RAVEN PROPERTY GROUP LIMITED
2019 Annual Report
RAVEN PROPERTY GROUP LIMITED
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019
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
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120
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
4
RESULTS
HIGHLIGHTS
NET OPERATING
INCOME
UNDERLYING EARNINGS
AFTER TAX
IFRS EARNINGS
AFTER TAX
£126.5 MILLION
£43.2 MILLION
£46.0 MILLION
BASIC EARNINGS
PER SHARE
8.16 PENCE
DILUTED NAV
PER SHARE
75 PENCE
PORTFOLIO
OCCUPANCY TODAY
92%
INVESTMENT PROPERTY
VALUATION
CASH BALANCES
TODAY OF
£1.34 BILLION
£104.4 MILLION
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
5
CHAIRMAN’S
MESSAGE
I am pleased to report that, in the 12 months to 31 December 2019, we have enjoyed a strengthening in all aspects of our business. High average
occupancy, improving asset valuations, increasing market rents, reducing Central Bank rates and stable average Rouble exchange rates in 2019
have all contributed to improved results.
Together, they have supported an increase in underlying earnings to £43.2 million (2018: £20.0 million), a significant swing in IFRS earnings to
£46.0 million (2018: loss of £120.7 million) and a jump in basic net asset value per share from 48p at the end of 2018 to 76p at 31 December 2019.
As you will read in this Annual Report, the executive team focus in the last 12 months has been diverted to deal with shareholder issues.
We have purchased and contracted to purchase 38% of our ordinary shares from our two largest institutional holders. It has been a distracting
and stressful period for our senior executive team, but the enhancements are well worth the effort and I’d like to congratulate them all on their
determination to secure these transactions.
As I write, the issues with Coronavirus are on all personal and business agendas. This has now been exacerbated by the oil price crash and the
impact that has had on Rouble exchange rates. We have agreed an extension to the back stop date to acquire our shares from Invesco as a direct
consequence of this. We have yet to see any tangible effect on our trading operations but we are progressing with caution.
As we continue with our Board succession planning, I am sorry to say that Christopher Sherwell will be stepping down as a Non Executive
Director at the AGM. Christopher has been an exemplary Senior Independent Director and Chair of the Remuneration Committee and will be
missed. We are actively searching for new members of the non executive team and hope to make an announcement soon.
All in all, a good year but with mixed emotions on the loss of two long term shareholders and supporters of the Company and we will continue
into 2020 with a cautious approach given the wider issues in play today.
Sir Richard Jewson
Chairman
15 March 2020
RAVEN PROPERTY GROUP LIMITED 2019 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 2019 ANNUAL REPORT
7
RAVEN PROPERTY GROUP LIMITED 2019 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 2019 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 2019 ANNUAL REPORT
10
WAREHOUSE
Sever, Moscow
DESCRIPTION
GLA
Grade A Logistics Warehouse Complex
254,000 sqm
KEY TENANTS
• X5 Retail Group
• R-Pharm
• OBI
• Miratorg
• O’Key
• Major Terminal
• Zara
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.
11
WAREHOUSE
Pushkino, Moscow
DESCRIPTION
GLA
Grade A Logistics Warehouse Complex
214,000 sqm
KEY TENANTS
• DHL
• Itella
• Makita
• Megapolis
• Axioma
• Perrino
LOCATION
The property is located on the
Yaroslavskoe Highway, approximately
15km from the MKAD in the
northeastern part of Moscow Region.
12
WAREHOUSE
Istra, Moscow
DESCRIPTION
GLA
Grade A Logistics Warehouse Complex
206,000 sqm
KEY TENANTS
• DSV Solutions
• Azbuka Vkusa
• Major Terminal
• Santens
• Bacardi
• Kerry
• Splat
• Amway
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.
13
WAREHOUSE
Noginsk, Moscow
DESCRIPTION
Grade A Logistics Warehouse
Complex with 26ha of land suitable
for construction
KEY TENANTS
• X5 Retail Group
• Dixy
• Cotton Club
• ID Logistics
• UPM
• Roto Frank
GLA
204,000 sqm
LOCATION
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
158,000 sqm
KEY TENANTS
• Kupi VIP
• Marvel
• Danone
• FARM
• Mir Instrumenta
• AccordPost
• Gates
• Fischer Clinical
• Rhenus Automotive
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
• OSG
• Metro
• Oriflame
• Toyota
• FM Logistics
• Wildberries
• 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
• Gorenje
• Simple Wines
• Diageo
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
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.
KEY TENANTS
• Auchan
• Electrosystem
• Mars
• KDV Group
• Mir Instrumenta
• Mobis Parts CIS
• FM Logistics
• Havi Logistics
19
WAREHOUSE
Gorigo, St Petersburg
DESCRIPTION
GLA
Grade A Logistics Warehouse Complex
88,000 sqm
KEY TENANTS
• DB Schenker
• Logisan
• DNS Retail
• Major Terminal
• 220 Volt
• KDV Group
• Kiilto
• Greenland
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.
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
• Maunsfeld
• BGLC Group
• ORB
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 Alcohol
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
Grade A Logistics Warehouse Complex
KEY TENANTS
• Nippon Express
• RosLogistics
• ProStore
GLA
52,000 sqm
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.
23
WAREHOUSE
Sholokhovo, Moscow
DESCRIPTION
LOCATION
Grade A Logistics Warehouse Complex
KEY TENANT
• BVK Group
• Perspektiva
• Godovalov
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 Group
• OSG
• UPM
• Melon Fashion Group
• Holodilnik.ru
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
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
• Baltiyskiy Leasing
• Melon Fashion Group
• MAERSK
• Saint-Gobain
• Gefco
GLA
22,000 sqm
26
OFFICE
Primium, St Petersburg
DESCRIPTION
Class A Office Complex
KEY TENANT
• YIT
• TELE 2
• Valio
• PIK Group
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,
The normal process for producing these statements involves an early
discussion draft some weeks ahead of the results date. This draft gets
fine tuned up to the announcement date but rarely changes much.
This year external events have meant two redrafts, one for coronavirus
and the second following the oil price collapse.
We are yet to see any immediate impact on our operating business
due to the Coronavirus situation but we have delayed the acquisition
of IAML’s various shareholdings until we can see some stability
returning. As with the majority of international businesses we have
implemented a number of preventative measures, stopping all non
essential travel, increasing the use of our VCU facilities, monitoring of
all staff that do travel and implementing back up plans for working
2019 was a very good year although not in the way we originally
remotely. The mayor of Moscow has also introduced strict rules for
planned. Our market continued to improve. Vacancy rates in the
companies. This covers the monitoring of employees, including
market are down, rents are up and Russian Central Bank (“CBR”)
mandatory temperature tests each day, and he has also introduced
rates continued to fall. This is now impacting positively on a
isolation periods for travellers from numerous countries arriving in
business with no exposure to Dollar debt and only 15% of our space
Moscow which only reinforces our own travel restrictions.
now with Dollar pegged leases. The continuation of this Dollar
income is benefitting us during this current period of market and
currency turmoil.
We know that the Russian economy is heavily influenced by the oil
market. Recent movements have impaired external sentiment but at
this early stage our day to day business of renting warehouses has not
E-commerce has arrived and is an expanding force in our market.
been affected.
E-commerce tenants now occupy 6% (2018: 3%) of our portfolio
and we expect this increase to continue.
Inevitably the Coronavirus and a volatile oil market will lead us to
adopt a more financially cautious approach which is a frustration
Due to completely non-related circumstances in the fund
given the positive trends we were seeing across all aspects of our
management industry, 2019 was an extraordinary year for the
business.
company. Shareholder liquidity issues meant we were offered the
opportunity to purchase 38% of our ordinary shares from two large
institutional investors, Woodford Investment Management (“WIM”)
and Invesco Asset Management Limited (“IAML”), at a near 50%
discount to net asset value per share. We completed the purchase of
16% in 2019 including all of WIM’s holding, and have contracted to
purchase the remainder from IAML, together with their holding of
preference and convertible preference shares, before 31 July 2020,
Despite an excellent 2019 current market turbulence necessitates
a cautious approach to distributions particularly given our tender
offers which are sensitive to market movements . With that in mind
we intend to make a final distribution of 2.25p per share which
amounts to 3.5p for the year. However the timing and structure of this
distribution will be determined at a later date when market volatility
has calmed down.
subject to certain shareholder approvals. Although this has led to a
Finally, I and my colleagues, delight in congratulating our Chairman,
diversion of our cash resources away from property acquisitions it is
Sir Richard Jewson, on being awarded his knighthood during the year.
an opportunity too good to miss.
An honour highly reflective of a man marrying great integrity and
The announcement of the share buy backs did have an impact on
share price performance and we had seen an improvement prior
to the recent market sell off. We hope that when markets return to
normal, this will again have a positive effect on price performance.
compassion with strong leadership. Bravo Sir Richard.
Glyn Hirsch
Chief Executive Officer
Net asset value per share at 31 December 2019 increased to 76p
15 March 2020
(2018: 48p) following the year end valuations and the prospects were
looking very good from here prior to the Coronavirus outbreak.
At today’s date we have £104.4 million in cash.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
29
BUSINESS
MODEL
Purpose and Culture
The original purpose of our business in 2005 was to act as a conduit
for international funds into an underdeveloped and undersupplied
logistics property market in Russia at an exciting time of expansion
and opportunity for the country. The nascent business encapsulated
the entrepreneurial spirit of a small group of pioneers entering a
new, untapped market. That spirit remains in the business today and
We have acquired our investment portfolio, typically with yields of
between 11% and 14% and have bank financing costs across the
Group of 6.52%. The majority of our operating business is Rouble
denominated, with a small number of legacy US Dollar pegged leases
remaining and secured debt of Rouble and Euro denomination.
We intend to continue our move to Rouble denominated debt in the
coming year.
underpins our culture. This has allowed us to be dynamic and quick
At the year end, US Dollar leases accounted for 16% of the Gross
in reacting to the many obstacles that we have been presented with,
Lettable Area (“GLA”) of our warehouse portfolio (2018: 26%).
from the global crisis of 2009, through international sanctions to the
Our office portfolio now has no currency exposure (2018: Euro 20%;
shock of the oil price collapse and Rouble float at the end of 2014.
US Dollar 9%). The majority of leases are “triple net” meaning property
Today, we have 179 employees in three countries. We have a
management team that promotes our entrepreneurial and
operating expenses are recharged to tenants, leakage of cost only
occurring on vacant space.
meritocratic spirit with integrity and openness. The growth of the
The Group’s secured banking facilities are 57.6% (2018: 31.1%) Rouble
business also brings the requirement to professionalise, the need for
denominated, 42.4% (2018: 34.8%) Euro and we now have no US
a robust internal control framework and appropriate systems and
Dollar liabilities (2018: 34.1%). Debt amortisation is weighted toward
procedures. The last year has seen a focus on all of these areas, from
the Euro element of our financing facilities to reduce the foreign
the introduction of an internal audit function to a review of all internal
exchange exposure over the facility term.
procedures and IT systems to improve integration.
Other than our St Petersburg office portfolio, each of the secured
Our Cyprus Board have run two forums for all senior management
facilities sits in a special purpose vehicle (“SPV”) structure to minimise
this year, to discuss the way the business is managed and controlled.
recourse to the overall portfolio. At the year end, asset specific debt
This is fostering a better flow of information and understanding of
represented 50.1% loan to value (2018: 54.1%).
the control environment amongst employees. It has also precipitated
a number of initiatives that are being implemented, covering areas
such as data management, IT integration and group structure. At the
outset of those meetings however, was a reminder not to lose sight of
that original entrepreneurial spirit.
Business Model and Strategy
Our strategy of holding an investment portfolio of Grade A logistics
warehouses in Russia for the long term, with the aim of producing
rental income that delivers progressive distributions to our
shareholders has not changed. The market remains fragmented
with a number of developers and single asset owners as our main
competitors. Until recently, there had not been an investment
property competitor with a sole focus on the logistics market.
However, with market fundamentals improving and logistics seen as a
Our average letting size by tenant is 8,722sqm (2018: 9,000sqm).
We do not have one tenant with more than 9% (2018: 8%) of our
portfolio’s GLA and the top ten tenants, including Roslogistics,
account for 43% (2018: 42%) of our portfolio in GLA terms and 49%
(2018: 53%) in income terms.
Key Performance Indicators (‘KPIs’)
Occupancy levels and average Rouble rents achieved are our primary
operating focus. Our measure of average Rouble rents incorporates
the running rent for all parts of a lease: the indexed dry warehouse
rent; mezzanine; related office space; ancillary items such as parking;
and “rentalised” tenant improvements on high specification space.
We also aim to refinance at least our secured debt amortisation each
year, which approximates to a four year refinancing cycle for each
key property sector globally, interest in portfolio building does seem
asset.
to be on the agenda for some international funds.
Having built our infrastructure and with a strong team of property,
finance and legal specialists we do believe we have a strong
competitive advantage but with such an immature property
investment market we would welcome additional players in the
sector. It could only benefit the market and support further growth in
property valuations.
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.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
30
PORTFOLIO
REVIEW
Geographical analysis
Warehouse
15%
15%
14%
9%
70%
77%
Space
NOI
Office
The Group's office portfolio is located in St Petersburg.
Leasing and maturities
Moscow
St Petersburg
Regions
During a year without acquisitions we have focussed on maintaining occupancy, investing in our properties for the long term and positioning
ourselves to benefit from the upswing in tenant demand and rents. Occupancy began and ended the year at 90% but has improved since the
year end and now stands at 92% with a further 2% covered by letters of intent (“LOIs”).
‘000 sqm
Maturity profile at 1 January 2019
Renegotiated and extended
Maturity profile of lease extensions
Vacated/terminated
New lettings
Maturity profile at 31 December 2019
2019
255
(111)
5
(154)
5
–
2020
2021
2022
2023-2032
265
(46)
18
(26)
28
239
359
(33)
1
(21)
11
317
237
(25)
57
(5)
5
269
616
(66)
200
(6)
176
920
Total
1,732
(281)
281
(212)
225
1,745
280,700sqm of existing leases have been renegotiated and extended in the financial year and 225,500sqm of new leases signed. Significant new
lettings include 11,500sqm to Inditex, 14,400sqm to Diageo and 19,200sqm for IKEA. A number of major tenants have also increased their space
with us including Bacardi taking an extra 17,100sqm, Pernod Ricard 9,300sqm and Cotton Club 11,500sqm.
Space vacated on maturity, breaks exercised and early terminations totalled 212,200sqm during the year. Vacant warehouse space at the year end
totalled 195,000sqm and the office portfolio had only 3,000sqm of vacancy. There are potential breaks in the portfolio of 189,000sqm in 2020 and
241,000sqm in 2021. We currently expect tenants who occupy only circa 19,000sqm and 29,750sqm to exercise their breaks and vacate in 2020
and 2021 respectively.
Since the year end we have signed a further 104,000sqm of deals of which 63,000sqm were new lettings and 41,000sqm were renewals or
extensions. We currently have 218,000sqm of LOIs for renewals, extensions or expansions and 31,000sqm of new lettings.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
PORTFOLIO REVIEW
31
Lease Expiries at 31 December 2019
920
317
269
239
Space (’000 sqm)
2020
2021
2022
2023-2032
Our leasing strategy remains one of attracting the best tenants for the long term whilst keeping a diversified tenant mix across sectors and
business types. We also target tenants who require significant capital investment into their premises and seek to “rentalise” these improvements
over the term of the lease, creating enhanced returns.
Across the portfolio we are implementing a number of initiatives to reduce our energy consumption and use more sustainable sources of
energy. In 2019, as part of our rolling capital maintenance programme, we have completed the replacement of roof membranes and associated
insulation on 89,000sqm of buildings and also replaced outdated lights in 53,000sqm of our portfolio, installing LED fittings. Both of these
measures have reduced energy consumption. At Noginsk in Moscow, our electricity is now supplied from a sustainable source (hydro electricity)
and we intend to roll this out to other properties where appropriate. In Rostov, in the south of Russia, we are currently evaluating an option to
create a solar power plant to generate electricity for our property in the city, and subject to obtaining any necessary permits will start these works
during 2020.
At the year end, 16% (2018: 26%) of our warehouse GLA had US Dollar denominated leases with an average warehouse rental level of $158 per
sqm (2018: $148 per sqm) and a weighted average term to maturity of 1.9 years (2018: 2.1 years). Rouble denominated leases account for 71%
(2018: 61%) of our total warehouse space with an average warehouse rent of Roubles 4,922 per sqm (2018: 4,900 per sqm) and weighted average
term to maturity of 4.1 years (2018: 4.5 years). Rouble leases have an average minimum annual indexation of 5.7% (2018: 5.9%).
Currency exposure of warehouse leases
10%
3%
71%
4%
16%
68%
28%
Space
NOI
USD
RUB
EUR
Vacant
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
32
PORTFOLIO REVIEW
Investment Portfolio
Warehouse portfolio
Moscow
We have ten warehouse projects in Moscow totalling 1.3million sqm with 87% (2018: 88%) of space let at the year end.
1%
3%
4%
5%
9%
12%
19%
*Excludes space
let to Roslogistics
Space
Pushkino
Istra
0.5%
1.5%
1%
2%
8.5%
14%
15%
16%
16%
15%
16%
21%
Noginsk
Sever
Klimovsk
Krekshino
Nova Riga
Lobnya*
Sholokhovo
Southern
NOI
20.5%
Occupancy in Moscow year on year remained broadly flat, but this hides the fact that one of our largest leases expired in June releasing
91,300sqm of space at Krekshino. At that point we took the opportunity to invest in the property undertaking some technical improvements and
a cosmetic refurbishment. At the date of writing only 21,000sqm remains vacant with new tenants including Diageo, Wildberries and Ball Corp
with one LOI on a further 5,600sqm. Currently we only have 116,800sqm available for rent in Moscow, although this will rise in the second half
when Itella returns a further 65,000sqm to us at Pushkino. We are already in discussions with a number of prospective tenants to relet this space.
St Petersburg
14%
32%
54%
19%
32%
49%
Shushary*
Gorigo
Pulkovo
Space
NOI
*Excludes space
let to Roslogistics
Regions
22%
28%
42%
40%
Novosibirsk*
Rostov*
Nizhny Novgorod
36%
32%
Space
NOI
*Excludes space
let to Roslogistics
Warehouse occupancy in the regional markets of St Petersburg, Rostov and Novosibirsk has remained strong and we have increased rents in all
locations. The lack of supply in the market generally means we could see further rental increases in 2020.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
PORTFOLIO REVIEW
33
Tenant Mix
4%
31%
16%
Space
18%
31%
Warehouse Tenant Type
Distribution
Retail
Manufacturing
Third Party Logistics operators
E-commerce
Our tenant mix has remained diverse during the year. The proportion of space leased to the e-commerce sector increased to 4% at the year end
and is 6% today. The influence of e-commerce on the letting market still remains small compared to other European markets but it is growing.
