 to £1 (31 December 2017: 77.9). This masks the improved performance of our underlying investment portfolio. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 36 FINANCE REVIEW Net Rental and Related Income Acquisitions Existing Investment Portfolio RosLogistics UK Land Sales 2018 £’000 18,152 91,632 8,124 377 2017 £’000 8,304 95,418 9,601 16,373 Net rental and related income 118,285 129,696 The table above illustrates the impact of acquisitions and the proceeds from the UK land sales in 2017 on our net rental income over the last two years. The majority of the movement on the existing investment portfolio is simply the translation to Sterling presentation, the weaker average Rouble/Sterling rate in 2018 of 83.7 (2017: 75.2) reducing equivalent Sterling amounts. The existing investment portfolio actually generated increased Rouble income of 7.7 billion in 2018 compared to 7.2 billion 2017, higher occupancy matching any step down to market rents, and we expect a full year of income from acquisitions in 2019 to contribute Roubles 1.9 billion. Underlying Administrative Expenses Underlying administrative expenses increase primarily as a result of bonuses paid in early 2018 in relation to 2017 performance targets. Legal and professional expenses increased in the year for various reasons including an increase in valuation fees with the change in valuation approach, PR costs and finance related costs. Underlying Net Finance Charge Net finance costs increase with a full year of preference share coupon on the tranche raised in 2017, the refinancing of acquisitions and a reduction in interest received as our average cash balances reduced. IFRS Earnings Net rental and related income Administrative expenses Share based payments and other long term incentives Foreign exchange (loss)/profits Share of joint venture profits Operating profit (Loss)/Profit on revaluation Net finance charge IFRS (loss)/profit before tax Tax IFRS (loss)/profit after tax 2018 £’000 118,285 (25,150) (2,853) (2,480) 1,630 89,432 (121,009) (83,311) (114,888) (5,793) (120,681) 2017 £’000 129,696 (22,099) (3,517) 6,132 1,611 111,823 28,235 (71,737) 68,321 (25,182) 43,139 The difference between underlying earnings and IFRS earnings is principally down to mark to market movements on various items, the most obvious being the property revaluation loss of £121 million in the year (see comments below). New interest hedging arrangements on Russian Central Bank rates generated increased volatility on mark to market movements and the amortisation of loan origination costs and premiums payable on preference shares also has an impact (see note 7). Administration expenses include £1.6 million of abortive deal costs relating to one potential acquisition project and the final charge for the Retention Scheme is also expensed in share based payments. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT FINANCE REVIEW 37 Investment Properties Our investment properties valuation (note 11) harbours the majority of the foreign exchange impact on our Sterling net asset value. The Rouble valuation movement on the portfolio was positive as ERVs and yields began to tighten, giving a Rouble 8.9 billion uplift in the year. However, the change in functional currency from US Dollars to Roubles at a time of Rouble weakness, the year end US Dollar rate being 69.4 compared to an average of 62.8 in the year, gives a significant foreign exchange loss as part of the revaluation movement. This is partly offset by a presentational currency gain through reserves when switching to Sterling presentation. The allocation of these unrealised foreign exchange gains and losses is down to accounting convention but the fundamentals do not change. The underlying Rouble metrics are improving but a weak year end Rouble rate means our Net Assets at 31 December 2018 reduce when converted to the reporting currency. Debtors and Creditors Larger movements in debtors and creditors relate to financing and acquisition costs. Derivative financial instruments increase to £22.3 million following the acquisition of interest caps on Russian Central Bank rates. Trade and other receivables reduce on receipt of deferred consideration on the UK Land sales completed in 2017 and the recovery of VAT on asset acquisitions. Deferred consideration on acquisitions falls to £12.2 million from £25.3 million in 2017, reducing Trade and other payables and long term other payables. Construction payables reduce following the completion of a one off project at Pushkino. Cash and Debt The profile of our cash and debt has changed significantly over the last 24 months and it is simpler to look at the combined cash flows over the last two years to better understand how the various elements interact. This also deals with the distortion of a refinancing which straddled the 2017 year end. Cash Flow Summary Operating cash generated after net interest paid Ordinary shares purchased in tender offers Property improvements and plant and equipment Acquisition cash flows Convertible preference shares issued and warrants exercised Debt financing and related costs Net decrease in cash and cash equivalents Cash and cash equivalents at 1 January 2017 Effect of foreign exchange rate changes Cash and cash equivalents at 31 December 2018 24 months to 31 December 2018 £’000 58,480 (39,533) 18,947 (24,133) (210,837) 103,309 35,299 (72,229) (77,415) 160,559 (9,694) 73,450 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 38 FINANCE REVIEW The Group has used a combination of the convertible preference share issue, debt refinancing and existing cash reserves to fund acquisitions and other capital requirements. Tender offer distributions are funded from operating cash after interest, including preference share coupon paid. Bank Debt Fixed rate debt Debt hedged with caps Unhedged debt Unamortised loan origination costs and accrued interest Total debt Weighted average cost of debt Weighted average term to maturity 2018 £m – 543 543 106 649 (6) 643 7.69% 4.0 2017 £m 141 481 622 10 632 (7) 625 7.62% 4.5 Significant progress has been made moving secured debt facilities out of US Dollar and increasing Rouble exposure to match the Group’s changing income profile. The currency profile of secured debt at 31 December was: 31% 34% 8% 92% 35% 2018 USD EUR RUB 2017 At the year end, the Group had 15 separate secured facilities, five US Dollar denominated, three Euro denominated and seven, a blended mix of Rouble and Euro. The average split on the blended facilities is 61% Rouble, 39% Euro. Higher US LIBOR and the effect of the Rouble loans have increased our weighted average cost of debt to 7.69% from 7.62%. The Group also had one small unsecured facility. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT The debt maturity profile at the year end is: Percentage of total debt maturing (%) 9 3 0 0 25 14 13 Number of maturing facilities 4 1 2 250 200 150 100 50 0 55 2019 0 2020 163 94 88 FINANCE REVIEW 39 32 5 206 7 1 43 2021 2022 2023 2024 2025 Debt maturing (£m) Of the three facilities maturing in the current year, one was extended in January and we are finalising terms on the remaining two. Of the five US Dollar facilities remaining, one has been converted since the year end and we have agreed terms on the conversion of the others and expect the majority to have switched to a Rouble/Euro mix by the half year. We have refinanced all of the projects acquired in the last two years except for Nizhny Novgorod. That is now at document stage and will be a Rouble facility. The wholesale change in the secured facility profile has meant that we have adapted our interest hedge cover, purchasing a series of caps with terms of between 5 and 7 years. The total cost of this exercise was £18.7 million, the majority of cost for capping Rouble facilities at a strike of 8.25bps for the Central Bank Rate. Since the year end, we have sold existing US LIBOR hedging instruments for £2.3 million. Taxation Tax paid reduces in the year, partly a function of exchange rates when converting the Rouble expense and no significant deferred tax liability movements when compared to 2017. In cash terms, £7.3 million was paid in the year (2017:£11.0 million). Net Asset Value With our change in presentation currency we include 3 years of balance sheets in our primary statement. This illustrates the impact of the Rouble volatility on our equivalent Sterling Net Asset Value this year. A reasonably benign year of exchange volatility in 2017 meant no significant foreign exchange hit to net assets but as explained in the investment property section above, the weakening Rouble in the last quarter of 2018 had a detrimental impact on our Sterling Diluted Net Asset Value per share, dropping from 59p to 48p in the year. Subsidiaries Roslogistics’ underlying Rouble results were slightly down on prior year with transport reducing contribution and overheads up slightly. The majority of the variance to 2017 however is the conversion to Sterling with the weaker Rouble. Raven Mount was effectively dormant this year after the flurry of land sales in 2017. The joint venture at “The Lakes” continues to make a steady contribution of £1.6 million to profit and £3.0 million in dividends in the year. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 40 RISK REPORT Risk Appetite As explained in last year’s annual report, the Group is adapting its balance sheet to deal with the heightened foreign exchange risk that followed the depreciation of the Rouble in late 2014: • We reduced existing US Dollar gearing to dampen the effects of Rouble exchange rate volatility on secured debt covenant 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. No significant failings or weaknesses in the internal control and risk assessment procedures have been identified during the year. requirements; Principal Risks and Uncertainties • We have completed a number of acquisitions to enhance our We have set out in the following tables the principal risks and uncertainties that face our business, our view on how those risks have changed during the year and a description of how we mitigate or manage those risks. We have also annotated those risks that have been considered as part of the viability assessment. Rouble income streams; and • We are now converting all of our US Dollar secured debt into a Rouble/Euro mix of facilities. We are well into the last stage of this transition and expect to completely eliminate any exposure to US Dollar facilities in the current year. As well as re-balancing our currency risk we believe that this will also reduce our exposure to future sanctions risks. The fundamentals of our market have stabilised and there is a distinct possibility of a continued tightening in supply putting pressure on ERVs and property yields. We intend to continue with our acquisition and growth strategy to take advantage of the opportunities that will arise. Risk Management and Internal Controls Risk assessment is built into the Group’s operating model and performed throughout the organisation as part of day to day operations. The Board is ultimately 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 process is given in the Audit Committee Report. The Cypriot holding company is an important part of the day to day management of the Group’s operational risks through its authorisation procedures and management oversight duties. It has also recently engaged an outsourced, internal audit function to assist with its responsibilities in managing and monitoring the effectiveness of the internal control systems in place between Cyprus and Russia. The weekly operational committee meetings for each department within the Group allow operational and management information to flow through the Group’s risk matrix in a timely manner. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT RISK REPORT 41 Political and Economic Risk Risk Impact Mitigation Change in 2018 Oil and Gas dependent economy V Oil price volatility returns Reduced consumer demand With little or no speculative development in the leading to a weakening has an impact on our market, research continues to forecast a drop in Rouble. customer base, reducing vacancy and a tightening of rental levels. We are reducing the balance sheet reliance on foreign currency debt and this will continue in the current year. appetite for new lettings, the renewal of existing leases and restricting rental growth. This also leads to impaired asset values. The weak Rouble increases the cost of servicing foreign currency debt. Sanctions The use of economic sanctions by the US and EU continues Continued isolation of Russia from international markets The local market has accepted the inevitability of 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. Financial Risk Risk Impact Mitigation Change in 2018 Foreign Exchange V At the year end, 26% of A weakening of the Rouble We have significantly reduced our exposure to warehouse GLA and 69% of against those foreign foreign currency secured debt facilities and will secured debt had foreign currencies reduces our ability continue to do so in the current year. currency exposure. to service debt and reduces our profitability. Our acquisition strategy and higher occupancy support our rental income levels with market level US Dollar pegged leases Rouble income. contribute above market rental income. As those leases mature, rental income will drop. V V Interest rates Increases in Central Bank The cost of debt increases and The majority of our variable cost of debt is hedged Rates and financing Group profitability and debt with the use of caps with terms matching the debt benchmarks. service cover reduce. maturity profile. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 42 RISK REPORT Property Investment Risk Acquisitions V Impact Mitigation Change in 2018 Our acquisition activity Legacy issues may erode We have a strong senior management team has increased significantly and earnings enhancement and in both our Cyprus and Moscow offices with we operate in an immature integration into our existing international and Russian experience in real estate investment market where systems may involve excessive acquisitions. legacy issues are common management resource. with Russian acquisitions. External advisers undertake full detailed due diligence on any acquisition projects. Leases V Market practice This can lead to uncertainty of We have a proactive property management team increasingly incorporates on going annualised income and continued open dialogue with tenants. lease break requirements and due to lease break clauses. We have a dedicated project management landlord fit-out obligations. There is additional landlord resource assigned to construction and fit-out risk attached to the delivery of obligations under leases. tenant fit-out requirements. Market conditions are improving with rents increasing and vacancy dropping. Lease breaks are less likely to be exercised in this market and tenants are signing longer leases on new lettings. Capital Expenditure V As 75% of our warehouse Properties become less We have put in place a capital expenditure portfolio was built between attractive to prospective programme to maintain our properties at a Grade 2007 and 2009 some tenants or lower rental values A level. These works should protect or even NEW elements of the buildings are achieved. enhance levels of rent achievable. require replacement or modernisation. Russian Domestic Risk Risk Impact Mitigation Change in 2018 Legal Framework The legal framework in The large volume of new We have an experienced in house legal team Russia continues to develop legislation from various including a litigation specialist. We use a variety of with a number of new and state bodies is open to external legal advisors when appropriate. proposed laws expected to interpretation, puts strain on come into force in the near the judicial system and can be future. open to abuse. Our lease agreements have been challenged and have proven to be robust in both ICAC arbitration and in Russian Courts. Russian Taxation Russian tax code is changing Tax treaties may be Our business is a significant contributor to in line with global taxation renegotiated and new inward investment in the Russian logistics sector. trends in areas such as transfer legislation or clarification of Our structure has developed to deal with the pricing, beneficial ownership existing practice may increase commercial risks of operating in Russia rather than of cross border cash flows and the Group’s tax expense. to take advantage of tax benefits. Management capital gains tax. and control is exerted as appropriate in each jurisdiction and the skills and experience of staff in each office reflect that commercial requirement. Ultimately, Russia remains a relatively low tax jurisdiction with 20% Corporation tax. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT RISK REPORT 43 Personnel Risks Risk Impact Mitigation Change in 2018 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 We are continually addressing succession issues where they arise. Change Key V Viability statement risk Increased risk in the period Stable risk in the period Decreased risk in the period RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 44 VIABILITY STATEMENT In accordance with provision C.2.2 of the UK Corporate Governance Code (April 2016 edition), 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. Key considerations for the Board this year have been the effect of exchange rates on earnings and foreign currency denominated debt facilities and together with the effect of acquisitions and capital expenditure programmes, the impact on cash flows and solvency. The reduction in balance sheet foreign currency exposure, increased portfolio occupancy and earnings enhancing acquisitions has given the Board greater certainty of cash flows over the viability period and hence greater comfort in the forecasts. The viability 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 debt facility interest benchmarks and the effect on the interest cost over the forecast period; • The impact of a tightening in available debt finance; and • The combined impact of all sensitivities on cash balances and banking covenants. In the case of the Company’s viability and solvency, the key mitigating factors are the Group’s special purpose vehicle structure and limited recourse to other Group companies should one asset be subject to default, the control over ordinary share distributions and control over capital expenditure. The balance sheet at 31 December 2018 does show a current liability position due to two finance facilities maturing later in 2019. Terms to roll over these facilities are currently being finalised. 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 17 March 2019 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT DIRECTORS 45 Richard Jewson (aged 74) Non Executive Chairman 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. He is Chairman of the Nominations Committee and a member of the Remuneration Committee. Anton Bilton (aged 54) Executive Deputy Chairman 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 Non Executive Chairman of Sabina Estates Limited. He is a member of the Nominations Committee. Glyn Hirsch (aged 57) Chief Executive Officer Glyn Hirsch 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 Non Executive director of Sabina Estates Limited. Mark Sinclair (aged 53) Chief Financial Officer Mark Sinclair 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 Christopher Sherwell (aged 71) Senior Independent Non Executive Director Christopher Sherwell is 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 Remuneration Committee and a member of the Audit and Nominations Committees. Stephen Coe (aged 53) Non Executive Director Stephen Coe BSc, FCA 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 Ltd, Leaf Clean Energy Company and Merian Crysalis Investment Company 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 58) Non Executive Director David Moore is an advocate of the Royal Court of Guernsey and is currently a consultant with Collas Crill. 