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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Nthn. Euro. | LSE:NEPR | London | Ordinary Share | JE00B1G3KL02 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.77 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
Hot Features
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RNS Number:6704S
Northern European Properties Ltd
18 April 2008
Annual Report
The period from 23 October 2006 to 31 December 2007
Northern European Properties Limited
Continuing Discontinued Total
EUR million operation operation
Gross rental revenue 103.0 63.8 166.8
Net rental income 69.3 57.9 127.2
Profit for the period 45.9 32.2 78.1
* Admitted to AIM market on 15 November 2006, raising net proceeds of
EUR 162 million
* The Company's shares were listed on Euronext Amsterdam on 18
December 2007
* Strategy remains focused on building a stabilised, income
generating portfolio in the Nordic region and Russia, with opportunities for
value uplift through active asset management
* Property portfolio comprises 79 properties with a total portfolio
fair value of EUR 1,576 million1 which includes 39 hotels, including the Finnish
hotels portfolio, which were sold in February 2008 for approximately EUR 800
million
* Acquisitions of 22 properties for EUR 220.1 million during the
period
* Disposal of 27 properties for EUR 610.7 million, generating a gain
before the effects of goodwill and tax of EUR 40.1 million, reflecting the
objective of optimising the value of the existing portfolio
* The results for the last six months of 2007 are negatively affected
by, inter alia, changes in fair value of derivatives and financing currency
exchange losses
* Adjusted NAV per share2 of EUR 1.15, an increase of 16% from the
Proforma NAV contained in the Admission Document
* Basic earnings per share for the period of EUR 0.17. Diluted
earnings per share3 for the period of EUR 0.16
* A proposed ordinary dividend of EUR 0.0392 per share for the last
six months period which would result in a total ordinary dividend for the full
period of EUR 0.0782 per share
* A proposed special dividend of EUR 0.052 per share, which together
with the total ordinary dividend results in a total proposed dividend for the
period of EUR 0.1282 per share
1) This includes a property portfolio premium of approximately EUR 18 million as
at 31 December 2007 which is not booked in the financial statements and excludes
EUR 8 million booked in these financial statements to gross up the property
portfolio value of the Finnish SPVs.
2) Calculated based on fully diluted shares outstanding as at 31 December 2007,
totalling 541 million shares.
3) Calculated based on weighted average fully diluted shares outstanding during
the period 23 October 2006 to 31 December 2007.
Chairman's Statement
It is with great pleasure that I present the first annual results for Northern
European Properties Limited (NEPR). The Company's first year has been marked by
high activity. Since NEPR's listing on AIM in November 2006, the Board has
strengthened the management team and we are well positioned for the future.
Despite being a young company we have been particularly active in the
transaction market during the last year. Since the IPO, we have acquired 22
properties for approximately EUR 220 million in five different transactions in
the Nordic region and Russia. Further, we have divested properties for
approximately EUR 1,400 million in seven transactions including the sale of the
Finnish hotels which closed in February 2008. The total asset value is after the
sale of the hotel assets at the level of EUR 800 million, and the Company now
has a healthy capital structure and a comfortable liquidity position.
The Company was listed on Euronext Amsterdam in December 2007, in addition to
its listing on AIM which we now have decided to terminate. The change of listing
is designed to assist in broadening the shareholder base of the Company and
enhancing the liquidity of the Company's shares. The cancellation of the listing
on AIM will simplify the Company's share listings and provide a single, liquid
market on which its ordinary shares can be traded.
The last year has also been characterised by volatility in the macro
environment, particularly so in the credit markets. During the first part of
last year, credit was cheap and easily accessible, asset values were on the
rise, liquidity was high and property companies traded at a premium to their net
asset value. This picture was sharply reversed during the second half of the
year in many markets. The volatility was also reflected in our share price which
peaked at EUR 1.38 in May 2007 and recorded its lowest trading in November 2007
at EUR 0.64, underperforming the sector.
Our largest home market, the Nordic countries, was also affected by last year's
financial turmoil, however to a lesser extent and lagging many other European
markets. Liquidity remained good and property values were stable. In view of
this, the Board took the decision to take advantage of the continuing liquidity
in the market and to optimise the value of our Nordic portfolio. The sales have
served to verify the Company's reported property valuations and further improve
NEPR's cash position and financial flexibility. Since the announcement of the
significant disposals in November 2007 and January 2008, the share price has
recovered and outperformed the sector.
The Board has continued to see attractive opportunities in Russia. However,
there remain considerable challenges and difficulties in procedures in order to
close transactions in Russia. In addition the debt market in Russia, as in many
other markets, was also more difficult in the second half of 2007. We announced
six acquisitions in May 2007 of which we closed two during the period. Another
two acquisitions are expected to close during the second quarter of 2008, while
one is more uncertain in timing and one transaction, an office building in St
Petersburg, has been terminated by mutual consent.
Further, the results for the extended period ended December 2007 show good
progress, but the last six months period has been impacted by, inter alia, the
fair value of derivatives and currencies. The results of the second half of 2007
and the share price development since the UK AIM Admission make us unsatisfied
even if some changes are market related and not company specific.
I am firm in my opinion that we are pursuing the right strategy in a difficult
market. The outlook for the coming year paints a divided picture. The volatility
in the market is likely to continue in the medium term which may lead to
opportunities in the Nordic arena. The Russian market is still attractive with
high economic growth fuelled by energy prices and consumption growth, which
should continue to create healthy net operating income (NOI) development for the
right type of properties. I am still confident that we can and will acquire
income producing properties in Russia and create NOI growth combined with value
increase. Further Russian investments will also diversify our property portfolio
as the Russian market is not perfectly correlated to our other home market, the
Nordic region.
The Board has evaluated different alternatives for the Company in the light of
the present market environment and found that the best value is to continue on
the present strategy, however that we need to make sure that investments result
in an immediate economic benefit. We are currently reviewing a number of
attractive transactions in Russia which we will seek to sign within the next
three months. Should no transactions materialise within the medium term then the
Board will evaluate returning further capital to shareholders.
The Board is recommending a final ordinary dividend of EUR 0.039 per share
which, together with the interim dividend, amounts to a total ordinary dividend
for the period of EUR 0.078 per share. In addition, a special dividend of EUR
0.05 is recommended per share, resulting in total recommended dividends of EUR
0.128 per share for the period.
The present dividend policy was designed for a leveraged company with no loan
repayments and low activity. In order to have sustainable and predictable
dividend payments going forward the Board has decided to revise the policy. The
new dividend policy is 70% of adjusted Funds From Operations (FFO) less loan
repayments. The lower pay-out ratio (previously 90%) will cater for capital
expenditure in the portfolio which cannot be financed by debt. Deducting loan
repayments from adjusted FFO reflects the current credit market where loan
repayments are more frequent and the larger proportion of Russian assets in the
portfolio where loan repayments are relatively high.
Review of reported results (both the continuing and discontinued entities)
This is the Group's first annual results and is characterised by the significant
level of transactions undertaken during the period since incorporation,
culminating in the recent disposal of a portfolio of 39 hotels, including the
entire Finnish hotels group together described as the disposal group, and which
on its own is significant.
This disposal has greatly impacted the Group's results by classifying all of the
related assets and liabilities onto two lines on the balance sheet with the
related operating results being treated as a discontinued operation and
separately categorised in the income statement, in accordance with IFRS.
As management primarily operate the business of the Group, being investment in
property related assets, on a combined basis, the following commentary focuses
on the results of the Group on a total basis, adding continuing and discontinued
operations together.
Income statement
Net rental income for the period ended 31 December 2007, amounted to EUR 127.2
million, in line with our expectations at the time of the IPO.
Disposal of 27 properties post UK AIM Admission for a total of EUR 610.7
million, produced gains of EUR 40.1 million before the effects of goodwill and
tax, whilst unrealised valuation gains amounted to EUR 66.9 million.
Impairment of goodwill of EUR 133.1 million of which EUR 115.9 million relates
to property disposals and includes impairment of goodwill that arose on deferred
taxes of EUR 79.0 million, and the allocated portfolio premium of EUR 36.9
million.
Administrative expenses amounted to EUR 15.8 million which is made up of general
overhead costs of EUR 5.0 million and a performance fee of EUR 10.8 million. The
general overhead costs relate to additional professional fees in connection with
the listing on Euronext, which in total approximate to EUR 2.5 million.
Finance expenses were EUR 119.3 million including a negative currency effect of
EUR 15.0 million, amortisation of loan arrangement fees of EUR 7.0 million and
interest on convertible loan notes of EUR 3.9 million. Finance income was EUR
7.4 million. The net derivative fair value gains of EUR 46.4 million, which
arises on the Group's interest rate and currency swaps used to manage the
Group's borrowings exposure to adverse interest rate and currency movements, is
due to market movements in the EUR and SEK interest rates and the SEK/EUR
exchange rate.
Profit before tax was EUR 19.8 million and the total tax expense was positive at
EUR 58.3 million, leaving the profit for the period at EUR 78.1 million. The
positive deferred income tax relates to deferred taxes connected to the disposed
properties. The majority of taxes in the income statement are not payable since
they are mitigated by depreciation charges under tax accounting.
Earnings per share was EUR 0.17 and, on a diluted basis, EUR 0.16.
In the table below the consolidated income statement is divided between the
first 7.5 months interim period and the last six months period. The negative
result of EUR 12.4 million during the last six months have been affected by,
inter alia, the following items:
* Valuation gains on investment properties have been positively
affected by the sale of the hotels in February 2008. However, the sale has also
increased impairment of goodwill (related to portfolio premium) by EUR 20.3
million which means the entire portfolio recorded a net valuation decrease of
EUR 8.5 million (EUR 11.8 million less EUR 20.3 million) during the last six
months.
* Disposals created a profit of EUR 12.4 million, but also an
impairment of goodwill of EUR 10.5 million (related to portfolio premium). In
addition, the disposals resulted in impairment of goodwill of EUR 65.5 million
(related to deferred tax) and also a slightly higher deferred income tax credit.
* Finance expenses were negatively affected by amortisation of
arrangement fees (EUR 5.9 million), currency effects (EUR 7.2 million), interest
on convertible loan notes (EUR 1.9 million) and other finance expenses (EUR 1.4
million), totalling EUR 16.4 million.
* Negative net change in fair value of derivatives of EUR 19.3 million
before EUR 4.4 million deferred tax credit.
* Due to additional professional fees incurred in connection with the
listing on Euronext, the Administrative expenses increased by approximately EUR
2.5 million.
Consolidated Income Statement 1 Jul 2007 - 23 Oct 2006 23 Oct 2006 -
EUR million - 31 Dec 2007 - 30 Jun 2007 - 31 Dec 2007
Gross rental income 71.7 95.1 166.8
Property operating expenses (18.5) (21.1) (39.6)
Net rental income 53.2 74.0 127.2
Valuation gains on investment properties 11.8 55.1 66.9
Profit on disposal of investment 12.4 27.7 40.1
properties
Net gains on investment properties 24.2 82.8 107.0
Administrative expenses (3.4) (12.4) (15.8)
Impairment of goodwill (96.3) (36.8) (133.1)
Net profit (22.3) 107.6 85.3
Finance income 3.1 4.3 7.4
Finance expenses (55.6) (63.7) (119.3)
Net changes in fair value of derivatives (19.3) 65.7 46.4
Net finance expenses (71.8) 6.3 (65.5)
Profit before tax (94.1) 113.9 19.8
Current income tax expense (2.8) 1.5 (1.3)
Deferred income tax credit 84.5 (24.9) 59.6
Profit for the period (12.4) 90.5 78.1
The table includes continuing and discontinued entities' results together
Balance Sheet
As of 31 December 2007, the total non-current assets amounted to EUR 1,779.3
million of which EUR 1,565.5 million was investment properties (EUR 804.6
million attributable to discontinued operations) and EUR 193.7 million was
goodwill (EUR 85.4 million attributable to discontinued operations). Goodwill
consists mainly of deferred taxes (EUR 175.9 million) and portfolio premium (EUR
17.8 million). Current assets of the continuing operation were EUR 173.1 million
which consist of derivative financial instruments (EUR 23.5 million), trade and
other receivables (EUR 35.6 million) and cash and cash equivalents (EUR 114.0
million). Current assets within the disposal group held for sale amounting to
EUR 42.0 million are cash and cash equivalents, derivative financial instrument
assets, and trade and other receivables, related to the companies that were sold
in February 2008. Total assets amounted to EUR 1,994.4 million.