Office portfolio
St Petersburg
Rents have continued to improve in St Petersburg where our office portfolio is situated. This has allowed us to virtually fully relet Primium where
the sole tenant’s lease expired in the summer. New occupiers include Tele2 and PIK as well as YIT, the original occupier, retaining 27% of the
building. Since acquisition we had benefitted from a very high Euro rent and this has now re-based down to the market rental level, although the
rents we have achieved are 20% above the ERV at the date of purchase. The picture at Kellerman is very similar with the last hard currency lease
coming to an end last year. It is now 87% let with LOIs on a further 3%. The office portfolio is now entirely let in Roubles.
23%
32%
30%
45%
43%
Kellermann
Konstanta
Primium
27%
Space
NOI
Portfolio yields
Warehouse
2018
2019
Office
2018
2019
Moscow (%)
St Petersburg (%)
10.75 - 12.60
10.80 - 12.10
12.30 - 12.50
12.10 - 12.30
Regions (%)
12.25 - 12.50
11.80 - 12.30
Moscow (%)
St Petersburg (%)
Regions (%)
–
–
12.00 - 12.25
11.75 - 12.00
–
–
The investment properties and additional phases of existing projects were valued by Jones Lang LaSalle (“JLL”) at the year end, in accordance
with the RICS Valuation and Appraisal guidelines, and are carried at a market value of £1.4 billion (see notes 11 & 12 to the financial statements).
This has resulted in a net profit on revaluation of £46.6 million in portfolio value during the year. In Rouble terms the value of the properties has
increased by 4.2%.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
34
PORTFOLIO REVIEW
JLL reduced both the cap and discount rate inputs during the second half of the year by 25 basis points, reflecting the improving market, CBR
rates and market evidence. JLL still quote a range of yields across all sectors to reflect the difference in quality of assets, leases and differing
currencies. The figures in the table above are the discount rates applied to the cash flows from the properties. These are derived from the prime
cap rates that JLL publish adjusted for individual property factors.
The property investment market improved in 2019 with the total value of transactions increasing by 41% to $4.1 billion. 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.
Land Bank
Regions
Moscow
32%
68%
55%
22%
16%
7%
Regions
Rostov-On-Don
Omsk
Omsk 2
Novgorod
Space
In Moscow, after some delays caused by changes in the planning system we have now renewed our construction permit at Nova Riga, and could
start to build out up to 75,000sqm if we secure a sizeable prelet.
The Market
In our main market of Grade A warehouses in Moscow where we hold 70.5% of our portfolio, demand has remained strong and market vacancy
has reduced to circa 4%. In real terms this means there is only circa 500,000sqm of space available in the market. At last year’s take up levels this
amounts to only five months supply. The robust level of demand and limited new supply has forced rents upwards and we are generally seeing
average rents of Rub4,000 per sqm in Moscow and the Moscow region. There are variations in different sub markets, with the range of rents being
from Rub3,500-Rub4,250, however the vast majority are now above Rub4,000 per sqm. In St Petersburg and our two regional hubs of Rostov and
Novosibirsk rental levels are broadly the same as in Moscow.
In 2019, 1.1million sqm of warehouse space was delivered. This is the highest volume since 2016 and 7% higher than in 2018. Only 21% of new
supply was speculative, the majority being build to suit or pre-leased, one third of the level of two years ago. Overall take-up amounted to
1.3million sqm which was the driving factor in reducing vacancy. Demand was strongest from the retail, logistics and manufacturing businesses
which accounted for 35%, 28% and 18% respectively. E-commerce companies continued to expand, and although their share of take up was
down in the year this can partly be explained by the very high level of take up in 2018.
For the coming year it is estimated that a further 918,000sqm will be delivered and take up will be circa 1.2milllion sqm. Of the space under
construction 352,000sqm or 38% is pre committed as build to suit for lease or sale, leaving 566,000sqm of speculative space coming to the
market. Construction costs have increased by approximately 5% during the year and may continue to rise as a result of Rouble weakness.
Investment volumes in the year increased to $4.1 billion, with 67% of this in Moscow. Over 74% of all deals were funded by Russian capital, and
only 7% of the total capital or $290 million went into the warehouse sector. JLL predict prime yields in the range of 10.50-12.00% for Moscow
warehouses. We continue to look at a number of new acquisition ideas in our preferred sector of Grade A warehouses and would have made
acquisitions in 2019, if the opportunity to buy back our ordinary shares had not arisen.
Tenant demand has started the year very strongly and we are now 92% let. What the medium term effects of the Coronavirus will be are as yet
unknown, but we are well placed with high occupancy, a diversified tenant mix and with little vacancy in the broader market. In a favourable
scenario where the effect of Coronavirus is muted then 2020 should be another year of high occupancy and rising rents. Even though the CBR
reduced rates by 1.75% in 2019, cap rates have only fallen by 25 basis points so we expect there to be further positive movement in cap rates as
the cost of borrowing falls. As we have said before, in any other European market yields would be considerably lower than we see today and in
the medium to long term the relative high yields and low rents should attract more capital.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
35
FINANCE
REVIEW
Increased occupancy and a stronger Rouble have supported our income and profitability in the year. Improving asset valuations have also given a
boost to IFRS earnings. Our net asset value per share has benefitted from a stronger year end Rouble, property valuation uplifts and the purchase
and cancellation of 99 million ordinary shares at a discount to net asset value per share in the year.
Income Statement
We 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
Share based payments
Foreign exchange gains/(losses)
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
2019
£’000
126,504
(23,130)
(4,927)
27,462
792
126,701
(72,966)
53,735
(10,510)
43,225
7.67p
2018
£’000
118,285
(22,714)
–
(2,480)
1,630
94,721
(68,510)
26,211
(6,197)
20,014
3.12p
Net rental and related income benefits from a full year of income from acquisitions completed in 2018. The average Rouble/Sterling rate of 82.6
(2018: 83.7) has had minimal effect on translating the income statement to presentation currency. The stronger year end Rouble/Euro exchange
rate of 69.3 (2018: 79.3) results in an unrealised profit on foreign exchange when our Russian subsidiaries account for their Euro debt liability.
Underlying Administrative Expenses
Underlying administrative expenses increase as a result of bonus provisions. The 2019 results include £1.2 million paid in relation to 2018
performance but also carry an accrual for 2019 bonuses of £1.3 million together with an estimate of share based bonus payments of £4.6 million,
therefore accounting for the impact of two years.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
36
FINANCE REVIEW
Underlying Net Finance Charge
Our underlying interest expense increases as acquisitions completed towards the end of 2018 were refinanced in the year. Interest receivable
dropped on lower average cash balances following the use of funds to acquire the company’s ordinary shares and on reducing CBR rates.
IFRS Earnings
Net rental and related income
Administrative expenses
Share based payments and other long term incentives
Foreign exchange profit/(loss)
Share of profits of joint ventures
Profit on disposal of joint ventures
Operating profit
Profit/(loss) on revaluation
Net finance charge
IFRS (loss)/profit before tax
Tax
IFRS profit/(loss) after tax
2019
£’000
126,504
(25,433)
(5,468)
27,462
792
490
124,347
48,271
(107,559)
65,059
(19,041)
46,018
2018
£’000
118,285
(25,150)
(2,853)
(2,480)
1,630
–
89,432
(121,009)
(83,311)
(114,888)
(5,793)
(120,681)
The principal movements between underlying earnings and IFRS earnings relate to mark to market changes, with a profit on revaluation of
investment properties of £48.3 million (2018: loss of £121.0 million) and the write down of the value of CBR rate caps of £20.4 million (2018:
£4.6 million) being the largest. The latter a factor of the CBR monetary easing over the year, interest rates dropping from 7.75% at 1 January 2019
to 6% today.
Taxation
Tax paid increases in line with increased profits. The largest element of the charge for the year relates to deferred taxes with a reduction in
deferred tax losses and a charge for the gain in revaluation compared to the depreciated cost of our assets in the Russian operating companies.
Investment Properties
Investment properties
Investment properties under construction
2019
£m
1,338
34
1,372
2018
£m
1,175
31
1,206
The carrying value of our investment property and investment property under construction benefits from both improving valuations and a
stronger Rouble. Revaluation gains of £46.6 million have been recognised in the year on the back of improving yields and ERVs. The stronger year
end Rouble/Sterling rate of 81.15 compared to 88.35 at 31 December 2018 also adds £108.8 million on the retranslation of the opening balances
to Sterling.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
Debtors and Creditors
Debtors
Other receivables (non current)
Derivative financial instruments
Trade and other receivables
FINANCE REVIEW
37
2019
£’000
3,414
2,621
41,595
2018
£’000
15,535
21,953
43,658
Non current asset movements in the year relate principally to financing. Other receivables reduce as restricted cash of £12 million retained
for repayment of a loan was discharged early in the year. As noted above, the carrying value of interest rate caps on our Rouble debt reduced
significantly as CBR rates fell, reflected in the change in derivative financial instruments’ carrying value.
Points of note in trade and other receivables include the recovery of a VAT asset of £4 million which arose on the acquisition of the Sever asset in
2018 and the inclusion of deferred consideration of £3 million in other receivables on the sale of the Coln joint venture.
Creditors
Trade and other payables
Other payables (non current)
2019
£’000
51,691
18,623
2018
£’000
66,192
17,797
The largest movement in trade and other payables relates to the payment of £12 million of deferred consideration on the Sever acquisition in the
year. Advanced rentals drop in the year on the loss of NLC at Krekshino. Other payables increase with the inclusion of the 2019 bonus provision as
explained above.
Cash and Debt
Cash Flow Summary
Net cash generated from operating activities
Net cash used in investing activities
Net cash used in financing activities
Net decrease in cash and cash equivalents
Effect of foreign exchange rate changes
Decrease in cash
Closing cash and cash equivalents
2019
£’000
93,100
(16,196)
(80,062)
(3,158)
(2,154)
(5,312)
68,138
2018
£’000
96,086
(72,203)
(139,827)
(115,944)
(7,743)
(123,687)
73,450
Cash flows for the year were relatively neutral, the main investment in the period being the buy back of our ordinary shares, costing £53.3 million
in total, matched by net debt financing of £50.9 million after debt amortisation of £22.7 million. £3.65 million was received as the first tranche
consideration on the sale of our share in the Coln joint venture, with a further £3 million payable later this year.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
38
FINANCE REVIEW
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
The currency profile of secured debt at 31 December 2019 was:
58%
42%
31%
USD
EUR
RUB
2019
£m
–
545
545
145
690
(7)
683
6.52%
4.7
2018
£m
–
543
543
106
649
(6)
643
7.69%
4.0
34%
2019
35%
2018
The debt maturity profile at the year end is:
Percentage of total debt maturing (%)
5
2
1
1
–
17
60
Number of maturing facilities
–
2
9
6
1
11
1
450
400
350
300
250
200
150
100
50
0
411
33
2020
8
2021
–
2022
120
78
40
2023
2024
2025
2026
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
Debt maturing (£m)
FINANCE REVIEW
39
The Group has now converted all US Dollar debt to a mixture of Rouble and Euro facilities and extended terms on the majority of facilities.
There are five facilities of Euro only totalling €126.1 million, one facility of Rouble only and ten facilities with a Rouble/Euro mix. The amortisation
profile of the mixed facilities is weighted towards the Euro element to reduce foreign exchange risk over the term of the facility. It is the intention
to convert the Euro only facilities into a Rouble/Euro mix during this year, continuing to increase our Rouble debt weighting. At the year end
Rouble debt accounted for 57.6% (2018: 31.1%) of secured facilities and Euro 42.4% (2018: 34.8%).
The weighted cost of debt reduced during the year as CBR rates fell. The majority of our facilities are hedged with interest rate caps. Of the
unhedged amount £78.4 million relates to debt drawn late in December 2019 which was subsequently hedged with interest caps in January this
year. The remainder relates to the near term maturities which are in the process of being extended and two Euro facilities where hedging is only
required if EURIBOR exceeds 100 basis points.
Net Asset Value
Net asset value per share has increased from 48p at 31 December 2018 to 76p at 31 December 2019. The 2018 figure was depressed by a weak
Rouble at the balance sheet date. 2019 increases on a stronger Rouble, investment property valuation gain and the accretive impact of buying
ordinary shares at a significant discount to net asset value per share during the year.
Subsidiaries
In December 2019 we completed on the sale of our share in the Coln Park joint venture for a total consideration of £6.65 million. £4 million was
received in December 2019, including the repayment of a loan of £0.35 million, with the £3 million balance payable by December 2020. This gave
a small profit on sale of £0.5 million.
Roslogistics has continued to trade at a similar level to 2018. We expect it to reduce its let space during the year but maintain profitability levels.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
40
RISK
REPORT
Risk Appetite
Risk Management and Internal Controls
The 2019 financial year saw a marked improvement in our sector with
Risk assessment is built into the Group’s operating model and
market rents increasing, vacancy dropping and property valuations
performed throughout the organisation as part of day to day
improving. We have now extinguished all of our US Dollar liabilities
operations. The Board is ultimately responsible for the management
and asset secured debt is currently a Rouble/Euro mix, reducing our
of risk and regularly carries out a robust assessment of the principal
foreign exchange balance sheet risk. If favourable terms for Rouble
risks and uncertainties affecting the business, including new and
secured facilities continue then we will further reduce our exposure to
emerging risks, discusses how these may impact on operations,
Euro financing in the current year.
As we stated in last year’s Risk Report, we intended to continue with
our acquisition driven growth strategy in the current year but instead
have been distracted by some unforeseen developments.
The most significant risk we were presented with in 2019 was a
significant overhang in our ordinary shares as firstly WIM and then
latterly, IAML, two of our largest shareholders, faced liquidity issues.
We diverted funds we had earmarked for property acquisitions to
purchase WIM’s ordinary shares in August 2019 and subsequently
contracted to purchase IAML’s. We have secured a credit committee
approved financing line for the IAML transaction.
However, we now have the Coronavirus situation and the subsequent
oil price collapse. Given the uncertainty surrounding the potential
impact this may have on our business we have temporarily reduced
our risk appetite. The immediate effect of this is a decision to maintain
our current liquidity levels and postpone the IAML share buy back until
we have a better understanding of the fall out, if any, from the crisis.
Already we have seen a fall in oil prices precipitating a weakening of
the Rouble. In a worst case scenario, this could lead to a suspension
of investment decisions by our tenants, a disruption in supply chains
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.
Our Cypriot holding company board has been working with our
other jurisdictions reviewing and codifying the group’s internal
control infrastructure and has overseen the first year of our internal
audit function. 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.
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. The Risk Committee has met four
times during the year and reports are also reviewed by the Audit
Committee. The Cypriot Board have reported to the Audit Committee
on progress made with their internal control procedures with and
without the internal auditors in attendance.
impacting on the demand for new warehouse space and potential
No significant failings or weaknesses in the internal control and risk
defaults by existing tenants whose businesses are affected most.
assessment procedures have been identified during the year.
However, given the experience the business had in 2015 and 2016
following the last oil price collapse we have adapted our balance sheet
Principal Risks and Uncertainties
to reduce the impact of market shocks such as this and we believe we
We have set out in the following tables the principal risks and
are in a significantly stronger position than we were during that period.
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.
For now though, other than the Rouble weakening, we are not seeing
any impact on our operations but we will proceed with caution.
The principal risk factors that follow reflect our opinion of how they
have changed in 2019 and how the oil price volatility may impact on
our business. The impact of Coronavirus on our local market is as yet
unknown.
We are also cognisant of our responsibility for our impact on the
environment and sustainability. We are looking at a number of
potential projects at the moment. These range from introducing
greater energy efficiency in our buildings as part of our rolling capital
expenditure programme, through managing international travel with
greater use of VCU technology and carbon offsets to the assessment
of the impact of building a solar panel farm and the introduction of
bee hives at one of our regional asset sites.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
RISK REPORT
41
Political and Economic Risk
Risk
Impact
Mitigation
Change in 2019
Oil and Gas
dependent economy
V
Oil price volatility leads to a
weakening of the Rouble.
The weak Rouble increases
the cost of servicing Euro debt
and puts pressure on banking
covenants.
A low oil price dampens
infrastructure spending which
leads to a drop in consumer
demand. This in turn impairs
demand for warehouse space
and a contraction in demand
from existing tenants.
As the majority of our financing is Rouble
denominated our banking covenants are less
sensitive to the servicing of the Euro element of
our debt. The amortisation profile of our facilities
is weighted towards the Euro element of the
facility to reduce the foreign exchange risk over
the term of the loans.
With little or no speculative development in the
market and low vacancy levels research indicates
that the warehouse sector should be resilient in
the short to medium term.
Sanctions
The use of economic sanctions
by the US and EU continues
for the foreseeable future.
Continued isolation of Russia
from international markets
and a return to a declining
Russian economy.
The local market has accepted the inevitability of
long term economic sanctions and this has played
its part in the fundamental changes to the Russian
economy. We have adapted our business model
to secure our position in the market including
extinguishing all US Dollar liabilities. However, the
risk of increased sanctions remains.
Æ
Æ
Financial Risk
Risk
Impact
Mitigation
Change in 2019
Foreign Exchange
V
At the year end 42%
of secured debt was
denominated in Euros and all
of our preference shares in
Sterling.
A weakening of the Rouble
against those foreign
currencies reduces our ability
to service debt and preference
share coupons and reduces
our profitability.
We have significantly reduced our exposure
to foreign currency secured debt facilities and
will continue to do so. As noted above, bank
covenants are now less sensitive to the servicing
of the Euro element of facilities.
The improvement in our secured debt foreign
exchange risk benefits the servicing of our
preference shares as the overall foreign exchange
risk of subordinated debt reduces.
However, the recent weakening of the Rouble
does increase this risk in the current year.
Æ
V
V
Interest rates
Increases in Central Bank
rates and financing
benchmarks.
Share Buy Backs
We have purchased 16.5%
of our ordinary shares in
the year and contracted to
purchase a further 28.5% in
the current year.
The cost of debt increases and
Group profitability and debt
service cover reduce.
We are operating in a low or reducing interest rate
environment for Euro and Rouble facilities. Our
variable cost of debt is hedged with the use of caps
with terms matching the debt maturity profile.
Æ
We reduce our equity base
and increase group gearing.
The overhang of ordinary shares has been
impeding share performance and the acquisitions
are NAV per share enhancing. Our gearing levels
are more an indicator of low asset valuations. The
increase in values over the past 12 months partly
compensates for the impact of last year’s buy
backs on our gearing levels.
