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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Taliesin Pty P | LSE:TPFZ | London | Ordinary Share | JE00BCDP4K39 | ZDP 100P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 143.50 | 143.00 | 144.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMTPFZ
RNS Number : 6293M
Taliesin Property Fund Limited
30 April 2018
Taliesin Property Fund Limited
Annual results for the year ended 31 December 2017
Taliesin Property Fund Limited and its subsidiaries ("Taliesin" or the "Group"), a company quoted on the Official List and focused on the Berlin residential market, is pleased to announce its results for the year ended 31 December 2017.
A full version of the annual report and accounts will be available on the National Storage Mechanism (http://www.morningstar.co.uk/uk/NSM) and the Company's website (www.taliesinberlin.com).
For further information, please contact:
Taliesin Property Fund Limited
Jean-François Bossy, Director +352 266 456 303
TALIESIN PROPERTY FUND LIMITED
Registered number: 91744
Annual Report and Financial Statements
for the year ended 31 December 2017
Contents Page
Advisers 3
Result Highlights 4
Chairman's Statement 5
Investment Adviser's Report 6
Directors' Biographies 9
Directors' Report 10
Directors Responsibilities Statement 17
Independent Auditor's Report 18
Consolidated Statement of Comprehensive Income 23
Consolidated Statement of Financial Position 24
Consolidated Statement of Changes in Equity 26
Consolidated Statement of Cash Flows 27
Notes to the Financial Statements 28
TALIESIN PROPERTY FUND LIMITED Advisers for the year ended 31 December 2017 ------------------------------------ Company Secretary and Administrator JTC (Jersey) Limited
28 Esplanade
St Helier
Jersey JE4 3QA
Nominated Adviser and Broker Stockdale Securities Limited
Beaufort House
15 St. Botolph Street
London EC3A 7BB
Auditor Mazars LLP
Tower Bridge House
St Katharine`s Way
London E1W 1DD
Investment Advisers Taliesin Management Limited
Bridge House
25 Fiddlebridge Lane
Hatfield AL10 OSP
JJ Investment Management Limited
8(th) Floor, Union House
Union Street
St Helier
Jersey JE2 3RF
Lawyer Ogier
Ogier House
The Esplanade
St Helier
Jersey JE4 9WG
Registrar Capita Registrars (Jersey) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
TALIESIN PROPERTY FUND LIMITED Result Highlights for the year ended 31 December 2017 ------------------------------------
Key financial and operational highlights
-- Adjusted Net Asset Value (NAV)* per share rose 25% in 2017 to EUR47.00 at the end of the year (31 December 2016: EUR37.53 after reflecting the EUR2 per share return of capital to shareholders during the period).
Hot Features
Premium
-- Property portfolio now valued at EUR383 million (31 December 2016: EUR318 milion)
-- Per square metre ("psqm") valuation of EUR3,280 (31 December 2016: EUR2,700)
-- Taliesin's (the "Group") second privatisation project, Kavalierstrasse, has realized or contracted to sell an additional eight units in 2017 (vs. four units sold in 2016) at an average sales price of EUR4,226 psqm
-- The Berlin property market continues to benefit from positive changes in demographics and a strong local economy with rents and prices also being driven higher by a scarcity of supply
-- On 26 February 2018 all of the ordinary shares of no par value in Taliesin were acquired by affiliates of The Blackstone Group L.P. at a price of EUR51 per share by means of a Jersey law governed court-sanctioned scheme of arrangement.
-- The zero dividend preference shares did not form part of the scheme of arrangement but now that it has been completed, Taliesin is required under its articles to initiate a process of offering an early repurchase of the zero dividend preference shares.
-- On 9 March 2018 Taliesin announced an offer to buy back the zero dividend preference shares of no par value in Taliesin at a price of GBP138.42 per share.