Equity attributable to equity holders of the parent was EUR 585.4 million and
minority interest was EUR 5.5 million. Non-current liabilities of the continuing
operation were EUR 658.3 million of which EUR 513.8 million were
interest-bearing loans and borrowings, EUR 38.4 million were convertible loan
notes and EUR 106.1 million were deferred tax liabilities. Should properties be
sold in a Swedish limited company, which is market practice, the deferred tax
liabilities would not be payable. Included within Liabilities directly
associated with disposal group held for sale are also non-current
interest-bearing loans and borrowings and deferred tax liabilities, related to
the companies that were sold in February 2008 amounting to EUR 662.7 million.
Total current liabilities amounted to EUR 82.5 million of which trade and other
payables accounted for EUR 75.4 million (EUR 14.6 million attributable to
discontinued operations). Total liabilities were EUR 1,403.5 million.
Adjusted Net Asset Value per share (fully diluted) is EUR 1.15 per end of
December 2007. This represents an increase of approximately 16% since Admission.
Since 30 June 2007 Adjusted NAV per share has decreased approximately EUR 0.06.
The Adjusted NAV per share has been reduced by the interim dividend of EUR 0.039
per share paid in October 2007.
Adjusted Net Asset Value calculation 31 December 30 June Admission
EUR million 2007 2007
Net Asset Value - Equity attributable to equity 585.4 613.9 481.1
holders of the parent
Convertible loans 38.4 38.2 56.5
Options 0.6 0.6 0.6
Adjusted Net Asset Value 624.4 652.6 538.2
Number of shares, fully diluted
Issued and fully paid 475.9 475.9 443.9
Convertible loans 64.8 64.8 96.8
Options 0.5 0.5 0.5
Total 541.2 541.2 541.2
Adjusted NAV per share, fully diluted 1.15 1.21 0.99
Dividend
The Board is recommending a final ordinary dividend of EUR 0.039 per share which
together with the interim dividend amounts to a total recommended ordinary
dividend for the period of EUR 0.078 per share (although the present dividend
policy of 90% of adjusted FFO would have resulted in a total ordinary dividend
of EUR 0.045 per share). In addition, a special dividend of EUR 0.05 per share
is recommended as part of the final dividend for 2007, resulting in total
recommended dividends of EUR 0.128 per share for the period, so that the total
dividends expected to be paid on 29 May 2008 amount to EUR 0.089 per share. For
further details in relation to the special dividend see appendix 1. The final
ordinary and special dividends are both expected to be paid on 29 May 2008 to
shareholders on the register at the close of business on 1 May 2008. The
ex-dividend date is 29 April 2008.
Revised dividend policy
As set out in the AIM Admission Document the Company expects to distribute
approximately 90% of adjusted net realised income (FFO) to shareholders over the
course of each financial year. The Board has approved to adopt a revised
dividend policy that will take effect in 2008.
The revised policy is 70% of adjusted FFO less loan repayments. The rationale
behind the change of policy is that the previous policy was derived from the
income statement and did not take into account loan repayments and capital
expenditure. With a changed credit market and a larger portion of Russian
assets, loan repayments are likely to be higher which needs to be reflected in
the policy. The lower pay-out ratio should cater for capital expenditure which
is not debt financed. The revised policy should better align cash flow from
operations and paid out dividend. The Board will on a yearly basis review the
dividend policy considering, inter alia, the property portfolio, loan repayments
and capital expenditure.
Property Portfolio
The property portfolio comprises 79 (84 as at 31 December 2006) assets with
total floor space of 1,440,000 sqm (1,751,000 sqm) with gross rental value of
approximately EUR 129 million (EUR 150 million). Economic occupancy was 95%
(94%), with an average lease length of 10.3 years (10.8 years). The improvement
in occupancy rate is due to a different portfolio composition and successful
leasing in the period.
The continuing portfolio has been valued by DTZ Sweden AB as at 31 December
2007. The total value of the portfolio was EUR 1,576 million, including a
portfolio premium of EUR 18 million but excluding EUR 8 million to gross-up the
value of the Finnish SPV (Special Purpose Vehicles) valuations. The valuation as
at 31 December 2007 represents an uplift of 3.0% from the value of the
comparable portfolio at Admission or acquisition, calculated in local currencies
(or 1.4 % calculated in EUR).
The estimated yearly net rental income for the properties held on 31 December
2007 was EUR 99 million for 2007, resulting in a net yield of 6.3%. Properties
located in Sweden and Finland accounted for 42% and 47%, respectively, of the
total market value. Hotel, industrial, office, logistics and retail properties
accounted for 54%, 22%, 11%, 8% and 5%, respectively, of the total market value.
During the period, the Company increased its exposure to hotel and retail
properties and reduced its exposure to industrial and logistics properties.
Portfolio as at 31 December 2007*
No. of Area Gross rental Occupancy Average lease Market value % Market
properties (sqm '000) value rate, length (EUR m) value
economic (%) (years)
(EUR m)
Office 5 189 19 90% 5.3 176 11%
Industrial 23 650 40 91% 6.8 350 22%
Logistics 8 146 8 100% 12.3 122 8%
Retail 2 38 11 94% 5.6 84 5%
Total 38 1,023 78 92% 6.9 732 46%
Commercial
Hotels 41 417 51 100% 15.0 844 54%
Total 79 1,440 129 95% 10.3 1,576 100%
Sweden 33 911 67 92% 7.0 661 42%
Denmark 2 45 3 100% 16.9 51 3%
Finland 38 383 45 100% 15.2 739 47%
Lithuania 1 4 1 100% 8.0 10 1%
Germany 1 15 1 100% 13.7 13 1%
Poland 2 44 1 100% 13.8 19 1%
Russia 2 38 11 94% 5.6 84 5%
Total 79 1,440 129 95% 10.3 1,576 100%
*A portfolio premium of approximately EUR 18 million is included in the values
in the table above. Gross up of the Finnish SPV valuations of approximately EUR
8 million are not included in the values in the table above.
Portfolio analysis in the financial statements Market value
(EUR m)
Investment properties per financial statements attributable to continuing 761
operation
Property portfolio premium not accounted for in the financial statements 18
Portfolio market value attributable to continuing operation 779
Investment properties per financial statements attributable to disposal group held 805
for sale
Gross up of the Finnish SPV investment property valuations (8)
Portfolio market value attributable to disposal group held for sale 797
Total 1,576
1 Jan 2007 to 31 December 2007 analysis (for properties held at 31/12/2007,
including both continuing and discontinuing entities)
Gross rental Property Net rental Net yield
income (EUR m) costs income (EUR (%)2
1 m)1
(EUR m)1
Office 16 (5) 11 6.2%
Industrial 35 (9) 26 7.1%
Logistics 8 (1) 7 6.1%
Retail 11 (4) 7 8.7%
Total Commercial 70 (19) 51 6.9%
Hotels 53 (5) 48 5.7%
Total 123 (24) 99 6.3%
Sweden 59 (15) 44 6.6%
Denmark 3 - 3 5.1%
Finland 47 (5) 42 5.7%
Lithuania 1 - 1 6.3%
Germany 1 - 1 6.6%
Poland 1 - 1 6.8%
Russia 11 (4) 7 8.7%
Total 123 (24) 99 6.3%
1) Actual figures for 2007, adjusted as if the properties have been held the entire year.
2) Actual NRI for 2007 divided by the DTZ market value per December 2007.
Since Admission 22 properties have been acquired for EUR 220.1 million. The
acquisitions were made in five transactions, of which the first two portfolios
were acquired from London & Regional Group. These acquisitions are consistent
with NEPR's right of first refusal over London & Regional's assets in the region
and were made following independent valuations by third party appraisers.
The first portfolio, consisting of 15 industrial and logistics properties, 12 of
which are in south and central Sweden, two in Poland and one in Germany, was
acquired in H1 2007 for EUR 84 million. The yield on the purchase price is 8.1%
and the average lease term is 12 years and the portfolio has a total lettable
area of about 240,000 sqm. The second portfolio, consisting of four hotels in
Finland, was also acquired in H1 2007 for EUR 47 million. The yield on the
purchase price is 6.5% and the average lease term is 15 years and the portfolio
has a total lettable area of about 28,000 sqm. The third portfolio, consisting
of a logistic property in Sweden, was also acquired in H1 2007 for EUR 6 million
with a yield on the purchase price at 7.9% and a remaining lease term of 6
years.
During H2 2007 two shopping centres were acquired in Russia (Kaliningrad and
Murmansk) for EUR 84 million. Both shopping centres are of very good quality,
being newly built and fully operational. The shopping centres are both anchored
by well-known tenants on long lease contracts. The Company also acquired an
office building connected to the shopping centre in Kaliningrad. The two
properties have a total lettable area of approximately 37,800 sqm. The average
stabilised yield on the purchase price is approximately 10%.
Further to the completed acquisitions the Company has announced the acquisition
of another four properties in Baltic Russia. Two of these, the hotel and DIY
store in St Petersburg, are expected to close during the second quarter of 2008.
The average stabilised yield on the purchase price is approximately 8%. One
office property in St Petersburg has been terminated by mutual consent. The
timing of the closing of the remaining office property in St Petersburg is
uncertain.
During the period, 27 properties in six different transactions were disposed for
a total sale price of EUR 610.7 million. The first four disposals were made in
H1 2007 consisting of a portfolio of seven office and industrial properties
located in Finland, one hotel asset in Finland and four office properties
located in Stockholm. The sale price of the eight Finnish properties was EUR 191
million, representing a yield of 5.7%. The sale price of the four Swedish
properties was EUR 44 million, representing a yield of 4.9%. During H2 2007 the
Company in two transactions disposed of 15 logistic and industrial properties
located in Sweden for EUR 376 million representing a yield of 6.6%.
Property portfolio after the sale of the hotel portfolio in February 2008
On 29 February 2008 the Company completed the sale of a portfolio of 39
properties. The portfolio consisted of all of the Company's hotel assets in
Finland, and also the hotel in Are, Sweden. The total sale price was
approximately EUR 800 million, and reflected approximately a 4% uplift on the
external valuation by DTZ, reported in the Admission document.
After the above transaction the property portfolio comprises of 40 assets with a
total market value of EUR 779 million, including a portfolio premium of EUR 18
million. The total floor space is 1,035,000 sqm and the gross rental value is
approximately EUR 80 million. The economic occupancy rate is 92% with an average
lease length of 7.0 years. The yearly net rental income for 2007 was EUR 53
million, resulting in a net yield of 6.8%. Properties located in Sweden and
Russia account for 77% and 11%, respectively, of the total market value.
Industrial, office, logistics and retail properties accounted for 45%, 23%, 16%
and 11%, respectively, of the total market value.
The outstanding interest-bearing debt after the sale will be EUR 404 million
with an average interest cost of 5.6%, excluding the convertible loan notes and
also excluding the impact of loan arrangement fees.