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. of large property companies, both listed and private. He joined Raven He is a member of the Audit and Remuneration Committees. 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 in March 2009. Michael Hough (aged 58) Non Executive Director Colin Smith (aged 49) Chief Operating Officer Colin Smith 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 Michael Hough previously worked at Goldman Sachs and Drexel Burnham Lambert as well as Apax Partners and Altium Capital. He subsequently co-founded two private Equity firms; Iceni Capital and Aurora Russia. He was also, for 5 years, the CEO and President of Henry Technologies, a global manufacturing and technology business. In addition, he was Chairman of OSG, Russia’s largest document storage business for 5 years prior to its successful sale. Executive director of a number of investment funds and companies. He is a member of the Audit Committee. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 46 CORPORATE GOVERNANCE Chairman’s introduction Statement of Compliance with the Code I am pleased to present our corporate governance report for Responsibility for governance matters lies with the Board. It is this year end. The Board continues to promote the appropriate accountable to shareholders for the activities of the Group. The governance culture for the Group and is readying itself for the Board consider that the Company complies fully with the provisions updated governance code which will come into effect in the next of the Code, save for B.1.1 which sets out the requirements for Non financial year. We have been joined on the Board by Michael Hough. Michael was appointed on 9 October 2018 and brings strong financial experience and knowledge of the Russian market. He will replace Stephen Coe as Chairman of the audit committee following this year’s annual general meeting (“AGM”) and Stephen will step down at that point. Stephen has sat on the Board since the inception of the Company back in 2005. He has been an invaluable member of the non executive team acting objectively, independently and providing challenge to the executive team in pursuit of the Group’s strategy. I, along with the Board, wish Stephen all the best and thank him for his contribution. Executive Directors to be considered independent from the Company. Stephen Coe, David Moore and Christopher Sherwell have each served as Non Executive Directors for more than nine years. 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 are part of the 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. As noted Within the Corporate Governance section of the report, we set out above, Stephen Coe will retire from the Board following this year’s how we have adopted and applied the principles of the 2016 edition AGM. Further information on the work of the Nomination Committee of the UK Corporate Governance Code (the “Code”), how we operate is included within this report. as a Board, and along with the strategic report, our work in 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 considers the Copies of the Code are available to download free of charge from the Financial Reporting Council’s website (www.frc.org.uk). non-executive directors’ independence. As explained previously, as a Leadership 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. The Board is responsible for achieving the Group’s strategic objectives and creating value for shareholders through sustainable and continued performance. The Board has six scheduled meetings As a Board, we welcome the opportunity to discuss the business with throughout the year as well as conference calls for specific matters our shareholders at road shows, investor and broker briefings and at as required. A committee of the Board comprising any two or more our AGM. Richard Jewson 17 March 2019 Directors meet on an ad hoc basis to consider transactional and related matters concerning the Company’s business. During 2018, there were 18 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 meeting agendas. 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT CORPORATE GOVERNANCE 47 Key activities of the Board during 2018 Activities specific for the year Q1 • Review of investment portfolio performance • Policies and practices in relation to GDPR and • Review of medium term forecasts and strategy Cyber Security • Approval of 2017 annual report • Approval of distribution to shareholders • Approval of principal risks and risk appetite Q2 • Review of investment portfolio performance • Consideration of acquisition program as part of the • Review of Q1 2018 reforecast strategic review • Review of investor feedback from investor/broker • Consideration of additional listings on the Johannesburg meetings following results • Review and consideration of strategy • Approval of notice of meeting for 2018’s AGM and Moscow Stock Exchanges • Consideration of an outsourced, Internal Audit function implemented by the Cypriot holding company Q3 • Review of investment portfolio performance • Consideration of acquisition program as part of the • Review of medium term forecasts and strategy strategic review • Approval of 2017 interim results • Approval of distribution to shareholders • Approval of principal risks • Review of Q2 2018 reforecast • Review of corporate and regulatory changes and reporting requirements • Review of AGM results • Consideration of Michael Hough’s appointment and Stephen Coe’s retirement Q4 • Review of investment portfolio performance • Approval of Michael Hough’s appointment • Review of Q3 2018 reforecast • Approval of 2019 Budget • Approval of listings on the Johannesburg and Moscow Stock Exchanges • Review of medium to longer term forecasts • Review of investor feedback from South African and • Consideration of Board constitution, balance of skills Moscow road shows and experience • Review of internal controls and risk environment • Review of investor feedback from investor/broker meetings following results • Review and consideration of strategy The Chairman is responsible for the continued smooth operations of the Board and ensures appropriate discussion, challenge and robust practices are integral in the Board’s deliberations and activities. The Chief Executive is responsible for the implementation of the Group’s strategy as agreed by the Board. Terms of reference for the Chairman and Chief Executive are set our in writing and reviewed as necessary. The Chief Executive, together with the Executive Directors, the Board of the Cypriot holding company and wider management team, is charged to deliver the strategic goals of the Group. The Non Executive Directors, 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 contains nine directors, four Executive, four Non Executive and the Chairman, who was considered independent on appointment. Biographies for each of the Directors are included elsewhere in this Annual Report. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 48 CORPORATE GOVERNANCE 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.theravenpropertygroup.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. Minutes of all Board and committee meetings are circulated to the Board. 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. Attendance at Board or Committee meetings during the year to 31 December 2018 (where ‘N/A' is shown, the Director listed is not a member of the committee) R Jewson A Bilton G Hirsch M Sinclair C Smith C Sherwell S Coe D Moore M Hough* No. of meetings during the year Board Audit Committee Nominations Committee Remuneration Committee 6 6 6 6 6 6 5 6 1 6 N/A N/A N/A N/A N/A 3 3 3 1 3 1 1 N/A N/A N/A 1 N/A N/A N/A 1 1 N/A N/A N/A N/A 1 1 1 N/A 1 *Michael Hough was appointed on 9 October 2018. There has been 1 Board and 1 Audit Committee meeting during 2018 since his appointment date The structure of the Board, its Committees and group operational committees is set out below. Each operational committee includes a member of the Executive Board, Cypriot board and senior management. Weekly meetings are held by each committee which then reports into an operational oversight committee. Members of the oversight committee include Executive Board members, senior managers who sit on the operational committees and the Cyprus holding company directors. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT CORPORATE GOVERNANCE 49 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 delivering the Company's 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 Group's internal controls and risk management processes Remuneration Committee • Sets the remuneration policy for 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 Chief Executive Executive Team Charged with delivering the Group's strategic objectives set by the Board Raven Russia Holding Cyprus Limited - Board of Directors Day to day operational control and risk management Operational Oversight Committee Executive Team and Cyprus holding company directors Charged with the day to day running of the business to deliver the strategic objectives Investment Committee Financial Committee Asset Management Joint Ventures Roslogistics Information Technology Raven Mount RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 50 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 2018 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 AGM save for Stephen Coe who is stepping down this year as mentioned earlier. Having considered the balance of skills, expertise and performance of the Board, its committees and individual Directors, the Board recommends the reappointment of each Director standing for re-election at the forthcoming AGM. The Nominations Committee The 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 Board and its committee structure in light of the requirements of the Group, Code and regulations. Michael Hough joined the Board as an Non Executive Director during the year. Michael was interviewed for the position by the Chairman, Chief Executive and Executive Deputy Chairman prior to a proposal being put forward to the Nominations Committee for consideration. Following the Nominations Committee review, a recommendation for Michael’s appointment was made to the Board. It is the intention that Michael will become Chairman of the Audit Committee following the AGM in 2019 when Stephen Coe will be stepping down. Following Michael’s appointment a detailed induction program was put in place so that he could become familiar with the Group and its operations. The process included a review of all key Group policies and management reporting framework. Over the coming months further meetings will be held with the Group’s operating subsidiary Boards and local management in Cyprus and Russia. The Committee have discussed the provisions of the new UK Corporate Governance code which was introduced in 2018 and will be reported on for the first time in next year’s annual report. Succession planning for the Chairman and the remaining Non Executive Directors who have served for more than nine years is in the process of being reviewed. It is the intention of the Committee to report further on these plans within the 2019 annual report. 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 Nominations 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. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT CORPORATE GOVERNANCE 51 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 2018 is set out below. Gender 69% Tenure 40% 31% 22% 78% 100% Employees Senior Management Male Female Board 39% 56% 33% 89% 11% Employees 21% Engagement with Shareholders Senior Management 11% Board* Up to 3 Years 3 to 6 Years 6+ Years *Length of service for Board members is from date of appointment. The Board considers regular contact with our shareholders to be an important aspect of our corporate governance program. 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. During the year a number of meetings where held in South Africa and Moscow following our successful listings on the Johannesburg and Moscow Stock Exchanges. The views of our major institutional shareholders are a key consideration in the development of the Group’s strategy. We regularly canvass this group of investors on matters such as distributions, fund raising and remuneration policy. Their views are always taken into consideration prior to the implementation of any such policies. In addition to face to face shareholder meetings the Group communicates with investors and wider stakeholders through its website. Results presentations, report and accounts, shareholder circulars as well as the Group’s governance material is all published on the site. The AGM of the Company provides shareholders with the opportunity to meet the Board and discuss any matters of interest or concern. We would encourage all shareholders to engage with the Company directly where they have any concerns on governance matters rather then relying on proxy voting agencies which, in our experience, do little to understand the intricacies of the Group’s operations and governance practices. The notice of the Company’s AGM is included separately along with a form of proxy to lodge your votes. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 52 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 2018 the Group invested £186,800 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 67% SCOPE 3 0.1% SCOPE 1 33% Data Point Scope 1 Scope 2 (location- based) Scope 2 (market- based) Units Quantity 2018 Quantity 2017 Quantity 2016** Quantity 2015 Quantity 2014* Quantity 2013 tonnes CO2e tonnes CO2e tonnes CO2e 30,976 22,569 19,948 19,289 20,778 18,138 62,505 56,420 54,008 56,914 53,664 44,589 62,604 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 0.05 231 194 184 219 342 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT CORPORATE RESPONSIBILITY 53 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 2018 conversion factor for cubic meters natural gas • Diesel: DEFRA 2018 conversion factor for litres diesel • LPG: DEFRA 2018 conversion factor for litres LPG • Purchased electricity: UK Defra 2018, Russia and Cyprus, IEA Fuel Combustion 2018 and Foreign Electricity Emission Factors • European market emission factors for electricity: AIB, European Residuals Mixes for 2017 • Office car: DEFRA 2018 conversion factor for kilometers of unknown fuel (average car) • District heating: electricity factors were adjusted using same ratio as between UK electricity and district heating (from DEFRA 2018 conversion factors for UK electricity, and district heat and steam) • Business travel: DEFRA 2018 GHG Conversion Factors for flights and rail travel • Sawdust emissions calculated by Trucost using FAO and IPCC Scope 1 emissions increased by 37%, 55%, 61%, 49% and 71% compared to 2017, 2016, 2015, 2014 and 2013, respectively. Scope 2 emissions (location-based) are 11%, 16%, 10%, 17% and 40% higher than in 2017, 2016, 2015, 2014 and 2013, respectively. Overall GHG emissions in 2018 were 18% higher than in 2017 largely due to higher occupancy and increased energy intensive temperature control requirements and further acquisition at warehouse “Sever” (acquisition in Nizhniy Novgorod is ignored as did not influence on the gas emission in 2018). 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 and Cyprus offices. 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 54 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 2018. Overview Shareholders will be familiar with the challenges which the business has faced over the past few years, including the one just gone by. Ever-tightening international sanctions, volatile oil prices, an exchange rate collapse, weak economic growth and a halving of commercial rents – all have taken a toll. Yet at the time of writing, occupancy is back up to 89%, net rental income levels are stable In discussion with the small number of shareholders who participated in the issue of the Convertible Preference Shares we felt it was appropriate that the Directors also participated in these share issues through the remuneration schemes. We did, however, take this concern on board and the new Five Year Performance Plan will be satisfied using ordinary shares should targets be met. We would also note that, under both the Five Year Performance Plan and the Annual Incentive Plan, such shares must be retained until at least 2023. No less important in all this, the Executive team and senior managers hold shares in the Company with current values a multiple of their basic salaries. and balance sheet currency risk is diminishing. We are not out of the Performance Criteria woods but we can see shafts of sunlight. The Committee has agreed targets for 2019, weighted 50% to Through these travails the Executive team have managed to continue financial targets and 50% to other operating and strategic measures. making distributions to preference and ordinary shareholders. The financial targets are based on the business KPIs, such as Principally, this is a measure of how robust the Company’s strategy occupancy, average rental levels and underlying profitability. Other and business model has been but our remuneration schemes have operating measures consider the annual results in the context of also played a part by motivating the team as employees and as long term strategy and can cover issues such as balance sheet risk preference and ordinary shareholders themselves. management, acquisition and joint venture strategies and long term Determining the shape of these schemes has been no small challenge tenant management. in itself but this time round the position is relatively straightforward. We look forward to seeing what is achieved in 2019. The Remuneration Policy now in place does not allow for an Annual Performance Incentive (“API”) for 2018 and the Committee had no duty to discharge in this respect. Likewise, the team will receive the Christopher Sherwell final award under the old Retention Scheme on 31 March 2019, a Chairman Remuneration Committee 17 March 2019 scheme which has well served its purpose. We are acutely aware of the importance of shareholder interaction on remuneration matters, so we were disappointed that we received only 78.5% approval for the Remuneration Report at the 2018 AGM. This came despite a vote of more than 80% in 2017 for the now operating Five Year Performance Plan and Annual Performance Incentive. The most significant vote against, from one shareholder with an 8% holding, related to the old Retention Scheme. This scheme was satisfied using Convertible Preference shares and there is a concern that we should not use instruments that offer a fixed coupon in our remuneration schemes. The issuance of these Convertible Preference shares was critical to our strategy for navigating through the problems we faced in 2015 and 2016, whilst avoiding significant dilution for our ordinary shareholders. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 55 DIRECTORS’ REMUNERATION REPORT (UNAUDITED) Introduction Composition The Remuneration Committee comprises Stephen Coe, Richard Jewson, David Moore and Christopher Sherwell, who is Chairman. Policy Our Directors’ Remuneration Policy (the “Policy”) is unchanged from that approved by shareholders at the 2017 Annual General Meeting on 12 July 2017. A summary of the key elements of executive remuneration for 2019, as set out under the Policy are as follows: Fixed elements Basic salary Benefits Pension contributions 2016 Retention Scheme – final payment is due 31 March 2019 Variable elements Annual Performance Incentive 2018 to 2023 Five Year Performance Plan Full details of the Policy were included in the 2017 Annual Report and can also be found on our website. Summary of Remuneration for the Financial Year Ended 31 December 2018 In this section we summarise the remuneration packages for the Executive Directors. Year ended 31 December 2018 G Hirsch A Bilton M Sinclair C Smith Year ended 31 December 2017 G Hirsch A Bilton M Sinclair C Smith Salary £’000 Benefits (1) £’000 Pension (2) £’000 584 584 364 323 38 40 22 22 58 58 36 32 Retention scheme – cash £’000 Annual performance incentive – cash (3) £’000 Total cash remuneration £’000 – – – – – – – – 680 682 422 377 Salary £’000 Benefits (1) £’000 Pension (2) £’000 Retention scheme – cash £’000 Annual performance incentive – cash (3) £’000 Total cash remuneration £’000 568 568 354 314 36 40 20 20 57 57 35 31 – – 266 236 – – 234 207 661 665 909 808 Retention Scheme – shares No of preference shares Retention scheme – shares No of convertible preference shares Annual performance incentive (3) – shares No of ordinary shares – – – – – – – – – – – – Retention Scheme - shares No of preference shares Retention scheme – shares No of convertible preference shares Annual performance incentive (3) – shares No of ordinary shares 133,236 534,749 852,000 133,236 534,749 852,000 41,519 166,638 36,828 147,809 – – 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. As indicated in the 2017 letter from the Remuneration Committee, the Annual Performance Incentive for 2017 vested on the issue of 2017 Annual Report. The amounts shown for 2017 have been adjusted accordingly. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 56 DIRECTORS’ REMUNERATION REPORT 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 2018 in the Ordinary Shares, Preference Shares and, Convertible Preference Shares of the Company, both at the beginning and the end of the year, are set out below. There have been no changes since 31 December 2018. Director R Jewson G Hirsch (1) A Bilton (1) M Sinclair (1) C Smith (1) C Sherwell S Coe D Moore M Hough Director R Jewson G Hirsch (1) A Bilton (1) M Sinclair (1) C Smith (1) C Sherwell S Coe D Moore M Hough Number of Ordinary Shares 31/12/18 Number of Preference Shares 31/12/18 Number of Convertible Preference Shares 31/12/18 232,626 7,496,027 43,071,170 2,939,761 944,574 237,239 89,570 222,501 – 75,460 2,219,595 5,953,355 762,462 503,719 79,728 76,393 14,172 – – 1,729,144 1,729,144 425,013 257,270 – 8,771 – – 55,233,468 9,684,884 4,149,342 Number of Ordinary Shares 31/12/17 Number of Preference Shares 31/12/17 Number of Convertible Preference Shares 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 – – (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. 53,868,820 9,681,792 4,185,947 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT DIRECTORS’ REMUNERATION REPORT 57 Non Executive Directors The fees for Non Executive Directors are determined by the executives. No Non Executive Director is entitled to any form of performance related remuneration, including share options. Fees paid in the year were as follows: R Jewson C Sherwell S Coe D Moore M Hough Salaries and fees for 2019 The contractual arrangements for 2019 are: 2018 £’000 113 50 50 48 11 272 Director R Jewson S Coe D Moore C Sherwell M Hough (1) G Hirsch A Bilton M Sinclair C Smith Salary or Fee £’000 Appointment date Unexpired term Notice periods 113 50 48 50 48 595 595 372 329 29.06.07 04.07.05 04.07.05 Rolling contract 3 months 01.04.08 09.10.18 27.11.08 27.11.08 23.03.09 14.11.08 Rolling contract 12 months (1) Will increase to £50,000 pro rata after the 2019 AGM on appointment as Chair of the audit committee. Christopher Sherwell Chairman Remuneration Committee 17 March 2019 2017 £’000 110 48 48 46 – 252 Contractual termination payment No provision for payment on termination Payment of 12 months salary and benefits on termination RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 58 AUDIT COMMITTEE REPORT Audit Committee Chairman’s Introduction Dear Shareholders, I am sad to say that this will be my last report as Audit Committee Chairman as I will step down from the Board following this year’s AGM. Michael Hough, who joined the Board on 9 October 2018, will take over the role following my retirement. 2018 has been a busy year for the Committee. Our key role continues 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 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, including advising the Board on the viability and going concern statements. We have also considered the treatment of functional and presentational currencies in our review in light of the changes made in the year. We meet 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. Michael has met with the lead audit partner to discuss the role of the Committee. We also met the Group’s appointed independent valuers whilst visiting our Moscow office. In both cases, we believe that the working relationship continues to be appropriately independent and management assumptions challenged. In early autumn the Board spent time with the Cypriot holding company board. The Cypriot team have always had a key role in our risk management processes, overseeing the work of the team in Moscow as well as running their own departments within the business. To assist with their fiduciary duties, the Cypriot board has engaged BDO Stoy Hayward to run an outsourced, internal audit function. This will look at all aspects of the internal control framework of the business and we will ensure that there is also a direct reporting to the Committee on audit plans, findings and recommendations. The first of their reports is currently being finalised. I have thoroughly enjoyed my time on the Board of The Raven Property Group and have watched it grow to the mature business it is today. I wish the Board well for the future and Michael success in his new role. Stephen Coe Chairman Audit Committee 17 March 2019 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT AUDIT COMMITTEE REPORT 59 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 met with the lead audit the accounting policies of the Group, key areas of accounting partner outside of the formal meetings to discuss any issues arising judgement, management information statements, financial in the course of the audit and to confirm no restrictions on scope announcements, internal control systems, risk management, the are placed on them by management. The Chairman also has regular continuing appointment of the Group auditor and the model meetings with the CFO and COO to discuss the audit approach, underpinning the viability statement. It also monitors the whistle 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 Stephen Coe (Chairman) and Michael Hough who joined the financial statements. The Committee actively monitors these risks Committee on his appointment to the Board on 9 October 2018. and obtains updates from the external auditor on the status of their The Chairman is considered to have recent and relevant financial procedures covering these risks throughout the year. experience for the purposes of the Code. The Committee’s members have considerable commercial 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 discussed the possibility of putting the audit out to tender in 2017, as required by the EU Audit Directive, even though, as a Guernsey registered Company, this is not a requirement. At that time, 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. The Committee has no reason to change that decision in the current year but will The Committee met three times during 2018 and addressed: monitor on an annual basis. • The recommendation to the Board to approve the 2017 annual and 2018 interim financial statements following consideration of the key areas of judgement; Local statutory audits of individual subsidiary companies are also required in the jurisdictions in which the Group operates, being Guernsey, Cyprus, Russia and the UK. EY carry out these audits in • The appropriateness of the current forecast model as the basis for Guernsey and Cyprus but the trading entities in Russia and the UK the viability statement; are audited locally by Baker Tilly and Crowe U.K. LLP respectively. • The appointment, remuneration and continued independence of The Committee believes that this gives additional balance to our the external auditor; overall audit provision and added assurance to the audit process. • The Group structure and particularly the role of the board and management team of the Cypriot holding company; • Cyber Security and the engagement of an independent review; • A review of functional and presentation currency policies used in the financial statements; • Reviewing plans for the outsourced, internal audit function initiated by the Cypriot holding company; and • The monitoring of the Group’s internal control and risk management procedures including a review of risk committee submissions. 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 non- audit services provided are typically assignments, such as the review of the interim financial statements 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 2018 amounted to £1.648 million, Action taken on these areas is expanded on below where appropriate. of which £0.872 million was for non-audit services. Fees appear External Audit and Valuations External Audit high this year due to a large, due diligence exercise on a potential acquisition which was subsequently aborted. During the year, the Committee has considered the appointment, The Committee is sensitive to the level of non audit fees and the compensation, performance and independence of the Group’s Group has actively engaged other firms in due diligence, tax and auditor, Ernst & Young LLP (“EY”). EY was appointed in 2008 following a tender process and this is their eleventh year of tenure as Group auditor. other advisory projects, including PWC, KPMG, BDO Stoy Hayward and local Russian tax counsel. Fees paid to these other firms totalled £0.5 million in the year (2017: £0.3 million). RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 60 AUDIT COMMITTEE REPORT Committee Conclusions Valuers The Committee has recommended a resolution for the As with the external audit process, the Committee monitors the re-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 and has met with them independently of management. and relationships with other suppliers of non audit services have We also have the opportunity to see comparable valuations of part of been established. the portfolio each year, where independent valuations are required for banking purposes and these are undertaken by other external independent valuers. Significant Issues Considered by the Audit Committee In recommending the approval of the 2018 financial statements, the Committee considered the following: Matter Arising Property Valuations Action Valuations of investment property and investment property under The Committee discussed the valuation approach with management, constructions are undertaken by external valuers. The land bank is the external valuers and the external auditors. carried at directors’ valuation. The auditor’s valuation specialist visited the assets in Russia and met The external valuers used a discounted cash flow methodology for with the external valuers to discuss the approach. A comparable term the year ended 31 December 2018 rather than a term and reversion and reversion exercise was also completed to ensure there was no methodology and also completed the valuations in Roubles rather significant difference in the results of the two approaches. than US Dollars. The Committee is satisfied that the discounted cash flow Valuation movements can have a significant impact on the Group’s methodology is now standard practice in the Russian real estate net asset value. Foreign Exchange market and also becoming more prevalent in other markets and that it is appropriate for the Group. The Group’s exchange rate risk profile has changed in the year as The changes in the approach to currency matters were discussed secured debt facilities move away from US Dollar and to a Rouble/ with management. The impact of the changing profile of secured Euro mix. This change together with the move to Rouble property valuations precipitated changes in the functional currency of some of the Group’s subsidiaries and the presentation currency of the Annual Report. Taxation debt facilities was covered in the viability statement forecasts and management had also prepared pro-forma examples of the impact of changes in functional and presentation currencies to consider. The auditors reviewed the workings and reasoning for the changes as part of their audit process. The Committee is satisfied that the changing balance sheet debt profile is adequately addressed in forecasts and that the change to functional and presentation currencies is appropriate. Cross border transactions are coming under ever greater scrutiny by domestic tax authorities. The Russian authorities are no exception and the local approach to international business is constantly evolving. The Group’s business has developed over the years to meet the commercial needs of its activities rather for any tax benefit. The Committee discussed the position with management and the The Committee considered the adequacy of the Group’s approach to its inward investment activities and the level of uncertain tax provisions made. Viability Statement auditors and reviewed current market and court practice in Russia. It is satisfied that the Group conducts its operations appropriately for the transactions it undertakes and tax provisioning is sufficient. As noted above, the Group’s on-going balance sheet risk has been On reviewing the viability statement, the Committee discussed the changing as it moves towards a Rouble denominated environment. impact of foreign exchange sensitivities on future cash flows and also The consolidated balance sheet also reflects a net current liability the work being done by management to refinance maturing debt position as a number of small debt facilities mature in the year. facilities. It is satisfied that the forecast model supporting the viability statement reflects a severe but credible scenario for the three years under review. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT AUDIT COMMITTEE REPORT 61 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 In accordance with the guidance of the Turnbull Committee on Committee and the Board at regular intervals, particularly with internal controls, this is a continual process which 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. This 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. Specific items of note are: 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 and sanctions, 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. Internal Audit BDO Stoy Hayward has been engaged by the Cypriot holding company board to perform an internal audit function on operating controls and procedures, their tenure beginning towards the end of last year. The Committee met with the BDO team and will review proposed annual plans and have the opportunity to expand on the remit to cover any areas they may have as a concern. We expect both the internal auditors and the Cypriot subsidiary board to present Key features of the risk management process in place during the year findings and recommendations to the Committee at least once a 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 Cyber Security and IT systems An independent review by EY on cyber security will be undertaken in the current year. In addition, a full systems documentation review of all Group operations is currently being undertaken and will be followed by a review by KPMG on the best business automation authority and division of responsibilities; system solutions for our business. • Formal documented policies and procedures throughout the Group; • The close involvement of the Executive Directors, the Cypriot holding company board 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 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 a 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, Cypriot holding company 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 2018, the Risk Committee met four times. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 62 DIRECTORS’ REPORT The Directors present their report and the audited financial statements of the Group for the year ended 31 December 2018. 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 44 shares at 52p, equivalent to a dividend of 1.25p per share (2017: Distribution of 1p by way tender offer 1 share in every 52 at 52p). The Directors are recommending a final distribution of 1.75p by way of a tender offer of 2 share in every 51 at 45p (2017: Distribution of 3p by way of tender offer of 1 share in every 17 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) Michael Hough (independent Non Executive Director) – appointed 9 October 2018 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 JO Hambro Capital Management Schroder Investment Management Quilter Investors Number held 31 December 2018 % of share capital Number held 28 February 2019 % of share capital 196,402,072 80,825,638 69,815,477 56,644,519 32,091,029 31.51 12.97 11.20 9.09 5.15 195,768,933 80,825,638 69,680,477 56,644,519 32,091,029 31.39 12.96 11.17 9.08 5.15 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT DIRECTORS’ REPORT 63 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 2018 AGM to make market purchases of its own ordinary and preference shares. This authority will expire on 31 August 2019. A resolution will be proposed at the 2019 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 34 to the financial statements there is a description of the Group’s objectives and policies for managing its capital, financial instruments and hedging activities and its exposure to credit and liquidity risk. The Board receives monthly updates on future cash flow projections and has regular working capital reports presented, in particular as part of the half and full year reporting process and for any fund raising and acquisition activity. The net current liability position of the Group at the year end was due to two loan facilities maturing in the going concern period of assessment. These facilities are in the process of being refinanced by new loan term senior debt 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 the appropriate steps expected of a Director to ensure that this is the case. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 64 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 2018. 