NEW
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
42
RISK REPORT
Property Investment
Risk
Acquisitions
V
Impact
Mitigation
Change in 2019
We operate in an
Legacy issues may erode
We have a strong senior management team
immature investment
earnings enhancement and
in both our Cyprus and Moscow offices with
market where legacy issues
integration into our existing
international and Russian experience in real estate
are common with Russian
systems may involve excessive
acquisitions.
Ç
acquisitions.
management resource.
External advisors 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
given the lack of available space.
Ç
Capital Expenditure
V
As 75% of our warehouse
Properties become less
We have put in place a rolling five year capital
portfolio was built between
attractive to prospective
expenditure programme to maintain our
2007 and 2009 some
tenants or lower rental values
properties at a Grade A level. These works should
elements of the buildings
are achieved.
protect and potentially enhance levels of rent
Ç
require replacement or
modernisation.
Russian Domestic Risk
achievable.
Risk
Impact
Mitigation
Change in 2019
Legal Framework
The legal framework in Russia
The large volume of new
We have an experienced in house legal team
continues to develop, with
legislation from various
including a litigation specialist. We use a variety of
new and proposed laws
state bodies is open to
external legal advisors when appropriate.
regularly being introduced.
interpretation, puts strain on
the judicial system and can be
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.
Æ
Æ
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
RISK REPORT
43
Personnel Risks
Risk
Impact
Mitigation
Change in 2019
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 where available;
Employees have regular appraisals and
documented development plans and targets; and
We are continually addressing succession issues
where they arise.
Æ
Change Key
V
Viability statement risk
Ç Increased risk in the period
Æ Stable risk in the period
Decreased risk in the period
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
44
VIABILITY
STATEMENT
In accordance with provision 31 of the UK Corporate Governance
Based on the results of the procedures outlined above, the Board of
Code, the Directors have assessed the prospects of the Company
Directors has a reasonable expectation that the Company and Group
and Group over a longer period than the twelve months prescribed
will be able to continue in operation and meet their liabilities as they
for the “Going Concern” review in the financial statements.
fall due over the period of assessment.
The Board has reviewed the suitability of the three year viability
Signed for and on behalf of the Board
period. The average term of leases including breaks remains around
three years. Bank facilities have an average outstanding term of
around 4 years. Together with an inherent uncertainty in the Russian
economy tied to factors such oil prices and international sanctions
and latterly, the global impact of Coronavirus, the Board considers
the three year period to be appropriate.
Mark Sinclair
Director
15 March 2020
Key considerations for the Board on solvency this year have been
the effect of exchange rates on earnings and the servicing of
the foreign currency denominated element of debt facilities, the
likelihood of new debt financings and the potential impact of
entering into an additional facility to fund the acquisition of the
Company’s shares.
The reduction in balance sheet foreign currency exposure,
increasing portfolio occupancy and committed secured financing
facilities 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 stable
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;
•
• Depreciation in the average Rouble exchange rate against the Euro,
Sterling and US Dollar;
•
Increases in debt facility interest rate benchmarks and the effect on
the interest cost over the forecast period;
• The impact of a tightening in available debt finance;
• The introduction of a new finance facility to purchase the
Company’s shares; and
• The combined impact of all sensitivities on cash balances and
banking covenants.
Following the application of these sensitivities, the key mitigating
factors supporting the Company’s viability and solvency are the
ability to place funds on deposit with banking counterparts to satisfy
any marginal breaches in banking covenants hence avoiding defaults,
the ability to control ordinary share distributions and minimising
uncommitted capital expenditure.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
DIRECTORS
45
Sir Richard Jewson (aged 75)
Non Executive Chairman
Christopher Sherwell (aged 72)
Senior Independent Non Executive Director
Richard Jewson joined Jewson, the timber and building merchant, in
Christopher Sherwell is a former Managing Director of Schroders in
1965 becoming the Managing Director, then Chairman of its holding
the Channel Islands. Before joining Schroders in 1993, he was Far
group, Meyer International plc, from which he retired in 1993. Since
East Regional Strategist in London and Hong Kong for Smith New
then he has served as Non Executive Director and Chairman of a
Court Securities and prior to that spent 15 years as a journalist, much
number of public companies. He retired in 2004 after 10 years as
of them as a foreign correspondent for the Financial Times. He has
Chairman of Savills plc and in 2005, after 14 years as a Non Executive
considerable public company experience and since 2004 has acted as
Director and Deputy Chairman of Anglian Water plc. He is currently
a Non Executive Director on a number of publicly listed investment
Chairman of Tritax Big Box REIT Plc, and a Non Executive Director of
companies. Currently he is a director of Trian Investors 1 Limited.
Temple Bar Investment Trust plc.
He is Chairman of the Remuneration Committee and a member of
He is Chairman of the Nominations Committee and a member of the
the Audit and Nominations Committees. Christopher intends to step
Remuneration Committee.
Anton Bilton (aged 55)
Executive Deputy Chairman
down as a Non Executive Director at the AGM.
Michael Hough (aged 59)
Non Executive Director
Anton Bilton is an economics graduate from The City University in
Michael Hough previously worked at Goldman Sachs and Drexel
London. Anton was the founder of The Raven Group. He has also been
Burnham Lambert as well as Apax Partners and Altium Capital. He
a founder and director of three other companies that have floated on
subsequently co-founded two private Equity firms; Iceni Capital and
AIM. He is Non Executive Chairman of Sabina Estates Limited.
Aurora Russia. He was also, for 5 years, the CEO and President of Henry
He is a member of the Nominations Committee.
Glyn Hirsch (aged 58)
Chief Executive Officer
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.
He is Chairman of the Audit Committee and a member of the
Glyn Hirsch qualified as a Chartered Accountant with Peat, Marwick
Remuneration Committee.
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,
David Moore (aged 59)
Non Executive Director
he was Chief Executive of CLS Holdings plc, the listed property
David Moore is an advocate of the Royal Court of Guernsey and
investment company, a former Director of Citadel Holdings plc, the
is currently a consultant with Collas Crill. He is a former partner of
specialist French property investor and former Chairman of Property
Guernsey law firm Mourant Ozannes, where he had practised since
Fund Management plc, the listed property fund management
1993 and before that spent 10 years practising in the City of London,
business. He is a Non Executive director of Sabina Estates Limited.
predominantly with Ashurst Morris Crisp. He specialises in corporate
Mark Sinclair (aged 54)
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
of large property companies, both listed and private. He joined Raven
Mount in June 2006 as Finance Director of Raven Russia Property
Management Ltd, the former Property Adviser to the Company and
joined the Board of Raven in March 2009.
Colin Smith (aged 50)
Chief Operating Officer
Colin Smith qualified as a Chartered Accountant with BDO Stoy
Hayward. Prior to joining the Company, he was a Director in the audit
and assurance division of the chartered accountant practice of BDO
in Guernsey, having joined BDO in 1994. Colin has also been a Non
Executive director of a number of investment funds and companies.
and financial matters and is a Non Executive Director of a number of
investment, insurance and finance sector-related companies.
He is a member of the Audit and Remuneration Committees.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
46
CORPORATE
GOVERNANCE
Chairman’s introduction
Statement of Compliance with the Code
I am pleased to present our corporate governance report for this
Responsibility for governance matters lies with the Board. It is
year end. This is our first report under the new 2018 revision of the
accountable to shareholders for the activities of the Group. The Board
UK Corporate Governance Code (the “Code”). The Board and its
consider that the Company complies fully with the principles of the
Committees together with management have been working on
Code, and all provisions save for 5, 10, 11, and 19. Each of these is
implementing the principles and provisions of the Code over the
discussed in more detail below setting out our reasons for divergence
past 18 months. The Strategic and Governance sections of the Annual
from the Code and why, in certain cases, we believe our approach
Report set out how we have applied the principles and complied with
upholds the spirit of the provisions within the Code.
the provisions of the Code. There are a number of areas of the Code
provisions where we have not complied for various reasons which
5 – Workforce engagement
are set out in this report. Some of these divergences from the Code
Given the size of the Group and closeness of the Executive Directors
may be temporary while we continue to embed the new Code in the
to senior management and operational areas of the Group, we do
operations of the Board, its Committee’s and wider Group. Others
not consider that any one of the three methods of engagement with
may not be in compliance as we believe that our approach, whilst
the workforce proposed in the Code will generate a more effective
not following the letter of the provisions as set out in the Code, still
means to consider the workforce's views as stakeholders of the Group.
adheres to the spirit in which the Board considers they are intended
There is always a member of senior management in attendance at
and are more appropriate for the Company and wider Group at the
the formal Board meetings. The senior management team meet on a
current time. Each of these is set out more fully below.
weekly basis with the executive Directors. Our operational committee
As explained in our 2018 report, Stephen Coe retired at the
conclusion of the 2019 AGM. Michael Hough, who joined the Board in
October 2018 became Chair of the Audit Committee from this point.
Christopher Sherwell will be retiring at the 2020 AGM. Christopher
was appointed on 1 April 2008 and was the Senior Independent
Director and Chair of the Remuneration Committee since 2009.
Michael will become our Senior Independent Director, Chair of
the Remuneration Committee and will also join the Nominations
Committee from the 2020 AGM. Christopher has been an invaluable
member of the non executive team acting objectively, independently
structure and the role of the board of our Cypriot subsidiary group
means that employees from all facets of the Group have weekly
meetings with at least one member of the Executive Directors or
senior management. This, along with the team leadership structures
in place across the Group, allows a conduit for engagement and
multiple touch points for our workforce to engage with Executive
Board members and senior management and provides an open and
informal approach, which in our opinion, is more appropriate for the
Group at the current time than one of the three methods set out in
the Code.
and providing challenge to the executive team in pursuit of the
10 – Director independence
Group’s strategy. I, along with the Board, wish Christopher all the best
and thank him for his contribution.
Sir Richard Jewson
15 March 2020
Provision 10 sets out the Code requirements for Non Executive
Directors to be considered independent from the Company. 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. In the Board’s opinion, 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
above, Christopher Sherwell will retire from the Board following this
year’s AGM and the Nominations Committee continues to review the
structure and constituents of the Board and its Committee’s. Further
information on the Group’s succession planning is set out in the
Nominations Committee report.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
CORPORATE GOVERNANCE
47
11 – Non Executive Directors
During 2019, the Board consisted of four Executive Directors, three Non Executive Directors, following Stephen Coe’s retirement, and one
Chairman. The requirements of the Code set out that at least half of the Board, excluding the Chair, should be made up of Non Executive
Directors. This is a change from the prior iteration of the code that allowed for smaller companies, to be exempt from this provision. Whilst we
understand the importance of Non Executive Directors’ skills, experience, knowledge, diversity and the challenge that they may bring to the
Board, we believe that the current composition is appropriate for a business of our size. Your Board will continue to review this requirement.
19 – Tenure of the Chair
As discussed in last year’s annual report and explained further below in the Nominations Committee report, the Board is undertaking a phased
approach to succession planning to ensure that any new Non Executive Director can be properly integrated. The Nominations Committee is now
focusing on the replacement for Christopher Sherwell and that will be followed by the continuation of the succession plan.
Board leadership and company purpose
The Board is responsible for achieving the Group’s strategic objectives and creating value for shareholders through sustainable and continued
performance. The strategic goals of the Group are set out in more detail in the business model and strategic report which includes information on
the Company’s purpose, values and culture. The Board had seven scheduled meetings throughout the year as well as conference calls for specific
matters as required. A committee of the Board comprising any two or more Directors meet on an ad hoc basis to consider transactional and
related matters concerning the Company’s business. During 2019, there were 17 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,
culture 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.
Key activities of the Board during 2019
Activities specific for the year
Q1
• Review of investment portfolio performance
• Consideration of the internal audit program with the
• Review of medium term forecasts and strategy
Cypriot subsidiary board
• Approval of 2018 annual report
• Approval of distribution to shareholders
• Approval of principal risks and risk appetite
Q2
• Review of investment portfolio performance
• Consideration of environmental impacts and strategies to
• Review of Q1 2019 reforecast
reduce/mitigate carbon footprint
• Review of investor feedback from investor/broker
• Consideration of the share buy back program and exit of
meetings following results
• Review and consideration of strategy
• Approval of notice of meeting for 2019’s AGM
cornerstone investor
Q3
• Review of investment portfolio performance
• Consideration of further share buy back
• Review of medium term forecasts and strategy
• Approval of 2019 interim results
• Approval of distribution to shareholders
• Approval of principal risks
• Review of Q2 2019 reforecast
• Review of corporate and regulatory changes and
reporting requirements
• Review of AGM results
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
48
CORPORATE GOVERNANCE
Key activities of the Board during 2019
Activities specific for the year
Q4
• Review of investment portfolio performance
• Consideration of potential new Non Executive
• Review of Q3 2019 reforecast
• Approval of 2020 Budget
• Review of medium to longer term forecasts
• Consideration of Board constitution, balance of skills
and experience
• Review of internal controls and risk environment
• Review of investor feedback from investor/broker
meetings following results
• Review and consideration of strategy
appointment and Christopher Sherwell’s retirement
• Consideration and approval of updated policies and terms
of reference in regards to the Code
• Consideration of the share buy back program and exit of
cornerstone investor
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, Chief Executive and Senior Independent Director are set out 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 eight directors, four Executive, three Non Executive and the Chair, who was considered independent on appointment.
Biographies for each of the Directors are included elsewhere in this Annual Report.
The Board and its Committees
The Board has established Audit, Remuneration and Nominations Committees and delegated certain activities through their terms of reference.
Terms of reference for each committee can be found on the Company’s website (www.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 2019
(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*
M Hough**
D Moore
No. of meetings during the year
Board
Audit
Committee
Nominations
Committee
Remuneration
Committee
7
7
6
6
7
7
2
7
6
7
N/A
N/A
N/A
N/A
N/A
3
1
3
2
3
2
2
N/A
N/A
N/A
2
N/A
N/A
N/A
2
3
N/A
N/A
N/A
N/A
3
2
2
2
3
* Stephen Coe retired at the AGM held on 31 May 2019. There were 2 Board, 1 Audit and 2 Remuneration Committee meetings held prior to his retirement
** Michael Hough joined the Remuneration Committee 14 March 2019. There were 2 Remuneration Committee meetings held during 2019 since his appointment date
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
CORPORATE GOVERNANCE
49
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 Cyprus holding company directors.
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 2019 ANNUAL REPORT
50
CORPORATE GOVERNANCE
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.
As set out earlier in the corporate governance report, Stephen Coe retired following the 2019 AGM, he was replaced by Michael Hough as Chair
of the Audit Committee at that point. Michael also joined the Remuneration Committee during the year. Christopher Sherwell will retire at the
conclusion of the 2020 AGM and will be succeeded by Michael as the Company’s Senior Independent Director and Chair of the Remuneration
Committee. Christopher has been with the Board since 2008 and during his term, an invaluable member of the non executive team.
As explained in last year’s report, the Committee considered the changes to the provisions of the Code following its publication in 2018, and in
particular the additional requirements being implemented that impact the work of the Committee and make up of the Board. The Board’s overriding
aim is that its composition and that of its Committees are fit for purpose, with the appropriate constituents, balance of skills, knowledge, experience
and diversity. The Committee is charged with ensuring this requirement is observed with and where necessary will recommend changes.
The introduction of new Code provisions around tenure of the Chair and balance of executive to non executive directors for all companies, not
just limited to larger companies as it used to be under the previous iteration of the code, should be considered against the requirements of the
Board, it’s Committees, the Company’s current position and wider Group needs. The Committee will continue to consider the requirements of the
Code and where appropriate make recommendations to the Board about future appointments.
Diversity
The 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. The Committee has intentionally not adopted a policy on recruitment which may impose certain restrictions
when considering applicants for roles within the Group.
Information about the diversity of the Group’s workforce at 31 December 2019 is set out below.
Gender
68%
32%
30%
70%
100%
Employees
Tenure
42%
Senior Management
Female
Male
Board
46%
50%
40%
87.5%
12.5%
Employees
12%
Senior
Management
10%
Board*
Up to 3 Years
3 to 6 Years
6+ Years
*Length of service for Board members is from date of appointment.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
CORPORATE GOVERNANCE
51
Age profile
19%
2%
4%
75%
50%
50%
25%
75%
Employees
Senior Management
Board
Less than 24 Years
25 to 44 Years
45 to 60 Years
More than 60 Years
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 2019 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 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
Christopher Sherwell who will be retiring 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.
Engagement with Shareholders
The Board considers regular contact with 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.
The views of our major institutional shareholders are a key consideration in the development and support 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 continue to
encourage shareholders to engage with the Company directly where they have any concerns 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 2019 ANNUAL REPORT
52
CORPORATE
RESPONSIBILITY
Social and Environmental Report
Corporate responsibility covers many different aspects of our business, from the activities undertaken within our head office in Guernsey to
Siberia where our Novosibirsk warehouse is located, our 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 activities.
The Board considers 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. The Group’s employees
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 2019 the Group invested £67,662 in supporting various causes including national and local
charities and local community sports groups. No political donations were made during the year.
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. The Company has been reporting its
green house gases usage now since the introduction of the regulations in 2013. Over this time we have enhanced our reporting to include
all scopes of energy usage including own offices occupied and flight information. The energy consumption of our portfolio has over this time
increased due to the energy demands of our clients, particularly with regard to energy intensive activities such as temperature controlled space
and manufacturing rather then dry warehouse space.
Although tenants are the end users of the energy consumed, we consider this an important metric to measure. Energy efficiency makes our
properties more attractive to tenants as well as being more environmentally responsible.
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. We are reviewing the means of energy production across the portfolio and where possible moving
towards less carbon intensive methods of production. At our Noginsk site we have recently switched supplier to provide energy derived from
hydro generation, moving away from natural gas. We are undertaking a review across the portfolio to consider further changes to suppliers to
lessen the environmental impact of energy production.
We have a rolling capital improvement program which includes implementation of more efficient low energy lighting and changes to insulation
materials in our warehouses. New developments are being assessed by BREEAM (Building Research Establishment Environmental Assessment
Methodology), the world’s 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.
During the year the Board agreed to adopt a carbon offsetting program for all business travel. We are working with a provider of carbon offsetting
to agree a methodology and approach to follow during 2020. Other initiatives being considered include the introduction of a solar farm and bee
hives to increase bio diversity at our project in Rostov-on-Don. Further information on our initiatives will be presented in our 2020 Annual Report.
Details of our energy consumption are set out below.
