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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 |
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RNS Number:1235R
Northern European Properties Ltd
31 March 2008
Unaudited Preliminary Report
23 October1) 2006 - 31 December 2007
Northern European Properties Limited
1) Please note, the formal reporting period starts 23 October 2006, being the
date of incorporation of the Company, which began trading on 15 November 2006
and all income is generated after this date.
Consolidated Annual Results for the period from 23 October 2006 - 31 December
2007
* Admitted to AIM market on 15 November 2006, raising net proceeds of
EUR 162 million
* Property portfolio comprised 79 properties with a total portfolio
fair value of EUR 1,576 million1
* NAV per share2 of EUR 1.15, an increase of 16% from the Proforma
NAV contained in the Admission Document
* Gross rental income was EUR 166.8 million and net rental income for
the period was EUR 127.2 million
* Profit before tax was EUR 19.8 million
* Diluted earnings per share3 for the period of EUR 0.16
* The results for the last six months of 2007 are negatively affected
by, inter alia, changes in fair value of derivatives and currencies
* An ordinary dividend of EUR 0.0392 per share for the last six
months period, resulting in a total ordinary dividend for the full period
of EUR 0.0782 per share
* A special dividend of EUR 0.052 per share, which together with the
ordinary dividend results in a total dividend for the period of EUR 0.1282
per share
* 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
* Sale of 39 hotels for approximately EUR 800 million, was closed in
February 2008
* 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
1) 31 December 2007 portfolio premium of approximately EUR 18 million is
included in this value while share of Finnish associates of approximately EUR 8
million are not included in this value.
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 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 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 admission
to 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 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 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 dividends of EUR 0.128 per
share for the period.
The present dividend policy was designed for a leveraged company with no
amortisation 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 FFO less amortisation. The lower pay-out
ratio (previously 90%) will cater for capital expenditure in the portfolio which
can not be financed by debt. Deducting amortisation from adjusted FFO reflects
the current credit market where amortisation is more frequent and the larger
proportion of Russian assets in the portfolio where amortisation is relatively
high.
Review of reported results (both the continuing and discontinuing 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 the Finnish sub-groups, which on its own
are 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
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 investing 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
discontinuing operations together.
Income statement
Net rental income for the period ended 31 December 2008, amounted to EUR 127.2
million, in line with our expectations at the time of the IPO.
Disposal of 27 properties post 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 is mainly related to property
disposals which include 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, write-down of loan arrangement fee of EUR 7.0 million and
interest on convertible loan notes of EUR 3.9 million. Finance income was EUR
7.4 million.
Profit before tax was EUR 19.8 million and total tax expense was positive 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 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 write-down 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
which however also created a deferred tax credit.
* Due to additional professional fees incurred in connection with the
listing on Euronext, the Administrative expenses have been 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 discontinuing entities' results together
Balance Sheet
As of 31 December 2007, the non-current assets amounted to EUR 1,779.3 million
of which EUR 1,565.5 million was investment properties (EUR 804.6 attributable
to discontinuing operations) and EUR 193.7 million was goodwill (EUR 85.4
attributable to discontinuing operations). Goodwill consists mainly of deferred
taxes (EUR 175.9 million) and portfolio premium (EUR 17.8 million). Current
assets 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). Please note that included within Disposal
group held for sale are also cash and cash equivalents, derivative financial
instruments 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 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. Please
note that included within Liabilities directly associated with disposal group
held for sale are also interest-bearing loans and borrowings and deferred tax
liabilities, related to the companies that were sold in February 2008. Current
liabilities amounted to EUR 745.2 million of which trade and other payables
accounted for EUR 75.4 million (EUR 14.6 attributable to discontinuing
operations). Total liabilities were EUR 1,403.5 million.
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 NAV per share has decreased approximately EUR 0.06. The NAV per share has
been reduced by the interim dividend of EUR 0.039 per share paid in October
2007.
Net asset value calculation
MEUR 2007-12-31 2007-06-30 Admission
Equity attributable to equity holders of the 585.4 613.9 481.1
parent
Convertible loans 38.4 38.2 56.5
Options 0.6 0.6 0.6
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 541.3 541.3 541.3
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 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 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 amortisation. The rationale
behind the change of policy is that the previous policy was derived from the
profit and loss and did not take into account amortisation and capital
expenditure. With a changed credit market and a larger portion of Russian
assets, amortisation is 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, amortisation
and capital expenditure.