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 17 March 2019 and is signed on its behalf by: Mark Sinclair Chief Financial Officer Colin Smith Chief Operating Officer RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 65 INDEPENDENT AUDITOR’S REPORT Independent Auditor’s Report to the Members of Raven Property Group Limited Opinion In our opinion: • Raven Property Group Limited’s Group financial statements (the “financial statements”) give a true and fair view of the state of the Group’s affairs as at 31 December 2018 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 Property Group Limited which comprise: • The Group Balance Sheet as at 31 December 2018; • 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 38 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 40 to 43 that describe the principal risks and explain how they are being managed or mitigated; • the directors’ confirmation set out on page 40 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 63 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 44 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 66 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 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 • Group materiality of £7.0m which represents 0.5% of total assets. Key audit matters • Discussions with management, EY real estate valuation specialists 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 and EY tax specialists in Russia and the UK; • Undertaking press searches in Russia and the UK and reviewing economic forecasts. assessed risks of material misstatement (whether or not due to We evaluated whether the assumptions underpinning the Group’s fraud) that we identified. These matters included those which had property valuations (separately addressed below) and going concern the greatest effect on: the overall audit strategy, the allocation of assessment are consistent with our above understanding. For going resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the concern, this included validating key assumptions such as rental rates and interest rates to publically available information. financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. Economic and financial uncertainties in Russia and their impact (as described in the Strategic Report) We performed the following audit procedures around the potential risk of inducement payments to third parties: • We held fraud discussions with Raven staff of various levels and also with the audit committee, throughout the audit. We enquired The current geopolitical situation remains an important area of focus with management as to whether they were aware of any evidence for the Group and our audit. Continuing political and economic of fraud, or were aware of any whistle blowing or instances of any tension between the US, EU and Russia, together with movements in non-compliance with laws and regulations; the oil price and foreign exchange rate, have resulted in continuing • We confirmed our understanding of the controls in place to economic uncertainty. prevent and detect transactions involving inducements payments 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 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; and • that journal transactions have a valid business purpose and are on an arm’s length basis. acquisition or disposal of assets. We performed procedures to assess the Group’s compliance with 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 applicable laws and regulations: • We performed a search for sanctions and assessed whether they impacted the Group, management or counterparties of the Group consideration of the potential impact on valuation of investment including banks or customers; property and cash flow forecasts. • We obtained and read correspondence with regulatory bodies and Another financial risks of conducting business in Russia includes the Group during the year. responding to legislative changes, particularly tax laws. There has We performed the following audit procedures around the uncertain been changes to the Russian tax legislation in recent years. There tax positions arising from the tax laws in Russia: 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. Our response to the risk: We performed the following audit procedures around the impact of uncertainties over the current economic environment in Russia: • We obtained and read correspondence with the tax authorities regarding recent inspections in Russia; • Considered the results from recent tax inspections; • Enquired with management about their response to the tax authorities and their assessment of the potential exposure; • Obtained management’s calculation of the provision for uncertain tax positions; • Using our tax specialists in Russia and the UK, we discussed and We updated our understanding of the current economic environment challenged management’s provision. We inspected recent court in Russia through: cases and challenges by the tax authority to determine if the risk assessment made by management is appropriate; RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT 67 • We have reviewed the disclosures made in notes 2, 3 and 8 • For a sample of the Group’s investment property and investment regarding the uncertain tax provision. We performed full scope audit procedures over this risk area in the one location, Russia, affected by this risk, which covered 100% of the risk amount. property under construction, we performed detailed testing on the valuations performed by the external valuer. This sample represented 80% 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 Key observations communicated to the Audit Committee the UK, we assessed the valuation approach and the assumptions We have completed the additional procedures we designed in order to respond to the heightened political and economic uncertainty in Russia. made by the external valuer and the directors in performing their valuation of each property against industry benchmarks. The key assumptions include estimated rental values, discount rates, yields, indexations, vacancy/void periods and other assumptions that We have no significant findings to report from the completion of impact the fair value; these procedures. We conclude that the balances and disclosures in • For the remaining properties comprising 20% of the valuation, the financial statements and notes thereto, appropriately reflect the we conducted analytical procedures on the movement in 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. 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 £1,206m balance in the 2018 annual report (2017: £1,188m). 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 tenancy; • We assessed the adequacy of the disclosures of estimates in note 3 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. 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. The valuation of investment property and investment property We have no significant findings to report from the completion of under construction requires significant judgements and estimates by these procedures. management and the external valuer. There is a risk that management may manipulate the property valuations by exerting influence over the valuers in order to meet shareholder expectations. This estimate is impacted by the uncertainties over the current economic environment in Russia, as described above. The current real estate market in Russia is characterised by limited capital transactions, and the valuation of investment properties remains an area of significant estimation. Our response to the risk: 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 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 2018. Revenue recognition (as described in note 2 and 5 of the financial statements) Total revenue was £162.6m in the 2018 annual report (2017: £177.0m). We have identified the following risks related to the recognition of revenue: Rental revenue & service charge income from the investment property portfolio: risk that the revenue is not recorded correctly, including the effect of tenant incentives and contracted rent uplift balances. agreements and agreed the key terms to the tenancy schedule Roslogistics: risk that the logistics revenue is not recorded in the provided to the valuer; correct period. • For a sample of properties we 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; The risk is unchanged from the prior year. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 68 INDEPENDENT AUDITOR’S REPORT Our response to the risk: We performed the following audit procedures around revenue recognition: 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 • We documented the Group’s revenue recognition process and under our instructions. Audits of the Russia, United Kingdom and assessed the adequacy of the controls in place to prevent and Guernsey components, which address all of the material risks detect fraud and errors in revenue recognition; of misstatement noted above, were performed by the Group • We performed analytical procedures over rental, service charge and engagement team. The Group audit partner is based in the UK but, logistics income to identify significant fluctuations and trends. We since the Group has operations in Russia and Guernsey, the Group corroborated any significant fluctuations to the terms within lease audit team includes members from the UK, Guernsey and Russia. agreements or to invoices; Members of the Group team in these jurisdictions work together as • On a sample basis, we recomputed the revenue recognised in the an integrated team throughout the audit process. The Group audit year, based on the contractual lease terms, including the treatment procedures relating to the valuation of investment property and of rent incentives; income taxes were also supported by EY Russia experts. • We obtained and examined the trade receivables ageing. We assessed the recoverability of material debts past due by testing subsequent cash receipts and verifying if there were tenant deposits in place; • We agreed the calculation of the IFRS rent straight-lining For the Group entities incorporated in the United Kingdom, including the investment in the equity accounted joint venture, specific scope procedures on revenue, cash and goodwill were performed by the Group team. adjustment to underlying lease and tenancy data and tested the For the Group entities incorporated in Cyprus, specific scope arithmetical accuracy of the calculation; procedures on cash, intercompany, debt, derivatives and tax balances • We performed cut-off procedures on all revenue streams to confirm were performed by EY Cyprus. We determined the appropriate level of they had been recorded in the correct period; involvement to enable us to determine that sufficient audit evidence • Lease and service charge income from investment properties in had been obtained as a basis for our opinion on the Group as a whole. Russia, and the Roslogistics business were full scope locations and contributed 100% of the Group’s revenue. The reporting components where we performed audit procedures accounted for 100% of the Group’s Profit before tax, Revenue and Key observations communicated to the Audit Committee Total assets for both the current and prior years. For the current 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. An overview of the scope of our audit Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We 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. year, the full scope components contributed 94% (2017: 75%) of the Group’s Profit before tax, 90% (2017: 89%) of the Group’s Revenue and 96% (2017: 91%) of the Group’s Total assets, with the remainder being addressed by specific scope procedures. Involvement with component teams During the current year’s audit cycle a visit was undertaken by the 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 performed at Group level, gave us appropriate audit evidence for our The Group has operations in Russia, Cyprus, the United Kingdom opinion on the Group financial statements. and Guernsey. Our testing is performed on a consolidated basis using thresholds which are determined with reference to the Group performance materiality and the risks of material misstatement 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”) which were selected based on their size or risk characteristics. Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit 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. For the remaining 2 components (“specific scope components”), We determined materiality for the Group to be £7.0 million (2017: £7.8 we performed audit procedures on specific accounts within that million), which is 0.5% (2017: 0.5%) of total assets. We believe that the component that we considered had the potential for the greatest basis of materiality that is the primary measure of performance for impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile. shareholders is a capital measure total assets. During the course of our audit, we reassessed initial materiality and there was no change from the original assessment made at planning. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT 69 Performance materiality In this context, we also have nothing to report in regard to our The application of materiality at the individual account or balance responsibility to specifically address the following items in the other level. It is set at an amount to reduce to an appropriately low level information and to report as uncorrected material misstatements of the probability that the aggregate of uncorrected and undetected the other information where we conclude that those items meet the misstatements exceeds materiality. following conditions: On the basis of our risk assessments, together with our assessment • Fair, balanced and understandable set out on page 64 – the of the Group’s overall control environment, our judgement was statement given by the directors that they consider the annual that performance materiality was 75% (2017: 75%) of our planning report and financial statements taken as a whole is fair, balanced materiality, namely £5.3 million (2017: £6.0 million). and understandable and provides the information necessary for Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to EY Cyprus is £2.6 million (2017: £2.7 million). Reporting threshold An amount below which identified misstatements are considered as being clearly trivial. We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.35 million (2017: £0.40 million), which is set at 5% of planning materiality, as well shareholders to assess the group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or • Audit committee reporting set out on pages 58 to 61 – the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or • Directors’ statement of compliance with the UK Corporate Governance Code set out on page 46 – the parts of the directors’ statement required under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code. as differences below that threshold that, in our view, warranted Matters on which we are required to report by exception reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. Other information 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: • proper accounting records have not been kept by the company, or proper returns adequate for our audit have not been received from The other information comprises the information included in the branches not visited by us; or annual report including Results highlights, the Chairman’s message, • the financial statements are not in agreement with the company’s the Portfolio review, the Strategic Report and the Governance Report accounting records and returns; or set out on pages 4 through 64, other than the financial statements • we have not received all the information and explanations we and our auditor’s report thereon. The directors are responsible for the require for our audit. other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 64, 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 In connection with our audit of the financial statements, our is necessary to enable the preparation of financial statements that are responsibility is to read the other information and, in doing so, free from material misstatement, whether due to fraud or error. 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 that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. 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. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 70 INDEPENDENT AUDITOR’S REPORT 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. A further description of our responsibilities for the audit of the 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. Use of our report This report is made solely to the company’s members, as a body, in accordance with Article 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Peter McIver for and on behalf of Ernst & Young LLP London 17 March 2019 Notes: 1. The maintenance and integrity of the Raven Property Group 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT Bolshoi Theatre in Moscow 71 72 GROUP INCOME STATEMENT For the year ended 31 December 2018 Underlying earnings £’000 Notes 4 / 5 162,639 (44,354) 118,285 2018 Capital and other £’000 – – – Underlying earnings £’000 Total £’000 162,639 177,000 (44,354) (47,304) 118,285 129,696 2017 Capital and other £’000 – – – Total £’000 177,000 (47,304) 129,696 Gross revenue Property operating expenditure and cost of sales Net rental and related income Administrative expenses 4 / 6 (22,714) (2,436) (25,150) (19,688) (2,411) (22,099) Share-based payments and other long term incentives 31 – (2,853) Foreign currency (losses) / profits (2,480) – (2,853) (2,480) (1,257) (2,260) (3,517) 6,132 – 6,132 Operating expenditure (25,194) (5,289) (30,483) (14,813) (4,671) (19,484) Share of profits of joint ventures 15 1,630 – 1,630 1,611 – 1,611 Operating profit / (loss) before profits and losses on investment property Unrealised (loss) / profit on revaluation of investment property Unrealised profit / (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 (pence) Diluted (pence) Underlying earnings per share: Basic (pence) Diluted (pence) 11 12 4 7 7 8 9 9 94,721 (5,289) 89,432 116,494 (4,671) 111,823 – – (121,764) (121,764) 755 755 – – 31,284 31,284 (3,049) (3,049) 94,721 (126,298) (31,577) 116,494 23,564 140,058 3,286 1,583 4,869 5,627 710 6,337 (71,796) (16,384) (88,180) (66,219) (11,855) (78,074) 26,211 (141,099) (114,888) 55,902 12,419 68,321 (6,197) 404 (5,793) (12,524) (12,658) (25,182) 20,014 (140,695) (120,681) 43,378 (239) 43,139 (18.81) (18.81) 6.50 6.27 3.12 3.08 6.54 5.68 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 73 GROUP STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2018 (Loss) / 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. 2018 £’000 2017 £’000 (120,681) 43,139 49,854 (53,722) (70,827) (10,583) The accompanying notes are an integral part of this statement. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 74 GROUP BALANCE SHEET As at 31 December 2018 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT Notes 2018 £’000 2017 £’000 2016 £’000 11 12 15 16 18 25 17 18 19 20 18 21 21 22 23 24 18 25 1,175,440 1,159,172 1,052,547 30,548 28,608 33,553 3,574 3,147 – 7,380 4,118 5,875 2,462 1,523 7,874 2,998 4,056 – 6,566 15,535 21,953 24,405 25,611 22,075 1,278,021 1,233,911 1,127,088 356 313 624 43,658 58,386 42,518 349 329 290 73,450 197,137 160,559 117,813 256,165 203,991 1,395,834 1,490,076 1,331,079 66,192 79,427 52,667 1 26 75,565 78,871 141,758 158,324 763 33,007 86,437 567,865 547,371 565,701 109,271 108,263 106,582 206,116 198,870 17,797 25,565 – – 96,997 20,312 54 57,400 59,845 49,730 958,449 939,914 839,376 1,100,207 1,098,238 925,813 295,627 391,838 405,266 GROUP BALANCE SHEET 75 Notes 2018 £’000 2017 £’000 2016 £’000 26 27 28 23 6,233 6,606 6,680 103,144 124,568 131,537 98 438 996 (5,965) (3,652) (4,692) 11,212 11,212 6,536 (281,001) (166,494) (186,957) (48,887) (98,741) (45,019) 510,793 517,901 496,185 29 / 30 295,627 391,838 405,266 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 (pence): 30 Basic Diluted 48 48 60 59 The financial statements were approved by the Board of Directors on 17 March 2019 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 76 Saint Basil's Cathedral, Moscow 77 Total £’000 GROUP STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2018 Share Share Capital Premium Warrants £’000 £’000 £’000 Notes Own Convertible Shares Held £’000 Preference Capital Translation Retained Reserve Earnings £’000 Shares Reserve £’000 £’000 £’000 6,680 131,537 996 (4,692) 6,536 (186,957) (45,019) 496,185 405,266 For the year ended 31 December 2017 At 1 January 2017 Profit for the year Other comprehensive income Total comprehensive income for the year – – – – – – – – – Warrants exercised 26 / 27 139 3,905 (558) Convertible preference shares issued Conversion of convertible preference shares Own shares acquired Own shares allocated 23 23 / 26 28 28 – 5 – – – 262 – – Ordinary shares cancelled 26 / 28 (218) (11,136) Transfer in respect of capital losses – – – – – – – – – – – – – – (124) 1,134 30 – – – – – 4,693 (17) – – – – – – – – – – – – – 20,463 – 43,139 43,139 (53,722) – (53,722) (53,722) 43,139 (10,583) – – – – – – – – – – – 3,486 4,693 250 (124) (960) 174 – (11,324) (20,463) – At 31 December 2017 6,606 124,568 438 (3,652) 11,212 (166,494) (98,741) 517,901 391,838 For the year ended 31 December 2018 Loss for the year Other comprehensive income Total comprehensive income for the year – – – – – – – – – Warrants exercised 26 / 27 85 2,380 (340) Convertible preference shares issued Conversion of convertible preference shares Own shares acquired Own shares allocated 23 23 / 26 28 28 – – – – – – – – Ordinary shares cancelled 26 / 28 (458) (23,804) Transfer in respect of capital losses – – – – – – – – – – – – – – (4,235) 1,886 36 – – – – – – – – – – – – – – – – – – – – (114,507) – (120,681) (120,681) 49,854 – 49,854 49,854 (120,681) (70,827) – – – – – – – – – – – 2,125 – – (4,235) (934) 952 – (24,226) 114,507 – At 31 December 2018 6,233 103,144 98 (5,965) 11,212 (281,001) (48,887) 510,793 295,627 The accompanying notes are an integral part of this statement. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 78 GROUP CASH FLOW STATEMENT For the year ended 31 December 2018 Cash flows from operating activities (Loss) / profit before tax Adjustments for: Impairment of goodwill Depreciation Provision for bad debts Share of profits of joint ventures Finance income Finance expense Loss / (profit) on revaluation of investment property (Profit) / loss on revaluation of investment property under construction Foreign exchange losses / (profits) Non-cash element of share-based payments and other long term incentives Changes in operating working capital Decrease / (increase) in operating receivables (Increase) / 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 of investment property Acquisition of subsidiaries Cash acquired with subsidiaries Acquisition of investment property / payment of deferred consideration on acquisition of investment property Loans granted Loans repaid Purchase of plant and equipment Investment in joint ventures Interest received Net cash used in investing activities RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT Notes 2018 £’000 2017 £’000 6 6 6 15 7 7 11 12 31 (114,888) 68,321 – 811 (58) (1,630) (4,869) 1,523 888 (72) (1,611) (6,337) 88,180 78,074 121,764 (31,284) (755) 2,480 2,853 3,049 (6,132) 2,260 93,888 108,679 8,212 (43) (848) 311 (1,627) (1,222) 100,430 106,920 15 3,000 2,105 (7,344) (10,988) 96,086 98,037 38 38 11 15 (8,611) (11,642) 12,754 – (33,826) (68,940) 1,235 3,266 (44,054) (80,739) (194) 34 – – (2,262) (1,618) (533) 3,254 – 5,631 (72,203) (154,042) GROUP CASH FLOW STATEMENT 79 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 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 (decrease) / increase in cash and cash equivalents Opening cash and cash equivalents Effect of foreign exchange rate changes Closing cash and cash equivalents Notes 2018 £’000 2017 £’000 155,628 206,641 (153,152) (98,167) (23,279) (29,684) (50,000) (49,475) 2,125 – 3,487 (84) 26 / 27 22 26 / 28 (28,258) (11,275) (11,327) (11,234) (12,716) (9,776) 23 – 97,781 (18,848) (3,680) (139,827) 94,534 (115,944) 38,529 197,137 160,559 (7,743) (1,951) 19 73,450 197,137 The accompanying notes are an integral part of this statement. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 80 NOTES TO THE FINANCIAL STATEMENTS 1. General information Changes in accounting policies Raven Property Group Limited (the "Company") and its subsidiaries The Group has changed the currency in which it presents its (together the "Group") is a property investment group specialising in consolidated financial statements from US Dollars to Sterling. 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 2018 were authorised by the Board for issue on 17 March 2019. 2. Accounting policies Basis of preparation The Company has taken advantage of the exemption conferred by the Companies (Guernsey) Law, 2008, section 244, not to prepare company financial statements as group financial statements have been prepared for both current and prior periods. The Group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated. The principal accounting policies adopted in the preparation of the group financial statements are set out below. The policies have A change in presentation currency is a change in accounting policy which is accounted for retrospectively. The Group's results for 2017, which were previously reported in US Dollars, have been restated into Sterling as follows: • assets and liabilities were translated into Sterling at the closing rates of exchange on 31 December 2017; • income and expenditure were translated into Sterling at the average rates prevailing in 2017; and • non-Sterling equity items were translated to Sterling at the historic rates prevailing at the dates of the relevant equity transactions. The US Dollar Sterling exchange rates used were as follows: Closing rate Average rate 2017 2016 1.3528 1.2888 1.2357 1.3549 Other than the change in presentation currency, the accounting policies adopted are consistent with those of the previous financial year. The Group has adopted new and amended IFRS and IFRIC interpretations as of 1 January 2018. The Group applies for the first time, IFRS 15 Revenue from Contracts with Customers and IFRS 9 been consistently applied to all years presented, unless otherwise Financial Instruments. indicated. 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 financial position of the Group, its cash flows, liquidity position and borrowings are described in the Financial Review and the notes to these financial statements. After making appropriate enquiries and examining sensitivities that could give rise to financial exposure, the Board has a reasonable expectation that the Group has adequate resources to continue operations for the foreseeable future. IFRS 15 does not affect the financial performance or financial position of the Group but it does require additional disclosures to be made. IFRS 15 does not apply to lease income, so the additional disclosures only relate to the Group's revenues generated by its Roslogistics and Raven Mount reporting segments and provide information as to how the nature, amount, timing and uncertainty of cash flows from these revenues are affected by economic factors. These disclosures are provided in note 4. The Group has assessed the impact of IFRS 9 and concluded that it does not affect the financial performance or financial position of the Group or the disclosures made in its financial statements. 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 Accordingly, the Group continues to adopt the going concern basis in the six thought to have a possible impact on the Group are: the preparation of these financial statements. Statement of compliance The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards adopted for use in the European Union ("IFRS") and the Companies (Guernsey) Law, 2008. IFRS 16 Leases (effective 1 January 2019) IFRIC Interpretation 23 Uncertainty over Income Tax Treatments (effective 1 January 2019) AIP IAS 12 Income Taxes - Income tax consequences of payments on financial instruments classified as equity (effective 1 January 2019) AIP IAS 23 Borrowing Costs - Borrowing costs eligible for capitalisation (effective 1 January 2019) RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 81 The Conceptual Framework for Financial Reporting (effective Any premium paid for an interest in a joint venture above the fair 1 January 2020) value of the Group's share of identifiable assets, liabilities and IFRS 17 Insurance Contracts (effective 1 January 2021) contingent liabilities is determined as goodwill. Goodwill relating to The Group has assessed the impact of these changes and does not expect them to significantly impact on the financial position a joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. or performance of the Group. There may, however, be changes to The aggregate of the Group's share of profit or loss of joint ventures disclosures within the financial statements. is shown on the face of the Income Statement within Operating Profit The standards, amendments or revisions are effective for annual and represents the profit or loss after tax. periods beginning on or after the dates noted above. Revenue recognition Basis of consolidation (a) Property investment 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 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. exposed, or has rights, to variable returns from its involvement with Incentives for lessees to enter into lease agreements are spread or ownership of the investee entity and has the ability to affect those evenly over the lease term, even if the payments are not made on returns through its power over the investee. such a basis. The lease term is the non-cancellable period of the lease, The Group has acquired investment properties through the purchase of SPVs. In the opinion of the Directors, these transactions did not meet the definition of a business combination as set out in IFRS 3 together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the directors are reasonably certain that the tenant will exercise that option. "Business Combinations". Accordingly the transactions have not Premiums received to terminate leases are recognised in the Income been accounted for as an acquisition of a business and instead Statement as they arise. the financial statements reflect the substance of the transactions, which is considered to be the purchase of investment property and investment property under construction. The results of subsidiaries acquired or disposed of during the year are included in the Income Statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of entities acquired to bring the accounting policies into line with those used by the Group. All intra-group transactions, balances, income and expenditure are eliminated on consolidation. Joint ventures (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. Taxation The Company is a limited company registered in Guernsey, Channel Islands, and is exempt from taxation. The Group is liable to Russian, Cypriot and UK tax arising on the results of its Russian, Cypriot and UK operations. The tax expense represents the sum of the tax currently payable and A joint venture is a contractual arrangement whereby the parties that deferred tax. have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the activities require unanimous consent of the contracting parties for strategic financial and operating decisions. (a) Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit (or loss) as reported in the Income Statement because it excludes items of income and expenditure that are taxable or deductible in other years and it The Group's investments in joint ventures are accounted for using further excludes items that are never taxable or deductible. The the equity method. Under the equity method, the investment in a Group's liability for current tax is calculated using tax rates that have joint venture is initially recognised at cost. The carrying value of the been enacted or substantively enacted by the balance sheet date. investment is adjusted to recognise changes in the Group's share of net assets of the joint venture since the acquisition date. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 82 NOTES TO THE FINANCIAL STATEMENTS (b) Tax provisions Investment property and investment property under A current tax provision is recognised when the Group has a present construction obligation as a result of a past event and it is probable that the Group will be required to settle that obligation. A provision for uncertain taxes is recorded within current tax payable (see note 20). 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 (c) Deferred tax land and buildings. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Investment property is measured initially at its cost, including related transaction costs. After initial recognition, investment property is carried at fair value. The Directors assess the fair value of investment property based on independent valuations carried out by their appointed property valuers or on independent valuations prepared for banking purposes. The Group has appointed Jones Lang LaSalle as property valuers to prepare valuations on a semi-annual basis. Valuations are undertaken in accordance with appropriate sections of the current Practice Statements contained in the Royal Institution of Chartered Surveyors Valuation - Global Standards, 2017 (the "Red Book"). These are internationally accepted standards of valuation. Gains or losses arising from changes in the fair value of investment property are included in the Income Statement in the period in which The carrying amount of deferred tax assets is reviewed at each they arise. For the purposes of these financial statements, in order balance sheet date and reduced to the extent that it is no longer to avoid double counting, the assessed fair value is reduced by the probable that sufficient taxable profits will be available to allow all or present value of any tenant incentives and contracted rent uplifts that part of the asset to be recovered. Unrecognised deferred tax assets are spread over the lease term and increased by the carrying amount are reassessed at each balance sheet date and are recognised to the of any liability under a head lease that has been recognised in the extent that it has become probable that future taxable profit will Balance Sheet. allow the deferred tax asset to be recovered. Borrowing costs that are directly attributable to the construction of Deferred tax is calculated at the tax rates that are expected to apply investment property are included in the cost of the property from in the period when the liability is settled or the asset realised, based the date of commencement of construction until construction is on tax rates that have been enacted or substantively enacted at the completed. reporting date. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. (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 services is not recoverable from the taxation authority, in which case the value added tax is recognised as part of the cost of acquisition of the asset or as part of the expenditure item as applicable; and 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. Financial assets The Group classifies its financial assets into one of the categories discussed below, depending upon the purpose for which the asset was acquired. (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. • Receivables and payables that are stated with the amount of value (b) Loans and receivables added tax included. The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables, as appropriate, in the Balance Sheet. These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. In the case of the Group, loans and receivables comprise trade and other receivables, loans, security deposits, restricted cash and cash and short term deposits. Loans and receivables are initially recognised at fair value, plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 83 If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows. The amount of the impairment loss is recognised in administrative expenses. If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment is recognised, the previously recognised impairment loss is reversed. Any such reversal of an impairment loss is recognised in the Income Statement. Cash and short term deposits include cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months or less. Financial liabilities and equity instruments Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. The Group classifies its financial liabilities into one of the categories listed below. (a) Fair value through profit or loss This category comprises only out-of-the-money derivatives, which are carried at fair value with changes in the fair value recognised in the Income Statement in finance income or finance expense. (b) Other financial liabilities Other financial liabilities include interest bearing loans, trade payables (including rent deposits and retentions under construction contracts), preference shares, 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 settlement or redemption and direct issue costs, are charged to the Income Statement using the effective interest rate method. 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 compound financial instrument, that is they have a liability and equity component. On the issue of convertible preference shares the fair value of the liability component is determined and the balance of the proceeds of issue is deemed to be equity. The Group's other equity 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. Share-based payments and other long term incentives The Group rewards its key management and other senior employees by a variety of means many of which are settled by ordinary, 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. Also, to the extent the Five Year Performance Plan vests in March 2023, the resulting entitlements will be settled in ordinary shares and thus will fall within the scope of IFRS 2. 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 group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated and prior years have been restated as described earlier. Following a move to Rouble valuations of investment property, the Russian subsidiaries that hold investment property have changed their functional currency from US Dollars to Roubles. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement. Non-monetary assets and liabilities are translated using exchange rates at the date of the initial transaction or when their fair values are reassessed. (c) On consolidation The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each Balance Sheet are translated at the (ii) closing rate at the date of the Balance Sheet; income and expenditure for each Income Statement are translated at the average exchange rate prevailing in the period unless this does not approximate to the rates ruling at the dates of the transactions in which case they are translated at the transaction date rates; and preference shares or convertible preference shares of the Company. (iii) all resulting exchange differences are recognised in Other Comprehensive Income. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 84 NOTES TO THE FINANCIAL STATEMENTS The exchange differences arising from the translation of the net When the acquisition of a subsidiary does not represent a business, it investment in foreign entities are recognised in Other Comprehensive is accounted for as an acquisition of a group of assets and liabilities. Income. When a foreign entity is sold, such exchange differences are The cost of the acquisition is allocated to the assets and liabilities recognised in the Income Statement as part of the gain or loss on sale. acquired based on their relative fair values, and no goodwill or Goodwill and fair value adjustments arising on the acquisition of a deferred tax liabilities are recognised. As detailed in note 38, the foreign entity are treated as assets and liabilities of the foreign entity Group purchased Volga Logistics Park by acquiring all of the issued and translated at the closing rate. share capital of the corporate vehicles that owned the property. The results and financial position of all the Group entities that have a (b) Recognition of deferred tax assets functional currency different from the Group's presentation currency The recognition of deferred tax assets is based upon whether it is (Sterling) are translated into the presentation currency using the probable that sufficient and suitable taxable profits will be available following rates: Balance Sheet – Roubles – United States Dollar – Euro Income Statement* – Roubles – United States Dollar – Euro 2018 2017 88.3524 77.8800 1.2736 1.1142 1.3528 1.1266 2018 2017 83.6890 75.1859 1.3350 1.1304 1.2888 1.1415 * These are the average rates for the twelve months ended 31 December 2017 and 2018, which are used unless this does not approximate the rates ruling at the dates of the relevant transactions in which case the item of income or expenditure is translated at the transaction date 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. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 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 are current prices in an active market for similar properties. 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 Valuation - Global Standards, 2017 (the "Red Book"). These are internationally accepted standards of valuation and are 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. 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 NOTES TO THE FINANCIAL STATEMENTS 85 applied retrospectively. The level of tax reviews and court activity is increasing. 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 0% and 100% of possible outcomes. It is reasonably possible that outcomes within the next financial year are different from the assumptions made and could require an adjustment to the carrying amount of the provision. 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 - IFRS 15 revenue - services are provided to customers over time and invoiced at appropriate intervals in accordance with the relevant contract terms, with payment typically due within 10 to 45 days of invoicing; and Raven Mount - sale of residential property in the UK - IFRS 15 revenue - the transfer of land or property to the purchaser occurs on legal completion of the sale contract, with payment typically due upon completion, though in some cases a deferral may be agreed. Financial information relating to Property Investment is provided to the Board on a property by property basis. The information provided comprises gross rentals, operating costs, net operating income, revaluation gains and losses and where relevant the profit or loss on disposal of an investment property. The individual properties have similar economic characteristics and are considered to be a single reporting segment. Information about Raven Mount provided to the Board comprises the gross sale proceeds, inventory cost of sales and gross profit, including the share of profits or losses of its joint venture. Roslogistics is an independently managed business and the Board is presented with turnover, cost of sales and operating profits or losses after deduction of administrative expenses. Administrative expenses and foreign currency gains or losses are reported to the Board by segment. Finance income and finance expense are not reported to the Board on a segment basis. Sales between segments are eliminated prior to the 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 include 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 £51.1 million (2017: £48.8 million). RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 86 NOTES TO THE FINANCIAL STATEMENTS (a) Segmental information for the year ended and as at 31 December 2018 Year ended 31 December 2018 Gross revenue Operating costs / cost of sales Net rental and related income Administrative expenses Property Investment Roslogistics £’000 £’000 Raven Mount £’000 Segment Total £’000 Central Overhead £’000 146,106 16,402 (36,322) 109,784 (8,278) 8,124 131 246 377 162,639 (44,354) 118,285 – – – Total £’000 162,639 (44,354) 118,285 Running general and administration expenses (14,535) (1,989) (419) (16,943) (5,771) (22,714) Abortive project costs Depreciation Share-based payments and other long term incentives Foreign currency (losses) / profits (1,625) (491) (350) (2,483) – (318) – 3 - (2) – – (1,625) (811) – – (350) (2,503) (2,480) – (1,625) (811) (2,853) (2,480) 90,300 5,820 (44) 96,076 (8,274) 87,802 Unrealised loss on revaluation of investment property Unrealised profit on revaluation of investment property under construction Share of profits of joint ventures (121,764) 755 – – – – Segment (loss) / profit (30,709) 5,820 – – 1,630 1,586 (121,764) 755 1,630 – – – (121,764) 755 1,630 (23,303) (8,274) (31,577) Finance income Finance expense Loss before tax As at 31 December 2018 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 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 4,869 (88,180) (114,888) Property Investment Roslogistics £’000 £’000 Raven Mount £’000 Total £’000 1,175,440 30,548 – – 69,605 1,275,593 – – 369 – 1,358 1,727 – – 6,197 356 2,487 1,175,440 30,548 6,566 356 73,450 9,040 1,286,360 65,467 44,007 1,395,834 643,430 33,249 27,239 2,741 63,229 – – – – – 643,430 33,249 27,239 2,741 63,229 – – – – – NOTES TO THE FINANCIAL STATEMENTS 87 (b) 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 139,659 17,964 19,377 177,000 Operating costs / cost of sales Net rental and related income (35,937) 103,722 (8,363) 9,601 (3,004) (47,304) 16,373 129,696 – – – Total £’000 177,000 (47,304) 129,696 Administrative expenses Running general and administration expenses (12,750) (1,711) (661) (15,122) (4,566) (19,688) Impairment of goodwill Depreciation Share-based payments and other long term incentives Foreign currency profits Unrealised profit on revaluation of investment property Unrealised loss on revaluation of investment property under construction Share of profits of joint ventures – (542) (589) 6,129 – (1,523) (1,523) (346) – 3 – – – (888) (589) 6,132 – – (2,928) – (1,523) (888) (3,517) 6,132 95,970 7,547 14,189 117,706 (7,494) 110,212 31,284 (3,049) – – – – – – 1,611 31,284 (3,049) 1,611 – – – 31,284 (3,049) 1,611 Segment profit / (loss) 124,205 7,547 15,800 147,552 (7,494) 140,058 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 6,337 (78,074) 68,321 Property Investment Roslogistics £’000 £’000 Raven Mount £’000 Total £’000 1,159,172 28,607 – – 191,402 1,379,181 626,242 68,593 90,663 12,640 171,896 – – – – 671 671 – – – – – – – 7,380 313 1,159,172 28,607 7,380 313 5,064 197,137 12,757 1,392,609 38,752 58,715 1,490,076 626,242 68,593 90,663 12,640 171,896 – – – – – RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 88 NOTES TO THE FINANCIAL STATEMENTS 5. Gross revenue Rental and related income Proceeds from the sale of inventory property Logistics 2018 £’000 2017 £’000 146,106 139,659 131 16,402 19,377 17,964 162,639 177,000 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, being amounts recorded in excess of minimum contracted increases, are included in rental income for the year amounted £12k (2017: £8k). Details of the Group's contracted future minimum lease receivables are detailed in note 36. The Group recognised revenue of £19 million (2017: £20 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 Legal and professional Abortive project costs 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 2018 £’000 12,079 2,900 2017 £’000 10,366 2,386 (58) (72) 3,261 1,321 596 – 2,070 1,625 811 545 3,160 1,507 553 1,523 1,494 – 888 294 25,150 22,099 2018 £’000 461 50 511 47 38 85 2017 £’000 417 48 465 56 32 88 596 553 The Group engaged Ernst & Young to undertake due diligence in respect of the investment property acquisitions in the year, incurring £103k (2017: £313k) of fees, which were included in the cost of the relevant investment property and a further £537k (2017: £nil) incurred in respect of aborted projects. 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 £265k (2017: £235k) and the fees for taxation services were £147k (2017: £59k). RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 89 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 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 Change in fair value of foreign currency embedded derivatives 2018 £’000 2017 £’000 3,254 32 1,583 – 5,604 23 37 673 4,869 6,337 51,092 12,335 19,963 83,390 83 4,566 141 48,808 12,289 15,576 76,673 121 1,280 – Finance expense 88,180 78,074 Included in the interest expense on loans and borrowings is £3.93 million (2017: £4.25 million) relating to amortisation of costs incurred in originating the loans. Included in the interest expense on preference shares is £0.42 million (2017: £0.42 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 £6.95 million (2017: £5.56 million) relating to the accretion of premiums payable on redemption and amortisation of costs incurred in issuing the convertible preference shares of £0.30 million (2017: £0.22 million). RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 90 8. Tax The tax expense for the year comprises: Current taxation Deferred taxation (note 25) 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 loss per the Income Statement as follows: (Loss) / 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 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 2018 £’000 2017 £’000 5,731 15,001 72 (10) – 11,431 149 (1,399) 5,793 25,182 2018 £’000 2017 £’000 (114,888) 68,321 (22,978) 13,664 (1,964) (3,865) 6,460 (2,186) (1,924) 5,310 17,179 2,571 3,325 – 5,573 1,099 5,450 3,431 2,127 2,696 (3,594) (1,399) 5,793 25,182 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 and the movement in the provision is reflected above. 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, depreciation and amortisation of loan origination costs (as these represent non-cash expenses that do not affect the ability to declare covered distributions); and material non-recurring items, together with any related tax. The Group is also required to report Headline earnings per share as required by the listing requirements of the Johannesburg Stock Exchange. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 91 The calculation of basic and diluted earnings per share is based on the following data: Earnings Net (loss) / profit for the year prepared under IFRS (120,681) 43,139 2018 2017 £’000 £’000 £’000 £’000 Adjustments to arrive at underlying earnings: Administrative expenses Impairment of goodwill (note 6a) Depreciation (note 6a) Aborted project costs (note 6a) – 811 1,625 1,523 888 – 2,436 2,411 Share-based payments and other long term incentives (note 31b) Unrealised loss / (profit) on revaluation of investment property Unrealised (profit) / loss on revaluation of investment property under construction 2,853 121,764 (755) 2,260 (31,284) 3,049 Finance income Change in fair value of open interest rate derivative financial instruments (note 7) Change in fair value of foreign currency embedded derivatives (note 7) Finance expense 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 22) Premium on redemption of convertible preference shares and amortisation of issue costs (note 23) Amortisation of loan origination costs (note 7) Tax Movement on deferred tax arising on depreciation and revaluation of investment property Tax on unrealised foreign exchange movements in loans Underlying earnings 1,583 – 83 4,566 141 417 7,246 3,931 37 673 (1,583) (710) 121 1,280 – 417 5,784 4,253 16,384 11,855 (619) 215 12,591 67 (404) 20,014 12,658 43,378 Calculation of Headline earnings Net (loss) / profit for the year prepared under IFRS Adjustments to arrive at Headline earnings: Impairment of goodwill Unrealised loss / (profit) on revaluation of investment property Unrealised (profit) / loss on revaluation of investment property under construction Movement on deferred tax arising on revaluation of investment property Headline earnings 2018 £’000 2017 £’000 (120,681) 43,139 – 1,523 121,764 (31,284) (755) (6,502) 3,049 7,772 (6,174) 24,199 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 92 NOTES TO THE FINANCIAL STATEMENTS IFRS Basic Effect of dilutive potential ordinary shares: Warrants (note 27) LTIP (note 31) 2016 Retention scheme (note 31) Convertible preference shares (note 23) 2018 Weighted average shares No. ‘000 Earnings £’000 EPS Pence Earnings £’000 2017 Weighted average shares No. ‘000 (120,681) 641,588 (18.81) 43,139 663,493 EPS Pence 6.50 – – – – – – – – – – – 7,669 1,382 2,513 15,576 261,369 Diluted (120,681) 641,588 (18.81) 58,715 936,426 6.27 Underlying earnings Basic Effect of dilutive potential ordinary shares: Warrants (note 27) LTIP (note 31) 2016 Retention scheme (note 31) Convertible preference shares (note 23) 2018 Weighted average shares No. ‘000 Earnings £’000 EPS Pence Earnings £’000 2017 Weighted average shares No. ‘000 20,014 641,588 3.12 43,378 663,493 EPS Pence 6.54 – – – – 2,641 612 4,535 – – – – 7,669 1,382 2,513 9,792 261,369 Diluted 20,014 649,376 3.08 53,170 936,426 5.68 Headline earnings Basic Effect of dilutive potential ordinary shares: Warrants (note 27) LTIP (note 31) 2016 Retention scheme (note 31) Convertible preference shares (note 23) 2018 Weighted average shares No. ‘000 Earnings £’000 EPS Pence Earnings £’000 2017 Weighted average shares No. ‘000 (6,174) 641,588 (0.96) 24,199 663,493 EPS Pence 3.65 – – – – – – – – – – – – 7,669 1,382 2,513 – Diluted (6,174) 641,588 (0.96) 24,199 675,057 3.58 The finance expense relating to the convertible preference shares was greater than IFRS, underlying and headline basic earnings per share and thus the convertible preference shares are not dilutive. This was not the case in 2017 where the convertible preference shares were dilutive and were incorporated into the calculation of diluted IFRS and underlying earnings per share. 10. Ordinary dividends In the place of a final dividend for 2017 the Company implemented a tender offer buy back of ordinary shares on the basis of 1 in every 17 shares held at a tender price of 52 pence per share, the equivalent of a final dividend of 3 pence per share. Instead of an interim dividend for 2018 the Company implemented a tender offer buy back of ordinary shares on the basis of 1 in every 44 shares at a tender price of 55 pence per share, the equivalent of a dividend of 1.25 pence per share. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 93 11. Investment property Asset class Location Fair value hierarchy* Market value at 1 January 2018 Corporate acquisitions (note 38) Other acquisition Property improvements Unrealised loss on revaluation On translation to presentation currency Logistics Moscow Level 3 £’000 Logistics St Petersburg Level 3 £’000 Logistics Regions Level 3 £’000 Office St Petersburg Level 3 £’000 2018 Total £’000 854,288 144,910 117,871 60,682 1,177,751 – 27,239 1,430 (97,641) 55,297 – – 293 30,805 – 504 – – 514 30,805 27,239 2,741 (6,468) (10,795) (4,686) (119,590) 9,243 6,458 3,892 74,890 Market value at 31 December 2018 840,613 147,978 144,843 60,402 1,193,836 Tenant incentives and contracted rent uplift balances (13,674) (4,046) (1,256) (476) (19,452) Head lease obligations (note 24) 1,056 – – – 1,056 Carrying value at 31 December 2018 827,995 143,932 143,587 59,926 1,175,440 Revaluation movement in the year ended 31 December 2018 Gross revaluation (97,641) (6,468) (10,795) (4,686) (119,590) Movement of tenant incentives and contracted rent uplift balances 41 Less impact of translation to presentation currency Revaluation reported in the Income Statement (1,626) (99,226) 203 (532) 8 (150) (70) (48) 182 (2,356) (6,797) (10,937) (4,804) (121,764) Asset class Location Fair value hierarchy* Market value at 1 January 2017 Corporate acquisitions (note 38) 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 £’000 813,667 114,454 122,882 20,084 1,071,087 – 28,589 90,663 8,688 12,090 – 1,329 12,475 – – 2,391 3,304 40,004 – 232 5,048 68,593 90,663 12,640 32,917 On translation to presentation currency (70,820) (11,937) (10,706) (4,686) (98,149) Market value at 31 December 2017 854,288 144,910 117,871 60,682 1,177,751 Tenant incentives and contracted rent uplift balances (13,715) (4,249) (1,264) (406) (19,634) Head lease obligations (note 24) 1,055 – – – 1,055 Carrying value at 31 December 2017 841,628 140,661 116,607 60,276 1,159,172 Revaluation movement in the year ended 31 December 2017 Gross revaluation Movement of tenant incentives and contracted rent uplift balances Less impact of translation to presentation currency Revaluation reported in the Income Statement 12,090 444 (1,226) 11,308 12,475 3,304 5,048 32,917 65 (373) (154) (96) (282) (11) 73 (1,706) 12,167 3,054 4,755 31,284 *Classified in accordance with the fair value hierarchy, see note 35. There were no transfers between fair value hierarchy in 2017 or 2018. During the year the Group acquired two new investment properties. As a corporate acquisition it acquired Volga Logistics Park (see note 38) and, as a direct purchase of real estate, it acquired a further phase of Logopark Sever. At 31 December 2018 the Group has pledged investment property with a value of £1,153 million (2017: £1,061 million) to secure banking facilities granted to the Group (see note 21). RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 94 NOTES TO THE FINANCIAL STATEMENTS 12. Investment property under construction Asset class Location Fair value hierarchy* Market value at 1 January 2018 Costs incurred Corporate acquisition (note 38) On translation to presentation currency Unrealised (loss) / profit on revaluation Market value at 31 December 2018 Head lease obligations (note 24) Carrying value at 31 December 2018 Asset class Location Fair value hierarchy* Market value at 1 January 2017 Costs incurred Assets under construction Moscow Level 3 £’000 Regions Level 3 Sub–total £’000 £’000 Land Bank Regions Level 3 £’000 2018 Total £’000 19,736 5,618 25,354 2,873 28,227 18 – (268) (144) 10 28 2,444 2,444 – – 28 2,444 (636) (904) (336) (1,240) 899 755 – 755 19,342 8,335 27,677 2,537 30,214 334 – 334 – 334 19,676 8,335 28,011 2,537 30,548 Assets under construction Moscow Level 3 £’000 Regions Level 3 Sub–total £’000 £’000 Land Bank Regions Level 3 £’000 2017 Total £’000 23,954 6,069 30,023 3,128 33,151 20 9 29 – 29 On translation to presentation currency (1,578) (273) (1,851) (53) (1,904) Unrealised loss on revaluation Market value at 31 December 2017 Head lease obligations (note 24) Carrying value at 31 December 2017 (2,660) (187) (2,847) (202) (3,049) 19,736 5,618 25,354 2,873 28,227 381 – 381 – 381 20,117 5,618 25,735 2,873 28,608 *Classified in accordance with the fair value hierarchy, see note 35. There were no transfers between fair value hierarchy in 2017 or 2018. No borrowing costs were capitalised in the year (2017: £nil). At 31 December 2018 the Group has pledged investment property under construction with a value of £25.3 million (2017: £25.4 million) to secure banking facilities granted to the Group (see note 21). RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 95 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 2018 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 the Regions is valued by the Directors. Valuation process 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. Three 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 valuers is reviewed each year. The criteria considered include market knowledge, reputation, independence and professional standards. The Audit Committee also meets the external valuers at least once a year. The Group's management team have determined that the external valuers are experienced in the Russian market and acts as an "External Valuer" as defined in the RICS Valuation - Global Standards, 2017. The Group has continued to use the income capitalisation approach in assessing its opinion of value but has moved to a discounted cash flow methodology in line with changes in market practice internationally and in Russia, and is accepted practice under RICS Valuation - Global Standards, 2017. The RICS Valuation - Global Standards, 2017 are internationally accepted standards of valuation and are 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 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 valuers in detail and adjustments made as necessary. 