-- The offer period expired on 10 April 2018 and as of such date, shareholders in respect of 90,000 zero preference dividend shares representing 0.63% of the total share capital elected to tender their zero preference dividend shares. Taliesin settled the consideration in respect of such buy back on 24 April 2018.
-- The shareholders of zero preference dividend shares who did not elect to tender their shares will continue to hold such zero preference dividend shares subject to redemption on or within 14 days before 30 September 2018 in accordance with the articles of Taliesin.
*The Adjusted NAV per share takes the IFRS NAV and excludes gross deferred tax liabilities.
TALIESIN PROPERTY FUND LIMITED Chairman's Statement for the year ended 31 December 2017 ------------------------------------
I am delighted to be able to report on a memorable year for the Group. Taliesin's Adjusted NAV per share increased by 25% to EUR47.00 based on the year-end valuation (31 December 2016: EUR37.53).
The Taliesin share price maintained its premium to the Group's Adjusted NAV followed by a jump towards the end of 2017 to EUR51 per share, in-line with the price that was offered to shareholders by means of a Jersey law governed court-sanctioned scheme of arrangement that became effective on 26 February and was followed by the de-listing of the Company on the 27(th) of February 2018. Taliesin`s ZDPs are still listed on the London Stock Exchange. The offer period for the repurchase of the ZDP shares is closed now.
Following the de-listing of the Company a restructuring was initiated which is disclosed in more detail in the Note 26 post balance sheet events.
Nigel Le Quesne
Chairman
30 April 2018
TALIESIN PROPERTY FUND LIMITED Investment Adviser's Report for the year ended 31 December 2017 ------------------------------------
Recent Market Developments and Outlook
The development of the Berlin property market was no different to previous years. Prices have risen sharply. Demographic and economic trends reported in the last annual reports continued and were accompanied by favourable circumstances.
Taliesin's portfolio value (based on a valuation by JLL) increased to EUR383M in 2017, which is an average sqm value of EUR3,280. This is an increase of EUR65M or 20.4% compared to 2016. Sales of condominiums in 2017 amounted to EUR3.7M. Recent apartment sales prices for former assets held for sales have exceeded EUR4,200.
The Group's adjusted NAV per share increased to EUR47.00 which is an improvement of 25% or almost EUR9.50.
This positive development - as stated in the introduction - is due to a couple of conditions:
First, the continuing population growth, which is forecasted to expand to 4M by 2030. According to the most recent numbers published by the Einwohnermeldeamt, the population has increased by 50,000 inhabitants per year over a period of 5 years. This makes the forecast for 2030 look very conservative since if population growth continues at a rate of 50,000 inhabitants per year, there would be 4M inhabitants by the end of 2023.
The economic growth of the city continues to be stable at a high level and the Federal Employment Office has announced yet another record year for higher employment and lower unemployment rates, despite the growing population. According to the Federal Employment Office the number of employed people grew by nearly 27% between 2009 and 2017. At the same time the unemployment rate has gone down. From being over 10% for more than 25 years, it went below 10% in 2016 and down to 8.4% in 2017. Such a figure was last achieved in 1984. The positive employment data has also had a positive effect on purchasing power which is, however, still below the German average but is catching up. GFK, a well-known research Company, reports that in 2018 Berlin will climb from rank 11 up by one position and now commands 91.5% of the German average purchasing power.
Even though population and property prices are rising, new build numbers lag far behind demand. According to CBRE, less than 9000 units were finished in 2016 and expected numbers for 2017 do not seem to be higher. New developments are slowed down not only by reasons, such as lack of builders and high plot / estate prices, but also by a mentality on behalf of both the government and population, of "not in my backyard". This keeps the numbers of new homes at an insufficient level and increases the pressure on the property market. Today vacancy rates are around 1% compared to a stable 5% for a sustained time just a couple of years ago.