Property Portfolio
The property portfolio comprises of 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 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 share of Finnish associates. 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 euro).
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
during the period.
Portfolio as at 31/12/2007*
No. of Area Gross rental Occupancy Average lease Market value % Market
properties (sqm '000) value (Eurom) rate, length (Eurom) value
economic (%) (years)
Office 5 189 19 90% 5.3 176 11%
Industrial 23 650 39 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
Hotel 41 417 51 100% 15.0 844 54%
Total 79 1,440 129 95% 10.3 1,576 100%
Sweden 33 912 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%
Financial Statement Analysis* Market value
Eurom)
Investment properties continuing 779
Investment properties within disposal group 797
Total 1,576
*A portfolio premium of approximately EUR 18 million is included in the values
in the two tables above. Share of Finnish associates of approximately EUR 8
million are not included in the values in the two tables above.
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 (Eurom)1 costs (Eurom)1 income (Eurom)1 (%)2
Office 16 -5 11 6.2%
Industrial 34 -9 25 7.1%
Logistics 8 -1 7 6.1%
Retail 11 -4 7 8.7%
Total Commercial 70 -19 51 6.9%
Hotel 53 -5 48 5.7%
Total 123 -24 99 6.3%
Sweden 59 -15 44 6.6%
Denmark 3 0 3 5.1%
Finland 47 -4 42 5.7%
Lithuania 1 0 1 6.3%
Germany 1 0 1 6.6%
Poland 1 0 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 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 was 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 2007, 27 properties in six different transactions were disposed for a
total sale price of EUR 610.7 million. The first three 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 193 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
three 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 is EUR 404 million with an
average interest cost of 5.6%, excluding the convertible loan notes and also
excluding 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 31/12/2007 excluding the hotel portfolio sold in February 2008
No. of Area Gross rental Occupancy Average lease Market value % Market
properties (sqm '000) value (Eurom) rate, length (Eurom) value
economic (%) (years)
Office 5 189 19 90% 5.3 176 23%
Industrial 23 650 39 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
Hotel 2 12 3 100% 8.0 47 6%
Total 40 1,035 80 92% 7.0 779 100%
Sweden 32 889 63 91% 6.4 603 77%
Denmark 2 45 3 100% 16.9 51 7%
Finland 0 0 0 - 0.0 0 0%
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 31/12/2007 but
excluding the hotel portfolio sold in February 2008)
Gross rental Property Net rental Net yield
income (Eurom)1 costs (Eurom)1 income (Eurom)1 (%)2
Office 16 -5 11 6.2%
Industrial 34 -9 25 7.1%
Logistics 8 -1 7 6.1%
Retail 11 -4 7 8.7%
Total Commercial 70 -19 51 6.9%
Hotel 3 -1 2 5.3%
Total 73 -20 53 6.8%
Sweden 56 -15 40 6.7%
Denmark 3 0 3 5.1%
Finland 0 0 0 0.0%
Lithuania 1 0 1 6.3%
Germany 1 0 1 6.6%
Poland 1 0 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 and
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 majority of the performance fee will be paid by
issuance of convertible loan notes and the remainder by cash. The number of
shares into which the new convertible loan notes will be convertible will be
based on an average share price during a period in April. The convertibles are
not quoted on any exchange. 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 5LR
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.
The complete set of the audited annual results will be available well in advance
of the AGM.
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 CBD 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
Consolidated Financial information
Consolidated Income Statement (unaudited) for the period ended 31 December 2007
In millions of Euro
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 (33.7) (5.9) (39.6)
Net rental income 1 69.3 57.9 127.2
Valuation gains on investment properties 1,9 21.1 45.8 66.9
Profit on disposals of investment 1,2 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 1,10 (112.8) (20.3) (133.1)
Operating profit 1 3.3 82.0 85.3
Finance income 3 7.4 0.0 7.4
Finance expenses 4 (79.5) (39.8) (119.3)
Net changes in fair value of derivatives 12 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 5 (2.0) 0.7 (1.3)
Deferred income tax credit 5 74.1 (14.5) 59.6
Profit for the period 45.9 32.2 78.1
Attributable to:
Equity holders of the parent (Euro) 78.1
Minority interest (Euro) -
Earnings per share attributable to equity
holders of the company during the period:
Basic earnings per share (Euro) 6 0.17
Diluted earnings per share (Euro) 6 0.16
The notes on pages 16 to 29 are an integral part of these consolidated financial
statements.