The available cash balance after the hotel sale amounts to approximately EUR 210
million. This cash balance will be reduced by the proposed dividend by the Board
and the acquisitions of the remaining three Baltic Russian assets.
Portfolio as at 31 December 2007 excluding the hotel portfolio sold in February 2008
No. of Area Gross rental Occupancy Average lease Market value % Market
properties (sqm '000) value rate, length (EUR m) value
economic (%) (years)
(EUR m)
Office 5 189 19 90% 5.3 176 23%
Industrial 23 650 40 91% 6.8 350 45%
Logistics 8 146 8 100% 12.3 122 16%
Retail 2 38 11 94% 5.6 84 11%
Total 38 1,023 78 92% 6.9 732 94%
Commercial
Hotels 2 12 2 100% 8.0 47 6%
Total 40 1,035 80 92% 7.0 779 100%
Sweden 32 889 63 91% 6.4 602 77%
Denmark 2 45 3 100% 16.9 51 7%
Finland - - - - - - -
Lithuania 1 4 1 100% 8.0 10 1%
Germany 1 15 1 100% 13.7 13 2%
Poland 2 44 1 100% 13.8 19 2%
Russia 2 38 11 94% 5.6 84 11%
Total 40 1,035 80 92% 7.0 779 100%
*Portfolio premium of EUR 18 million is included in the values in the table
above.
1 Jan 2007 to 31 December 2007 analysis (for properties held at 31 December
2007 but excluding the hotel portfolio sold in February 2008)
Gross rental Property Net rental Net yield
income (EUR m) costs income (EUR (%)2
1 m)1
(EUR m)1
Office 16 (5) 11 6.2%
Industrial 35 (9) 26 7.1%
Logistics 8 (1) 7 6.1%
Retail 11 (4) 7 8.7%
Total Commercial 70 (19) 51 6.9%
Hotels 3 (1) 2 5.3%
Total 73 (20) 53 6.8%
Sweden 56 (16) 40 6.7%
Denmark 3 - 3 5.1%
Finland - - - -
Lithuania 1 - 1 6.3%
Germany 1 - 1 6.6%
Poland 1 - 1 6.8%
Russia 11 (4) 7 8.7%
Total 73 (20) 53 6.8%
1) Actual figures for 2007, adjusted as if the properties have been held the entire year.
2) Actual NRI for 2007 divided by the DTZ market value per December 2007.
Asset Management
The leasing activities during 2007 have resulted in a net increase in annual
gross rent of approximately EUR 3.3 million (38,700 sqm). This is the result of
102 new leases signed with an annual rent of EUR 4.7 million (53,500 sqm) and 30
being terminated with an annual rent of EUR 1.4 million (14,800 sqm). Capital
expenditure on the existing portfolio, including capital expenditure spent on
sold properties, amounted to approximately EUR 43 million.
Additional building rights on existing land of approximately 10,000 sqm has been
identified and approved by the authorities.
Management
NEPR has an existing asset and company management agreement with London &
Regional. As a result of the agreement the Company shall pay a performance fee
of EUR 10.8 million in addition to the base fee of 0.4% on the asset value. The
performance fee is based on the NAV increase for the period (adjusted for, inter
alia, dividends paid). The structure of the management contract was established
at the time of the IPO after consultation with major investors.
The Board has decided to evaluate whether the management should be brought
in-house especially in the Nordic region. The team has during the year been
strengthened and is a valuable asset of the Company. In addition, the Chairman
has been asked and accepted the role of Executive Chairman, thereby increasing
his engagement with the Company in order to support the ongoing activities and
develop the strategy further.
Euronext and AIM
The Company's shares were listed on Euronext Amsterdam on 18 December 2007. The
Board considers that the Euronext listing better reflects the Company's
investment focus in mainland Europe and Russia, its size and the denomination of
both its reporting currency and share price in Euros and will assist in
broadening the shareholder base. The Board intends to cancel the listing of the
Company's shares on AIM in order to simplify the Company's sharelistings and
provide a single, liquid market on which its ordinary shares can be traded. A
separate announcement will be made detailing the proposed cancellation of the
AIM listing.
AGM
The Company's AGM will be held at 13 Castle Street, St Helier, Jersey, JE4 5UT
on 22 April 2008 at 8 a.m. Notice of the AGM has been sent to shareholders and a
copy of the Notice of AGM is available on the Company's website.
Change of name
The Board has proposed to the AGM to change the Company's name to NR Nordic &
Russia Properties Ltd. The change is being made in order to better reflect the
Company's activities.
Share buy-back
The Company has previously been granted the authority to buy back shares in the
market in order to enhance shareholders' returns. The Board continues actively
to monitor share buy back opportunities and is proposing that the AGM will
mandate the Board for a share buy back program until the 2009 AGM allowing the
Company to a maximum buy-back of 15% of the issued share capital. The Board will
evaluate and consider the Company's liquidity, capital commitments and other
business opportunities in line with strategy prior to activating such a mandate.
Outlook
It is obvious that the market has been slower and more volatile in the wake of
the credit market turmoil, which has also affected the property and equity
markets. It is harder to get property transactions done in today's market and
there are expectations of higher risk premiums in the Nordic markets going
forward. However, a volatile market will offer opportunities which we are well
positioned to take advantage of in the future.
The Russian market still offers relatively high yield investments in a fast
growing economy where a combination of rental growth and further yield shift
should provide attractive return opportunities to shareholders. The largest
cities outside the central business districts and regional cities are expected
to have the most favourable development. We recognise that the Russian market
poses a higher operational and financial risk compared to the Nordic market and
we will seek to mitigate these risks through London & Regional's local expertise
combined with applying lower leverage to our Russian portfolio. We remain
confident in our ability to grow our portfolio of stable, income producing
properties in order to generate value for shareholders.
The report is also available on the Company's webpage:
www.northerneuropeanproperties.com
Enquires:
Thomas Lindeborg, CEO Jens Engwall, Chairman
Tel: +44 (20) 7499 40 60 Tel: +46 70 690 65 50
Email: tlindeborg@lrp.co.uk Email: jens.engwall@lrp.se
Per Lindblad, CFO
Tel: +46 8 456 32 51
Email: per.lindblad@lrp.se
The directors present their first report and the consolidated financial
statements for the period from 23 October 2006 to 31 December 2007.
Incorporation
The Company was incorporated in Jersey on 23 October 2006, and began trading on
15 November 2006 with all results being generated after this date.
Results and dividends
The results for the period are set out in the financial statements on page 15.
The directors have recommended a final dividend for the period of EUR 0.039 per
share and a special dividend of EUR 0.05 per share. This recommendation, with
the interim dividend paid of EUR 0.039 per share, results in a total proposed
dividend of EUR 0.128 per share for the period.
Directors
The present membership of the Board is set out below. All directors served
throughout the period.
Jens Engwall Chairman
Michael Hirst Director
Ian Livingstone Director
Christopher Lovell Director
Kari Osterlund Director
Martin Sabey Director
Directors' interest
Mr. Ian Livingstone is an affiliate of, and thus may be deemed to have an
indirect interest in, each of the members of the London & Regional Group that is
a party to agreements taken place during the period. See note 29. Mr. Kari
Osterlund is a director of Holiday Club Oy, an affiliate to the London &
Regional Group.
Directors' responsibilities for the financial statements
The directors are responsible for preparing the financial statements for each
financial period which give a true and fair view of the state of affairs of the
Company and of the revenue and expenditure of the Company 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; and
* prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and to enable them to ensure that the financial statements
have been properly prepared in accordance with International Financial Reporting
Standards (IFRS) and the historical cost convention, as modified by the
revaluation of investments. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the prevention
and detection of fraud, errors and non-compliance with the law or regulations.
The directors confirm that they have complied with all of the above requirements
in preparing these financial statements.
Disclosure of information to auditors
So far as each director is aware, there is no relevant audit information of
which the Company's auditors are unaware. Each director has taken all steps that
he ought to have taken in his duty as a director in order to make himself aware
of any relevant audit information and to establish that the Company's auditors
are aware of that information.
Independent Auditors
The auditors, PricewaterhouseCoopers LLP have indicated their willingness to
continue in office and a resolution proposing their reappointment will be put to
the Annual General Meeting.
Approved by the Board
Director: Jens Engvall
Date: Stockholm April 18, 2008
We have audited the Group and Parent Company financial statements (the ''
financial statements'') of Northern European Properties Limited for the period
ended 31 December 2007 which comprise the Consolidated Income Statement, the
Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow
Statements, the Group and Parent Company Statements of Changes in Equity and the
related notes. These financial statements have been prepared under the
accounting policies set out therein.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report, and the
financial statements in accordance with applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union are set
out in the Directors' responsibilities for the financial statements contained
within the Directors' Report.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland). This report, including the opinion, has been prepared
for and only for the Company's members as a body in accordance with Article 110
of the Companies (Jersey) Law 1991 and for no other purpose. We do not, in
giving this opinion, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the financial statements give a true
and fair view have been properly prepared in accordance with the Companies
(Jersey) Law 1991 and, as regards the Group financial statements, Article 4 of
the IAS Regulation. We also report to you if, in our opinion, the Company has
not kept proper accounting records, if we have not received all the information
and explanations we require for our audit, or if information specified by law
regarding directors' remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited financial statements. The other information
comprises only the Highlights, Chairman's Statement, the Finance and property
review and the Directors' Report. We consider the implications for our report if
we become aware of any apparent misstatements or material inconsistencies with
the financial statements. Our responsibilities do not extend to any other
information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Group's and Company's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:
* the Group financial statements give a true and fair view, in
accordance with IFRSs as adopted by the European Union, of the state of the
Group's affairs as at 31 December 2007 and of its profit and cash flows for the
period then ended;
* the Parent Company financial statements give a true and fair view, in
accordance with IFRSs as adopted by the European Union of the state of the
parent company's affairs as at 31 December 2007 and cash flows for the period
then ended; and
* the financial statements have been properly prepared in accordance
with the Companies (Jersey) Law 1991 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
PricewaterhouseCoopers LLP
Chartered Accountants
London
Date: April 18, 2008
Notes:
(i) The maintenance and integrity of the Northern European website
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 website.
(ii) Legislation in Jersey governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
Continuing Discontinued Total
operations operations
23 Oct 2006 - 23 Oct 2006 - 23 Oct 2006 -
Note 31 Dec 2007 31 Dec 2007 31 Dec 2007
Gross rental revenue 1 103.0 63.8 166.8
Property operating expenses 1,2 (33.7) (5.9) (39.6)
Net rental income 1 69.3 57.9 127.2
Valuation gains on investment properties 1,13 21.1 45.8 66.9
Profit on disposals of investment 1,5 40.1 0.0 40.1
properties
Net gains on investment properties 1 61.2 45.8 107.0
Administrative expenses 1 (14.4) (1.4) (15.8)
Impairment of goodwill 1,14 (112.8) (20.3) (133.1)
Operating profit 1 3.3 82.0 85.3
Finance income 6 7.4 0.0 7.4
Finance expenses 7 (79.5) (39.8) (119.3)
Net changes in fair value of derivatives 19 42.6 3.8 46.4
Net finance expenses (29.5) (36.0) (65.5)
Profit before tax (26.2) 46.0 19.8
Current income tax expense 8 (2.0) 0.7 (1.3)
Deferred income tax credit 8 74.1 (14.5) 59.6
Profit for the period from continuing 45.9 32.2 78.1
operations
Profit for the period from discontinued 32.2
operations
Profit for the period 78.1
Attributable to:
Equity holders of the parent (EUR) 78.1
Minority interest (EUR) -
Earnings per share attributable to equity
holders of the company during the period:
Basic earnings per share (EUR) 10 0.17
Diluted earnings per share (EUR) 10 0.16
The notes on pages 20 to 38 are an integral part of these consolidated financial
statements.