This has also led to higher market rents. According to CBRE offered market rents were just below EUR10 psqm in Berlin at the end of 2017. This makes Berlin still the cheapest city of the top 7 cities in Germany. Just Duesseldorf and Cologne are similarly cheap. Offered market rents in Munich are above EUR16 on average and in Frankfurt / Main just below EUR13. No surprise that these two cities have a more efficient ratio of building permission to finalised buildings, which is 1.3, compared to Berlin and Duesseldorf, which are at 1.83 and 1.78 respectively (DB, 2018).
Another reason for scarcity of supply and pressure on market rents is the restrictive German tenant law which impedes unit churn. The gap between in-situ rents and market rents is increasing year-to-year. While the Mietspiegel shows yearly rent increases of 4.6%, market rents - according to CBRE - were at 8.8%. Therefore, tenants are less willing to terminate an old lease contract for a new lease, leading to a shortage in supply. Inefficient space distribution is the consequence.
We do not expect a reversal in the property market due to the beforementioned reasons. Other global and economic circumstances which could have a negative effect on the German real estate market are not anticipated. Interest rates have stayed low and the banks' ability to provide financing is still high. With the formation of the new federal government in March 2018, political stability has been secured.
Operational Review
Taliesin received a take-over approach from the Blackstone Group. On 20 December 2017 the boards of directors of Taliesin Property Fund Limited ("Taliesin"), Wren Bidco Limited ("Bidco 1") and Canary Bidco Limited ("Bidco 2" and together, the "Bidcos"), were pleased to announce that they had reached agreement on the terms and conditions of a recommended all cash acquisition of the entire issued ordinary share capital of Taliesin.
Under the terms of the acquisition, each Scheme Shareholder became entitled to receive for each Scheme Share 51 Euros in cash.
The take-over offer is a result of the successful development of Taliesin's prime portfolio, which benefited again from a very strong underlying market. In 2017 its average rent grew by more than 5% and in situ residential rents averaged just below EUR8.00. Average re-let rents rose by another 5% and are now at EUR10.50 psqm, demonstrating the ongoing strong long-term rental potential of the portfolio. It is very likely that rental market prices will continue to rise in the future. This, alongside the potential capital uplift connected with any assets that can be privatised, explains why investors, such as the Blackstone Group, are prepared to acquire properties today with low initial yields.
The Company continued the preparation of its portfolio for individual sales. At year end, almost all its Berlin properties were - from a legal point of view - ready for condominium sale. As demonstrated by the Group's recent apartment sales activity, this remains an area which offers significant potential.
The Group privatised another 8 condominiums in Kavalierstrasse at an average price of more than EUR4,200 psqm, ranging from EUR3,850 - EUR4,800. The total revenue in 2017 was EUR3,738,000, and EUR4,409,000 for all sold units in Kavalierstrasse. Taliesin still owns 11 units in the block.
Due to the smaller number of assets being held for sale, future sales are no longer being coordinated by the in-house agent, Raumerei. The agency has now been sold as the benefits from having an in-house broker are not expected to be as significant as in the past.
In 2017 no dividend was paid.
As part of the sales process, Taliesin delayed the refinancing of the Phoenix properties by three months which were maturing at year-end. The Group had already negotiated new financing, which was double as high as the existing financing.
Risks and Uncertainties
Taliesin's property portfolio is located almost entirely in Berlin and therefore at risk from changes in the political and economic environment that may have an impact on the city. As in previous years, the Group remains vigilant to these twin threats to the wellbeing of the business.
Following the elections in 2016 Berlin now has a coalition government comprising the Social Democrats, the Greens and the left parties. These parties campaigned on a strongly pro-tenant platform and the early signs indicate that the operating environment for landlords is going to become more complex. The Berlin authorities are clearly intensifying their efforts to relieve pressure in the rental market by, for example, threatening heavy fines for apartments left intentionally vacant. Gaining permissions for rent increases following refurbishment work in designated "preservation" areas is also proving time consuming and delaying the turnaround of vacant units. At the Federal level, the Ministry of Justice is working on an overhaul of the current Mietspiegel (rental) law which could prove detrimental to landlords.
