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