Consolidated Financial information continue
Consolidated Balance Sheet (unaudited) as at 31 December 2007
In millions of Euro
Group
Note 31 December 2007
Assets
Non-current assets
Investment properties 9 760.9
Goodwill 10 108.3
Long term receivables 2.5
Other investments 0.1
Deferred tax assets 11 15.3
Total non-current assets 887.1
Disposal group held for sale 12 934.2
Current assets
Derivative financial instruments 13 23.5
Trade and other receivables 35.6
Cash and cash equivalents 114.0
Total current assets 173.1
Total assets 1,994.4
Equity
Ordinary share capital 14 85.9
Ordinary share premium 10.7
Equity portion of convertible loan notes 30.2
Other reserves 371.4
Foreign currency translation reserve 9.1
Retained earnings 78.1
Equity attributable to equity holders of the parent 585.4
Minority interest 5.5
Total equity 590.9
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 16 513.8
Convertible loan notes 16 38.4
Deferred tax liabilities 11 106.1
Total non-current liabilities 658.3
Current liabilities
Interest-bearing loans and borrowings 16 6.1
Trade and other payables 60.8
Total current liabilities 66.9
Liabilities directly associated with disposal group held for sale 12 678.3
Total liabilities 1,403.5
Total equity and liabilities 1,994.4
The notes on pages 16 to 29 are an integral part of these consolidated financial
statements.
Consolidated Financial information continue
Consolidated Statement of Changes in Equity (unaudited) for the period ended 31
December 2007
In millions of Euro
Ordinary Ordinary Equity Other Foreign Retained Share-holders' Minority Equity
share share portion of reserves currency earnings equity interests
capital premium convertible translation
loan notes
Balance at 23 October - - - - - - - - -
Ordinary share issue 443.9 9.0 - - - - 452.9 - 452.9
Issue of convertible loan - - 45.2 - - - 45.2 - 45.2
notes
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 - - - (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 Euro 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 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 16 to 29 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 built up by London &
Regional Group over the past four years, the Company and its subsidiaries (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). 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 (its subsidiaries). 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 interest 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. Unallocated profit on disposal of investment
properties include Euro 19.1 million relating to disposed assets in Finland which
did not relate to the Finnish hotel disposal group.
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
2. 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 Euro 40.1 million is before related goodwill impairment
charge amounting to Euro 95.6 (note 10) and a credit arising from release of
associated deferred tax liabilities of Euro 79.0 million.
3. Finance income
23 October 2006 -
31 December 2007
Interest income 7.4
4. Finance expenses
23 October 2006 -
31 December 2007
Interest payables on loans (97.3)
Loan arrangement fees (7.0)
Currency exchange losses (15.0)
Total (119.3)
Attributable to continuing operations (79.5)
Attributable to disposal group (39.8)
5. Taxation
23 October 2006 -
31 December 2007
Overseas current tax expense (1.3)
Deferred tax credit 59.6
Income tax expense 58.3
Attributable to continuing operations 72.1
Attributable to disposal group (13.8)
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 calculated at domestic tax rates applicable to the profit (29.3)
in the respective countries*
Income not subjected to tax 91.0
Expenses not deductible for tax purpose (3.4)
Tax charge 58.3
Attributable to continuing operations 72.1
Attributable to disposal group (13.8)
* The tax rates differ between the countries and are as follows: Sweden 28%,
Finland 26%, Russia 24% and Jersey 0%.
6. Earnings per share
a) Basic
23 October 2006 -
31 December 2007
Profit attributable to equity holders of the Company (EUR 78.1
millions)
Weighted average number of ordinary shares in issue 449,004,422
Basic earnings per share (Euro) 0.17
b) Diluted
Diluted earnings per share are 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.
23 October 2006 -
31 December 2007
Profit attributable to equity holders of the Company 78.1
Interest expenses on convertible debt (net of tax) 3.9
Profit used to determine diluted earnings per share 82.0
Weighted average number of shares in issue 449,004,422
Adjustment for:
- Assumed conversation of convertible debt 63,053,633
- Share options (2,660)
Weighted average number of ordinary shares in issue 512,055,395
for diluted earnings per share
Diluted earnings per share (Euro) 0.16
7. Dividends
During the period an interim dividend of Euro 0.039 per share was declared and paid
out on 19 October 2007.