As regards to the politics in Germany itself, the coalition between the conservatives and the Social Democrats has been finally formed after a 6-month negotiation period. The risk of tighter restrictions on rents and higher stamp duty however remain.
On the economic front in 2018 and beyond, it is very likely that monetary policy will be, at least to a degree, normalised, barring challenges from negative developments on the Eurozone's periphery. Eurozone inflation reached 1.4% at the turn of the year and, while that is still well below the 2% target set by the ECB, reflationary trends have set in and will eventually prompt the ECB to tighten. The US has already embarked on the path of monetary tightening, with the yield on 10 year US Treasuries has increased relative to German bund yields.
Strategy and Plans
In last year's report we reflected on the level of maturity achieved in the Berlin residential property market over the past several years. The price of property has increased markedly but the market has also experienced a significant de-risking over the period. The underlying support for any residential market comes from a combination of demographics, supply and finance conditions. We would argue that the near-term trend for each of them should continue to be supportive of the market, even at higher prices.
On 26 February 2018 all the ordinary shares of no par value in Taliesin were acquired by affiliates of The Blackstone Group L.P. at a price of EUR51 per share by means of a Jersey law governed court-sanctioned scheme of arrangement. On 27 February 2018 all the ordinary shares in Taliesin were de-listed. The zero dividend preference shares did not form part of the scheme of arrangement but now that it has been completed, Taliesin is required under its articles to initiate a process of offering an early repurchase of the zero dividend preference shares.
On 9 March 2018 Taliesin announced an offer to buy back the zero dividend preference shares of no par value in Taliesin at a price of GBP138.24 per share. The offer is being implemented by way of an off market repurchase of the zero dividend preference shares. Any zero dividend preference shares that are purchase pursuant to the offer will be cancelled.
The offer period expired on 10 April 2018 and as of such date shareholders in respect of 90,000 zero preference dividend shares representing 0.63% of the total share capital elected to tender their zero preference dividend shares. Taliesin settled the consideration in respect of such buy back on 24 April 2018.
The shareholders of zero dividend preference shares who did not elect to tender such zero dividend preference shares will continue to hold such zero dividend preference shares subject to redemption on or within 14 days before 30 September 2018 in accordance with the articles of Taliesin. On redemption of the zero dividend preference shares on or before 30 September 2018 the zero dividend preference shareholders will receive GBP144.28 per share.
In the context of the buyback process the restructuring has started and is part of the strategy and future as explained in the chairman`s statement.
TALIESIN PROPERTY FUND LIMITED Directors' Biographies for the year ended 31 December 2017 ------------------------------------
Nigel Le Quesne (Chairman)
Nigel Le Quesne is Group CEO of JTC PLC, having joined in 1991 from Price Waterhouse. He was admitted as an associate in 1989 and a fellow in 1999 of the Institute of Chartered Secretaries and Administrators and is a fellow of the Chartered Management Institute. He is also a member of the Society of Trust and Estate Practitioners, the Jersey Taxation Society and the Institute of Directors. Mr. Le Quesne has a number of directorships of both publicly quoted and private companies and, in particular, has extensive property experience including his roles as a director of Watermark Holdings Limited, a privately owned Jersey company with significant real estate assets in the UK and Germany, and as a member of the supervisory board of IMW Immobilien AG, a publicly quoted property holding company with substantial property holdings primarily in the Berlin area. Mr. Le Quesne was appointed a Director on 17 November 2005 and has served as a Director since that date.