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 sixteen warehouses and three offices in the portfolio and our four offices in Moscow,
St Petersburg, Cyprus and Guernsey. We also collected office car mileage and business travel for the Group’s employees to report on Scope 1,
Scope 2 and Scope 3 emissions. The report encompasses the impact of the entire property portfolio and not just those elements over which
we have direct control. 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.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
CORPORATE RESPONSIBILITY
53
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 seven
years. In absolute terms, energy consumption has increased over the reporting period which coincides with growth of the property portfolio
through acquisitions and construction, however the intensity measures have remained consistent over time.
Data
Point
Scope 1
Units Quantity
2019
Quantity
2018
Quantity
2017
Quantity
2016**
Quantity
2015
Quantity
2014*
Quantity
2013
tonnes
CO2e
36,226
30,976
22,569
19,948
19,289
20,778
18,138
GHG Emissions
SCOPE 2
63.6%
SCOPE 3
0.2%
SCOPE 1
36.2%
Scope 2
(location-
based)
tonnes
CO2e
Scope 2
(market-
based)
tonnes
CO2e
Scope
1 + 2
Intensity
(location
based)
tonnes
CO2e /
floor
space
(sqm)
Scope 3
tonnes
CO2e
63,643
62,605
56,420
54,008
56,914
53,664
44,589
63,642
62,604
56,423
54,347
56,919
53,666
n/a
0.05
0.05
0.05
0.05
0.05
0.05
0.05
200
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.
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 2019 conversion factor for cubic meters natural gas
• Diesel: DEFRA 2019 conversion factor for litres diesel
• LPG: DEFRA 2019 conversion factor for litres LPG
• Purchased electricity: UK Defra 2019, Russia and Cyprus, IEA Fuel Combustion 2018 and Foreign Electricity Emission Factors
• European market emission factors for electricity: AIB, European Residuals Mixes for 2018
• Office car: DEFRA 2019 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 2019 conversion
factors for UK electricity, and district heat and steam)
• Business travel:
• DEFRA 2019 GHG Conversion Factors for flights and rail travel
• Sawdust emissions calculated by Trucost using FAO and IPCC
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
54
LETTER FROM THE
REMUNERATION
COMMITTEE
Dear Shareholders,
On behalf of the Committee, I present our report on Directors’
remuneration for the year ended 31 December 2019.
Overview
The Company’s results for the year have seen a significant
improvement on 2018 but upper levels of the performance targets
proved stretching. The result is that 39.5% of the total award in this
category was achieved.
Other Operating and Strategic Targets
This will be my last letter as Remuneration Committee Chairman
Measurement of these involves discretion from the Committee and, in
as I will step down from my role as Non Executive Director at the
particular, an assessment of the executive team’s ability to deal with
upcoming AGM. It has been a challenging responsibility but I have
unforeseen events as well as the execution of planned objectives.
had the support of a strong non executive team during my period as
The Committee aimed to focus mainly on balance sheet risk
Chairman. Michael Hough will take over as a temporary Committee
management, acquisition and joint venture strategies and long term
Chairman while the Board finalise new non executive appointments.
tenant management.
As a reminder, the current remuneration scheme incorporates an
In practice, the team’s priorities in 2019 were somewhat derailed
Annual Performance Incentive scheme (“API”) for the years 2018 to
by shareholder issues, firstly with the problems arising at WIM and
2020 and a Five Year Performance Plan for the period to 31 March 2023.
latterly at IAML. They successfully dealt with the potential overhang
The API is measured against targets set at the beginning of each year
with a maximum award of 50% of salary if the participant elects to
take the award in cash and a maximum equivalent to 175% of salary
if the award is taken in any of the Company’s listed securities.
If securities are taken then a retention period of three years applies.
of the WIM shareholding, negotiating the purchase by the Company
of their entire ordinary shareholding at a significant discount to
net asset value per share. Similarly, the Company has contracted
to purchase IAML’s holdings of the company’s shares again at a
significant discount to net asset value per share in relation to the
ordinary shares. The team also secured the financing required to
The Five Year Performance Plan (“FYPP”) allows executives to place
complete the latter transaction which is now subject to various
existing holdings of the Company’s securities into the Plan, and
shareholder approvals.
requires a further five year retention period from the commencement
of the plan. The Company agrees to match that holding up to
a maximum of three times the value of shares held, where the
calculation is based on compound Total Shareholder Returns of
between 4% and 12% over the performance period. Any awards
made under the Plan will be satisfied by the issue of ordinary shares.
In the Committee’s view, this has been an involved and stressful
exercise for the executive team. Importantly, it is net asset per share
enhancing and deals with a significant overhang in the Company’s
traded instruments and thus is of benefit to the Company and its
various stakeholders.
Details of the executives’ contributions to the plan are given later in
In addition, and in line with objectives established at the start of the
this report.
Performance Outcomes
year, the team has overseen the successful transition out of US Dollar
debt and continues to reduce the balance sheet foreign exchange
risk on secured debt and is also altering its tenant concentration, with
At the beginning of the year, the Committee agreed targets for the
a greater spread of tenants and increasing exposure to e-commerce
API, equally weighted between financial and other operating and
tenants. The rolling capital expenditure programme and the initiation
strategic measures.
Financial Targets
These were set against the following measures:
• Year end occupancy levels;
of other energy efficiency measures reflect our understanding of our
impact on the environment and the sustainability of our business.
Given these strategic achievements the Committee determined that a
full 50% be awarded in respect of the operating and strategic targets.
• Average Rouble rents per square metre achieved;
Five Year Performance Plan
• Underlying earnings; and
• Completed asset specific refinancings.
These measures primarily support the Company’s ability to fund
ongoing shareholder distributions. Each has a performance
weighting applied and a floor below which no performance
related award is available.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
As total shareholder returns were below the lower award level no
accrual for awards is required for the plan.
LETTER FROM THE REMUNERATION COMMITEE
55
Remuneration Decisions
These decisions in sum mean that a total award of 89.5% will be made
under of the Annual Performance Incentive for 2019. Each executive
has elected to receive their award in ordinary shares.
Based on the current share price, the number of shares that would be
awarded would be:
Anton Bilton
Glyn Hirsch
Mark Sinclair
Colin Smith
2,603,125
2,603,125
1,625,313
1,439,375
Awards vest on the issue of this Annual Report and the share price at
that date will be used in calculating the award.
2020 Performance Criteria
The Committee do not intend changing the make up of the performance
criteria for the API in 2020 and have again agreed targets weighted
equally between financial and other operating and strategic measures.
The same KPIs and weightings will be used for the basis of the
financial metrics, being:
• Year end occupancy levels - 10% to 30%;
• Average Rouble rents per square metre – 10% to 30%;
• Underlying earnings – 10% to 20%; and
• Asset specific refinancing – 20%.
The first three criteria have a spread of outcomes with the reward
weighted on a sliding scale and a floor below which no credit is given.
Asset specific refinancing is an absolute target with no contribution
to the award if the target is not met. Larger percentages are weighted
to the occupancy and average rental levels as they support the longer
term returns of the business. The last two criteria support the ability
to pay distributions in the coming year.
Other operating and strategic measures will again be discretionary
and dependent on the implementation of the strategic objectives of
the business and the development of the infrastructure to support
those objectives.
It is to be hoped that the business and economic environment will be
less turbulent in 2020. Based on recent years’ experience, caution will
be essential. In the meantime I wish the Raven team every success as
they continue their journey.
Christopher Sherwell
Chairman
Remuneration Committee
15 March 2020
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
56
DIRECTORS’
REMUNERATION REPORT
(UNAUDITED)
Introduction
Composition
The Remuneration Committee comprises Michael Hough, 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 made on 31 March 2019
Variable elements
Annual Performance Incentive
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 2019
In this section we summarise the remuneration packages for the Executive Directors.
Year ended 31 December 2019
Salary
£’000
Benefits (1)
£’000
Pension (2)
£’000
Total cash remuneration
£’000
Annual performance incentive
No of Ordinary shares (3)
G Hirsch
A Bilton
M Sinclair
C Smith
595
595
372
329
42
47
21
24
59
59
37
33
696
701
430
386
2,603,125
2,603,125
1,625,313
1,439,375
Year ended 31 December 2018
Salary
£’000
Benefits (1)
£’000
Pension (2)
£’000
Total cash remuneration
£’000
Annual performance incentive
No of Ordinary shares (3)
G Hirsch
A Bilton
M Sinclair
C Smith
584
584
364
323
38
40
22
22
58
58
36
32
680
682
422
377
–
–
–
–
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. Estimate based on closing ordinary share price on 13 March 2020. The annual performance incentive is payable on issue of the 2019 Annual Report and the number of ordinary shares will be
recalculated based on the ordinary share price on that date.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
DIRECTORS’ REMUNERATION REPORT
57
Five Year Performance Plan (“FYPP”)
The FYPP is a long term incentive scheme with 6 participants; the 4 executive directors and 2 senior managers. The scheme allows each
participant to invest into the FYPP a number of listed securities in the Company that they hold. 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 total shareholder return (“TSR”) calculations, the participants will be entitled to receive up to
three times the initial prescribed 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 FYPP 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 table below sets out the directors’ interests in the FYPP.
Director
G Hirsch
A Bilton
M Sinclair
C Smith
Securities invested (1)
66,618 preference shares
1,639,404 convertible preference shares
66,618 preference shares
1,639,404 convertible preference shares
619,500 ordinary shares
556,907 preference shares
754,162 convertible preference shares
723,298 ordinary shares
503,719 preference shares
681,604 convertible preference shares
Initial prescribed value
£'000
2,000
2,000
2,000
1,900
(1) Includes ordinary, preference and convertible preference shares held by trusts or pensions schemes where the individual or close family members are beneficiaries. Ordinary shares invested
are after participation in tender offer buy backs.
2016 Retention Scheme
The final payment was made on 31 March 2019 and the following shares transferred to the executive Directors:
Director
G Hirsch
A Bilton
M Sinclair
C Smith
Number of Convertible
Preference Shares
767,412
767,412
479,419
424,334
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
58
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 2019 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 2019.
Director
R Jewson
G Hirsch (1)
A Bilton (1)
M Sinclair (1)
C Smith (1)
C Sherwell
D Moore
M Hough
Director
R Jewson
G Hirsch (1)
A Bilton (1)
M Sinclair (1)
C Smith (1)
C Sherwell
D Moore
M Hough
Number of Ordinary Shares
31/12/19
Number of Preference Shares
31/12/19
Number of Convertible
Preference Shares
31/12/19
218,429
6,959,390
41,620,058
2,761,976
831,504
237,239
222,501
–
75,460
2,219,595
4,953,355
762,462
505,530
79,728
14,172
–
–
2,496,556
2,496,556
904,162
681,604
–
–
–
52,851,097
8,610,302
6,578,878
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
222,501
–
75,460
2,219,595
5,953,355
762,462
503,719
79,728
14,172
–
–
1,729,144
1,729,144
425,013
257,270
–
–
–
(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.
55,143,898
9,608,491
4,140,571
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
DIRECTORS’ REMUNERATION REPORT
59
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:
Director
R Jewson
C Sherwell
D Moore
M Hough
S Coe
Salaries and fees for 2020
The contractual arrangements for 2020 are:
2019
£’000
113
50
48
49
21
281
Salary or Fee
£’000
Appointment
date
Unexpired
term
Notice
periods
113
48
50
50
604
604
377
334
29.06.07
04.07.05
01.04.08
09.10.18
27.11.08
27.11.08
23.03.09
14.11.08
Rolling contract
3 months
Rolling contract
12 months
Director
R Jewson
D Moore
C Sherwell
M Hough
G Hirsch
A Bilton
M Sinclair
C Smith
Christopher Sherwell
Chairman
Remuneration Committee
15 March 2020
2018
£’000
113
50
48
11
50
272
Contractual
termination
payment
No provision
for payment on
termination
Payment of 12
months salary
and benefits on
termination
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
60
AUDIT COMMITTEE
REPORT
Audit Committee Chairman’s Introduction
Dear Shareholders,
This is the first Audit Committee Report under my tenure as Committee Chairman.
I was fortunate enough to have a handover period with Stephen Coe during the 2018 financial statements process prior to his stepping down
at last year’s AGM and sit with the executive team through the process. On taking over the role I met with the external audit partner and the
client relationship partner to discuss the audit process and their thoughts on the working relationship with the management team and begin
to familiarise myself with the dynamics of both teams. Since then I have visited the Company’s Moscow office, met with the Cyprus board and
again met the external audit team with and without the management team present, for updates on the audit approach, audit independence and
the impact of the changes the external audit environment is going through. These changes will no doubt lead to rising costs for audit clients as
regulatory scrutiny increases. The management team and the auditors are working closely to identify efficiencies in the external audit process
that can go some way to offsetting any potential increase in audit fees.
The Committee’s 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 including the potential impact of recent market events on both.
We met the Group’s independent valuers whilst visiting our Moscow office to discuss the market and the valuation process.
The operational boards and management teams in Cyprus and Russia have kept us updated on the framework of controls and procedures.
That has included reports from the internal auditors from BDO on reviews of procurement, authorisation and anti money laundering and bribery
procedures in the period, recommendations arising from those reports and the implementation plan for those recommendations. The Cypriot
team also presented the proposed internal audit plan for the next 24 months at the audit committee meeting in November last year.
In all cases with the external professionals, we believe that the working relationship continues to be independent and management assumptions
appropriately challenged.
Michael Hough
Chairman
Audit Committee
15 March 2020
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
AUDIT COMMITTEE REPORT
61
The Audit Committee
The Committee met with the key members of the audit team
The Committee is responsible for ensuring that the financial
throughout the year and EY has formally confirmed its continued
performance of the Group is properly monitored and reported on.
independence as part of the interim and final financial statements
The Committee reviews the annual and interim financial statements,
process. The Chairman of the Committee also 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 and
which includes their assessment of the key risks impacting the
Michael Hough (Chairman). Stephen Coe, the previous Chairman
financial statements. The Committee actively monitors these risks
of the Committee stood down as a Non Executive Director during
and obtains updates from the external auditor on the status of their
the year. Christopher Sherwell will step down as a Non Executive
procedures covering these risks throughout the year.
Director at the upcoming AGM and the Board are in the process of
making new Non Executive Director appointments. The Chairman is
considered to have recent and relevant financial 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 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 monitors on an annual basis.
The Chairman of the Committee also meets with the external Group
Local statutory audits of individual subsidiary companies are also
auditor without management present.
The Committee met three times during 2019 and addressed:
• The recommendation to the Board to approve the annual and
interim financial statements following consideration of the key
areas of judgement;
• The appropriateness of the current forecast model as the basis for
the viability statement;
• The appointment, remuneration and continued independence of
the external auditor;
• The results and recommendations of the Group’s Cypriot Board
and the internal auditor on reports issued during the year and
agreement of the plan of work for 2019; and
• The monitoring of the Group’s internal control and risk
management procedures including a review of risk committee
submissions.
required in the jurisdictions in which the Group operates, being
Guernsey, Cyprus, Russia and the UK. EY carry out these audits in
Guernsey and Cyprus but the trading entities in Russia and the UK
are audited locally by Baker Tilly and Crowe U.K. LLP respectively.
The Committee believes that this gives additional balance to our
overall audit provision and added assurance to the audit process.
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 2019 amounted to £0.9 million, of
Action taken on these areas is expanded on below where appropriate.
which £0.2 million was for non-audit services.
External Audit and Valuations
External Audit
The Committee is sensitive to the level of non audit fees and the
Group has actively engaged other firms in due diligence, tax and
During the year, the Committee has considered the appointment,
other advisory projects, including PWC, KPMG, BDO Stoy Hayward
compensation, performance and independence of the Group’s
and local Russian tax counsel. Fees paid to these other firms totalled
auditor, Ernst & Young LLP (“EY”).
£0.4 million in the year (2018: £0.5 million).
EY was appointed in 2008 following a tender process and this is their
eleventh year of tenure as Group auditor.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
62
AUDIT COMMITTEE REPORT
Committee Conclusions
Valuers
The Committee has recommended a resolution for the re-
As with the external audit process, the Committee monitors the
appointment of EY to be proposed to shareholders at the Annual
objectivity of the Group’s external valuers, Jones Lang LaSalle (“JLL”).
General Meeting. Proposed EU legislation on audit appointments
The external auditor has direct access to JLL as part of the audit
including the approach to non-audit services has been considered
process and has met with them independently of management. We
and relationships with other suppliers of non audit services have
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 2019 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,
construction 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 met with the independent valuer
The external valuers continue to use a discounted cash flow
separately and various calls and meetings between the valuer,
methodology for the valuations.
external audit team and management have been held during the
Valuation movements can have a significant impact on the Group’s
year.
net asset value.
The Committee is satisfied that the valuation process and conclusions
drawn are appropriate.
Foreign Exchange
The Group’s exchange rate risk profile has continued to diminish
The Group’s sensitivity to changing foreign exchange rates has
as foreign currency denominated liabilities reduce. All US Dollar
reduced in the year and the impact is covered in the viability
liabilities have been extinguished in the year and the primary risk now
statement. The Committee is satisfied that the impact of the risk is
relates to Euro debt and the servicing of Sterling preference shares
adequately addressed in the Group’s forecasting procedures.
from a predominately Rouble income base.
Taxation
There were no significant changes to the Russian tax regime in the
The Group’s business continues to focus on commercial requirements
year and the Committee met with the management teams in each
rather than tax benefits. The Committee discussed the position with
of the jurisdictions to discuss their approach to management and
management in each jurisdiction and the auditors. It is satisfied that
control.
The Committee considered the adequacy of the level of uncertain tax
the Group conducts its operations appropriately for the transactions it
undertakes and tax provisioning is sufficient.
provisions made by the Group.
Viability Statement
The viability statement stress tests the Group’s business model and
The Committee discussed the sensitivities applied to the Group’s
we have reviewed this in the context of the potential buy back of
forecasts for the three year period. It was agreed that the current
shares by the Company, the impact of the Coronavirus and the impact
global situation could very well present the Group with a severe but
of oil price volatility and the uncertainty that is causing.
credible scenario. After discussion with management we are satisfied
that sensitivities applied to the business model adequately test the
Group’s resilience to a situation such as this.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
AUDIT COMMITTEE REPORT
63
Internal Control and Risk Management
The Risk Committee reports regularly to the Audit Committee on
The Board has overall responsibility for the systems of internal
its deliberations and findings. The risks and uncertainties to which
control and for reviewing their effectiveness throughout the Group.
the Group is subject are reviewed and considered by the Audit
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.
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,
sanctions and the current Coronavirus situation. However, the impact
of such risks and effect that they have on the Group are considered
and mitigated to the extent possible. The strategic decisions of the
Group are adjusted to address these issues ensuring that threats are
reduced and opportunities are exploited.