8. 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 Euro 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.
9. Investments properties
31 December 2007
At 23 October 2006 -
Additions through business combinations (note 8) 1,831.6
Additions through asset acquisitions 220.1
Capital expenditures 43.4
Disposals (note 2) (570.6)
Disposal group held for sale (note 12) (804.6)
Foreign exchange fluctuation (25.9)
Revaluation 66.9
At 31 December 2007 760.9
The Directors have internally valued Euro 84 million of two properties held at 31
December 2007. DTZ Sweden AB has performed a valuation of the Company's
remaining properties with a valuation date of 31 December 2007.
10. Goodwill
31 December 2007
At 23 October 2006 -
Arising on acquisitions during the period (note 8) 326.8
Impaired during the period (17.2)
Impaired as a result of property disposals (115.9)
Goodwill held in disposal groups (note 12) (85.4)
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 realized 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.
11. 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 disposal group (note 12) (97.3)
Attributable to continuing operations (106.1)
12. Disposal group
At 31 December 2007 the Group had decided to dispose of the entire Finnish
hotels portfolio and has commenced the disposal process for which a sales
contract was signed in January 2008 with completion on 29 February 2008.
Accordingly the Finnish hotels portfolio has been treated as a disposal group in
this financial information.
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
13. Derivative financial instruments
23 October 2006 -
31 December 2007
Fair value at 23 October 2006 -
Acquired through Business combinations (Note 8) (16.4)
Revaluation gains on financial instruments 46.4
Fair value at 31 December 2007 30.0
Disposal group 6.5
Continuing operations 23.5
31 December 2007
Fair value Fair value
assets liabilities
Interest rate swaps 21.4 -
Currency swaps 8.6 -
Total 30.0 -
Disposal group 6.5
Continuing operations 23.5
At 31 December 2007, the notional principle amount of outstanding currency swap
contracts was Euro 365.9 million and of outstanding interest rate swaps Euro 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.
14. 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 11,000 Euro. In the table below, the movement of
issued capital for the period ended 31 December 2007 is disclosed:
Share capital Euro Share No. of ordinary
m premium Eurom shares
On incorporation, 23 October 2006 - - 11 000
New share issues 443.9 9.2 443 856 286
Conversion of convertible loan notes 32.0 1.5 32 057 246
Reduction of share capital account (390.0) - -
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
Euro 1 per share. All issued shares are fully paid.
The share capital account of the Company has been reduced by Euro 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.
15. 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
1.05 Euro. 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 1.05 Euro, 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 0.08 Euro 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 Euro 16,500. The total expense is recognized 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).
16. 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 (114.0)
Net borrowings 444.3
The loan maturity profile (excluding convertible loan) is as follows:
Maturity year Amount (Eurom) % amount
2011 61 11.7
2012 - 0.0
2013 442 85.0
>2014 17 3.3
Total 520 100.0
The average interest rate is approximately 5.30%, 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 Euro, 10% in SEK and
the other 2% are in RUB.
The Group has access to a revolving credit facility of Euro 10.0 million that was
not used at the end of the reporting period.
17. Capital commitments
At 31 December 2007 the Company was contractually committed to Euro 43.0 million of
future expenditure for the purchase, development and enhancement of investment
property.
18. 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.
19. 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:
a) the purchase agreement whereby the Group acquired the initial property
portfolio of 84 properties at a value Euro1,831.6.0 million from LR Swedish
Holdings No. 1 AB;
b) 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 (Euro 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 (Euro 10.8 million for the period
ending 31 December 2007);
c) the rental shortfall guarantee in which LR Real Estate Asset
Management AB guarantees an income for certain premises of Euro 4.0 million per
year for 2007-2009, less any rent from new leases in the same properties;
d) the lease agreement Stockholm Katthavet 8 "Berns Hotel" between the
Group and the London & Regional Group; and
e) 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.
20. 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 (Euro)
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.
Appendix 1 - Other information for shareholders not part of the financial
information
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 Euro 1.00 per Euro 1.00 nominal to Euro
0.95 per Euro 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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