Group Parent company
Note 31 December 2007 31 December 2007
Assets
Non-current assets
Investment properties 13 760.9 -
Goodwill 14 108.3 -
Investments in subsidiaries 15 44.0
Long term receivables 16 2.5 466.1
Other investments 0.1 -
Deferred tax assets 17 15.3 -
Total non-current assets 887.1 510.1
Disposal group held for sale 18 934.2 -
Current assets
Derivative financial instruments 19 23.5 -
Trade and other receivables 20 35.6 1.2
Cash and cash equivalents 21 114.0 16.9
Total current assets 173.1 18.1
Total assets 1,994.4 528.2
Equity
Ordinary share capital 22 85.9 85.9
Ordinary share premium 10.7 10.7
Equity portion of convertible loan notes 30.2 30.2
Other reserves 371.4 371.4
Foreign currency translation reserve 9.1 -
Retained earnings 78.1 (23.9)
Equity attributable to equity holders of the parent 585.4 474.3
Minority interest 5.5 -
Total equity 590.9 474.3
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 24 513.8 -
Convertible loan notes 24 38.4 38.4
Deferred tax liabilities 17 106.1 -
Total non-current liabilities 658.3 38.4
Current liabilities
Interest-bearing loans and borrowings 24 6.1 -
Trade and other payables 25 60.8 15.5
Total current liabilities 66.9 15.5
Liabilities directly associated with disposal group held for 18 678.3 -
sale
Total liabilities 1,403.5 53.9
Total equity and liabilities 1,994.4 528.2
Approved by the Board on April 18, 2008
Director: Jens Engvall
Director: Martin Sabey
The notes on pages 20 to 38 are an integral part of these consolidated financial
statements.
Ordinary Ordinary Equity Other Foreign Retained Shareholders' Minority Total
share share portion of reserves currency earnings equity interests Equity
capital premium convertible translation
loan notes reserve
Balance at 23 October 2006 - - - - - - - - -
Ordinary share issue 443.9 9.0 - - - - 452.9 - 452.9
Issue of convertible
loan notes - - 45.2 - - - 45.2 - 45.2
Business combinations - - - - - - - 5.5 5.5
Reduction of stated
capital (390.0) - - 390.0 - - - - -
account
Conversion of convertible
loan 32.0 1.7 (15.0) - - - 18.7 - 18.7
notes
Dividends (note 11) - - - (18.6) - - (18.6) - (18.6)
Currency translation - - - - 9.1 - 9.1 - 9.1
differences
Profit after taxation - - - - - 78.1 78.1 - 78.1
Balance at 31 December
2007 85.9 10.7 30.2 371.4 9.1 78.1 585.4 5.5 590.9
The ordinary share capital account of the Company has been reduced by EUR 390.0
million and transferred to a special other reserve which shall be treated as
realised profits of the Company and shall be available for distribution to
shareholders of the Company by way of dividend, return of capital, purchase of
shares or otherwise and/or transfer to the income statement of the Company to
the extent of any accrued losses thereon at any time.
The notes on pages 20 to 38 are an integral part of these consolidated financial
statements.
Ordinary Ordinary Equity Other Retained Share-holders'
share share portion of reserves earnings equity
capital premium convertible
loan notes
Balance at 23 October 2006 - - - - - -
Ordinary share issue 443.9 9.0 - - - 452.9
Issue of convertible loan notes - - 45.2 - - 45.2
Business combinations - - - - - -
Reduction of stated capital (390.0) - - 390.0 - -
account
Conversion of convertible loan 32.0 1.7 (15.0) - - 18.7
notes
Dividends (note 11) - - - (18.6) - (18.6)
Profit after taxation - - - - (23.9) (23.9)
Balance at 31 December 85.9 10.7 30.2 371.4 (23.9) 474.3
The ordinary share capital account of the Company has been reduced by EUR 390.0
million and transferred to a special other reserve which shall be treated as
realised profits of the Company and shall be available for distribution to
shareholders of the Company by way of dividend, return of capital, purchase of
shares or otherwise and/or transfer to the income statement of the Company to
the extent of any accrued losses thereon at any time.
The notes on pages 20 to 38 are an integral part of these consolidated financial
statements.
Group Parent
23 October 2006 - 23 October 2006 -
Note 31 December 2007 31 December 2007
Cash flow from operating activities
Profit/ (loss) before tax 19.8 (23.9)
Adjustments for:
Impairment of goodwill 14 133.1 -
Provision against a long-term intercompany debtor 15.5
Unrealised net revaluation gains on investments 13 (66.9) -
properties
Gains on sale of investment properties 5 (40.1) -
Interest income 6 (7.4) (31.1)
Interest expense 7 119.3 26.0
Unrealised net revaluation gains/losses on derivatives 19 (46.4) -
Asset management performance fee 10.8 10.8
Provision for pensions (0.5) -
Cash flow from operations before changes in working 121.7 (2.7)
capital, interest and tax
Change in trade and other receivables 29.8 6.1
Change in trade and other payables 8.2 3.4
Cash flow from operations before interest and tax 159.7 6.8
Interest paid (72.5) (1.5)
Interest received 7.4 25.5
Income tax paid (1.3) -
Cash flow from operating activities 93.3 30.8
Cash flow from investing activities
Proceeds from sale of investment properties 5 610.7 -
Acquisition of investment properties 13 (220.1) -
Capital expenditures on investment properties (43.4) -
Acquisition of receivables - (100.0)
Investment in subsidiaries - (44.0)
New loans to subsidiaries - (113.8)
Repayments of loans from subsidiaries - 100.6
Acquisition of financial assets (0.3) -
Acquisition of subsidiaries (net of cash acquired) 12 (16.6) -
Cash flow from investing activities 330.3 (157.2)
Cash flow from financing activities
Net proceeds from the issue of share capital 161.9 161.9
Dividend 11 (18.6) (18.6)
Borrowings drawn 24 120.8 -
Borrowings repaid 24 (543.4) -
Cash flow from financing activities (279.3) 143.3
Net increase in cash and cash equivalents 144.3 16.9
Cash and cash equivalents at 23 October 2006 - -
Effect of exchange rate fluctuations on cash held (2.1) -
Cash and cash equivalents as at 31 December 2007 21 142.2 16.9
Attributable to continuing operations 114.0 16.9
Attributable to disposal group held for sale 18 28.2 -
The notes on pages 20 to 38 are an integral part of these consolidated financial
statements.
General information
Northern European Properties Limited (the Company or the Parent Company) is a
Jersey incorporated company which invests in real estate opportunities in the
Nordic and Baltic regions and Baltic Russia. Through acquisition of the initial
property portfolio as of 15 November 2006, which has been acquired from London &
Regional Group who have built this portfolio since 2002, the Company and its
subsidiaries, together the Group, operate well-established local operations in
these regions. The financial period of the Company is from 1 January to 31
December with the Company's first financial period starting at incorporation on
23 October 2006 and ending on 31 December 2007.
Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) and IFRIC interpretations as
endorsed by the EU. The basis of accounting and format of presentation is
subject to change following any further interpretative guidance that may be
issued by the International Accounting Standards Board ("IASB") and the
International Financial Reporting Interpretation Committee ("IFRIC") from time
to time. As the Parent Company, the ultimate holding company, was incorporated
on 23 October 2006, this is the first annual report presented by the Group.
Consequently, no comparative figures are presented. Further, as no annual
reports have been issued previously, the Group has not previously disclosed any
accounting policies.
The preparation of financial statements in conformity with IFRS requires the use
of estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Although these estimates are
based on management's best knowledge of the amount, event or actions, actual
results ultimately may differ from those estimates.
Standards, interpretations and amendments to published standards that is not yet
effective.
The following new Standards and Interpretations have been issued but are not
effective for the period ended 31 December 2007, and have not been adopted
early, IFRS 7 'Financial Instruments: Disclosures' and the related amendment to
IAS 1 on capital disclosures, IFRS 8 'Operating Segments', IFRIC 7 'Applying the
Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary
Economies', IFRIC 8 'Scope of IFRS 2', IFRIC 9 'Reassessment of Embedded
Derivatives', IFRIC 10 'Interim Financial Reporting and Impairment', IFRIC 11 '
IFRS 2 - Group and Treasury Share Transactions', and IFRIC 12 'Service
Concession Arrangements'. It is anticipated that the adoption of these new
Standards and Interpretations in future periods will not have a material impact
on the measurement of assets and liabilities included in the financial
statements or the Group's income and expenses. IFRS 7 is expected to result in
additional disclosure about the Group's financial instruments.
In Accordance with the requirements of IFRIC 4 Determining whether an
arrangement contains a lease, the Group has reviewed its sales and purchase
arrangements to ascertain whether any of them effectively contain a lease with
the Group acting as either lessor or lessee. No changes to the accounting
treatments of the Group's sales and purchase arrangements have been necessary.
Significant accounting policies
The functional currency of the Parent Company is Euro (EUR/ Euro). The
presentation currency of the Group's consolidated financial statements is Euro.
The financial statements are presented in millions of Euro and have been
prepared under the historical cost convention as modified by the revaluation of
investment properties and financial assets and liabilities held for trading.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and companies that it controls. Control is achieved where the
Company has the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities. This is generally the
situation when the Company, either directly or indirectly, has a shareholding
that entitles it to more than 50 percent of the voting rights. Consideration is
also given to potential voting rights.
The profit/loss of subsidiaries acquired or disposed of during the period is
included in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line with those used in the
Group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Minority interests in the net assets of consolidated subsidiaries are identified
separately from the Group's equity therein. Minority interests consist of the
amount of those interests as of the date of the original business combination
(see below) and the minority's share of changes in equity since the date of the
combination. Losses applicable to the minority in excess of the minority's
interest in the subsidiary's equity are allocated against the interests of the
Group except to the extent that the minority has a binding obligation and is
able to make an additional investment to cover the losses.
Business combinations
The acquisition of subsidiaries is reported using the purchase method. The cost
of the acquisition is measured at the aggregate of the fair value, on the
transaction date, of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquired company,
plus any costs directly attributable to the business combination. The acquired
company's identifiable assets, liabilities and contingent liabilities are
reported at their fair values on the acquisition date, the excess resulting from
the difference between the acquisition cost of the shares and participation
acquired and the total of the fair value of the identifiable net assets is
reported as goodwill. If the acquisition cost is less than the fair value of the
net assets of the acquired subsidiary, the difference will be reported directly
in the income statement.
The interests of minority shareholders in the acquired company is initially
calculated as the minority's proportion of the net fair value of the assets,
liabilities and contingent liabilities recognised.
In case where a group of assets or net assets are acquired that does not
constitute a business, the cost of the group is allocated between the individual
identifiable assets and liabilities in the group based on their relative fair
values at the date of acquisition.
Foreign currencies
All foreign subsidiaries record their accounts in their local currency (i.e. the
currency of the primary economic environment in which the subsidiary operates,
which is known as the functional currency). Transactions denominated in foreign
currencies during the period have been translated at the exchange rate
prevailing as of the respective transaction date. Trade receivables and trade
payables and other receivables and payables denominated in foreign currency have
been translated at the exchange rates prevailing on the balance sheet date. Such
exchange rate gains and losses are included in other operating income and other
operating expense. Other foreign currency financing related items have been
included in financial income and financial expense.
For the purpose of presenting consolidated financial statements, the assets and
liabilities of the Company's foreign subsidiaries are expressed in Euro using
exchange rates prevailing on the balance sheet date. Income statements are
translated at the average exchange rates for the period. Exchange differences
arising, if any, are classified as equity and transferred to the translation
reserve. When a foreign operation is disposed of such translation differences
are recognised in the consolidated income statement in the period of disposal.