Key features of the risk management process in place during the year
and up to the date of the annual report and financial statements
include:
• A comprehensive system of reporting and business planning;
• A defined schedule of matters reserved for the Board;
• An organisational structure chart with clearly defined levels of
authority and division of responsibilities;
• Formal documented policies and procedures throughout the
Group;
• An internal audit function with an approved annual programme;
• 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 2019, the Risk Committee met four times.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
64
DIRECTORS’
REPORT
The Directors present their report and the audited financial statements of the Group for the year ended 31 December 2019.
Principal activity
The Company is a Guernsey registered company with registration number 43371 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.
In October 2019, the Company undertook a tender offer as an interim distribution for 1 in every 44 shares at 55p, equivalent to a dividend of
1.25p per share (2018: Distribution of 1.25p by way tender offer 1 share in every 44 at 52p). The Directors are intending to recommend a final
distribution of 2.25p by way of a tender offer. However the timing and structure of this distribution will be determined at a later date (2018:
distribution of 1.75p by way of tender offer of 2 shares in every 51 at 45p).
Directors
The Directors, who served throughout the year, were as follows:
Sir 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) – resigned at the 2019 Annual General Meeting held on 31 May 2019
David Moore (Independent Non Executive Director)
Michael Hough (Independent Non Executive Director)
Following the provisions of the UK Corporate Governance Code, all the Directors shall be subject to annual re-appointment by shareholders at
the Annual General Meeting of the Company.
Details of the Directors’ remuneration and shareholdings are included within the Remuneration Report.
Substantial shareholdings
The Company has been notified of shareholders, other than Directors, holding 3% or more of the ordinary shares as follows:
Ordinary Shares of £0.01
Name of holder
Invesco Perpetual
Schroder Investment Management
JO Hambro Capital Management
Quilter Investors
Progressive Capital Partners
Number held
31 December 2019
% of share
capital
Number held
28 February 2020
% of share
capital
139,678,106
57,234,141
55,372,153
40,404,752
15,716,846
28.52
11.69
11.31
8.25
3.21
139,678,106
57,467,122
54,722,153
40,404,752
15,716,846
28.52
11.73
11.17
8.25
3.21
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
DIRECTORS’ REPORT
65
Relationship Agreement
In accordance with Listing Rule 9.8.4 (14), the Company can confirm that on 20 November 2015, it entered into a relationship agreement with its
principal shareholder, Invesco Asset Management Limited (“Invesco”).
The purpose of this agreement was 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.
Following the share buy backs that occurred during 2019, Invesco’s holding in the Company dropped below 30% and the agreement has
terminated.
Purchase of own shares
The Company was granted authority at the 2019 AGM to make market purchases of its own ordinary and preference shares. This authority will
expire on 31 August 2020. A resolution will be proposed at the 2020 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. 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 2019 ANNUAL REPORT
66
DIRECTORS’ REPORT
Directors’ Responsibility Statement
The Statement of Directors’ Responsibilities below has been prepared in connection with the Company’s full Annual Report and Accounts for the
year ended 31 December 2019.
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 15 March 2020 and is signed on its behalf by:
Mark Sinclair
Chief Financial Officer
Colin Smith
Chief Operating Officer
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
67
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 2019 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 2019;
• 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 65 in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements;
• whether the directors’ statement in relation to going concern required under the Listing Rules is materially inconsistent with our knowledge
obtained in the audit; or
• the directors’ explanation set out on page 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 2019 ANNUAL REPORT
68
INDEPENDENT AUDITOR’S REPORT
Overview of our audit approach
Key audit matters
• Economic and financial uncertainties in Russia and their impact.
• Misstatement of the fair value of investment properties and investment properties under construction.
• Revenue recognition with respect to rental revenue, service charge income 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
• We set overall materiality of £15.2m based on 1% of total assets and specific materiality of £4.8m based on 5% of
underlying operating profit.
Key audit matters
• Undertaking press searches in Russia and the UK and reviewing
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the
financial statements as a whole, and in our opinion thereon, and we
do not provide a separate opinion on these matters.
Economic and financial uncertainties in Russia and their impact
(as described in the Strategic Report)
The current geopolitical situation remains an important area of focus
for the Group and our audit. Continuing political and economic
tension between the US, EU and Russia, together with movements in
the oil price and foreign exchange rate, have resulted in continuing
economic uncertainty.
Business practice in Russia may differ from business practices in more
developed economies. There is a risk that inappropriate inducements
may be sought by third parties which may be undetected by the
board and management. Areas where inappropriate payments may
be made include: payments to secure favourable development land;
payments for planning permits; construction payments; payments
to resolve ongoing litigations; or payments in connection with the
acquisition or disposal of assets.
Overall this risk level is consistent with the prior year in terms of the
impact on the Group’s financial statements.
Given the uncertainty surrounding the potential impact of the
coronavirus and the subsequent oil price collapse we have also
economic forecasts.
We evaluated whether the assumptions underpinning the Group’s
property valuations (separately addressed below) and going concern
assessment are consistent with our above understanding. For going
concern, this included validating key assumptions such as rental rates
and interest rates to publicly available information. We evaluated the
impact that the coronavirus could potentially have on the company
by considering going concern assumptions and sensitivities and
related disclosures.
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
with management as to whether they were aware of any evidence
of fraud, or were aware of any whistle blowing or instances of any
non-compliance with laws and regulations;
• We confirmed our understanding of the controls in place to
•
prevent and detect transactions involving inducements payments
by performing walkthroughs;
In order to address the remaining risk over inappropriate
payments, we tested on a sample basis (based on material items
and a random sample):
• payments made in respect of capital expenditure; and
• that journal transactions have a valid business purpose and are
on an arm’s length basis.
We performed procedures to assess the Group’s compliance with
applicable laws and regulations:
• We performed a search for sanctions and assessed whether they
impacted the Group, management or counterparties of the Group
including banks or customers;
considered the impact of coronavirus on the company in regards to
• We obtained and read correspondence with regulatory bodies and
going concern position. We have seen a fall in oil prices precipitating
the Group during the year.
a weakening of the Rouble. In a worst case scenario, this could lead
to a suspension of investment decisions by company’s tenants,
a disruption in supply chains impacting on the demand for new
warehouse space and potential defaults by existing tenants whose
businesses are affected most.
Our response to the risk:
We performed the following audit procedures around the impact of
We performed the following audit procedures around the uncertain
tax positions arising from the tax laws 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;
uncertainties over the current economic environment in Russia:
• Obtained management’s calculation of the provision for uncertain
We updated our understanding of the current economic environment
in Russia through:
• Discussions with management, EY real estate valuation specialists
and EY tax specialists in Russia and the UK;
tax positions;
• Using our tax specialists in Russia and the UK, we discussed and
challenged management’s provision. We inspected recent court
cases and challenges by the tax authority to determine if the risk
assessment made by management is appropriate.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
INDEPENDENT AUDITOR’S REPORT
69
• We have reviewed the disclosures made in notes 2, 3 and 8
• We assessed the competence, capabilities and objectivity of the
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.
external valuer. This included having meetings with JLL, with
management absent, and understanding the internal control
quality procedures under taken by JLL to ensure quality and
independence in their reporting to management.
• For a sample of the Group’s investment property and investment
Key observations communicated to the Audit Committee
property under construction, we performed detailed testing on
We have completed the additional procedures we designed in order
to respond to the heightened political and economic uncertainty in
Russia.
We have no significant findings to report from the completion of
these procedures. We conclude that the balances and disclosures in
the financial statements and notes thereto, appropriately reflect the
risk factors identified.
As a result of the procedures performed in relation to the provision
for uncertain tax positions we concluded that the uncertain
tax provisions and related disclosures have been appropriately
recognised in accordance to the Group’s accounting policy and IFRS.
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 £1,372m balance in the 2019 annual report (2018:
£1,206m).
the valuations performed by the external valuer. This sample
represented 74% of the total value of investment property and
investment property under construction.
• With the support of EY’s real estate valuation experts in Russia and
the UK, we assessed the valuation approach and the assumptions
made by the external valuer and the directors in performing their
valuation of each property against industry benchmarks. The key
assumptions include estimated rental values, discount rates, yields,
indexations, vacancy/void periods and other assumptions that
impact the fair value;
• For the remaining properties comprising 26% of the valuation,
we conducted analytical procedures on the movement in the
valuation of each property compared to the prior year by reference
to external market data to evaluate the appropriateness of the
valuations adopted by the Group.
• The audit team, 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 2 and valuation assumptions in note 13 that were made in
accordance with IFRS 13 – Fair Value Measurement.
• We performed full scope audit procedures over this risk area in the
one location affected by this risk, which covered 100% of the risk
amount.
The valuation of investment property and investment property
under construction requires significant judgements and estimates by
management and the external valuer (Jones Lang LaSalle (JLL)).
There is a risk that management may manipulate the property
valuations by exerting influence over the valuers in order to meet
Key observations communicated to the Audit Committee
We have completed our planned audit procedures over the valuation
of investment property and investment property under construction.
We have no significant findings to report from the completion of
shareholder expectations.
these procedures.
This estimate is impacted by the uncertainties over the current
economic environment in Russia, as described above.
We conclude that the balances and disclosures in the financial
statements and notes appropriately reflect the risk factors identified.
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 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 2019.
Revenue recognition (as described in note 2 and 5 of the financial
statements)
• We documented and assessed the adequacy of the Group’s
Total revenue was £175.3m in the 2019 annual report (2018: 162.6m).
valuation process and controls over data used in the valuation of its
We have identified the following risks related to the recognition of
property portfolio.
revenue:
• We performed testing over source documentation provided by the
Group to the external valuer. On a sample basis, we inspected lease
agreements and agreed the key terms to the tenancy schedule
provided to the valuer;
• For a sample of properties we performed site visits to see if the
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.
occupancy matches that presented in the tenancy schedule.
Roslogistics: risk that the logistics revenue is not recorded in the
We also inspected the asset to determine if the overall condition of
correct period.
the asset aligns to that stated in the external valuer’s report.
The risk is unchanged from the prior year.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
70
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.
since the Group has operations in Russia and Guernsey, the Group
We corroborated any significant fluctuations to the terms within
audit team includes members from the UK, Guernsey and Russia.
lease 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 88% (2018: 94%) of the
Group’s Profit before tax, 90% (2018: 90%) of the Group’s Revenue and
87% (2018: 96%) 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 £15.2 million (2018:
we performed audit procedures on specific accounts within that
£7.0 million), which is 1% (2018: 0.5%) of total assets. We believe that
component that we considered had the potential for the greatest
the basis of materiality that is the primary measure of performance for
impact on the significant accounts in the financial statements either
shareholders is a capital measure total assets. For underlying earnings
because of the size of these accounts or their risk profile.
related accounts (revenue, cost of sales, administrative expenses, and
related working capital balance sheet accounts), for which we deem
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
INDEPENDENT AUDITOR’S REPORT
71
smaller misstatements could influence decisions of the users of the
material inconsistencies or apparent material misstatements, we
financial statements, we determined materiality to be £4.8m (5% of
are required to determine whether there is a material misstatement
underlying operating profit).
Performance materiality
The application of materiality at the individual account or balance
level. It is set at an amount to reduce to an appropriately low level
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.
the probability that the aggregate of uncorrected and undetected
We have nothing to report in this regard.
misstatements exceeds materiality.
In this context, we also have nothing to report in regard to our
On the basis of our risk assessments, together with our assessment
responsibility to specifically address the following items in the other
of the Group’s overall control environment, our judgement was
information and to report as uncorrected material misstatements of
that performance materiality was 75% (2018: 75%) of our planning
the other information where we conclude that those items meet the
materiality, namely £11.4 million (2018: £5.3 million) for balance
following conditions:
sheet accounts. For accounts impacting underlying operating profit
(revenue, cost of sales, admin expenses, and related working capital
balance sheet accounts), we used £3.6 million.
• Fair, balanced and understandable set out on page 66 – the
statement given by the directors that they consider the annual
report and financial statements taken as a whole is fair, balanced
Audit work at component locations for the purpose of obtaining
and understandable and provides the information necessary for
audit coverage over significant financial statement accounts is
shareholders to assess the group’s performance, business model
undertaken based on a percentage of total performance materiality.
and strategy, is materially inconsistent with our knowledge
The performance materiality set for each component is based on the
obtained in the audit; or
relative scale and risk of the component to the Group as a whole and
• Audit committee reporting set out on pages 60 to 63 – the
our assessment of the risk of misstatement at that component. In the
section describing the work of the audit committee does not
current year, the range of performance materiality allocated to EY
appropriately address matters communicated by us to the audit
Cyprus is £5.7 million (2018: £2.6 million) for Balance Sheet accounts
committee; or
and £1.8m for accounts impacting underlying operating profit
• Directors’ statement of compliance with the UK Corporate
(revenue, cost of sales, admin expenses, and related working capital
Governance Code set out on page 46 – the parts of the
balance sheet accounts).
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
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
We agreed with the Audit Committee that we would report to
Governance Code.
them all uncorrected audit differences in excess of £0.76 million
(2018: £0.35 million) for balance sheet accounts and £0.24 million
Matters on which we are required to report by exception
for accounts impacting underlying operating profit (revenue, cost
We have nothing to report in respect of the following matters in
of sales, admin expenses, and related working capital balance
relation to which the Companies (Guernsey) Law, 2008 requires us to
sheet accounts); which is set at 5% of planning materiality, as well
report to you if, in our opinion:
as differences below that threshold that, in our view, warranted
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.
• proper accounting records have not been kept by the company, or
proper returns adequate for our audit have not been received from
branches not visited by us; or
• the financial statements are not in agreement with the company’s
accounting records and returns; or
Other information
• we have not received all the information and explanations we
The other information comprises the information included in the
require for our audit.
annual report including Results highlights, the Chairman’s message,
Responsibilities of directors
the Portfolio review, the Strategic Report and the Governance Report
set out on pages 4 through 66, other than the financial statements
and our auditor’s report thereon. The directors are responsible for the
other information.
As explained more fully in the directors’ responsibilities statement set
out on page 66, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors determine
Our opinion on the financial statements does not cover the other
is necessary to enable the preparation of financial statements that are
information and, except to the extent otherwise explicitly stated in this
free from material misstatement, whether due to fraud or error.
report, we do not express any form of assurance conclusion thereon.
In preparing the financial statements, the directors are responsible
In connection with our audit of the financial statements, our
for assessing the group and parent company’s ability to continue as
responsibility is to read the other information and, in doing so,
a going concern, disclosing, as applicable, matters related to going
consider whether the other information is materially inconsistent
concern and using the going concern basis of accounting unless the
with the financial statements or our knowledge obtained in the audit
directors either intend to liquidate the group or the parent company
or otherwise appears to be materially misstated. If we identify such
or to cease operations, or have no realistic alternative but to do so.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
72
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
15 March 2020
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 2019 ANNUAL REPORT
Bolshoi Theatre in Moscow
73
74
GROUP INCOME
STATEMENT
For the year ended 31 December 2019
Underlying
earnings
£’000
Notes
4 / 5
175,373
(48,869)
126,504
2019
Capital
and other
£’000
–
–
–
Underlying
earnings
£’000
Total
£’000
175,373
162,639
(48,869)
(44,354)
126,504
118,285
2018
Capital
and other
£’000
–
–
–
Total
£’000
162,639
(44,354)
118,285
Gross revenue
Property operating expenditure
and cost of sales
Net rental and related income
Administrative expenses
4 / 6
(23,130)
(2,303)
(25,433)
(22,714)
(2,436)
(25,150)
Share-based payments and
other long term incentives
31
(4,927)
(541)
(5,468)
–
(2,853)
Foreign currency profits / (losses)
27,462
–
27,462
(2,480)
–
(2,853)
(2,480)
Operating expenditure
(595)
(2,844)
(3,439)
(25,194)
(5,289)
(30,483)
Share of profits of joint ventures
Profit on disposal of joint ventures
Operating profit / (loss) before profits
and losses on investment property
Unrealised profit / (loss) on revaluation
of investment property
Unrealised profit 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)
15
15
11
12
4
7
7
8
9
9
792
–
–
490
792
490
1,630
–
–
–
1,630
–
126,701
(2,354)
124,347
94,721
(5,289)
89,432
–
–
47,820
47,820
451
451
–
–
(121,764)
(121,764)
755
755
126,701
45,917
172,618
94,721
(126,298)
(31,577)
2,011
–
2,011
3,286
1,583
4,869
(74,977)
(34,593)
(109,570)
(71,796)
(16,384)
(88,180)
53,735
11,324
65,059
26,211
(141,099)
(114,888)
(10,510)
(8,531)
(19,041)
(6,197)
404
(5,793)
43,225
2,793
46,018
20,014
(140,695)
(120,681)
8.16
7.50
(18.81)
(18.81)
7.67
6.35
3.12
3.08
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. 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 2019 ANNUAL REPORT
75
GROUP STATEMENT OF
COMPREHENSIVE INCOME
For the year ended 31 December 2019
Profit / (loss) 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.