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 96 NOTES TO THE FINANCIAL STATEMENTS Valuation assumptions and key inputs Class of property Carrying amount 2018 £’000 2017 £’000 Completed investment property Valuation technique Input Range 2018 2017 Moscow - Logistics 827,995 841,628 Discounted cash flow St Petersburg - Logistics 143,932 140,661 Discounted cash flow Regional - Logistics 143,587 116,607 Discounted cash flow ERV per sqm ERV growth Discount rate Exit cap rate Vacancy rate Passing rent per sqm Passing rent per sqm ERV per sqm ERV growth Discount rate Exit cap rate Vacancy rate Passing rent per sqm Passing rent per sqm ERV per sqm ERV growth Discount rate Exit cap rate Vacancy rate Passing rent per sqm Passing rent per sqm Passing rent per sqm St Petersburg - Office 59,926 60,276 Discounted cash flow ERV per sqm ERV growth Discount rate Exit cap rate Vacancy rate Passing rent per sqm Passing rent per sqm Passing rent per sqm Other key information Moscow - Logistics St Petersburg - Logistics Regional - Logistics St Petersburg - Office Description Land plot ratio Age of building Outstanding costs (£’000) Land plot ratio Age of building Outstanding costs (£’000) Land plot ratio Age of building Outstanding costs (£’000) Land plot ratio Age of building Outstanding costs (£’000) RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT Rub 3,500 to Rub 3,800 4.00% to 7.00% Rub 3,500 to Rub 3,800 5.00% 10.75% to 12.60% 11.20% to 12.90% 10.50% to 11.50% 10.50% to 11.50% 1% to 94% $110 to $166 Rub 3,104 to Rub 11,847 1% to 50% $113 to $170 Rub 3,000 to Rub 12,315 Rub 3,800 6.00% Rub 3,800 4.00% 12.30% to 12.50% 12.15% to 12.48% 11.75% 3% to 19% $69 to $140 Rub 2,339 to Rub 4,916 11.75% 0% to 29% $109 to $133 Rub 2,456 to Rub 5,260 Rub 3,800 6.00% Rub 3,800 4.00% 12.25% to 12.50% 12.45% to 12.50% 11.75% 6% to 27% $104 to $133 Rub 3,720 to Rub 6,707 n/a 11.75% 0% to 9% $107 to $138 Rub 3,750 to Rub 7,300 £88 Rub 10,976 to Rub 12,366 2.00% to 4.00% Rub 9,965 to Rub 12,384 0.00% 12.00% to 12.25% 11.00% to 12.25% 11.25% to 12.25% 11.00% to 12.25% 0% to 1% $388 £390 Rub 8,124 to Rub 16,271 1% to 8% £408 £410 to £413 Rub 4,384 to Rub 17,570 Range 2018 2017 34% - 65% 1 to 14 years 2,290 48% - 57% 4 to 10 years 282 48% - 61% 9 years 363 34% - 65% 1 to 13 years 6,980 48% - 57% 3 to 9 years 611 48% - 61% 8 years 114 148% to 496% 10 to 12 years 23 148% to 496% 9 to 11 years 60 NOTES TO THE FINANCIAL STATEMENTS 97 Carrying amount 2018 £’000 2017 £’000 Valuation technique Input Range 2018 2017 Investment property under construction Moscow - Logistics 19,676 20,117 Comparable Value per ha Regional - Logistics 8,335 5,618 Comparable Value per ha Rub 17.9m - Rub 33.6m Rub 9.7m - Rub 20.6m $0.31m - $0.53m $0.29m The fair value of investment property is determined using the income capitalisation method where a property's fair value is estimated based on the present value of net cash flows generated from each property, plus the reversionary value based on the final year's income capitalised using an all-risks exit yield. Allowance is made for a 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, which is capitalised at the prevailing market yield. 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. There were no active development projects at 31 December 2018 or 2017. 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; • ERV growth; • Void period on re-letting; • Discount rate; • Exit capitalisation yield; and • Specific to property under development: construction costs, letting void, construction period and development profit. Further significant increases (or decreases) in any of the main inputs to the valuation, being discount rate, exit capitalisation yield, ERV (per sqm p.a.), ERV growth and letting void, would result in a significantly lower (or higher) fair value measurement. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 98 NOTES TO THE FINANCIAL STATEMENTS 14. Investment in subsidiary undertakings The principal subsidiary undertakings of Raven Property Group Limited, all of which have been included in these consolidated financial statements, are as follows: Name Raven Russia Holdings Cyprus Limited Dorfin 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 Kstovo Industrial Park 1 LLC JSC Kulon Development JSC Kulon Istra Kulon Spb LLC League LLC Logopark Don LLC Logopark Ob LLC JSC Noginsk Vostok Pervomayskay Zarya LLC Petroestate LLC Primium LLC Resource Economia LLC Sever Estate LLC Soyuz-Invest LLC JSC 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 Russia Proportion of ownership interest 2018 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% 100% 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% The Group's investment property and investment property under construction are held by its subsidiary undertakings. 15. 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 2018 50% 50% 2017 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 primarily 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: RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 99 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 Carrying value Carrying value at 1 January Investment in the year Share of total comprehensive income for the year Share of distributions paid On translation to presentation currency Carrying value at 31 December Summarised Statement of comprehensive income Gross revenue Cost of sales Administrative expenses Finance expense Profit before tax Tax Profit for the year Other comprehensive income Total comprehensive income Group’s share of total comprehensive income for the year 2018 £’000 3,634 3,425 3,597 1,874 (3,659) (3,051) 5,820 3,694 2,872 6,566 7,380 533 1,630 2017 £’000 3,221 6,157 3,533 1,963 (2,575) (4,505) 7,794 3,483 3,897 7,380 7,874 – 1,611 (3,000) (2,105) 23 – 6,566 7,380 2018 £’000 2017 £’000 27,708 23,886 (22,329) (18,684) (2,017) (1,790) (216) 3,146 20 (183) 3,229 (8) 3,166 3,221 53 3,219 1,630 – 3,221 1,611 The joint ventures had no contingent liabilities or capital commitments as at 31 December 2018 and 2017. The joint ventures cannot distribute their profits until they obtain the consent from the joint venture partners. The Group charged its joint ventures £244k (2017: £73k) for services rendered to them during the year, of which £81k (2017: nil) was included in payables at the balance sheet date. The joint ventures recharged certain costs back to the Group that for the year amounted to £51k (2017: £136k) of which £7k (2017: £7k) was included in payables at the balance sheet date. The Group has advanced loans to its joint ventures of £491k (2017: £300k) generating interest income of £32k (2017: £23k). RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 100 NOTES TO THE FINANCIAL STATEMENTS 16. Other receivables Loans receivable Restricted cash VAT recoverable Prepayments and other receivables 2018 £’000 676 12,249 2,538 72 15,535 2017 £’000 491 965 2,468 194 4,118 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. 17. Trade and other receivables Trade receivables Prepayments Restricted cash VAT recoverable Other receivables Tax recoverable 18. Derivative financial instruments Interest rate derivative financial instruments Non-current assets Current assets Forward currency derivative financial instruments Non-current assets Current assets Foreign currency embedded derivatives Non-current assets Current assets Current liabilities 2018 £’000 27,803 3,524 1,792 7,084 317 3,138 2017 £’000 32,773 3,985 – 17,328 210 4,090 43,658 58,386 2018 £’000 21,953 329 – 20 – – (1) 2017 £’000 5,713 223 91 13 71 93 (26) 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 2018 the instruments have a notional value of £543 million (2017: £481 million) and a weighted average fixed or capped rate of 3.90% (2017: 1.61%). 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 £12 million (2017: £24 million), a weighted average capped rate of $1.55 to £1 (2017: $1.55 to £1) and quarterly maturities with the final instruments maturing on 18 December 2019 (2017: 18 December 2019). Several of the Group's leases incorporate collars and caps on US Dollar and Rouble exchange rates. These have been categorised as embedded derivatives and their fair values calculated resulting in the assets or liabilities disclosed above. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 101 19. Cash and short term deposits Cash at bank and on call Short term deposits 2018 £’000 2017 £’000 45,153 128,079 28,297 69,058 73,450 197,137 Cash at bank and on call attracts variable interest rates, whilst short term deposits attract fixed rates but mature and re-price over a short period of time. The weighted average interest rate at the balance sheet date is 5.50% (2017: 5.04%). 20. Trade and other payables Trade and other payables Construction payables Advanced rentals Deferred consideration on property acquisitions Other payables Current tax payable Other tax payable Head leases (note 24) 21. 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 2018 £’000 4,900 2,958 20,840 12,197 4,392 11,369 9,518 18 2017 £’000 4,998 7,764 19,574 17,874 5,172 14,656 9,382 7 66,192 79,427 2018 £’000 2017 £’000 75,565 78,871 567,865 547,371 643,430 626,242 75,565 78,871 20,730 109,636 333,862 283,816 213,273 153,919 643,430 626,242 The amounts above include unamortised loan origination costs of £7.1 million (2017: £7.8 million) and interest accruals of £1.3 million (2017: £1.2 million). The Group's interest bearing loans and borrowings have a weighted average interest rate of 7.69% (2017: 7.62%) and a weighted average term to maturity of 4 years (2017: 4.5 years). The interest rates shown above are the weighted average cost, including the relevant benchmark rate, as at the Balance Sheet dates. There have been a number of changes to the Group's financing arrangements in the year. The Group drew down €86.0 million and Rub 5.7 billion on new and existing debt facilities, repaying $108 million of existing debt. In addition existing facilities of $306 million were extended and / or converted into Rouble / Euro blended facilities of Rub 11.9 billion and €113 million. Since the year end, the Group has drawn a further Rub 358 million and €13 million of new bank debt, whilst repaying $13 million of existing debt. As at 31 December 2018 the Group had interest rate hedges for £396.8 million of borrowings (2017: £349.6 million) capped at 3.90% (2017: 1.61%) for a weighted average of 4 years (2017: 3 years). None of the Group's borrowings have fixed interest rates (2017: £141.2 million). RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 102 NOTES TO THE FINANCIAL STATEMENTS 22. 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 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. 23. 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 26) Premium on redemption of preference shares and amortisation of issue costs Movement on accrual for preference dividends At 31 December RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 2018 £’000 2017 £’000 108,263 106,582 – – 417 591 (84) 710 417 638 109,271 108,263 2018 Number 2017 Number 99,143,192 98,265,327 – – (56,866) 487,047 413,342 447,684 99,556,534 99,143,192 99,613,402 99,200,060 (56,868) (56,868) 99,556,534 99,143,192 2018 £’000 2017 £’000 198,870 96,997 – – – – – 7,246 – 100,788 (4,693) (3,007) 3,235 (250) 5,784 16 206,116 198,870 NOTES TO THE FINANCIAL STATEMENTS 103 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 26) At 31 December Shares in issue Held by the Company’s Employee Benefit Trusts At 31 December 2018 Number 2017 Number 192,388,886 102,837,876 – – – – 89,766,361 (2,631,578) 2,683,075 (266,848) 192,388,886 192,388,886 198,189,014 198,189,014 (5,800,128) (5,800,128) 192,388,886 192,388,886 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 1.617 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. 24. Other payables Rent deposits Deferred consideration on property acquisitions Head leases 2018 £’000 2017 £’000 16,425 16,734 – 1,372 7,402 1,429 17,797 25,565 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 £3.9 million (2017: £4.3 million) and have a present value at 31 December 2018, as reflected above and in note 20, of £1.4 million (2017: £1.4 million). RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 104 NOTES TO THE FINANCIAL STATEMENTS 25. Deferred tax (a) Deferred tax assets Balance at 1 January 2017 On translation to presentation currency Credit for the year On acquisition (note 38) Balance at 31 December 2017 On translation to presentation currency Credit for the year On acquisition (note 38) Balance at 31 December 2018 Tax losses £’000 Other £’000 21,551 (770) 2,488 1,482 24,751 (2,852) 237 1,490 524 – 336 – 860 (40) (41) – Total £’000 22,075 (770) 2,824 1,482 25,611 (2,892) 196 1,490 23,626 779 24,405 The Group has tax losses in Russia of £265 million (2017: £261 million) and tax losses in the UK of £53 million (2017: £53 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 2017 On translation to presentation currency Charge for the year Balance at 31 December 2017 On translation to presentation currency Charge / (credit) for the year Balance at 31 December 2018 26. Share capital Issued share capital: At 1 January Issued in the year for cash on warrant exercises (note 27) On conversion of convertible preference shares (note 23) 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 27) On conversion of convertible preference shares (note 23) Repurchased and cancelled in the year At 31 December Accelerated Revaluation tax of investment property £’000 allowances £’000 32,568 (1,404) 5,233 36,397 (4,161) 6,760 38,996 17,162 (1,486) 7,772 23,448 1,458 (6,502) Total £’000 49,730 (2,890) 13,005 59,845 (2,703) 258 18,404 57,400 2018 £’000 2017 £’000 6,606 6,680 85 – (458) 6,233 139 5 (218) 6,606 2018 Number 2017 Number 660,571,843 667,968,463 8,500,126 13,946,387 – 474,722 (45,802,535) (21,817,729) 623,269,434 660,571,843 Of the authorised ordinary share capital of 1,500,000,000 at 31 December 2018, 2,448,226 (2017: 10,948,352) are reserved for warrants. Details of own shares held are given in note 28. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 27. Warrants At 1 January Exercised in the year (note 26) At 31 December At 1 January Exercised in the year (note 26) At 31 December NOTES TO THE FINANCIAL STATEMENTS 105 2018 £’000 438 (340) 98 2017 £’000 996 (558) 438 2018 Number 2017 Number 10,948,352 24,894,739 (8,500,126) (13,946,387) 2,448,226 10,948,352 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. 565,543 warrants have been exercised in the period since 31 December 2018 (2017: 315). 28. Own shares held At 1 January Acquired under a tender offer Other acquisitions Allocation to satisfy Annual Performance Incentive (note 31) Cancelled Allocation to satisfy LTIP options exercised (note 31a) At 31 December At 1 January Acquired under a tender offer Other acquisitions Allocation to satisfy Annual Performance Incentive (note 31) Cancelled Allocation to satisfy LTIP options exercised (note 31a) At 31 December 2018 £’000 (3,652) (4,160) (75) 1,278 36 608 2017 £’000 (4,692) – (124) – 30 1,134 (5,965) (3,652) 2018 Number 2017 Number 5,150,122 6,444,080 8,000,000 – 173,958 257,703 (1,704,000) – (48,613) (39,472) (810,811) (1,512,189) 10,760,656 5,150,122 Allocations are transfers by the Company's Employee Benefit Trusts to satisfy LTIP options exercised in the year and certain of the 2017 Annual Performance Incentives to directors. 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 31a. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 106 NOTES TO THE FINANCIAL STATEMENTS 29. 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. 30. Net asset value per share The Group no longer reports its own adjusted net asset value and adjusted net asset value per share. With the change in presentation currency from US Dollars to Sterling the most significant adjustment, being the unrealised foreign exchange gains and losses on irredeemable preference shares, is no longer relevant. Number of ordinary shares (note 26) Less own shares held (note 28) 2018 Number 623,269,434 (10,760,656) 612,508,778 2018 Ordinary shares No. ‘000 Net asset value £’000 2017 Number 660,571,843 (5,150,122) 655,421,721 Net asset value per share Pence Net asset value £’000 2017 Ordinary shares No. ‘000 Net asset value per share Pence Net asset value per share 295,627 612,509 48 391,838 655,422 60 Effect of dilutive potential ordinary shares: Convertible preference shares (note 23) Warrants (note 27) LTIP (Note 31) 2016 Retention Scheme (note 31) – 612 266 2,095 – 2,448 1,062 4,998 198,870 2,737 468 1,267 338,412 10,948 1,873 4,616 Fully diluted net asset value per share 298,600 621,017 48 595,180 1,011,271 59 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 NAV per share and thus the convertible preference shares are not dilutive. 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 107 31. 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. Long Term Incentive Plan ("LTIP") 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. The LTIP is closed and further awards cannot be made. Awards made under the LTIP have been accounted for in accordance with the Group's accounting policy for Share-based payments. 