Miranda Lansdwone
Miranda joined JTC in 2007, having worked in the financial services industry since 1998, becoming head of JTC Fund Services in Jersey, responsible for supervising the provision of services to several key private equity fund clients whilst holding a number of directorships in the funds sector. In 2014 Miranda was appointed as Managing Director of JTC Luxembourg, where she oversaw the management of the administration teams in our Luxembourg fund services division, as well as providing support to JTC's fund services teams in Guernsey, Jersey and the UK. Following her return to Jersey Miranda joined the CEO's office where her responsibilities include coordinating the recent admission to trading on the London Stock Exchange of JTC PLC and overseeing the Group's Company Secretariat function.
Jean Francois Bossy
Mr Bossy is the CFO of BRE Europe Real Estate Investment, the ultimate European holding platform of the BREP European Investments, leading the Luxembourg finance team and overseeing all reporting obligations of the various BREP European deals through Europe. Mr Bossy is also involved in tax structuring and compliance matters and also acts as a director of a number of BREP SPVs in Luxembourg and throughout Europe.
Before joining BRE Europe Real Estate Investment in 2004, Mr Bossy worked as a manager at Grant Thornton (4 years) and KPMG (2 years) specialized in services to commercial companies, private equity and real estate funds. Mr Bossy is a qualified certified accountant.
Anthony Beovich
Anthony W. Beovich is a Managing Director in the Real Estate Group. Since joining Blackstone in 1998, Mr. Beovich has worked in the financial reporting Group and is involved in tax research and tax compliance for all Blackstone Real Estate Partners (BREP) funds. Mr. Beovich has also been involved with tax matters relating to fund formation and BREP acquisitions and dispositions. Before joining Blackstone, Mr. Beovich was a Tax Manager at Deloitte & Touche, where he provided tax services to real estate investment trusts, opportunity funds and partnerships in the real estate industry. Mr. Beovich received a BS in Accounting from St. John's University and an MS in Taxation from Long Island University. He is a Certified Public Accountant.
Paul D. Quinlan
Mr Quinlan is a Managing Director and Chief Financial Officer of the Blackstone Real Estate Group. Mr. Quinlan was previously the CFO for Blackstone Real Estate Debt Strategies and Blackstone Mortgage Trust. Prior to this, he was a member of Blackstone Finance, where he served as Head of Financial Planning & Business Development, with oversight of management and public reporting, as well as strategic acquisitions such as Capital Trust/BXMT. Mr. Quinlan also served as the CFO for Blackstone Advisory Partners L.P. Prior to joining Blackstone in 2010, Mr. Quinlan worked at Bank of America Merrill Lynch, focusing on strategic corporate M&A and private equity investments. Mr. Quinlan received a BS in Finance cum laude from Georgetown University and an MBA with distinction from the NYU Stern School of Business.
TALIESIN PROPERTY FUND LIMITED Directors' Report for the year ended 31 December 2017 ------------------------------------
The Directors present their report to the members together with the financial statements for the year ended 31 December 2017.
INCORPORATION
The Company was incorporated in Jersey, Channel Islands, on 17 November 2005.
PRINCIPAL ACTIVITIES
The principal activity of the Company is that of a holding company for the Group. The Group's principal activity is selective investment in primarily residential property in Berlin, Potsdam and Dresden. The ordinary shares of the Company were delisted on the AIM Market of the London Stock Exchange on 27 February 2018. The Company's Zero Dividend Preference Shares are listed on the Official List for trading on the London Stock Exchange.
BUSINESS REVIEW
The consolidated statement of comprehensive income for the year is set out later in this report. A review of the development and performance of the business has been set out in the Chairman's Statement and Investment Advisers' report.
DIVIDS
The Directors do not recommend the payment of a dividend for the year (2016: EURnil).