Revenue recognition
Gross rental income is calculated on an accrual basis, together with sales and
services as principal in the ordinary course of business, excluding sales of
investment properties. Rental income from investment property leased out under
operating leases is recognised in the income statement on a straight-line basis
over the term of the lease. Lease incentives granted are recognised as an
integral part of the total rental income and spread over the same period.
Contingent rents, being those lease payments that are not fixed at the inception
of a lease, for example increases arising on rent reviews, are recorded as
income in the periods in which they are earned. Rent reviews are recognised as
income, based on estimates, when it is reasonable to assume they will be
received.
Where gains and losses are incurred by the sale of properties, they are
recognised when the significant risk and rewards have been transferred to the
buyer. This will normally take place on exchange of contracts unless there are
significant conditions attached. For conditional exchanges, sales are recognised
when these conditions are satisfied.
Dividends are recognised when the shareholders' right to receive payment has
been established. Interest income is accrued on a time basis, by reference to
the principal outstanding and the effective interest rate.
Borrowing Costs
Borrowing costs are recognised as an expense in the period incurred, using the
effective interest rate method.
Termination benefits
Termination benefits are payable when employment is terminated before the normal
retirement date, or when an employee resigns voluntarily in exchange for these
benefits. The Group recognises termination benefits when it is demonstrably
committed to either: terminating the employment according to a detailed formal
plan without possibility of withdrawal, or providing termination benefits as a
result of an offer made to encourage voluntary retirement that has been accepted
by those that received the offer. Benefits falling due more than 12 months after
the balance sheet date are discounted to their present value, if material.
Share-based payment
Equity settled share based payments to employees and others providing services
are measured at the fair value of the equity instrument on the issue date. Fair
value is measured by use of the Black & Scholes model.
Transactions regarding compensation involving shares (paid with equity
instruments) with other parties are measured at the fair value of the goods or
services received, except where fair value cannot be estimated reliably, in
which case they are measured at the fair value of the equity instruments issued
measured on the date the Group received the service from the other party.
Taxation
The Parent Company has obtained exempt company status in Jersey under the
provision of Article 123(A) of the Income Tax (Jersey) Law 1961. As an exempt
company, the income and capital gains of the Company other than income arising
in respect of profits of a trade carried on through an established place of
business in Jersey (excluding Jersey bank deposit interest) is exempt from
taxation in Jersey.
Income tax expense represents the sum of the current tax and deferred tax in the
countries in which the Group operates.
The current tax payable is based on taxable profit for the period. Taxable
profit differs from profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years (temporary differences) and it further excludes items that are never
taxable or deductible (permanent differences). The Group's liability for current
tax is calculated using tax rates that have been enacted or substantially
enacted by the balance sheet date in the country in question.
Deferred tax is recognised on temporary differences between the carrying amounts
of assets and liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit, and are accounted for using the
balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilized. Such
assets and liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries except where the Group is able to control
the reversal of the temporary difference and it is probable that the temporary
difference will not be reversed in the foreseeable future.
The carrying amount of deferred tax assets is reviewed on each balance sheet
date and reduced in cases where it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply, based on
currently enacted tax law, in the period when the liability is settled or the
asset realised. Deferred tax is charged or credited to income statement, except
when it relates to items charged or credited directly to equity, in which case
the deferred tax is also dealt with under equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities,
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
Leases
All leases are classified as operating leases.
Rentals receivable under operating leases are charged to the income statement on
a straight-line basis over the term of the relevant lease. Benefits given as an
incentive to enter into an operating lease are also allocated on a straight-line
basis over the lease term.
Investment properties
Investment properties are properties owned or leased by the Group which are held
for long-term rental income and for capital appreciation. Investment properties
are initially recognised at cost. All costs directly associated with the
purchase of the properties are included in the cost of acquisition.
The Group has elected to use the fair value method. This means that,
subsequently after initial recognition investment properties are re-valued at
the balance sheet date to fair value as determined by professional qualified
external valuers on the basis of market value. Fair values is based on market
values, being the estimated amount for which a property could be exchanged on
the date of valuation between a willing buyer and willing seller in an arm's
length transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion. Gains or losses arising from
changes in the fair value of investment properties are included in the income
statement in the period in which they arise. Gains or losses include profit on
disposal of investment properties which is the difference between the proceeds
on sale and the carrying amount at the beginning of the period. Depreciation is
not provided in respect of investment properties.
When the Group redevelops an existing investment property for continued use as
an investment property, the property remains an investment property measured at
fair value. When an item of property, plant and equipment is transferred to
investment property following a change in its use, any difference arising at the
date of transfer between the carrying amount of the item immediately prior to
transfer and its fair value is recognised directly in equity if it is a gain.
Any loss arising in this manner is recognised in the income statement
immediately.
Properties that are being constructed or developed for future use as investment
properties are classified as investment properties under development and stated
at cost until construction or development is complete, at which time they are
reclassified and subsequently accounted for as investment properties. At the
date of transfer, the difference between fair value and cost is recorded as
income in the consolidated income statement.
Non-current assets (or disposal groups) held-for-sale
Non-current assets (or disposal groups) are classified as assets held-for-sale
and stated at the lower of carrying amount and fair value less costs to sell if
their carrying amount is to be recovered principally through a sale transaction
rather than through continuing use.
Goodwill
Goodwill is initially recognised as an asset at cost and is subsequently
measured at cost less any accumulated impairment losses. Goodwill arises on the
acquisition of subsidiaries or a jointly controlled entity and relates to the
excess of the cost of the business combination over the Group's interest in the
net fair value of the identifiable assets, liabilities and contingent
liabilities of the subsidiary or jointly controlled entity recognised as of the
date of acquisition.
For the purpose of impairment testing, goodwill is allocated to each of the
Group's cash-generating units expected to benefit from the synergies of the
combination. Cash-generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the cash-generating
unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the
unit and then to the other assets of the unit pro-rata on the basis of the
carrying amount of each asset in the unit. An impairment loss recognised for
goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the amount of goodwill related to the divested
subsidiary is written off to the income statement.
Impairment of tangible and intangible assets excluding goodwill and investment
properties
On each balance sheet date, the Group reviews the carrying amounts of its
tangible (excluding investment properties) and intangible assets to determine
whether there is any indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if any).
Where it is not possible to estimate the recoverable amount of an individual
asset, the Group estimates the recoverable amount of the cash-generating unit to
which the asset belongs. Additionally, intangible assets other than goodwill
with indefinite useful lives and tangible assets which are not yet available for
use are tested for impairment annually.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised immediately in the income statement.
Where an impairment loss is subsequently reversed, the carrying amount of the
asset (cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been
recognised for the asset (cash-generating unit) in prior periods. A reversal of
an impairment loss is recognised immediately in the income statement.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance
sheet when the Group becomes a party to the contractual provisions of the
instrument. Financial assets and financial liabilities are initially and
subsequently recognised at their fair value.
Trade receivables
Trade receivables are reported at their fair value. As trade receivables have a
short expected term, they are valued at their face amount without discounting.
Trade receivables are reported at the amount they are expected to realise after
a deduction for doubtful debts, which is made on a case by case basis.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other
short-term liquid investments that are readily convertible to a known amount of
cash and are subject to an insignificant risk of changes in value. In order to
be classified as cash and cash equivalents, the maturity of the cash and cash
equivalents instruments is three months or less at the time of acquisition.
Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to foreign
exchange and interest rate risks arising from operational, financing and
investment activities. In accordance with its treasury policy, the Group does
not hold or issue derivative financial instruments for trading purposes.
Derivatives are recognised initially at fair value, which is usually equal to
cost. Subsequent to initial recognition derivatives are recorded at fair value
based on market prices, estimated future cash flows and forward rates as
appropriate. The Group does not apply hedge accounting to its derivative
financial instruments, i.e. interest rate and currency swaps. Any change in fair
value of such derivatives is recognised immediately in the income statement.
Inventories
Inventories are investment properties that have commenced development with a
view to a sale.
Financial liabilities and equity
Financial liabilities and equity instruments issued by the Group are classified
according to the substance of the contractual arrangements entered into and the
definitions of a financial liability and an equity instrument. An equity
instrument is any contract that evidences a residual interest in the assets of
the Group after deducting all of its liabilities. The accounting policies
adopted for specific financial liabilities and equity instruments are set out
below.
Interest bearing loans and borrowings (including bank loans)
Interest-bearing bank loans, overdrafts and other loans are initially measured
at fair value, and are subsequently measured at amortised cost, using the
effective interest rate method. Any difference between the proceeds (net of
transaction costs) and the settlement or redemption of loans is recognised over
the term of the borrowings in accordance with the Group's accounting policy for
borrowing costs (see above).
Convertible loans
The component parts of a convertible loan (compound instruments) are classified
separately as financial liabilities and equity in accordance with the substance
of the contractual arrangement. On the date of issue, the fair value of the
liability component is estimated using the prevailing market interest rate for a
similar non-convertible instrument. This amount is reported as a liability on an
amortised cost basis until extinguished upon conversion or at the instrument's
maturity date. The equity component is determined by deducting the amount of the
liability component from the fair value of the compound instrument as a whole.
This is recognised and included in equity, net of income tax, and is not
subsequently re-measured.
Trade payables
Trade payables are reported at their fair value. As trade payables have a short
expected term, they are valued at their face amount without discounting.
Equity instruments - ordinary shares
Equity instruments (ordinary shares) issued by the Group are reported as the
proceeds received, net of direct issue costs. When the Group's own equity
instruments are repurchased, consideration paid is deducted from equity as
treasury shares until they are cancelled. Where such shares are subsequently
sold or reissued, any consideration received is included in equity.
Provisions
Provisions are recognised when the Group has a present obligation as a result of
a past event, and it is probable that the Group will be required to settle that
obligation. Provisions are measured at the directors' best estimate of the
expenditure required to settle the obligation on the balance sheet date, and are
discounted to present value where the effect is material.
Present obligations arising under onerous contracts are recognised and measured
as a provision. An onerous contract is considered to exist where the Group has a
contract under which the unavoidable cost of meeting the obligation under the
contract exceeds the economic benefits expected to be received under it.
Segment reporting
A segment is a distinguishable component of the Group that is engaged in either
providing services or products (business segment) or in providing services or
products within a particular economic environment (geographical segment), which
is subject to risks and reward that are different from those of other segments.
The primary segment reporting format of the Group is geographical segments,
since the risks and rewards are predominantly affected by geographical
differences.
Critical accounting policies and judgements
The preparation of the Consolidated Financial Statements requires management to
make estimates and assumptions that affect the reported amounts of revenues,
expenses, assets and liabilities, and disclosure of contingencies at the date of
the Consolidated Financial Statements. If in the future such estimates and
assumptions, which are based on management's best judgement at the date of the
Consolidated Financial Statements, deviate from the actual circumstances, the
original estimates and assumptions will be modified, as appropriate, in the
period in which the circumstances change. The following policies are considered
to be of greater complexity and/or particularly subject to the exercise of
judgement.
(a) Goodwill
As required by IAS 36, Impairment of Assets, the Group regularly monitors the
carrying value of its assets, including goodwill. Impairment reviews compare the
carrying values to the present value of future cash flows that are derived from
the relevant asset or cash-generating unit. These reviews therefore depend on
management estimates and judgements, in particular in relation to the
forecasting of future cash flows and the discount rate applied to the cash
flows.