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. Five Year Performance Plan ("FYPP") The FYPP is a long term incentive scheme which is open to the executive directors and two senior managers. The scheme allows each participant to invest into the FYPP a number of the listed securities in the Company that they hold and those that they receive on 31 March 2019 under the 2016 Retention Scheme. All securities invested in the FYPP must continue to be retained by the participant until 31 March 2023. On 31 March 2023, based on annual compound TSR calculations, the participants will be entitled to receive up to three times the value of the securities in the FYPP. Vested entitlements will be settled in the Company's ordinary shares, with a value based on the average price of the Company's ordinary shares for March 2023. The performance period for the FYPP runs from 31 March 2018 to 31 March 2023. Below an annual compound equivalent TSR of 4% the Plan will lapse, at an annual compound TSR of 12% the Plan will vest in full and a sliding scale will apply for a TSR between 4% and 12%. The maximum aggregate investment in the FYPP is £12 million and the potential participants will be required to confirm their participation and the amount of their investment once the final payment under the 2016 Retention Scheme has been made on 31 March 2019. Annual Performance Incentive As noted in the letter from the Remuneration Committee in the Group's 2017 Annual Report, two of the Company's directors accepted their Annual Performance Incentive in the Company's ordinary shares rather than in cash. (a) Movements in LTIP options Outstanding at the beginning of the year Exercised during the year – LTIP Outstanding at the end of the year The options expire in March 2019. 2018 No. of options 2017 No. of options 1,872,973 3,872,973 (810,811) (2,000,000) 1,062,162 1,872,973 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 108 NOTES TO THE FINANCIAL STATEMENTS (b) Income Statement charge for the year Annual Performance Incentive 2016 Retention scheme Five Year Performance Plan To be satisfied by allocation of: Ordinary shares (IFRS 2 expense) Convertible preference shares / preference shares (IFRS 2 expense) Cash 2018 £’000 750 2,103 – 2,853 750 2,103 – 2,853 2017 £’000 – 3,517 – 3,517 – 2,260 1,257 3,517 Of the IFRS 2 expense for the year £2.1 million (2017: £1.3 million) is included in current liabilities. 32. Capital commitments The Group had no significant capital commitments at 31 December 2017 and 2018. 33. Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Further disclosures concerning transactions with the Company's directors are made in the Remuneration Report and note 6. There are no loan balances with directors. Remuneration of Directors and other key management personnel Short term employee benefits Post employment benefits Share-based payments and other long term incentives 2018 £’000 4,247 224 2,853 7,324 2017 £’000 3,052 219 3,527 6,798 34. Financial instruments – risk management The Group's activities expose it to a variety of financial risks in relation to the financial instruments it uses: market risk (including currency risk, price risk and cash flow interest rate risk), credit risk and liquidity risk. The Group has the following financial instruments on its balance sheet: loans receivable, restricted cash, trade receivables, cash and short term deposits, trade and other payables, interest bearing loans and borrowings, preference shares, convertible preference shares and derivative financial instruments. Risk management parameters are established by the Board and overseen by management in conjunction with professional advisers. Reports are provided to the Board weekly basis and also when changes in risk parameters 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 Euro, Sterling and US Dollar against the predominate functional currency of its subsidiaries of Roubles. 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 Roubles. The functional currency of the Company is Sterling, which is also the presentation currency of the Group. The analysis that follows considers the impact of these currencies on the Group. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 109 Rouble The majority of the Group's transactions in Russia are undertaken in Roubles. The Group's debt profile however is a mix of currencies and a weakening in the Rouble exchange rate can put pressure on the Group's ability to service foreign currency debt facilities. This risk has reduced over the last year as the Group moves to a greater proportion of Rouble denominated debt. A weak Rouble also has an impact on reported earnings per share and net asset value per share when translated to the Group's presentation currency of Sterling. Sterling The Group's exposure to Sterling relates to the Company's preference shares, convertible preference shares and ordinary shares, together with head office administrative expenses. As the presentation currency of the Group, there will also be foreign currency movements through the Group's translation reserve when restating opening balances on consolidation. Euro The Group has exposure to Euro debt facilities and a small number of Euro pegged leases. As noted above, a weak Rouble may reduce the Group's ability to service that debt. A weak Rouble will however increase Rouble income on Euro pegged leases. US Dollar Currency risk to US Dollars is now significantly reduced as the Group moves away from US Dollar debt facilities. It is expected that there will be no US Dollar facilities by the end of 2019. The Group still has a proportion of its leases pegged to the US Dollar and these will mature over the next three years. A weakening Rouble relative to the US Dollar will put pressure on debt servicing of the remaining US Dollar debt but also generate increased Rouble income on US Dollar pegged leases. Accounting standards 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. Rouble £’000 Euro £’000 US Dollar £’000 Sterling £’000 ZAR £’000 As at 31 December 2018 Non-current assets Restricted cash Derivative financial instruments Current assets Rent receivable Restricted cash Derivative financial instruments Other current receivables Cash and short term deposits Non-current liabilities Interest bearing loans and borrowings 122,717 95,821 Rent deposits Current liabilities – – 122,717 95,821 Interest bearing loans and borrowings 27,250 27,122 Rent deposits Other payables – 68 88 436 27,318 27,646 – 7,236 7,236 – – – 15 8,835 8,850 – 4,782 4,782 1 – – 971 3,236 4,208 630 – 630 2,476 1,006 20 84 984 4,570 – 9,935 9,935 – 5,799 40 5,839 – – – – – – 37 26 63 – – – – – 349 349 – – – – – – – 100 100 – – – – – – – RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 110 NOTES TO THE FINANCIAL STATEMENTS As at 31 December 2017 Non-current assets Restricted cash Derivative financial instruments Current assets Rent receivable Restricted cash Derivative financial instruments Other current receivables Cash and short term deposits Non-current liabilities Interest bearing loans and borrowings Rent deposits Current liabilities Interest bearing loans and borrowings Rent deposits Other payables Rouble £’000 Euro £’000 US Dollar £’000 Sterling £’000 ZAR £’000 – – – – – – 38 40,649 40,687 – – – 10,524 3,543 58 14,125 – 1,842 1,842 1 – – 1,230 30,908 32,139 44,302 – 44,302 – – – – 226 48 274 2,153 – 7 4 8,928 11,092 64,389 13,292 77,681 2,063 – 400 2,463 – – – – – – 17 69 86 – – – – – – – – – – – – – – – – – – – – – – – 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 table below shows the impact on profits if US Dollar, Euro, Rouble or Sterling weakened or strengthened by 10% against the functional currency of the specific subsidiary or entity in the Group, with all other variables in each case remaining constant, then: Post tax profit or loss would change by: US Dollar Russian Rouble Sterling Euro 2018 £’000 1,104 13,395 28 11,699 2017 £’000 8,032 4,069 4 1,278 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 111 The Group's interest rate risk arises from its long-term borrowings (note 21), preference shares (note 22) and convertible preference shares (note 23). Borrowings issued at variable rates expose the Group to cash flow interest rate risk, whilst borrowings issued at a fixed rate expose the Group to fair value risk. The Group's cash flow and fair value risk is reviewed monthly by the Board. The cash flow and fair value risk is approved monthly by the Board. The Group analyses its interest rate exposure on a dynamic basis. It takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest costs may increase as a result of such changes. They may reduce or create losses in the event that unexpected movements arise. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios the Group calculates the impact on profit and loss of a defined interest rate shift. The simulation is run on an on-going basis to verify that the maximum potential impact is within the parameters expected by management. Formal reporting to the Board on cash flows is made on a monthly basis. To date the Group has sought to fix its exposure to interest rate risk on borrowings through fixed rate debt facilities, the use of a variety of interest rate derivatives and the issue of preference shares 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 £13.8 million at 31 December 2018 (2017: loss of £10.9 million). We have diversified our debt exposure and, hence, interest rate exposure. The Group is now less exposed to US LIBOR and more sensitive to EURIBOR and Central Bank of Russia Key rate movements. Sensitivity to all benchmark rates are presented in the table below. US LIBOR EURIBOR Central Bank of Russia Key rate (b) Credit risk 2018 Increase 100 bps £’000 Decrease 100 bps £’000 2017 Increase 100 bps £’000 Decrease 100 bps £’000 (81) (1,499) (704) 344 – 1,680 (1,923) (317) – 4,532 – – Credit risk refers to the risk that a counterparty will default on their contractual obligations resulting in financial loss to the Group. The Group's principal financial assets are cash and short term deposits and trade receivables. Cash and short term deposits are placed with a variety of financial institutions in order to spread the counterparty risk and in accordance with limits approved by the Board. The Group considers the credit rating of its counterparties when assessing whether a particular financial institution is suitable. Deposits and liquidity requirements are considered by management weekly. The Group reviews the creditworthiness of potential tenants prior to entering into a lease. Based on this assessment the Group will require a cash deposit or guarantee as collateral for the tenant's obligations under the lease. The collateral typically represents three months rent but may be shorter or longer as required. The Group has a relatively large number of different tenants and as disclosed in note 5 there is only a single tenant that accounts for in excess of 10% of Group revenue. Taking these factors into account and having examined the Group's historical credit loss ratio, the risk to the Group of individual tenant default is considered low. An allowance for impairment of trade receivables is made with reference to the Group's assessment of expected credit loss or where there is objective evidence that the Group will not be able to collect all amounts due. 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 Utilised in the year Unused amounts reversed At 31 December 2018 £’000 3,416 (240) – (238) (58) 2,880 2017 £’000 3,711 (223) 82 – (154) 3,416 At 31 December 2018 there were no significant amounts of unimpaired trade receivables that were past due for collection (2017: £ nil). RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 112 NOTES TO THE FINANCIAL STATEMENTS (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 2018 Interest bearing loans and borrowings Preference shares Convertible preference shares Derivative financial instruments Head leases Trade and other payables As at 31 December 2017 Interest bearing loans and borrowings Preference shares Convertible preference shares Derivative financial instruments Head leases Trade and other payables Total £’000 814,184 119,537 353,514 1 1,150 28,927 Current £’000 124,230 11,954 12,505 1 115 12,503 Year 2 £’000 64,568 11,954 12,505 – 115 5,396 Years 3 to 5 £’000 Years 6 to 10 £’000 401,318 224,068 35,861 37,516 – 345 8,147 59,768 290,988 – 575 2,881 1,317,313 161,308 94,538 483,187 578,280 Total £’000 792,484 118,971 366,018 26 1,149 34,525 Current £’000 Year 2 £’000 Years 3 to 5 £’000 Years 6 to 10 £’000 122,949 146,249 353,389 169,897 11,897 12,505 26 115 11,897 12,505 – 115 35,691 37,516 – 345 17,799 5,718 10,335 59,486 303,492 – 574 673 1,313,173 165,291 176,484 437,276 534,122 Details of the interest rates applicable to the Group's long term borrowings and preference shares are given in notes 21 and 22. 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. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 113 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 Restricted cash Derivative financial instruments Current assets Trade receivables Restricted cash 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 Deferred consideration Other payables Current liabilities Interest bearing loans and borrowings Derivative financial instruments Rent deposits Deferred consideration Other payables Carrying Value £’000 676 12,249 21,953 27,803 1,792 907 349 2018 2017 Fair Value £’000 627 12,249 21,953 27,803 1,792 907 349 Carrying Value £’000 491 965 5,875 Fair Value £’000 459 902 5,875 32,773 32,773 – 1,116 329 – 1,116 329 73,450 73,450 197,137 197,137 567,865 109,271 206,116 – 16,425 – 1,372 561,076 130,494 226,057 – 13,130 – 1,372 75,565 75,565 1 7,242 12,197 5,262 1 7,242 12,197 5,262 547,371 108,263 198,870 – 16,734 7,402 1,428 78,871 26 4,895 17,874 12,903 549,592 144,749 234,714 – 14,150 7,402 1,428 78,871 26 4,895 17,874 12,903 The fair values of loans receivable and borrowings have been calculated based on a discounted cash flow model using a discount rate based on the Group's weighted average cost of capital. The valuation technique falls within level 3 of the fair value hierarchy (see note 35 for definition). The fair value of short term deposits, other assets, trade and other receivables, trade and other payables is assumed to approximate to their book values. The fair value of preference shares 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. (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 and restricted cash. 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. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 114 NOTES TO THE FINANCIAL STATEMENTS Non-current liabilities Current liabilities Total borrowings Less: cash and short term deposits Less: restricted cash Net debt Equity Preference shares Total capital Gearing ratio 35. Fair value measurement The following table provides the fair value measurement hierarchy* of the Group's assets and liabilities. 2018 £’000 2017 £’000 847,806 830,222 141,740 158,317 989,546 988,539 73,450 197,137 14,041 965 902,055 790,437 295,627 391,838 109,271 108,263 1,306,953 1,290,538 69.02% 61.25% As at 31 December 2018 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 2017 Assets measured at fair value Investment property Investment property under construction Derivative financial instruments Liabilities measured at fair value Derivative financial instruments * Explanation of the fair value hierarchy: Level 1 £’000 Level 2 £’000 Level 3 £’000 Total Fair Value £’000 – – – – – – – – – – 22,302 1 – – 6,204 26 1,175,440 1,175,440 30,548 – – 30,548 22,302 1 1,159,172 1,159,172 28,608 – – 28,608 6,204 26 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. RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS 115 36. 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 37. Reconciliation of liabilities arising from financing activities Year ended 31 December 2018 Interest bearing loans and borrowings Preference shares Convertible preference shares 2017 £’000 626,242 108,263 198,870 (10,588) – – Year ended 31 December 2017 Interest bearing loans and borrowings Preference shares Convertible preference shares Derivative financial instruments 2016 £’000 598,708 106,582 96,997 (3,711) 75,201 (84) 97,781 (3,680) Non-cash changes Fair value £’000 Foreign exchange £’000 Cash flows £’000 Non-cash changes Fair value £’000 Foreign exchange £’000 Cash flows £’000 – – – 3,066 3,066 – – – 1,364 1,364 24,282 – – (51,356) – – (13) 2018 £’000 124,107 92,553 133,265 66,757 2017 £’000 120,708 101,418 150,533 34,128 416,682 406,787 Other £’000 3,494 1,008 7,246 2018 £’000 643,430 109,271 206,116 Other £’000 3,689 1,765 4,092 – 2017 £’000 626,242 108,263 198,870 (6,040) Derivative financial instruments (6,040) (18,848) 927,335 (29,436) (480) – (22,302) 23,802 11,748 936,515 798,576 169,218 (51,369) 9,546 927,335 Cash flows relating to interest bearing loans and borrowings comprise: Proceeds from long term borrowings Repayment of long term borrowings Add: payments to restricted cash Loan amortisation Bank borrowing costs paid Add: Interest paid Loan origination costs incurred 2018 £’000 2017 £’000 155,628 206,641 (153,152) 13,056 (50,000) 47,159 (140,096) (23,279) (2,841) (10,588) (98,167) – (49,475) 45,886 (98,167) (29,684) (3,589) 75,201 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 116 NOTES TO THE FINANCIAL STATEMENTS 38. Acquisitions in the year The Group made one corporate acquisition in the year, the purchase of Volga Logistics Park. The Group purchased the property by acquiring all of the issued share capital of the corporate vehicles that owned the property. In accordance with its accounting policy, the Group considered the acquisition assessing whether an integrated set of activities had been acquired in addition to the property. 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: Non-current assets Investment property (note 11) Investment property under construction (note 12) Deferred tax assets (note 25a) Current assets Trade and other receivables Cash and short term deposits Current liabilities Trade and other payables Discharged by: Cash consideration paid Acquisition costs Consideration payable 2018 £’000 30,805 2,444 1,490 642 1,235 (2,621) 33,995 32,958 868 169 33,995 Acquisitions in prior year The Group made three corporate acquisitions in the prior period; Gorigo Logistics Park, Primium Business Centre and Kellerman Business Centre. 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, and 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: Non-current assets Investment property (note 11) Deferred tax assets (note 25a) Current assets Trade and other receivables Cash and short term deposits Current liabilities Trade and other payables Discharged by: Cash consideration paid Acquisition costs RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT Primium £’000 Kellermann £’000 Offices Total £’000 Gorigo £’000 Total £’000 23,280 16,724 40,004 – 187 1,542 – 352 812 – 539 2,354 28,589 1,482 225 912 68,593 1,482 764 3,266 (1,584) 23,425 (2,016) 15,872 (3,600) 39,297 (1,565) 29,643 (5,165) 68,940 68,278 662 68,940 117 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 PROPERTY GROUP LIMITED 2018 ANNUAL REPORT 118 ENQUIRIES Raven Property Group Limited Tel: + 44 (0) 1481 712955 Anton Bilton Glyn Hirsch Novella Communications Tel: +44 (0) 203 151 7008 Tim Robertson Toby Andrews N+1 Singer Tel: +44 (0) 20 7496 3000 Corporate Finance - James Maxwell / James Moat Sales - Alan Geeves / James Waterlow Numis Securities Limited Tel: +44 (0) 20 7260 1000 Alex Ham / Jamie Loughborough / Alasdair Abram Renaissance Capital (South Africa) Tel: +27 (11) 750 1448 Yvette Labuschagne Renaissance Capital (Moscow) Tel: +7 495 258 7770 David Pipia Ravenscroft Jade Cook Tel: +44 (0) 1481 729100 RAVEN PROPERTY GROUP LIMITED 2018 ANNUAL REPORT RAVEN PROPERTY GROUP LIMITED www.theravenpropertygroup.com Registered Office P.O. Box 522, Second Floor, La Vieille Cour, La Plaiderie, St. Peter Port, Guernsey, GY1 6EH
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