DIRECTORS AND DIRECTORS` INTERESTS IN SHARES
The Directors of the Company during the year, and subsequently, together with the interests in the share capital of the Company of those in office at the end of the year, were:
Ordinary Resigned Appointed
shares
Nigel Anthony Le
Quesne 5,200
Stephen Anthony - 26 February
Burnett 2018
Nicholas Mark Houslop - 26 February
2018
Nikolaus von Palombini - 26 February
2018
Mark Smith *124,720 26 February
2018
Miranda Suzanne - 26 February
Helen Lansdowne 2018
Jean-Francois Bossy - 26 February
2018
Paul Quinlan - 26 February
2018
Anthony Beovich - 26 February
2018
*In addition, Mark Smith owns 75.62% of Taliesin Management Limited (TML) which owns 680,897 ordinary shares. Mark Smith also owns 100% of JJ Investment Management Limited (JJIM) which owns 598,304 ordinary shares.
SUPPLIER PAYMENT POLICY
The Company and the Group's policy concerning the payment of trade payables is to:
-- settle the terms of payment with suppliers when agreeing the terms of each transaction;
-- ensure that suppliers are made aware of the terms of payment by the inclusion of the relevant items in contracts; and
-- pay in accordance with the Group's contractual and other legal obligations.
On average, Group trade payables at the year-end represented 26 days (2016: 26 days) of total Group operating expenses. The Company had no trade payables at either 31 December 2017 or 31 December 2016.
GOING CONCERN
The Group's business activities, its performance for the period, and prospects for the business going forward are outlined in the Chairman's Statement and Investment Advisers' report. As described in the Post Balance Sheet Events note on page 63, the Directors are intending to liquidate the Group which is left after the outlined post balance sheet events, after the fulfilment of the ZDP buyback. Therefore, the financial statements are prepared on a basis other than going concern. The directors have reviewed the balance sheet of the Company and have concluded, based on currently available data, that no adjustments are required to any of the assets and liabilities as a result of the proposed transfer and subsequent liquidation. The directors have also assessed the impact of preparing the financial statements on a basis other than going concern, and have noted that existing accounting policies for assets, liabilities, income and expenses as described in Note 2 to the financial statements, remain appropriate.
FINANCIAL RISK MANAGEMENT
An explanation of the Group's financial risk management objectives, policies and strategies is set out in note 20.
AUDITOR
Each of the persons who are Directors at the time when this Directors' report is approved has confirmed that:
-- so far as that Director is aware, there is no relevant audit information of which the Group`s auditor is unaware; and
-- that Director has taken all the steps that ought to have been taken as a Director in order to be aware of any information needed by the Group's auditor in connection with preparing its report and to establish that the Group's auditor is aware of that information.
CORPORATE GOVERNANCE
The Directors recognise the importance of, and are committed to, high standards of corporate governance. During the course of the current financial year the Board of Directors have continued to assess the most appropriate corporate governance arrangements and have decided to again adopt the Association of Investment Companies Code of Corporate Governance (the "AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide").
The Board considers the AIC Code, as explained by the AIC Guide, to be the most appropriate for the Company as it allows the Company to continue to adhere to the high standards of corporate governance that it recognises as important to shareholders, whilst providing an appropriate framework of corporate governance for an investment company such as Taliesin.
As an externally managed investment company, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. For the reasons set out in the AIC Guide, the Company has therefore not reported on:
-- the role of the chief executive; -- executive director`s remuneration; and -- the need for an internal audit function.
For the reasons set out in the AIC guide, and as explained in the UK Corporate Governance Code, the Board considers these provisions not relevant to the position of Taliesin, being an externally managed investment company. The Company has therefore not reported further in respect of these provisions.
The principles of the AIC Code
The AIC Code is made up of twenty-one principles which, together with the Company's compliance approach, are detailed below:
As a result of the changes in ownership the AIC code is not applicable anymore as of the effective date of the scheme of arrangement as described in the strategy and plans.
During the financial year 2017 the following practices had been in place.
The Board
The Chairman should be independent
Nigel Le Quesne is the CEO of JTC PLC of which JTC (Jersey) Limited, JTC Trustees Limited and JTC Fund Services Limited are wholly owned subsidiaries, he cannot be considered wholly independent, but the Board considers this acceptable given the size and structure of the Group.