(b) Estimate of fair value of investment properties
The best evidence of fair value is current prices in an active market for
similar lease and other contracts. In the absence of such information, the Group
determines the amount within a range of reasonable fair value estimates. In
making its judgement, the Group considers information from a variety of sources
including:
i) current prices in an active market for properties of a
different nature, condition or location (or subject to different lease or other
contracts), adjusted to reflect those differences
ii) recent prices of similar properties in less active
markets, with adjustments to reflect any changes in economic conditions since
the date of the transactions that occurred at those prices; and
iii) discounted cash flow projections based on reliable
estimates of future cash flows, derived from the terms of any existing lease and
other contracts, and (where possible) from external evidence such as current
market rents for similar properties in the same location and condition, and
using discount rates that reflect current market assessments of the uncertainty
in the amount and timing of the cash flows.
(c) Principal assumptions for management's estimation of fair value of
investment properties
If information on current or recent prices of the Group's investment properties
is not available, the fair value of investment properties is determined using
discounted cash flow valuation techniques. The Group uses assumptions that are
mainly based on market conditions existing at each balance sheet date. The
principal assumptions underlying management's estimation of fair value are those
related to: the receipt of contractual rentals; expected future market rentals;
void periods; maintenance requirements; and appropriate discount rates. These
valuations are regularly compared to actual market yield data and actual
transactions by the Group and those reported by the market. The expected future
market rentals are determined on the basis of current market rentals for similar
properties in the same location and condition.
1. Segment reporting
Segment information is presented in respect of the Group's geographical
segments, which is based on the Group's management and internal reporting
structure, and considered the primary format. There were no inter-segment sales
between geographical areas. Profit on disposal of investment properties under "
other" include EUR 19.1 million relating to disposed assets in Finland which did
not relate to the Finnish hotel disposal group. The Group geographical segments
operate in four main business areas. The split between the business areas are
based on the Group's management and international reporting structure. The
parent company is a holding company and does not operate in any segment.
Primary reporting format - Geographical segments
23 October 2006 - 31 December 2007
Sweden Russia Other Unallocated Contin. Discon. Total
Operat. Operat.
Gross rental revenue 91.9 4.5 6.6 - 103.0 63.8 166.8
Property operating expenses (30.8) (1.8) (1.1) - (33.7) (5.9) (39.6)
Net rental income 61.1 2.7 5.5 - 69.3 57.9 127.2
Valuation gains on investment 21.0 - 0.1 - 21.1 45.8 66.9
properties
20.0 - 20.1 - 40.1 - 40.1
Profit on disposal of investment
properties
Net gains on investment properties 41.0 - 20.2 - 61.2 45.8 107.0
Administrative expenses/other - - - (3.6) (3.6) (1.4) (5.0)
Administrative expenses/Asset - - - (10.8) (10.8) - (10.8)
management performance fee
Impairment of goodwill (97.5) - - (15.3) (112.8) (20.3) (133.1)
Operating profit 4.6 2.7 25.7 (29.7) 3.3 82.0 85.3
Segment assets
Investment properties 587.2 84.2 89.5 - 760.9 804.6 1,565.5
Goodwill 96.0 - 12.3 - 108.3 85.4 193.7
Other assets - - - 191.0 191.0 44.2 235.2
Total assets 683.2 84.2 101.8 191.0 1,060.2 934.2 1,994.4
Segment liabilities
Long term liabilities 574.8 16.0 29.1 38.4 658.3 662.7 1,321.0
Short term liabilities 44.0 5.0 7.1 10.8 66.9 15.6 82.5
Total liabilities 618.8 21.0 36.2 49.2 725.2 678.3 1,403.5
Capital expenditure 20.6 - 1.4 - 22.0 21.4 43.4
Secondary reporting format - Business segments
23 October 2006 - 31 December 2007
Offices Industrial Logistics Hotel Other Unallocated Contin. Discont. Total
Operat. Operat.
Gross rental revenue 17.9 51.4 27.0 1.8 4.9 - 103.0 63.8 166.8
Segment result 7.5 36.7 20.8 1.3 3.0 - 69.3 57.9 127.2
Valuation gains on 3.6 7.0 (1.4) 11.9 - - 21.1 45.8 66.9
investment properties
Profit on disposals of 7.4 - 12.6 - 20.1 - 40.1 - 40.1
properties
Unallocated cost - - - - - (127.2) (127.2) (21.7) (148.9)
Operating profit 18.5 43.7 32.0 13.2 23.1 (127.2) 3.3 82.0 85.3
Net finance expense (65.5)
Profit before income tax 19.8
Income tax 58.3
Profit for the period 78.1
Segment assets
Investment properties 170.9 355.5 104.3 46.0 84.2 - 760.9 804.6 1,565.5
Goodwill 27.0 58.9 18.4 4.0 - - 108.3 85.4 193.7
Other assets - - - - - 191.0 191.0 44.2 235.2
Total assets 197.9 414.4 122.7 50.0 84.2 191.0 1,060.2 934.2 1,994.4
Capital expenditure 5.3 2.6 10.3 3.8 - - 22.0 21.4 43.4
2. Property operating expenses
23 October 2006 -
31 December 2007
Utilities (11.8)
Caretaking, insurance and other expenses (8.7)
Planned maintenance (1.4)
Tenant improvements (1.5)
Property tax (6.3)
Site leasehold rent (1.2)
Asset management fee (8.7)
Property operating expenses (39.6)
Some property operating expenses, mainly heating and electricity, are affected
by the weather, resulting in higher expenses in the winter time. Maintenance and
tenant improvements may be unevenly spread over the period.
3. Audit remuneration
23 October 2006 -
31 December 2007
Audit fees
Fees payable to the Company's auditors for the audit of the Company's annual accounts 180
Fees payable to the Company's auditors and its associates for other services 250
The audit of the Company's services pursuant to legislation 430
Other services pursuant to legislation
Tax services 12
All other services:
- Fees payable for work in relation to reporting accountants work in connection with UK 2,121
AIM IPO
- Fees payable for work in relation to reporting accountants work in connection with 1,362
Euronext listing
Total non-audit fees 3,925
The auditor's remuneration in respect of work in relation to reporting
accountants work in connection with UK AIM IPO has been charged to the share
premium account. All other auditor's remuneration has been charged to
administrative expenses in the income statement.
4. Employee benefit expenses
Staff Costs
23 October 2006 -
31 December 2007
Wages and salaries 1,077
Social security costs 65
Pension costs 862
Total staff costs 2,004
Total Whereof men
Average number of employees 12 6
All staff are employed within the disposal group held for sale and therefore all
related costs are included in the discontinued operation in the income
statement.
4. Employee benefit expenses (continued)
Retirement benefit obligations
In Finland the Company has a pension plan in place for employees as required by
Finnish law.
The plan assets are considered to include the cover paid to the insurance
company and accumulated by the reporting date. The assets are the responsibility
of the insurance company and a part of the insurance company's investment
assets. The distribution in categories is not possible to provide. In the table
below the following assumptions are made:
31 December 2007
Discount rate at the end of the period 4.75%
Expected rate of return on a plan assets at 31 December 4.70%
Rate of salary increase 4.00%
Rate of inflation 2.00%
Employee turnover 0.00%
The census data was received from Sampo Life Insurance Company Limited and
compared with the census information received from the employer. All other
assumptions are those commonly used by Finnish employment pension insurance
companies.
The evaluation includes the insured, partly funded old age pension liability for
actives and an unfunded pension cover agreement between the employer company and
one employee. Actuarial gains and losses are recognized under the minimum
requirements of paragraph 93, IAS 19 (corridor). The excess divided by the
expected average remaining working years is recognized yearly as a component of
net periodic costs.
Amounts Recognised in Balance Sheet and Income Statement
In EUR '000s
31 December 2007
Present value of the obligation 814
Fair value of plan assets (1,056)
Funded status (242)
Unrecognised asset(+) or obligation(-) (106)
Liability recognized in balance sheet (348)
Current service cost 58
Interest cost 19
Expected return on plan assets (13)
Net actuarial gain(-) loss(+) recognized in year 3
Expense(+)/income(-) recognized in income statement 67
Movements in the net liability(+)/asset(-) recognized in the balance
sheet
Opening net liability as acquired 151
Expense(+)/income(-) as above 67
Contribution paid (566)
Closing net liability (348)
Change in present value of obligation and in fair value of plan assets
In EUR '000s
31 December 2007
Opening defined benefit obligation as acquired 727
Current service cost 58
Interest cost 19
Actual gain(-)/loss (+) on obligation 10
Closing present value of plan assets 814
Opening fair value of plan assets as acquired 487
Expected return on plan assets 13
Contributions 566
Actual gain(+)/loss(-) on plan assets (10)
Closing fair value of plan assets 1,056
4. Employee benefit expenses (continued)
Retirement benefit obligations (continued)
Limits of the 'corridor' Unrecognised actual gain(+)/loss(-)
In EUR '000s
31 December 2007
Unrecognised actuarial gain(+)/loss(-), at beginning of the (89)
period
Limits of "corridor" at beginning of the period 73
Excess (16)
Average expected remaining working lives (years) 4
Actuarial gain(-) loss(+) recognized 3
Unrecognised actuarial gain(+)/loss(-), at beginning of the (89)
period
Actuarial gain(+)/loss(-) for the period - obligation (10)
Actuarial gain(+)/loss(-) for the period - plan assets (10)
Actuarial gain(-) loss(+) recognised 3
Unrecognised actuarial gain(+)/loss(-), at 31 December 2007 (106)
5. Profit on disposal of investment properties
23 October 2006 -
31 December 2007
Net sales proceeds 610.7
Fair value at last valuation (554.1)
Capital expenditures since last valuation (16.5)
Profit 40.1
The profit on disposals of EUR 40.1 million is before related goodwill
impairment charge amounting to EUR 95.6 (note 14) and credit arising from
release of associated deferred tax liabilities of EUR 79.0 million.
6. Finance income
23 October 2006 -
31 December 2007
Interest income - all attributable to continuing 7.4
operations
7. Finance expenses
23 October 2006 -
31 December 2007
Interest payables on loans (97.3)
Loan arrangement fees (7.0)
Net currency exchange losses (15.0)
Total (119.3)
Attributable to continuing operations (79.5)
Attributable to discontinued operation (39.8)
The net currency exchange losses above include a realised gain amounting to EUR
8.3 million which arose on derivative financial instruments settled in
conjunction with the repayment of associated loan balances during the period.
8. Taxation
23 October 2006 -
31 December 2007
Overseas current tax expense (1.3)
Deferred tax credit 59.6
Income tax credit 58.3
Attributable to continuing operations 72.1
Attributable to discontinued operation (13.8)
8. Taxation (continued)
The tax on the Group's profit before tax differs from the theoretical amount
that would arise using the weighted average tax rate applicable to the profits
of consolidated entities as follows:
23 October 2006 -
31 December 2007
Profit before tax 19.8
Adjustment for impairment of goodwill 133.1
Adjusted profit before tax 152.9
Tax charge calculated at domestic tax rates applicable to the (29.3)
profit in the respective countries*
Income not subjected to tax 91.0
Expenses not deductible for tax purpose (3.4)
Tax credit 58.3
Attributable to continuing operations 72.1
Attributable to discontinued operation (13.8)
* The tax rates differ between the countries and are as follows: Sweden 28%,
Finland 26%, Russia 24% and Jersey 0%.
9. Profit of Northern European Properties Limited
In accordance with Jersey Companies Act 1991, the Company is not required to
present its own income statement. The Company is a holding company as described
further in note 15. Loss attributable to members includes EUR 23.9 million
which has been dealt with in the accounts of the Company and includes
administrative expenses of EUR 14.3 million, write-down of long term receivables
of EUR 15.5 million and net finance income which includes interest income from
intercompany loans less the effect of foreign currency finance translation
losses, amounting to EUR 5.9 million.