2019
£’000
2018
£’000
46,018
(120,681)
77,018
49,854
123,036
(70,827)
The accompanying notes are an integral part of this statement.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
76
GROUP BALANCE
SHEET
As at 31 December 2019
Non-current assets
Investment property
Investment property under construction
Plant and equipment
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
Deferred tax liabilities
Total liabilities
Net assets
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
Notes
2019
£’000
2018
£’000
11
12
15
16
18
25
17
18
19
20
18
21
21
22
23
24
25
1,337,682
1,175,440
33,846
30,548
6,150
189
3,414
2,621
24,290
3,574
6,566
15,535
21,953
24,405
1,408,192
1,278,021
358
356
41,595
43,658
–
349
68,138
73,450
110,091
117,813
1,518,283
1,395,834
51,691
66,192
–
1
60,173
75,565
111,864
141,758
623,168
567,865
110,324
109,271
217,482
206,116
18,623
71,024
17,797
57,400
1,040,621
958,449
1,152,485
1,100,207
365,798
295,627
GROUP BALANCE SHEET
77
Notes
2019
£’000
2018
£’000
26
27
28
23
4,898
6,233
51,463
103,144
–
98
(4,582)
(5,965)
11,212
11,212
(234,519)
(281,001)
28,188
(48,887)
509,138
510,793
29 / 30
365,798
295,627
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
76
75
48
48
The financial statements were approved by the Board of Directors on 15 March 2020 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 2019 ANNUAL REPORT
78
Saint Basil's Cathedral, Moscow
79
Total
£’000
GROUP STATEMENT OF
CHANGES IN EQUITY
For the year ended 31 December 2019
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
6,606
124,568
438
(3,652)
11,212 (166,494)
(98,741) 517,901 391,838
For the year ended
31 December 2018
At 1 January 2018
Loss for the year
Other comprehensive income
Total comprehensive
income for the year
–
–
–
–
–
–
–
–
–
–
–
–
–
Warrants exercised
26 / 27
85
2,380
(340)
Own shares acquired
Own shares allocated
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
For the year ended
31 December 2019
At 1 January 2019
6,233
103,144
98
(5,965)
11,212 (281,001)
(48,887) 510,793 295,627
On adoption of IFRS 16 Leases
–
–
–
–
–
–
57
(390)
(333)
Restated as at 1 January 2019
6,233
103,144
98
(5,965)
11,212 (281,001)
(48,830) 510,403 295,294
Profit for the year
Other comprehensive income
Total comprehensive
income for the year
–
–
–
Warrants exercised
26 / 27
17
Warrants lapsed
27
Conversion of convertible
preference shares
Own shares acquired
Own shares allocated
23 / 26
28
28
–
–
–
–
–
–
–
486
–
12
–
–
Ordinary shares cancelled
26 / 28
(1,352)
(52,179)
Transfer in respect of capital profits
–
–
At 31 December 2019
4,898
51,463
–
–
–
(69)
(29)
–
–
–
–
–
–
–
–
–
–
–
–
(106)
1,338
151
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46,482
–
46,018
46,018
77,018
–
77,018
77,018
46,018
123,036
–
–
–
–
–
–
–
–
29
–
–
434
–
12
(106)
(830)
508
–
(53,380)
(46,482)
–
(4,582)
11,212 (234,519)
28,188
509,138 365,798
The accompanying notes are an integral part of this statement.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
80
GROUP CASH FLOW
STATEMENT
For the year ended 31 December 2019
Cash flows from operating activities
Profit / (loss) before tax
Adjustments for:
Depreciation
Provision for bad debts
Loss on disposal of plant and equipment
Share of profits of joint ventures
Profit on disposal of joint ventures
Finance income
Finance expense
(Profit) / loss on revaluation of investment property
Profit on revaluation of investment property under construction
Foreign exchange (profits) / losses
Non-cash element of share-based payments and other long term incentives
Changes in operating working capital
Decrease in operating receivables
Increase 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 acquisition 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
Proceeds on disposal of plant and equipment
Investment in joint ventures
Proceeds on disposal of joint ventures
Interest received
Net cash used in investing activities
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
Notes
2019
£’000
2018
£’000
6
6
15
15
7
7
11
12
31
15
38
38
11
15
15
65,059
(114,888)
1,782
(2)
19
(792)
(490)
(2,011)
109,570
811
(58)
–
(1,630)
–
(4,869)
88,180
(47,820)
121,764
(451)
(27,462)
5,468
(755)
2,480
2,853
102,870
93,888
4,491
(2)
(6,152)
8,212
(43)
(1,627)
101,207
100,430
1,043
(9,150)
3,000
(7,344)
93,100
96,086
(11,939)
3,920
(8,611)
12,754
(169)
(33,826)
–
1,235
(11,924)
(44,054)
(101)
447
(194)
34
(2,140)
(2,262)
113
(13)
3,650
1,960
–
(533)
–
3,254
(16,196)
(72,203)
GROUP CASH FLOW STATEMENT
81
Cash flows from financing activities
Proceeds from long term borrowings
Repayment of long term borrowings
Loan amortisation
Bank borrowing costs paid
Exercise of warrants
Ordinary shares purchased
Dividends paid on preference shares
Dividends paid on convertible preference shares
Proceeds from disposal of derivative financial instruments
Premium paid for derivative financial instruments
Net cash used in financing activities
Net decrease in cash and cash equivalents
Opening cash and cash equivalents
Effect of foreign exchange rate changes
Closing cash and cash equivalents
Notes
2019
£’000
2018
£’000
26 / 27
26 / 28
357,966
155,628
(284,431)
(153,152)
(22,652)
(23,279)
(54,689)
(50,000)
434
2,125
(53,310)
(28,258)
(11,285)
(11,327)
(12,486)
(12,716)
3,259
–
(2,868)
(18,848)
(80,062)
(139,827)
(3,158)
(115,944)
73,450
197,137
(2,154)
(7,743)
19
68,138
73,450
The accompanying notes are an integral part of this statement.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
82
NOTES TO THE
FINANCIAL STATEMENTS
1. General information
Changes in accounting policies
Raven Property Group Limited (the "Company") and its subsidiaries
The accounting policies adopted are consistent with those of the
(together the "Group") is a property investment group specialising in
previous financial year except for new standards adopted. The Group
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 2019 were authorised by the Board for issue on
15 March 2020.
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.
has adopted new and amended IFRS and IFRIC interpretations as of
1 January 2019. The Group applies for the first time, IFRS 16 Leases
and IFRIC Interpretation 23 Uncertainty over Income Tax Treatments.
IFRS 16 has been adopted using the modified retrospective method
for the Group's office leases and elected to use the recognition
exemptions for lease contracts that have a lease term of 12 months or
less and lease contracts for which the underlying asset is of low value.
The "right of use assets" are included within plant and equipment and
the "lease liabilities" in other payables. The Group has assessed the
impact of IFRS 16 and concluded it does not have a material impact
as it only affects the leases for the Group's three administrative offices
and lessor accounting has not materially changed.
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments
addresses the accounting for income taxes when treatments involve
uncertainty that affects the application of IAS 12. As set out in note 3,
the Group applies significant judgement in identifying uncertainties
over income tax treatments. As the Group operates in a number of
jurisdictions it has assessed each individually. Whilst the methodology
The principal accounting policies adopted in the preparation of
used for assessing the provision has changed, it has not had a
the group financial statements are set out below. The policies have
material impact on the financial statements.
been consistently applied to all years presented, unless otherwise
indicated.
The Group has assessed the impact of IFRS 16 and IFRIC 23 and
concluded that they do not have a material impact on the financial
The preparation of financial statements in conformity with IFRS
performance or financial position of the Group or the disclosures
requires the use of certain critical accounting estimates. It also
made in its financial statements.
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
Certain new standards, interpretations and amendments to existing
standards have been published that are mandatory for later
accounting periods and which have not been adopted early. Of these
the two thought to have a possible impact on the Group are:
Definition of Material - Amendments to IAS1 and IAS 8 (effective
The financial position of the Group, its cash flows, liquidity position
1 January 2020)
and borrowings are described in the Financial Review and the notes
The Conceptual Framework for Financial Reporting (effective
to these financial statements. After making appropriate enquiries
1 January 2020)
The Group has assessed the impact of these changes and does
not expect them to significantly impact on the financial position
or performance of the Group. There may, however, be changes to
disclosures within the financial statements.
The standards, amendments or revisions are effective for annual
periods beginning on or after the dates noted above.
and examining sensitivities that could give rise to financial exposure,
the Board has a reasonable expectation that the Group has adequate
resources to continue operations for the foreseeable future.
Accordingly, the Group continues to adopt the going concern basis in
the preparation of these financial statements.
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.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
83
Basis of consolidation
Revenue recognition
The consolidated financial statements incorporate the financial
(a) Property investment
statements of the Company, its subsidiaries and the special
Rental income from operating leases is recognised in income on a
purpose vehicles ("SPVs") controlled by the Company, made up to
straight-line basis over the lease term. Rental increases calculated
31 December each year. Control is achieved where the Company is
with reference to an underlying index and the resulting rental income
exposed, or has rights, to variable returns from its involvement with
("contingent rents") are recognised in income as they are earned.
or ownership of the investee entity and has the ability to affect those
returns through its power over the investee.
Incentives for lessees to enter into lease agreements are spread
evenly over the lease term, even if the payments are not made on
The Group has acquired investment properties through the purchase
such a basis. The lease term is the non-cancellable period of the lease,
of SPVs. In the opinion of the Directors, these transactions did not
together with any further term for which the tenant has the option to
meet the definition of a business combination as set out in IFRS 3
continue the lease, where, at the inception of the lease, the directors
"Business Combinations". Accordingly the transactions have not
are reasonably certain that the tenant will exercise that option.
been accounted for as an acquisition of a business and instead
the financial statements reflect the substance of the transactions,
which is considered to be the purchase of investment property and
investment property under construction.
The results of subsidiaries acquired or disposed of during the year
are included in the Income Statement from the effective date of
Premiums received to terminate leases are recognised in the Income
Statement as they arise.
(b) Roslogistics
Logistics revenue, excluding value added tax, is recognised as services
are provided.
acquisition or up to the effective date of disposal, as appropriate.
(c) Raven Mount
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.
The sale of completed property and land is recognised on legal
completion.
Taxation
All intra-group transactions, balances, income and expenditure are
The Company is a limited company registered in Guernsey, Channel
eliminated on consolidation.
Joint ventures
A joint venture is a contractual arrangement whereby the parties that
have joint control of the arrangement have rights to the net assets of
the joint venture. Joint control is the contractually agreed sharing of
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
deferred tax.
control of an arrangement, which exists only when decisions about
(a) Current tax
the activities require unanimous consent of the contracting parties for
The tax currently payable is based on taxable profit for the year.
strategic financial and operating decisions.
The Group's investments in joint ventures are accounted for using
the equity method. Under the equity method, the investment in a
joint venture is initially recognised at cost. The carrying value of the
investment is adjusted to recognise changes in the Group's share
of net assets of the joint venture since the acquisition date. Any
Taxable profit differs from net profit (or loss) as reported in the
Income Statement because it excludes items of income and
expenditure that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet date.
premium paid for an interest in a joint venture above the fair value
(b) Tax provisions
of the Group's share of identifiable assets, liabilities and contingent
Management periodically evaluate positions taken in the Group's tax
liabilities is determined as goodwill. Goodwill relating to a joint
returns with respect to situations where the applicable tax regulations
venture is included in the carrying amount of the investment and is
are subject to interpretation and establishes provisions where
neither amortised nor individually tested for impairment.
appropriate. The resulting provision for uncertain tax positions is
The aggregate of the Group's share of profit or loss of joint ventures
is shown on the face of the Income Statement within Operating Profit
and represents the profit or loss after tax.
recorded within current tax payable (see note 20).
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
84
NOTES TO THE FINANCIAL STATEMENTS
(c) Deferred tax
Investment property is measured initially at its cost, including related
Deferred tax is the tax expected to be payable or recoverable on
transaction costs. After initial recognition, investment property is
differences between the carrying amount of assets and liabilities in
carried at fair value. The Directors assess the fair value of investment
the financial statements and the corresponding tax bases used in the
property based on independent valuations carried out by their
computation of taxable profit, and is accounted for using the balance
appointed property valuers or on independent valuations prepared
sheet liability method. Deferred tax liabilities are generally recognised
for banking purposes. The Group has appointed Jones Lang LaSalle
for all taxable temporary differences and deferred tax assets are
as property valuers to prepare valuations on a semi-annual basis.
recognised to the extent that it is probable that taxable profits will
Valuations are undertaken in accordance with appropriate sections
be available against which deductible temporary differences can be
of the current Practice Statements contained in the Royal Institution
utilised. Such assets and liabilities are not recognised if the temporary
of Chartered Surveyors Valuation - Global Standards, 2017 (the "Red
difference arises from goodwill or from the initial recognition (other
Book"). These are internationally accepted standards of valuation.
than in a business combination) of other assets and liabilities in a
Gains or losses arising from changes in the fair value of investment
transaction that affects neither the taxable profit nor the accounting
property are included in the Income Statement in the period in which
profit.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered. Unrecognised deferred tax assets
are reassessed at each balance sheet date and are recognised to the
they arise. For the purposes of these financial statements, in order
to avoid double counting, the assessed fair value is reduced by the
present value of any tenant incentives and contracted rent uplifts that
are spread over the lease term and increased by the carrying amount
of any liability under a head lease that has been recognised in the
Balance Sheet.
extent that it has become probable that future taxable profit will
Borrowing costs that are directly attributable to the construction of
allow the deferred tax asset to be recovered.
investment property are included in the cost of the property from
Deferred tax is calculated at the tax rates that are expected to apply
in the period when the liability is settled or the asset realised, based
the date of commencement of construction until construction is
completed.
on tax rates that have been enacted or substantively enacted at the
Leasing (as lessors)
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.
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
Deferred tax assets and deferred tax liabilities are offset, if a legally
Balance Sheet.
enforceable right exists to set off current tax assets against current tax
liabilities and the deferred income taxes relate to the same taxable
Financial assets
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
• Receivables and payables that are stated with the amount of value
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.
Investment property and investment property under
construction
Investment property comprises completed property and property
under construction held to earn rentals or for capital appreciation or
both. Investment property comprises both freehold and leasehold
land and buildings.
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.
(b) Loans and receivables
These are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. In the case of the
Group, loans and receivables comprise trade and other receivables,
loans, security deposits, restricted cash and cash and short term
deposits.
Loans and receivables are initially recognised at fair value, plus
transaction costs that are directly attributable to their acquisition
or issue, and are subsequently carried at amortised cost using the
effective interest rate method, less provision for Expected Credit Loss
("ECL"). The Group assesses on a forward looking basis the ECL for its
financial assets measured at amortised cost. The Group measures the
ECL and recognises a credit loss allowance at each reporting date.
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.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
85
Financial liabilities and equity instruments
Awards not linked to or settled by ordinary shares
Financial liabilities and equity instruments are classified according to
the substance of the contractual arrangements entered into.
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
The Group classifies its financial liabilities into one of the categories
value of the preference shares or convertible preference shares, as
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
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.
Income Statement in finance income or finance expense.
The cash component of the 2016 Retention Scheme has been
(b) Other financial liabilities
accounted for in this way.
Other financial liabilities include interest bearing loans, trade payables
Foreign currency translation
(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.
(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
Interest bearing loans, convertible preference shares and preference
financial statements are presented in Sterling and all values are
shares are initially recorded at fair value net of direct issue costs and
rounded to the nearest thousand pounds (£'000) except where
subsequently carried at amortised cost using the effective interest
otherwise indicated.
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.
(b) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
An equity instrument is any contract that evidences a residual
transactions. Foreign exchange gains and losses resulting from the
interest in the assets of the Group after deducting all of its liabilities.
settlement of such transactions and from the translation at the year-
The Group considers the convertible preference shares to be a
end exchange rates of monetary assets and liabilities denominated
compound financial instrument, that is they have a liability and equity
in foreign currencies are recognised in the Income Statement.
component. On the issue of convertible preference shares the fair
Non-monetary assets and liabilities are translated using exchange
value of the liability component is determined and the balance of the
rates at the date of the initial transaction or when their fair values are
proceeds of issue is deemed to be equity. The Group's other equity
reassessed.
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
(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:
Statement on the purchase, sale, issue or cancellation of the Group's
(i) assets and liabilities for each Balance Sheet are translated at the
own equity instruments. Any difference between the carrying amount
closing rate at the date of the Balance Sheet;
and the consideration is recognised in retained earnings.
(ii)
income and expenditure for each Income Statement are
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,
preference shares or convertible preference shares of the Company.
Awards linked to or that may be settled by ordinary shares
The share component of the 2016 Retention Scheme may be settled
in any of the Company's listed securities, including ordinary shares,
and as a consequence falls within the scope of IFRS 2 Share-based
payments. 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.
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
(iii) all resulting exchange differences are recognised in Other
Comprehensive Income.
The exchange differences arising from the translation of the net
investment in foreign entities are recognised in Other Comprehensive
Income. When a foreign entity is sold, such exchange differences are
recognised in the Income Statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
86
NOTES TO THE FINANCIAL STATEMENTS
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
2019
2018
81.1460
88.3524
1.3108
1.1703
1.2736
1.1142
2019
2018
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
82.6282
83.6890
determines the amount within a range of reasonable, fair value
1.2765
1.1398
1.3350
1.1304
estimates. In making its estimation the Group considers information
from a variety of sources and engages external, professional advisers
* These are the average rates for the twelve months ended 31 December 2018
and 2019, 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.
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,
When the acquisition of a subsidiary does not represent a business,
there have been instances where new tax regulations have been
it is accounted for as an acquisition of a group of assets and liabilities.
applied retrospectively. The level of tax reviews and court activity is
The cost of the acquisition is allocated to the assets and liabilities
increasing. The Group is, and has been, subject to tax reviews which
acquired based on their relative fair values, and no goodwill or
are worked through with the relevant authorities to resolve.
deferred tax liabilities are recognised.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
87
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 the expected value
method of calculation. 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 £56.0 million (2018: £51.1
million).
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
88
NOTES TO THE FINANCIAL STATEMENTS
(a) Segmental information for the year ended and as at 31 December 2019
Year ended 31 December 2019
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
158,547
16,663
(40,664)
117,883
(8,285)
8,378
163
80
243
175,373
(48,869)
126,504
–
–
–
Total
£’000
175,373
(48,869)
126,504
Running general and administration expenses
(15,584)
(1,997)
(406)
(17,987)
(5,143)
(23,130)
Abortive project costs
Depreciation
Share-based payments and
other long term incentives
Foreign currency profits / (losses)
Unrealised profit on revaluation of
investment property
Unrealised profit on revaluation of
investment property under construction
Share of profits of joint ventures
Profit on disposal of joint ventures
(521)
(1,417)
(815)
27,460
–
(364)
–
5
–
(1)
–
(3)
(521)
(1,782)
–
–
(815)
(4,653)
27,462
–
(521)
(1,782)
(5,468)
27,462
127,006
6,022
(167)
132,861
(9,796)
123,065
47,820
451
–
–
–
–
(213)
–
–
–
1,005
490
47,820
451
792
490
–
–
–
–
47,820
451
792
490
Segment profit / (loss)
175,277
5,809
1,328
182,414
(9,796)
172,618
Finance income
Finance expense
Profit before tax
As at 31 December 2019
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 2019 ANNUAL REPORT
2,011
(109,570)
65,059
Property
Investment Roslogistics
£’000
£’000
Raven
Mount
£’000
Total
£’000
1,337,682
33,846
–
–
62,449
1,433,977
–
–
189
–
1,069
1,258
–
–
–
358
4,620
1,337,682
33,846
189
358
68,138
4,978
1,440,213
36,475
41,595
1,518,283
683,341
169
11,924
11,939
24,032
–
–
–
–
–
683,341
169
11,924
11,939
24,032
–
–
–
–
–
NOTES TO THE FINANCIAL STATEMENTS
89
(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
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
–
–
–
–
–
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
90
NOTES TO THE FINANCIAL STATEMENTS
5. Gross revenue
Rental and related income
Proceeds from the sale of inventory property
Logistics
2019
£’000
2018
£’000
158,547
146,106
163
131
16,663
16,402
175,373
162,639
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 £139k (2018: £12k).
Details of the Group's contracted future minimum lease receivables are detailed in note 36.