The Board has not to date considered it necessary or appropriate to undertake a formal evaluation of the Chairman, as recommended by the AIC Code, due to the nature of the Company's activities and the fact that the Board consists entirely of non-executive Directors.
The Board does not consider that a Director's tenure necessarily reduces their ability to act independently, and believes that each director is independent in character and judgement and there are no relationships or circumstances which are likely to affect the judgement of any Director.
The length of service as a Chairman is excluded from the requirement for directors to be appointed annually after 9 years' service in the Company's Articles of Association.
The Board has appointed the Chairman to be the point of contact for all matters relating to the corporate governance of the Group.
A majority of the Board should be independent of the Manager
The Company is led and controlled by a Board comprising five non-executive Directors, who between them have wide commercial experience and considerable expertise in real estate, including in Berlin.
For the purposes of the AIC Code, the Board considers all of the Directors free from any business or other relationship that could materially interfere with the exercise of their independent judgement.
Directors should be elected for a fixed term no more than three years. Nomination for re-election should not be assumed but be based on disclosed procedures.
The Articles of Association stipulate that one third (or nearest number thereto but not exceeding one third) of the Directors shall retire and offer themselves for reappointment at each following Annual General Meeting. The retiring Directors will be made up of those who have not been up for reappointment in the previous three years. Any Director who has served for more than nine years, excluding time spent as Chairman of the Board, shall also retire and offer themselves for reappointment annually.
The Chairman has served on the Board for nine years or more.
The Board subscribes to the view expressed within the AIC Code that long-serving Directors should not be prevented from forming part of an independent majority.
The Board does not consider that a Director's tenure necessarily reduces their ability to act independently and believes that each director is independent in character and judgement and there are no relationships or circumstances which are likely to affect the judgement of any Director.
Nigel Le Quesne has been a director or Chairman for nine years or more. The length of service as a Chairman is excluded from the requirement for directors to be appointed annually after nine years' service in the Company's Articles.
Nigel Le Quesne was re-elected at the 2016 Annual General Meeting and will continue to stand for re-election every three years going forward whilst he remains Chairman.
Due to the size and nature of the Company's activities the Board does not consider it appropriate to designate a Senior Independent Director.
The Board should have a policy on tenure, which is disclosed in the annual report
The Board have approved a Length of Service Independence Policy on 19 October 2016 which states that "the Directors do not consider that service of longer than 9 years necessarily compromised independence and that the Board considered whether a Director was independent in character and judgment and whether there were relationships or circumstances, including those contained in the AIC Code, which were likely to affect, or could appear to affect, the Directors' judgment."
There should be full disclosure of information about the Board.
Biographies of each Director can be found on the Company's website and in the annual report and accounts.
The Board should aim to have a balance of skills, experience, and length of service
The Directors consider diversity when making appointments to the Board, taking into account relevant skills, experience, knowledge and gender. The Company has no employees and, therefore, there is nothing further to report in respect of gender representation within the Company.
The objectives of Board planning in terms of its composition and succession are to ensure that the Board is comprised collectively, of fit and proper individuals with the capability to direct the Company in the best interest of its shareholders.
The Board believes that restricting its membership to five is appropriate, given the Company's size, and enables collective decisions to be made without undue delay.
The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its Committees and individual Directors
The Board has not to date considered it necessary or appropriate to undertake a formal evaluation of the Chairman, the Board, the Audit Committee or individual Director's performance, as otherwise recommended by the AIC Code, due to the nature of the Company's activities and the fact that the Board consists entirely of non-executive Directors.
The Chairman and members of the Board do, however, informally discuss the composition and suitability of the Board on a regular basis being mindful of the need to ensure that the best interests of the Company and all stakeholders are considered and served at all times.
Director remuneration should reflect their duties, responsibilities and the value of their time spent.