10. Earnings per share
a) Basic
Continuing Discontinued operation
operations
23 October 2006 - 23 October 2006 -
31 December 2007 31 December 2007
Profit attributable to equity holders of the Company (EUR 45.9 32.2
millions)
Weighted average number of ordinary shares in issue 449,004,422 449,004,422
Basic earnings per share (EUR) 0.10 0.07
b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to conversion of all dilutive potential
ordinary shares. The Company has two categories of dilutive potential ordinary
shares: convertible loan notes and share options. The convertible debt is
assumed to have been converted into ordinary shares and the net profit is
adjusted to eliminate the interest expense less the tax effect. For the share
options, a calculation is performed to determine the number of shares that could
have been acquired at fair value (determined as the average market share price
of the Company's shares) based on the monetary value of the subscription rights
attached to the outstanding share options.
Continuing operations Discontinued operation
23 October 2006 - 23 October 2006 -
31 December 2007 31 December 2007
Profit attributable to equity holders of the Company 45.9 32.2
Interest expenses on convertible debt (net of tax) 3.9 -
Profit used to determine diluted earnings per share 49.8 32.2
Weighted average number of shares in issue 449,004,422 449,004,422
Adjustment for:
- Assumed conversation of convertible debt 63,053,633 63,053,633
- Share options - -
Weighted average number of ordinary shares in issue for 512,055,395 512,055,395
diluted earnings per share
Diluted earnings per share (EUR) 0.10 0.06
11. Dividends
During the period an interim dividend of EUR 0.039 per share, amounting to EUR
18.6 million, was declared and paid out on 19 October 2007.
12. Business combinations during the period
Acquisition of properties from LR Swedish Holdings No. 1 AB
On 15 November 2006, the Group acquired 100 percent of the shares in companies
owning property from LR Swedish Holdings No. 1 AB with a property value of
approximately EUR 1.8 billion. Before acquiring the investment property
portfolio, the Group's operations were limited, i.e. all of the Group's result
post acquisition relates to the acquired Group from LR Swedish Holdings No. 1
AB. The transaction has been accounted for using the purchase method of
accounting.
The net assets acquired in the transaction, and the goodwill arising, are as
follows:
15 November 2006
Investment properties 1,831.6
Trade and other receivables including income tax 64.8
Cash and cash equivalent 83.3
Minority interest (5.5)
Other long term interest bearing liabilities (1,498.0)
Derivatives (16.4)
Trade and other payables (51.4)
Deferred tax liabilities (248.2)
Net assets acquired 160.2
Purchase price comprise of:
Cash paid 99.9
Cash to be repaid (0.8)
Issue of convertible loan 101.7
New shares issued 291.1
Receivable from seller (4.9)
Total purchase price 487.0
- of which cash paid (99.9)
- less of cash and cash equivalents in the acquired 83.3
Subsidiaries
Effect of acquisitions on Groups cash flow statement (16.6)
Total purchase price 487.0
Fair value of net assets acquired (160.2)
Goodwill 326.8
The fair values of investment properties in the Group are reported based on
independent and external valuations.
13. Investment properties
31 December 2007
At 23 October 2006 -
Additions through business combinations (note 13) 1,831.6
Additions through asset acquisitions 220.1
Capital expenditures 43.4
Disposals (note 5) (570.6)
Exchange differences (25.9)
Revaluation 66.9
Investment properties attributable to disposal group (804.6)
held for sale (note 18)
At 31 December 2007 760.9
The Directors have internally valued two acquired Russian properties held at 31
December 2007 at EUR 84 million. In addition, the investment properties
attributable to the disposal group have been valued by the Directors at fair
value less costs to sell. DTZ Sweden AB has performed a valuation of all the
Company's remaining properties with a valuation date of 31 December 2007.
14. Goodwill
31 December 2007
At 23 October 2006 -
Arising on acquisitions during the period (note 12) 326.8
Impaired during the period (17.2)
Impaired directly as a result of investment property (115.9)
disposals
Goodwill attributable to disposal group held for sale (85.4)
(note 18)
At 31 December 2007 108.3
The goodwill arising on the initial acquisition primarily represented a
portfolio premium paid for the properties, which was not recognized as part of
the fair value of the investment properties acquired, the value to sell the
acquired properties portfolio tax-free in the future, and a negative derivative
financial instrument value, not incorporated into the purchase price.
Capital gains realised on the disposal of companies qualifying for the Swedish
participation exemption are tax exempt. Unquoted shares should satisfy the
relevant conditions. This exemption applies to the sale of shares in Swedish as
well as non-Swedish companies. No minimum participation or minimum holding
period is required for this exemption to apply.
The impairment is due to the disposal of properties (in both geographical
segments) whereby goodwill has been impaired with an amount corresponding to the
portfolio premium for these properties and the value to sell the properties
tax-free. Further, goodwill related to the negative value of derivative
financial instruments was impaired as this does not give rise to future benefit
to the Group.
15. Investments in subsidiaries
31 December 2007
At 23 October 2006 -
Subsidiaries at acquired cost 44.0
At 31 December 2007 44.0
The investments in subsidiaries represent the Company's investments in Dividum
Holland Cooperatief U.A, a partnership registered in the Netherlands, in which
the Company owns directly 99% of the partnership and indirectly 1% through its
100% holding in NEP II Limited, a company registered in Jersey. Dividum Holland
Cooperatief U.A owns 100% of LR Swedish Holdings No. 3 AB which itself owns all
the Group's other subsidiaries, through further wholly owned intermediate
holding companies.
16. Long term receivables
Group Parent
31 December 2007 31 December 2007
Rental shortfall guarantee 2.5 -
Other investments 2.2 -
Amounts owed to Group undertakings - 466.1
At 31 December 2007 4.7 466.1
Attributable to continuing operations 2.5 466.1
Attributable to disposal group held for sale (note 2.2 -
18)
The gross amounts owed to Group undertakings are EUR 481.6 million less a
provision of EUR 15.5 million producing net EUR 466.1 million balance receivable
at 31 December 2007.
17. Deferred tax assets and liabilities
31 December 2007
Tax losses carried forward 13.0
Other 2.3
Deferred tax assets 15.3
Investment properties (195.5)
Derivatives (7.9)
Deferred tax liabilities (203.4)
Attributable to continuing operations (106.1)
Attributable to disposal group held for sale (note 18) (97.3)
17. Deferred tax assets and liabilities (continued)
The movement on the deferred tax account is as follows:
Properties Derivatives Tax losses Other Total
Beginning of period - - - - -
Deferred taxes in acquired subsidiaries 259.4 (4.4) - (0.1) 254.9
Exchange differences (7.3) - 0.1 - (7.2)
Income statement credit (Note 8) (56.6) 12.3 (13.1) (2.2) (59.6)
At 31 December 2007 195.5 7.9 (13.0) (2.3) 188.1
Attributable to continuing operations (net) 98.2 7.9 (13.0) (2.3) 90.8
Attributable to disposal group held for sale 97.3 - - - 97.3
(note 18)
18. Disposal group
At 31 December 2007 the Group decided to dispose of the entire Finnish hotels
portfolio including a hotel in Sweden, together called the disposal group, and
has commenced the disposal process for which a sales contract was signed in
January 2008 with completion on 29 February 2008. Accordingly this portfolio has
been treated as a disposal group in these financial statements.
31 December 2007
Goodwill 85.4
Investment properties 804.6
Other investments 2.2
Non-current assets 892.2
Derivative financial instruments 6.5
Trade and other receivables 7.3
Cash and cash equivalents 28.2
Current assets 42.0
Disposal group held for sale 934.2
Interest-bearing loans and borrowings (565.4)
Deferred tax liabilities (97.3)
Non-current liabilities (662.7)
Interest-bearing loans and borrowings (1.0)
Trade and other payables (14.6)
Current liabilities (15.6)
Liabilities directly associated with disposal group (678.3)
held for sale
The cash flows attributable to the disposal group is as
follows:
31 December 2007
Operating cash flows 58.6
Investing cash flows (68.6)
Financing cash flows 38.2
Total cash flow and cash equivalents as at 31 December 2007 28.2
19. Derivative financial instruments
23 October 2006 -
31 December 2007
Fair value at 23 October 2006 -
Acquired through Business combinations (Note 12) (16.4)
Revaluation gains on financial instruments 46.4
Fair value at 31 December 2007 30.0
Attributable to continuing operations 23.5
Attributable to disposal group held for sale (Note 18) 6.5
19. Derivative financial instruments (continued)
31 December 2007
Fair value Fair value
assets liabilities
Interest rate swaps 21.4 -
Currency swaps 8.6 -
Total 30.0 -
Attributable to continuing operations 23.5
Attributable to disposal group held for sale (Note 18) 6.5
At 31 December 2007, the notional principle amount of outstanding currency swap
contracts was EUR 365.9 million and of outstanding interest rate swaps EUR
1,013.7 million.
At 31 December 2007, the fixed interest rates vary from 3.2% to 4.4% and the
main floating rates are EURIBOR (Euro Interbank Offered Rate) 3 months and
STIBOR (Stockholm Interbank Offered Rate) 3 months.
20. Trade and other receivables
Group Parent
31 December 2007 31 December 2007
Trade receivables 10.1 -
Tax receivable 3.2 -
Other short-term receivables 17.9 0.7
Prepaid expenses and accrued income 11.7 7.0
At 31 December 2007 42.9 7.7
Attributable to continuing operations 35.6 7.7
Attributable to disposal group held for sale (Note 7.3 -
18)
Trade receivables that are less than three months past due are not considered
impaired. As of 31 December, trade receivables of EUR 0.2 million were past due
but not impaired. These related to a number of independent customers for whom
there is no recent history of default. It was assessed that a portion of the
receivables is expected to be recovered. The ageing of these receivables is as
follows:
31 December 2007
< 3 months 0.0
3 to 6 months 0.2
Over 6 months 0.0
Total 0.2
21. Cash and cash equivalents
Cash and cash equivalents shown in the cash flow statement comprise:
Group Parent
31 December 2007 31 December 2007
Cash at bank and on hand 142.2 16.9
Short-term deposits - -
Bank overdrafts - -
Total at 31 December 2007 142.2 16.9
Attributable to continuing operations 114.0 16.9
Attributable to disposal group held for sale (Note 28.2 -
18)
The average interest rate is approximately 2.5%.
22. Equity - Issued capital
The Company was incorporated with unlimited capital and registered in Jersey on
23 October 2006. On incorporation, 11,000 ordinary shares of no par value were
issued at a total price of EUR 11,000. In the table below, the movement of
issued capital for the period ended 31 December 2007 is disclosed:
Share capital Share No. of ordinary
(EUR m) premium (EUR shares
m)
On incorporation, 23 October 2006 - - 11 000
New share issues 443.9 9.0 443 856 286
Conversion of convertible loan notes 32.0 1.7 32 057 246
Reduction of share capital account transferred to other (390.0) - -
reserves
Issued and fully paid at 31 December 2007 85.9 10.7 475 924 532
The total authorized number of shares is 475,924,532 shares with a par value of
EUR 1 per share. All issued shares are fully paid.
The share capital account of the Company has been reduced by EUR 390.0 million
and transferred to a special reserve which shall be treated as realized profits
of the Company and shall be available for distribution to shareholder of the
Company by way of dividend, return of capital, purchase of shares or otherwise
and/or transfer to the income statement of the Company to the extent of any
accrued losses thereon at any time.
23. Share-based payment transactions
The Company has granted certain options to three board members. The total
outstanding options are disclosed in the table below:
Mr. Jens Mr. Kari Mr. Michael Total
Engwall Osterlund Hirst
At 23 October 2006 - - - -
Granted 428,571 57,143 57,143 542,857
Forfeited - - - -
Exercised - - - -
Outstanding and exercisable at 31 December 2007 428,571 57,143 57,143 542,857
Each option gives the holder the right to acquire one new share at the price of
EUR 1.05. The options may be exercised at any time during the period starting 15
November 2009 through 15 November 2016. No premium was paid by the option
holders. The price and fair value of the options was determined by using a Black
& Scholes valuation model. The significant inputs into the model were a share
price on the issue date of EUR 1.05, a volatility of 24 per cent, an exercise
period of 3 to 10 years and an annual risk-free interest rate of 3.54 per cent.