In 2019 there were no single customers accounting for more than 10% of Group revenues. In 2018 the Group recognised revenue of £19 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
Legal and professional
Loss on disposal of plant and equipment
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
2019
£’000
13,615
2,523
2018
£’000
12,079
2,900
(2)
(58)
2,480
1,164
671
2,416
19
521
1,782
244
3,261
1,321
596
2,070
–
1,625
811
545
25,433
25,150
2019
£’000
532
50
582
89
–
89
2018
£’000
461
50
511
47
38
85
671
596
In 2018 the Group engaged Ernst & Young LLP to undertake due diligence in respect of the investment property acquisitions in the year, incurring
£103k of fees, which were included in the cost of the relevant investment property and a further £537k incurred in respect of aborted projects.
There were no equivalent fees for 2019.
Ernst & Young LLP 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 £132k (2018: £265k) and the fees for taxation services were £93k (2018: £147k).
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
91
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
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
Other interest expense
2019
£’000
2018
£’000
1,960
51
–
2,011
55,956
12,338
19,731
1,153
3,254
32
1,583
4,869
51,092
12,335
19,963
–
Total interest expense on financial liabilities not at fair value through profit or loss
89,178
83,390
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
Finance expense
20
20,372
–
83
4,566
141
109,570
88,180
Included in the interest expense on loans and borrowings is £6.59 million (2018: £3.93 million) relating to amortisation of costs incurred in
originating the loans. Included in the interest expense on preference shares is £0.36 million (2018: £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 (2018: £6.95 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 (2018: £0.30 million).
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
92
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
Tax charge
The charge for the year can be reconciled to the loss per the Income Statement as follows:
Profit / (loss) before tax
Tax at the Russian corporate tax rate of 20%
Tax effect of financing arrangements
Tax effect of fair value movement on open interest rate derivative financial instruments
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
2019
£’000
2018
£’000
8,210
5,731
10,766
65
72
(10)
19,041
5,793
2019
£’000
2018
£’000
65,059
(114,888)
13,012
(22,978)
1,326
3,743
6,414
(4,480)
(543)
4,625
(1,964)
327
6,460
(2,186)
(1,924)
4,983
(7,422)
17,179
2,423
(57)
19,041
2,571
3,325
5,793
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 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
93
The calculation of basic and diluted earnings per share is based on the following data:
Earnings
Net profit / (loss) for the year prepared under IFRS
Adjustments to arrive at underlying earnings:
Administrative expenses
Depreciation (note 6a)
Aborted project costs (note 6a)
Share-based payments and other long term incentives (note 31b)
Profit on disposal of joint ventures
Unrealised (profit) / loss on revaluation of investment property
Unrealised profit on revaluation of investment property under construction
Finance income
2019
2018
£’000
£’000
£’000
£’000
46,018
(120,681)
1,782
521
811
1,625
2,303
541
(490)
(47,820)
(451)
2,436
2,853
–
121,764
(755)
Change in fair value of open interest rate derivative financial instruments (note 7)
–
(1,583)
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
Calculation of Headline earnings
Net profit / (loss) for the year prepared under IFRS
Adjustments to arrive at Headline earnings:
Unrealised (profit) / loss on revaluation of investment property
Unrealised profit on revaluation of investment property under construction
Movement on deferred tax arising on revaluation of investment property
Headline earnings
20
20,372
–
362
7,245
6,594
8,547
(16)
83
4,566
141
417
7,246
3,931
34,593
16,384
(619)
215
8,531
43,225
(404)
20,014
2019
£’000
2018
£’000
46,018
(120,681)
(47,820)
121,764
(451)
2,280
27
(755)
(6,502)
(6,174)
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
94
NOTES TO THE FINANCIAL STATEMENTS
IFRS
Basic
Effect of dilutive potential ordinary shares:
Warrants (note 27)
LTIP (note 31)
2016 Retention scheme (note 31)
Five Year Performance Plan (note 31)
Convertible preference shares (note 23)
Diluted
Underlying earnings
Basic
Effect of dilutive potential ordinary shares:
Warrants (note 27)
LTIP (note 31)
2016 Retention scheme (note 31)
Five Year Performance Plan (note 31)
Convertible preference shares (note 23)
Diluted
Headline earnings
Basic
Effect of dilutive potential ordinary shares:
Warrants (note 27)
LTIP (note 31)
2016 Retention scheme (note 31)
Five Year Performance Plan (note 31)
Convertible preference shares (note 23)
2019
Weighted
average
shares
No. ‘000
Earnings
£’000
EPS
Pence
Earnings
£’000
2018
Weighted
average
shares
No. ‘000
EPS
Pence
46,018
563,890
8.16
(120,681)
641,588
(18.81)
–
–
–
–
236
103
2,349
–
19,731
65,749
310,090
876,668
2019
Weighted
average
shares
No. ‘000
Earnings
£’000
–
–
–
–
–
–
–
–
–
–
7.50
(120,681)
641,588
(18.81)
EPS
Pence
Earnings
£’000
2018
Weighted
average
shares
No. ‘000
EPS
Pence
3.12
43,225
563,890
7.67
20,014
641,588
–
–
–
–
236
103
2,349
–
12,486
55,711
310,090
876,668
2019
Weighted
average
shares
No. ‘000
Earnings
£’000
–
–
–
–
–
2,641
612
4,535
–
–
6.35
20,014
649,376
3.08
EPS
Pence
Earnings
£’000
2018
Weighted
average
shares
No. ‘000
EPS
Pence
27
563,890
0.00
(6,174)
641,588
(0.96)
–
–
–
–
–
236
103
2,349
–
–
–
–
–
–
–
–
–
–
–
–
Diluted
27
566,578
0.00
(6,174)
641,588
(0.96)
In 2018, 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 were not dilutive. This was not the case in the current year and thus the convertible preference
shares are dilutive for IFRS and underlying earnings per share.
10. Ordinary dividends
In the place of a final dividend for 2018 the Company implemented a tender offer buy back of ordinary shares on the basis of 2 in every 51 shares
held at a tender price of 45 pence per share, the equivalent of a final dividend of 1.75 pence per share. Instead of an interim dividend for 2019 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 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
95
11. Investment property
Asset class
Location
Fair value hierarchy*
Market value at 1 January 2019
Property improvements
Unrealised profit / (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
2019
Total
£’000
840,613
147,978
144,843
60,402
1,193,836
4,214
25,771
74,728
751
10,104
13,157
3,115
10,532
12,870
274
8,354
(304)
46,103
5,414
106,169
Market value at 31 December 2019
945,326
171,990
171,360
65,786
1,354,462
Tenant incentives and contracted rent uplift balances
(12,031)
(3,792)
(1,167)
(1,011)
(18,001)
Head lease obligations (note 24)
1,221
–
–
–
1,221
Carrying value at 31 December 2019
934,516
168,198
170,193
64,775
1,337,682
Revaluation movement in the year ended 31 December 2019
Gross revaluation
Movement of tenant incentives and contracted rent uplift balances
Less impact of translation to presentation currency
25,771
1,643
179
10,104
10,532
254
(44)
89
97
(304)
(535)
34
46,103
1,451
266
Revaluation reported in the Income Statement
27,593
10,314
10,718
(805)
47,820
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)
*Classified in accordance with the fair value hierarchy, see note 35. There were no transfers between fair value hierarchy in 2018 or 2019.
During 2018 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 2019 the Group has pledged investment property with a value of £1,345 million (2018: £1,153 million) to secure banking
facilities granted to the Group (see note 21).
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
96
NOTES TO THE FINANCIAL STATEMENTS
12. Investment property under construction
Asset class
Location
Fair value hierarchy*
Market value at 1 January 2019
Costs incurred
On translation to presentation currency
Unrealised profit on revaluation
Market value at 31 December 2019
Head lease obligations (note 24)
Carrying value at 31 December 2019
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
Assets under construction
Moscow
Level 3
£’000
Regions
Level 3 Sub–total
£’000
£’000
Land Bank
Regions
Level 3
£’000
2019
Total
£’000
19,342
8,335
27,677
2,537
30,214
138
1,721
424
44
740
27
182
2,461
451
–
182
177
2,638
–
451
21,625
9,146
30,771
2,714
33,485
361
–
361
–
361
21,986
9,146
31,132
2,714
33,846
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
*Classified in accordance with the fair value hierarchy, see note 35. There were no transfers between fair value hierarchy in 2018 or 2019.
No borrowing costs were capitalised in the year (2018: £nil).
At 31 December 2019 the Group has pledged investment property under construction with a value of £30.8 million (2018: £25.3 million) to secure
banking facilities granted to the Group (see note 21).
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
97
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 2019 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 based on a discounted cash flow
methodology in line with 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 2019 ANNUAL REPORT
98
NOTES TO THE FINANCIAL STATEMENTS
Valuation assumptions and key inputs
Class of property
Carrying amount
2019
£’000
2018
£’000
Valuation
technique
Input
Range
2019
2018
Completed
investment
property
Moscow -
Logistics
934,516
827,995
Discounted
cash flow
St Petersburg -
Logistics
168,198
143,932
Discounted
cash flow
Regional -
Logistics
170,193
143,587
Discounted
cash flow
St Petersburg -
Office
64,775
59,926
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
ERV per sqm
ERV growth
Discount rate
Exit cap rate
Vacancy rate
Passing rent per sqm
Passing rent per sqm
Rub 3,700 to Rub 4,500
5.00% to 7.00%
10.80% to 12.10%
10.25% to 11.25%
1% to 59%
$100 to $174
Rub 3,150 to Rub 8,999
$122
Rub 3,900 to Rub 4,150
5.00% to 7.00%
12.10% to 12.30%
11.50%
1% to 15%
$111 to $137
Rub 3,276 to Rub 5,628
ERV per sqm
ERV growth
Discount rate
Exit cap rate
Vacancy rate
Passing rent per sqm
Passing rent per sqm
Passing rent per sqm
Rub 3,800 to Rub 4,200
5.00% to 7.00%
11.80% to 12.30%
11.50%
0% to 10%
$143
Rub 3,850 to Rub 21,153
–
Rub 3,500 to Rub 3,800
4.00% to 7.00%
10.75% to 12.60%
10.50% to 11.50%
1% to 50%
$113 to $170
Rub 3,000 to Rub 12,315
$118
Rub 3,800
6.00%
12.30% to 12.50%
11.75%
0% to 29%
$109 to $133
Rub 2,456 to Rub 5,260
Rub 3,800
6.00%
12.25% to 12.50%
11.75%
0% to 9%
$107 to $138
Rub 3,750 to Rub 7,300
£88
ERV per sqm
ERV growth
Discount rate
Exit cap rate
Vacancy rate
Passing rent per sqm
Passing rent per sqm
Passing rent per sqm
Rub 11,789 to Rub 12,491
2.00% to 4.00%
11.75% to 12.00%
11.00% to 12.00%
0% to 13%
–
–
Rub 7,596 to Rub 18,319
Rub 10,976 to Rub 12,366
2.00% to 4.00%
12.00% to 12.25%
11.25% to 12.25%
1% to 8%
£408
£410 to £413
Rub 4,384 to Rub 17,570
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 2019 ANNUAL REPORT
Range
2019
2018
34% - 65%
2 to 15 years
1,262
48% - 57%
5 to 11 years
97
48% - 61%
10 years
663
148% to 496%
11 to 13 years
57
34% - 65%
1 to 14 years
2,290
48% - 57%
4 to 10 years
282
48% - 61%
9 years
363
148% to 496%
10 to 12 years
23
NOTES TO THE FINANCIAL STATEMENTS
99
Carrying amount
2019
£’000
2018
£’000
Valuation
technique
Input
Range
2019
2018
Investment property
under construction
Moscow - Logistics
21,986
19,676
Comparable Value per ha
Regional - Logistics
9,146
8,335
Comparable Value per ha
Rub 19.5m -
Rub 33.8m
Rub 17.9m -
Rub 33.6m
Rub 9.5m -
Rub 20.6m
Rub 9.7m -
Rub 20.6m
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 2019 or 2018.
Assets under construction (additional phases of existing sites) are valued on a comparable basis. The value of the land plots (as shown above) 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 2019 ANNUAL REPORT
100
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
CJSC Kulon Development
CJSC Kulon Istra
Kulon Spb LLC
League LLC
Logopark Don LLC
Logopark Ob LLC
CJSC Noginsk Vostok
Pervomayskay Zarya LLC
Petroestate LLC
Primium LLC
Resource Economia LLC
Sever Estate LLC
Soyuz-Invest LLC
CJSC Toros
Country of
Incorporation
Cyprus
Cyprus
Cyprus
England
England
Guernsey
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Proportion of ownership interest
2019
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%
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%
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
Ruconnect Holding Cyprus Limited
Country of
Incorporation
England
England
Cyprus
Proportion of ownership interest
2019
–
–
40%
2018
50%
50%
40%
Coln Park LLP and Coln Park Construction LLP were the entities through which the Group undertook its second home development activity in
the UK. In addition, the Group had 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. In December 2019 the Group sold its interest in the Coln Park LLP and Coln Park Construction LLP to its joint venture partner for £6.65
million, giving rise to a profit on disposal of £0.49 million.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
101
Summarised aggregated financial information of the joint ventures, prepared under IFRS, and a reconciliation with the carrying amount of the
investments in the consolidated financial statements are set out below:
Summarised Balance Sheet
Non-current assets
Inventory
Cash and short term deposits
Other current assets
Current liabilities
Non-current liabilities
Net assets
Investment in joint ventures
Goodwill on acquisition
Share of net (liabilities) / assets
Carrying value
Carrying value at 1 January
Investment in the year
Share of total comprehensive income for the year
Share of distributions paid
Disposals
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
2019
£’000
432
–
159
348
(595)
(486)
(142)
246
(57)
189
6,566
13
792
(1,043)
(6,160)
21
189
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
(3,000)
–
23
6,566
2019
£’000
2018
£’000
19,158
27,708
(15,326)
(22,329)
(1,983)
(2,017)
(258)
1,591
(25)
1,566
(88)
1,478
792
(216)
3,146
20
3,166
53
3,219
1,630
The joint ventures had no contingent liabilities or capital commitments as at 31 December 2019 and 2018. The joint ventures cannot distribute
their profits until they obtain the consent from the joint venture partners.
The Group charged its joint ventures £167k (2018: £244k) for services rendered to them during the year, of which £67k (2018: £81k) was included
in receivables at the balance sheet date. The joint ventures recharged certain costs back to Group that for the year amounted to £29k (2018: £51k)
of which £4k (2018: £7k) was included in payables at the balance date. The Group has advanced loans to its joint ventures of £306k (2018: £491k)
generating interest income of £52k (2018: £32k).
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
102
NOTES TO THE FINANCIAL STATEMENTS
16. Other receivables
Loans receivable
Restricted cash
VAT recoverable
Prepayments and other receivables
2019
£’000
67
–
3,059
288
3,414
2018
£’000
676
12,249
2,538
72
15,535
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
Loans receivable
Other receivables
Tax recoverable
18. Derivative financial instruments
Interest rate derivative financial instruments
Non-current assets
Current assets
Forward currency derivative financial instruments
Current assets
Foreign currency embedded derivatives
Current liabilities
2019
£’000
2018
£’000
26,475
27,803
3,608
3,026
2,651
345
3,158
2,332
3,524
1,792
7,084
–
317
3,138
41,595
43,658
2019
£’000
2,621
–
–
–
2018
£’000
21,953
329
20
(1)
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 2019 the instruments have a notional value of £545 million (2018: £543 million) and a
weighted average capped rate of 5.36% (2018: 3.90%).
At 31 December 2019 the Group did not hold any forward currency derivative financial instruments nor any embedded derivatives incorporated
into leases.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
103
19. Cash and short term deposits
Cash at bank and on call
Short term deposits
2019
£’000
46,008
22,130
2018
£’000
45,153
28,297
68,138
73,450
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 4.65% (2018: 5.50%).
20. Trade and other payables
Trade and other payables
Construction payables
Advanced rentals and rent deposits
Deferred consideration on property acquisitions
Other payables
Current tax payable
Other tax payable
Head leases (note 24)
Other lease liabilities (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
2019
£’000
6,847
2,232
15,343
–
5,162
7,418
2018
£’000
4,900
2,958
20,840
12,197
4,392
8,081
14,131
12,806
21
537
18
–
51,691
66,192
2019
£’000
2018
£’000
60,173
75,565
623,168
567,865
683,341
643,430
60,173
28,656
75,565
20,730
497,578
333,862
96,934
213,273
683,341
643,430
The amounts above include unamortised loan origination costs of £6.8 million (2018: £7.1 million) and interest accruals of £0.9 million (2018: £1.3
million).
The Group's interest bearing loans and borrowings have a weighted average interest rate of 6.52% (2018: 7.69%) and a weighted average term to
maturity of 4.7 years (2018: 4.0 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 €129.1 million and Rub 19.9
billion on new and existing debt facilities, repaying $100.8 million, €184.5 million and Rub 4.8 billion of existing debt. In addition existing facilities
of $185.3 million, €26.6 million and Rub 6.0 billion were extended and / or converted to facilities of €191.6 million and Rub 6.0 billion.
As at 31 December 2019 the Group had interest rate hedges for £545 million of borrowings (2018: £543 million) capped at a weighted average rate
of 5.36% (2018: 3.90%) for a weighted average of 4.4 years (2018: 4.0 years). None of the Group's borrowings have fixed interest rates (2018: £nil).
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
104
NOTES TO THE FINANCIAL STATEMENTS
22. Preference shares
Issued share capital:
At 1 January
Premium on redemption of preference shares and amortisation of issue costs
Scrip dividends
At 31 December
Issued share capital:
At 1 January
Scrip dividends
At 31 December
Shares in issue
Held by the Company’s Employee Benefit Trusts
At 31 December
2019
£’000
2018
£’000
109,271
108,263
362
691
417
591
110,324
109,271
2019
Number
2018
Number
99,556,534
99,143,192
511,684
413,342
100,068,218
99,556,534
100,125,086
99,613,402
(56,868)
(56,868)
100,068,218
99,556,534
The preference shares entitle the holders to a cumulative annual dividend of 12 pence per share.
The Company has entered into a conditional contract to purchase 38,936,295 preference shares for 115p per share from Invesco Asset
Management Limited (acting as agent for its underlying funds). The purchase is conditional on shareholder approval and the completion of the
Company's purchase of ordinary shares from the same investors (see note 26). The contract has a long stop date to complete of 31 July 2020.