The fair value per option amounted to EUR 0.08 per option. The cost is included
in administrative expenses in the income statement and the fair value is
included in the share based payment reserve in the balance sheet with the amount
of EUR 16,500. The total expense is recognised over the three year vesting
period.
Volatility based on average historical volatility for the six largest real
estate companies on the Stockholm Stock Exchange (based on monthly returns
during the last 5-10 years).
24. Interest bearing loans and borrowings
31 December 2007
Amounts falling due within one year:
Bank loans 5.0
Other loans 1.1
Total amounts falling due within one year (recorded as current) 6.1
Amounts falling due after more than one year:
Bank loans 502.2
Other loans 3.2
Vendor notes 8.4
Total amounts of loans falling due after more than one year 513.8
Convertible loan 38.4
Total amounts falling due after more than one year 552.2
Total borrowings 558.3
Cash and cash equivalents attributable to continuing operations (114.0)
Net borrowings 444.3
24. Interest bearing loans and borrowings (continued)
The gross movement of the borrowings is as follows:
At 23 October 2006 -
Borrowings in acquired subsidiaries 1,498.0
Borrowings drawn 120.8
Convertible loan 38.4
Borrowings repaid (543.4)
Amortisation of loan arrangement fees 7.0
Net exchange differences and other non-cash movements 3.8
At 31 December 2007 1,124.6
Attributable to continuing operations 558.2
Attributable to disposal group held for sale (note 18) 566.4
The loan maturity profile (excluding convertible loan) is as follows:
Maturity year Amount (EUR m) % amount
2011 55.0 10.7
2012 - -
2013 442.0 86.0
> 2014 17.0 3.3
Total 514.0 100.0
The average interest rate is approximately 5.5%, excluding impact of arrangement
fees. The loans are floating, however through interest swaps the loans are
economically hedged until maturity. There is no difference between the fair
value and the current value. 88% of the loans are in EUR, 10% in SEK and the
other 2% are in RUB.
The Group has access to a revolving credit facility of EUR 10.0 million that was
not used at the end of the reporting period.
The convertible loan movement is as follows:
Nominal value Fair value Liability Equity
(total) (total) (total) (total)
Opening balance - - - -
Issue of convertible loan notes 96.8 101.6 56.5 45.1
Conversion (32.1) (33.7) (18.7) (15.0)
Interest adjustment - - 0.6 -
At 31 December 2007 64.7 67.9 38.4 30.1
The Company has issued 96,845,470 convertible loan notes of which 32,057,246
have been converted into shares of the Company and 64,788,224 remain
outstanding. The convertible loan notes are convertible into shares of the
Company. All convertible loan notes are held by LR Swedish Holdings No. 1 AB.
The following is a summary of the terms of the convertible loan notes:
If not previously converted or repaid (on event of default), the convertible
loan notes will be repaid by the Company at par on 31 December 2026;
Interest is payable twice yearly in arrears at the rate of 4 per cent. per
annum. In addition, an additional payment will be made in each year on each
convertible loan note (so far as not previously paid) equal to the excess of the
dividend payments on the number of Shares into which the convertible loan notes
would convert over the interest paid on the convertible loan notes;
The convertible loan notes are only transferable to certain connected persons of
London & Regional Group and are not traded on any stock exchange; and
The holder of convertible loan notes can convert a note into shares at the rate
(subjected to adjustment for reorganisations) of one share for every convertible
loan note converted. The convertible loan notes are subject to certain
restrictions on conversion to the effect that London & Regional Group and
certain connected persons' shareholdings in the Company should not after
conversion exceed 24.9 per cent. of the total number of the shares in issue.
25. Trade and other payables
Group Parent
31 December 2007 31 December 2007
Trade payables 8.8 2.5
Social security and other taxes 11.8 -
Accrued expenses and prepaid income 47.4 13.0
Other payables 7.4 -
At 31 December 2007 75.4 15.5
Attributable to continuing operations 60.8 15.5
Attributable to disposal group held for sale (Note 14.6 -
18)
26. Capital commitments
At 31 December 2007 the Company was contractually committed to EUR 43.0 million
of future expenditure for the purchase, development and enhancement of the
current investment property portfolio.
27. Contingent liabilities
The Group is financed by external loans raised by certain Group companies. Other
Group companies have guaranteed the commitments to the external lenders. The
companies have pledged assets and rights as collateral for the guarantees. The
guarantee commitments by the subsidiaries of the borrowing companies are limited
to amounts that do not violate legislation that is in effect from time to time.
28. Events after the balance sheet date
The disposal of the Finnish hotel portfolio took place at 29 of February 2008.
29. Related Party transactions
LR Swedish Holdings No. 1 AB owns 117,299,200 shares, representing 24.65 per
cent. of the issued capital of the Company and 64,788,224 convertible loan
notes. Assuming full conversion of the convertible loan notes, LR Swedish
Holdings No. 1 AB will be interested in 182,087,424 fully diluted shares in
aggregate representing 33.68 per cent. of the fully diluted share capital.
The following related party transactions are transactions which, as a single
transaction or in their entirety, are or may be material to the Company. In the
opinion of the directors, each of the transactions was concluded at arm's
length:
- the purchase agreement whereby the Group acquired the initial
property portfolio of 84 properties at a value EUR 1,831.6.0 million from LR
Swedish Holdings No. 1 AB;
- the management agreement according to which LR Real Estate Asset
Management AB, a member of the London & Regional Group, is the asset manager and
receives a fee of 0.4 per cent based on gross asset value (EUR 5.0 million for
the period ending 31 December 2007) and a performance fee of 25 per cent of any
increase in net asset value above 10 per cent (EUR 10.8 million for the period
ending 31 December 2007);
- the rental shortfall guarantee in which LR Real Estate Asset
Management AB guarantees an income for certain premises of EUR 4.0 million per
year for 2007-2009, less any rent from new leases in the same properties;
- the lease agreement Stockholm Katthavet 8 "Berns Hotel" between the
Group and the London & Regional Group; and
- the lease agreement Are Morviken 8;1, "Are Holiday Club" between the
Group and the London & Regional Group.
Mr. Ian Livingstone is an affiliate of, and thus may be deemed to have an
indirect interest in, each of the members of the London & Regional Group that is
a party to agreements listed in (a) to (e) above. Mr. Kari Osterlund is a
director of Holiday Club Oy, an affiliate of the London & Regional Group.
30. Minority interest
This represents investments held by other owners than the company and its
subsidiaries in Kiinteisto Oy Raatihounenkatu 16, Kiinteisto Oy Rovaniemen
Valtakatu 23 and Kiinteisto Oy Vaasan Ay-keskus.
31. Key management compensation
Each of the directors has signed a letter of appointment with the Company
setting out the terms of his appointment. The letters of appointment are for an
initial term of one year or, in the case of the chairman, three years commencing
on 27 October 2006 but may be terminated at any time on three months' notice.
There are no service contracts in existence between the Company and any of the
directors, nor are any proposed. The annual fee payable to each director under
the terms of their letter of appointment is as follows:
Name Fee (EUR)
Mr. Jens Engwall 150,000
Mr. Kari Osterlund 60,000
Mr. Michael Hirst OBE 60,000
Mr. Christopher Lovell 30,000
Mr. Martin Sabey 30,000
Total 330,000
Mr. Ian Livingstone will not receive a fee for his services as a non-executive
director.
Upon termination of the appointment as a director, the director is only entitled
to such fee that has accrued to the date of termination.
In addition to the above, the Company has granted certain options to three board
members - see note 23.
Appendix 1 - Other information for shareholders not part of the financial
statements
Special Dividend
1. Employee share schemes
Participants in the Company's share option scheme will not be entitled to
receive the Special Dividend, but the Board has decided to compensate option
holders by adjusting their entitlements under the share option scheme by
reducing the option exercise price by the amount of the special dividend.
2. Convertible Loan Notes
The holders of convertible loan notes of the Company (the "Notes") will, under
the terms of the Notes, receive extra interest equivalent to the amount of
dividend they would have received had they converted the Notes. Accordingly, no
adjustment will be made to the terms of conversion of the Notes but the amount
due on repayment of Notes will be reduced from EUR 1.00 per EUR 1.00 nominal to
EUR 0.95 per EUR 1.00 nominal.
3. Taxation
The directors of the Company have been advised that the tax treatment of UK
resident Shareholders who receive the Special Dividend will generally be similar
to the tax treatment of such holders receiving any other dividend paid by the
Company subject to the changes proposed to the taxation of individuals on
dividend income from non-UK companies as referred to below.
The following summary is intended as a general guide only and relates only to
the UK taxation treatment of the Special Dividend. It is based on current UK
law and current HM Revenue & Customs practice for Shareholders who (except where
otherwise indicated) are resident and domiciled in the UK for tax purposes, who
are the beneficial owners of those shares and who hold them as investments.
Shareholders who are in any doubt about their tax position, or who are subject
to tax in any jurisdiction other than the UK, should consult their own
appropriate professional advisers.
Special Dividend
There is no UK withholding tax on dividends (the Company is required to deduct
Jersey income tax from dividends paid to Jersey residents).
Individual Shareholders
A UK resident individual Shareholder will generally be liable to income tax in
respect of the Special Dividend.
Under the current law, a UK resident Shareholder liable to income tax at no more
than the basic rate would be taxed on the Special Dividend at a rate of 10 per
cent. and a Shareholder liable to income tax at the higher rate would be taxed
on that part of the Special Dividend falling above the higher-rate limit at a
rate of 32.5 per cent.
The UK Government has announced, however, that legislation will be introduced to
align in certain circumstances the tax treatment of dividends received from
non-UK resident companies with the treatment of dividends received from UK
resident companies. Some of these changes are likely to have effect from 6 April
2008 and could therefore apply to the Special Dividend which, if approved, will
be paid after that date. Under the current proposals, a UK resident Shareholder
who owns less than a 10 per cent. shareholding in the Company would be entitled
to a non-payable tax credit in respect of the Special Dividend equal to
one-ninth of the Special Dividend received. Such Shareholders would be liable
to income tax on the aggregate amount of any dividend received and the tax
credit but would be entitled to offset the tax credit against such liability.
This would result in an effective rate of tax on the Special Dividend of 0 per
cent. for basic rate taxpayers and 25 per cent. for higher rate taxpayers.
The proposed legislation has not been enacted and these details could change.
Shareholders who may be affected should consult their own professional advisers.
Non-UK resident individual Shareholders should not be subject to UK tax in
respect of the Special Dividend but may be subject to taxation in jurisdictions
other than the UK and should consult their own professional advisers.
Corporate Shareholders
A UK resident corporate Shareholder will generally be liable to corporation tax
in respect of the Special Dividend. If the Shareholder is a company which
controls directly or indirectly or is a subsidiary of a company which controls
directly or indirectly not less than 10 per cent. of the voting power in the
Company, it may be entitled to unilateral relief for any underlying tax actually
paid by the Company and/or its subsidiaries on the particular profits out of
which the Special Dividend is paid.
Certain UK resident Shareholders, including pension funds and charities, should
not be liable to UK corporation tax in respect of the Special Dividend. Such
Shareholders should consult their own professional advisers for confirmation of
their tax position.
Non-UK resident corporate Shareholders should not be subject to UK tax in
respect of the Special Dividend but may be subject to taxation in jurisdictions
other than the UK and should consult their own professional advisers.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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