23. Convertible preference shares
Issued share capital:
At 1 January
Reissued in the year
Converted to ordinary shares (note 26)
Premium on redemption of preference shares and amortisation of issue costs
At 31 December
2019
£’000
2018
£’000
206,116
198,870
4,132
(11)
7,245
–
–
7,246
217,482
206,116
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
105
Issued share capital:
At 1 January
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
2019
Number
2018
Number
192,388,886
192,388,886
3,552,907
(12,146)
–
–
195,929,647 192,388,886
198,176,868
198,189,014
(2,247,221)
(5,800,128)
195,929,647 192,388,886
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 1.517 ordinary shares for each convertible preference share.
The Company has entered into a conditional contract to purchase 42,118,860 convertible shares for 92.5p per share from Invesco Asset
Management Limited (acting as agent for its underlying funds). The purchase is conditional on shareholder approval and the completion of the
Company's purchase of ordinary shares from the same investors (see note 26). The contract has a long stop date to complete of 31 July 2020.
In applying its accounting policies the Group has determined that the convertible preference shares are a compound financial instrument 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
Head leases
Other lease liabilities
2019
£’000
15,779
1,561
1,283
2018
£’000
16,425
1,372
–
18,623
17,797
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 £4.4 million (2018: £3.9 million). The carrying value of the liability is shown above
and in note 20 as head leases and totalled £1.6 million (2018: £1.4 million).
The Group leases its administrative offices and has minimum lease payments due over the remaining term of the leases totalling £2.3 million.
The carrying value of the liability is shown above and in note 20 as other lease liabilities and totalled £1.5 million.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
106
NOTES TO THE FINANCIAL STATEMENTS
25. Deferred tax
(a) Deferred tax assets
Balance at 1 January 2018
On translation to presentation currency
Credit / (charge) for the year
On acquisition (note 38)
Balance at 31 December 2018
On translation to presentation currency
(Charge) / credit for the year
Balance at 31 December 2019
Tax losses
£’000
Other
£’000
24,751
(2,852)
237
1,490
23,626
1,968
(2,511)
860
(40)
(41)
-
779
69
359
Total
£’000
25,611
(2,892)
196
1,490
24,405
2,037
(2,152)
23,083
1,207
24,290
The Group has tax losses in Russia of £268 million (2018: £265 million) and tax losses in the UK of £49 million (2018: £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 also 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 2018
On translation to presentation currency
Charge / (credit) for the year
Balance at 31 December 2018
On translation to presentation currency
Charge for the year
Balance at 31 December 2019
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 by tender offer
Repurchased and cancelled in the year on purchase from WIM / IAM (note 33)
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 by tender offer
Repurchased and cancelled in the year on purchase from WIM / IAM (note 33)
At 31 December
Details of own shares held are given in note 28.
Accelerated
Revaluation
tax of investment
property
£’000
allowances
£’000
Total
£’000
59,845
(2,703)
258
23,448
1,458
(6,502)
18,404
57,400
1,659
2,280
4,945
8,679
36,397
(4,161)
6,760
38,996
3,286
6,399
48,681
22,343
71,024
2019
£’000
2018
£’000
6,233
6,606
17
–
(361)
(991)
85
–
(458)
–
4,898
6,233
2019
Number
2018
Number
623,269,434
660,571,843
1,734,577
8,500,126
18,425
–
(36,131,442)
(45,802,535)
(99,144,978)
–
489,746,016 623,269,434
The Company has entered into a conditional contract to purchase 139,678,106 ordinary shares for 36p per share from Invesco Asset Management
Limited (acting as agent for its underlying funds). The purchase is conditional on shareholder approval and the contract has a long stop date to
complete of 31 July 2020.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
27. Warrants
At 1 January
Exercised in the year (note 26)
Lapsed in the year
At 31 December
At 1 January
Exercised in the year (note 26)
Lapsed in the year
At 31 December
NOTES TO THE FINANCIAL STATEMENTS
107
2019
£’000
98
(69)
(29)
–
2018
£’000
438
(340)
–
98
2019
Number
2018
Number
2,448,226
10,948,352
(1,734,577)
(8,500,126)
(713,649)
–
–
2,448,226
The Company had issued warrants, which entitled each holder to subscribe for ordinary shares in the Company at an exercise price of 25 pence
per share. The warrants expired on 25 March 2019.
28. Own shares held
At 1 January
Acquired under a tender offer
Other acquisitions
Allocation to satisfy Annual Performance Incentives / other staff bonuses (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 Incentives / other staff bonuses (note 31)
Cancelled
Allocation to satisfy LTIP options exercised (note 31a)
At 31 December
2019
£’000
(5,965)
–
(106)
647
151
691
2018
£’000
(3,652)
(4,160)
(75)
1,278
36
608
(4,582)
(5,965)
2019
Number
2018
Number
10,760,656
5,150,122
–
8,000,000
253,679
173,958
(876,000)
(1,704,000)
(298,039)
(48,613)
(922,110)
(810,811)
8,918,186
10,760,656
Allocations to satisfy LTIP options exercised are transfers by the Company's Employee Benefit Trusts upon the exercise of fully vested options.
The amounts shown for share movements are net of the Trustees' participation in tender offers during the period from grant to exercise.
Details of outstanding LTIP options, which are vested but unexercised, are given in note 31a.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
108
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
Number of ordinary shares (note 26)
Less own shares held (note 28)
2019
Number
489,746,016
(8,918,186)
480,827,830
2019
Ordinary
shares
No. ‘000
Net asset
value
£’000
2018
Number
623,269,434
(10,760,656)
612,508,778
Net asset
value per
share
Pence
Net asset
value
£’000
2018
Ordinary
shares
No. ‘000
Net asset
value per
share
Pence
Net asset value per share
365,798
480,828
76
295,627
612,509
48
Effect of dilutive potential ordinary shares:
Convertible preference shares (note 23)
217,482
297,225
Warrants (note 27)
LTIP (Note 31)
2016 Retention Scheme (note 31)
Five Year Performance Plan (note 31)
–
–
–
–
–
–
–
–
–
612
266
2,095
–
–
2,448
1,062
4,998
–
Fully diluted net asset value per share
583,280
778,053
75
298,600
621,017
48
At 31 December 2018, 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 was greater than the NAV per share and thus the convertible preference shares were
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 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
109
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. The two active
schemes are the Annual Performance Incentive and the Five Year Performance Plan. All other schemes have now ended and the final amounts
vested. Details of these are provided below to the extent there was a vesting or exercise of rights in 2018 or 2019.
Annual Performance Incentive ("API")
The API is an annual bonus payable in cash or listed securities of the Company, based on performance targets set annually. The maximum
amount payable to an individual is capped at 50% of basic salary if paid in cash or 175% of basic salary if paid in the Company's listed securities,
which are required to be held for three years. As a condition of the scheme there was no API payable for 2018. An accrual has been made for the
2019 API and it assumes that it will be settled in ordinary shares of the Company.
Five Year Performance Plan ("FYPP")
The FYPP is a long term incentive scheme which is open to the executive directors and other senior managers. The scheme allows each
participant to invest into the FYPP a number of list securities in the Company that they hold. 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 total shareholder return ("TSR") calculations,
the participants will be entitled to receive up to three times the initial prescribed 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 FYPP will
lapse, at an annual compound TSR of 12% the FYPP will vest in full and a sliding scale will apply for a TSR between 4% and 12%.
Investments with an initial prescribed value totalling £11.9 million have been made into the FYPP out of a maximum of £12 million. The
Company's TSR for the performance period to date is less than the minimum threshold for vesting and thus no provision has been made for
ordinary shares that may ultimately vest in March 2023.
Long Term Incentive Plan ("LTIP")
The LTIP options related to performance criteria for the period 24 March 2009 to 24 March 2014. The options had an exercise price of 25p per
option and vested in full. The last remaining options were exercised in the year.
2016 Retention Scheme
During 2016 the Group terminated an incentive scheme, the Combined Bonus and Long Term Incentive Scheme 2015, and the Company's
shareholders approved the introduction of the 2016 Retention Scheme. Awards under the 2016 Retention 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
to150% of their basic salary. The final instalment was paid on 31 March 2019. The sole condition for each instalment was the continuing
employment of the individual at the relevant payment date. In respect of the final instalment, and as a condition to be eligible to participate in
the FYPP, payment was made entirely in the Company's convertible preference shares, based on the average price prior to 31 March 2019. As a
consequence the Company's EBT transferred 3,552,907 convertible preference shares in respect of the third and final instalment.
(a) Movements in LTIP options
2019
No. of
options
Weighted
average
exercise
price
2018
No. of
options
Weighted
average
exercise
price
Outstanding at the beginning of the period
1,062,162
25p
1,872,973
Exercised during the year
– LTIP
Outstanding at the end of the period
(1,062,162)
–
25p
– p
(810,811)
1,062,162
25p
25p
25p
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
110
NOTES TO THE FINANCIAL STATEMENTS
(b) Income Statement charge for the year
2016 Retention scheme
Other staff bonuses
Annual Performance Incentive 2019
Annual Performance Incentive 2018
Annual Performance Incentive 2017
Five Year Performance Plan
To be satisfied by allocation of:
Ordinary shares (IFRS 2 expense)
Convertible preference shares / preference shares (IFRS 2 expense)
Cash
2019
£’000
541
664
4,263
–
–
–
2018
£’000
2,103
–
–
–
750
–
5,468
2,853
4,927
541
–
5,468
750
2,103
–
2,853
Of the IFRS 2 expense for the year £4.6 million (2018: £2.1 million) is included in current liabilities.
Certain bonuses awarded to employees below executive level for performance in 2018 were settled in ordinary shares of the Company.
32. Capital commitments
The Group had no significant capital commitments at 31 December 2018 and 2019.
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
2019
£’000
3,579
229
4,805
8,613
2018
£’000
4,247
224
2,853
7,324
On 20 August 2019 the Company acquired 72,144,978 ordinary shares from Woodford Investment Management Limited and 17,000,000 ordinary
shares from Invesco Asset Management Limited, in each case acting on behalf of certain underlying funds, at a price of 36 pence per share in
cash. These are related party transactions, as defined by the UKLA's Listing Rules and were approved by the Company's ordinary shareholders at
a general meeting. On 25 October 2019 the Company acquired a further 10,000,000 ordinary shares from Invesco Asset Management Limited
at a price of 40 pence per share in cash. This second acquisition from Invesco Asset Management Limited constitutes a smaller related party
transaction under the UKLA’s Listing Rules.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
111
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.
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 retranslating 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. There are no US Dollar facilities
as at 31 December 2019. The Group still has a proportion of its leases pegged to the US Dollar and these will mature over the next two years.
A weakening Rouble relative to the US Dollar will 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.
As at 31 December 2019
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
–
–
–
–
–
–
–
261
261
–
–
–
–
–
60
60
–
274
274
–
701
–
564
5,121
6,386
163,003
–
163,003
38,612
64
721
39,397
–
41
41
1,673
–
–
1
445
2,119
–
6,171
6,171
–
4,984
–
4,984
–
–
–
–
–
–
26
252
278
–
–
–
–
–
105
105
–
–
–
–
–
–
–
75
75
–
–
–
–
–
–
–
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
112
NOTES TO THE FINANCIAL STATEMENTS
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
Rent deposits
Current liabilities
Interest bearing loans and borrowings
Rent deposits
Other payables
Rouble
£’000
Euro
£’000
US Dollar
£’000
Sterling
£’000
ZAR
£’000
–
7,236
7,236
–
–
–
15
8,835
8,850
122,717
–
122,717
27,250
–
68
27,318
–
4,782
4,782
1
–
–
971
3,236
4,208
95,821
–
95,821
27,122
88
436
27,646
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
–
–
–
–
–
–
–
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
ZAR
2019
£’000
899
20
17
2018
£’000
1,104
13,395
28
19,574
11,699
8
–
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 £20.0 million at 31 December 2019 (2018: loss of
£5.1 million).
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
113
We have diversified our debt exposure and, hence, interest rate exposure. The Group is no longer exposed to US LIBOR and instead is sensitive to
EURIBOR and Central Bank of Russia Key rate movements. Sensitivity to all benchmark rates is presented in the table below.
US LIBOR
EURIBOR
Central Bank of Russia Key rate
(b) Credit risk
2019
Increase
100 bps
£’000
Decrease
100 bps
£’000
2018
Increase
100 bps
£’000
Decrease
100 bps
£’000
–
(1,774)
(3,496)
–
399
3,673
(81)
(1,499)
(704)
344
–
1,680
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
2019
£’000
2,880
191
(2)
(41)
–
2018
£’000
3,416
(240)
–
(238)
(58)
3,028
2,880
At 31 December 2019 there were no significant amounts of unimpaired trade receivables that were past due for collection (2018: £ nil).
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
114
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 2019
Interest bearing loans and borrowings
Preference shares
Convertible preference shares
Head leases
Other lease liabilities
Trade and other payables
As at 31 December 2018
Interest bearing loans and borrowings
Preference shares
Convertible preference shares
Derivative financial instruments
Head leases
Trade and other payables
Total
£’000
888,461
120,082
347,284
1,253
2,000
24,941
Current
£’000
103,473
12,008
12,735
132
659
9,162
Year 2
£’000
69,390
12,008
12,735
132
227
2,606
Years 3 to 5
£’000
Years 6 to 10
£’000
608,344
107,254
36,025
38,206
328
577
9,346
60,041
283,608
661
537
3,827
1,384,021
138,169
97,098
692,826
455,928
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
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 2019 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
115
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
2019
2018
Carrying
Value
£’000
Fair
Value
£’000
Carrying
Value
£’000
67
–
63
–
2,621
2,621
26,475
26,475
3,026
3,653
–
3,026
3,653
–
676
12,249
21,953
27,803
1,792
907
349
Fair
Value
£’000
627
12,249
21,953
27,803
1,792
907
349
68,138
68,138
73,450
73,450
623,168
110,324
217,482
–
15,779
–
2,844
632,014
131,590
202,787
–
12,403
–
2,844
567,865
109,271
206,116
–
16,425
–
1,372
561,076
130,494
226,057
–
13,130
–
1,372
60,173
60,173
75,565
75,565
–
6,364
–
3,356
–
6,364
–
3,356
1
7,242
12,197
5,262
1
7,242
12,197
5,262
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 on 31 December 2019,
which is considered to be level 1 of the fair value hierarchy. The fair value of derivatives is determined by a model with market based inputs.
(d) Capital risk management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern to provide returns to
shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
For capital risk management, the Directors consider both the ordinary and preference shares to be permanent capital of the Company, with
similar rights as to cancellation.
To maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, under take tender offers, return
capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in its industry, the Group monitors capital on
the basis of its gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total liabilities but excluding
provisions, head lease obligations and preference shares, which for capital risk management is considered to be capital rather than debt, less
cash and short term deposits. Total capital is calculated as equity, as shown in the balance sheet, plus preference shares and net debt. Where the
Group has a net cash position, the gearing ratio will be zero.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
116
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.
2019
£’000
2018
£’000
928,736
847,806
111,843
141,740
1,040,579
989,546
68,138
3,026
73,450
14,041
969,415
902,055
365,798
295,627
110,324
109,271
1,445,537
1,306,953
67.06%
69.02%
As at 31 December 2019
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 2018
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
1,337,682
1,337,682
–
–
–
–
–
–
2,621
–
33,846
–
–
33,846
2,621
–
Total Fair
Value
£’000
Level 1
£’000
Level 2
£’000
Level 3
£’000
–
–
–
–
–
–
22,302
1
1,175,440
1,175,440
30,548
–
–
30,548
22,302
1
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 2019 ANNUAL REPORT
2019
£’000
2018
£’000
109,769
124,107
80,037
92,553
117,758
133,265
65,218
66,757
372,782
416,682
Other
£’000
7,630
1,053
11,366
2019
£’000
683,373
110,324
217,482
–
(2,621)
20,049
1,008,558
Other
£’000
3,494
1,008
7,246
2018
£’000
643,430
109,271
206,116
NOTES TO THE FINANCIAL STATEMENTS
117
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 2019
Interest bearing loans and borrowings
Preference shares
Convertible preference shares
Derivative financial instruments
2018
£’000
643,430
109,271
206,116
(22,302)
936,515
34,334
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)
–
–
Non-cash changes
Fair
value
£’000
Foreign
exchange
£’000
Cash
flows
£’000
33,943
–
–
391
–
–
–
20,392
20,392
(1,630)
–
–
(1,102)
(2,732)
Non-cash changes
Fair
value
£’000
Foreign
exchange
£’000
Cash
flows
£’000
24,282
–
–
–
–
–
3,066
3,066
Derivative financial instruments
(6,040)
(18,848)
927,335
(29,436)
(480)
–
(22,302)
23,802
11,748
936,515
Cash flows relating to interest bearing loans and borrowings comprise:
Proceeds from long term borrowings
Repayment of long term borrowings
Movements in restricted cash
Loan amortisation
Bank borrowing costs paid
Add: Interest paid
Loan origination costs incurred
2019
£’000
2018
£’000
(284,431)
(11,173)
(54,689)
48,922
357,966
155,628
(153,152)
13,056
(50,000)
47,159
(140,096)
(23,279)
(2,841)
(10,588)
(295,604)
(22,652)
(5,767)
33,943
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, scrip dividends and the reissue of convertible preference shares in the year to settle
share-based payments.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
118
NOTES TO THE FINANCIAL STATEMENTS
38. Acquisitions
Acquisitions in the year
There were no acquisitions in the year.
Acquisitions in prior year
The Group made one corporate acquisition in the prior 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:
2018
£’000
30,805
2,444
1,490
642
1,235
(2,621)
33,995
32,958
868
169
33,995
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
Payable
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
119
ADVISERS
Registered Office:
UK Solicitors:
Registrars:
P.O. Box 522
Second Floor
La Vieille Cour
La Plaiderie
St. Peter Port
Guernsey
GY1 6EH
Company Secretary:
Benn Garnham
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
Primary and Secondary listings:
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
Valuer:
Jones Lang LaSalle
2 Letnikovskaya St.
Bldg. 1
Business centre Vivaldi Plaza
Moscow
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
The Company’s ordinary shares and preference shares are listed on the Main Market of the London Stock Exchange and admitted to the Official
List of the UK Listing Authority and the Official List of The International Stock Exchange (“TISE”). Its ordinary shares also have a secondary listing
on the main board of the Johannesburg Stock Exchange and the Moscow Stock Exchange. Its convertible preference shares are admitted to the
Official List of TISE and to trading on the SETSqx market of the London Stock Exchange.
RAVEN PROPERTY GROUP LIMITED 2019 ANNUAL REPORT
120
ENQUIRIES
Raven Property Group Limited
Tel: + 44 (0) 1481 712955
Anton Bilton
Glyn Hirsch
Novella Communications
Tel: +44 (0) 203 151 7008
Tim Robertson
Fergus Young
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
Emma Ozanne
Tel: +44 (0) 1481 729100
RAVEN PROPERTY GROUP LIMITED 2019 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