The Board's policy is that the remuneration of Directors should reflect the experience of the Board as a whole, be fair and comparable to companies that are similar in size, have a similar capital structure and have similar investment objectives.
Each of the Directors has entered into a letter of appointment with the Company which details their terms of appointment, their anticipated time commitment to discharge their duties, details of their role and responsibilities, arrangements for the review of their performance and duration of appointment, the fees payable to them, arrangements for the prior approval of their outside interests and the treatment by them of confidential information. These letters are available for inspection upon request to the Company Secretary.
The most recent meeting of the Remuneration and Nomination Committee was held on 19 July 2017. The Committee last set the remuneration for all non-executive Directors including the Chairman on 18 June 2015. It has not been felt necessary to appoint independent external remuneration consultants on the basis that the Board contains no executive directors. It has also, therefore, not been felt necessary for the Chairman to remain in contact with the larger shareholders regarding remuneration.
Details of Directors' remuneration are also published in the annual report and accounts.
The independent Directors should take the lead in the appointment of new Directors and the process should be disclosed in the annual report
The Board plans for its own succession, with the assistance of the Remuneration and Nomination Committee. This process ordinarily involves the identification of the need for a new appointment, and the preparation of a brief including a description of the role and specification of the capabilities required.
The Board and the Remuneration and Nomination Committee has not to date felt it appropriate to engage specialist recruitment consultants, rather it has utilised the Board's own contacts and its professional advisers when considering appointments.
Directors should be offered relevant training and induction
There is currently no formal induction training for Directors. The Board have agreed to formalise induction training at the next time a new director is appointed.
Upon appointment, each Director is provided with a summary of the responsibilities and duties of Directors, together with relevant background information on the Company and assistance and information from representatives of the Investment Advisers and the Company Secretary.
Thereafter, Directors are encouraged to attend industry and other seminars covering issues and developments relevant to investment companies, and Board meetings regularly include agenda items on recent developments in governance and industry issues.
The Chairman (and the Board) should be brought into the process of structuring a new launch at an early stage
Whilst this principle is currently not relevant to the Company, in the event that a new issue took place the Chairman and the Board would be engaged at an appropriate stage.
Board meetings and relations with the Manager
Boards and Managers should operate in a supportive, cooperative and open environment
The Board meets at least quarterly, with additional Committee and ad-hoc meetings held as matters arise.
Regular communications between the Board, Investment Advisers and the Company Secretary are held for specific operational and other matters that may be required outside of the formal Board meetings.
The primary focus at regular Board meetings should be a review of investment performance and associated matters such as gearing, asset allocation, marketing/investor relations, peer Group information and industry issues
The quarterly Board meetings follow a standing agenda with reporting provided by the Company's functionaries; the Investment Advisers, Administrator and Registrar.
Collectively, this reporting covers (i) investment related information such as performance, gearing, asset allocation, marketing, investor relations, peer Group information and industry issues, (ii) financial analysis such as adequacy of financial resources, valuation, budget and cash flow, and (iii) operational and regulatory matters.
When appropriate, the NOMAD will be invited to attend Board meetings to advise the Board on specific matters relating to the Company's stock exchange continuing obligations.
The Board also regularly monitors the share price of the Company and formally reviews the level of premium or discount attached at each quarterly Board meetings, where it considers, inter alia, ways in which the performance might be enhanced.
A register of Directors and Committee members meeting attendance is maintained by the Company Secretary and disclosed in the annual report and accounts. A summary of the 2017 meetings is shown below:
Board MEC N&RC Audit
------------------------ ------ ---- ----- ------
Nigel Le Quesne 8 1 1 n/a
------------------------ ------ ---- ----- ------
Mark Smith 10 n/a n/a n/a
------------------------ ------ ---- ----- ------
Mark Houslop 8 n/a 2* n/a
------------------------ ------ ---- ----- ------
Stephen Burnett 7 2 2 2
------------------------ ------ ---- ----- ------
Nikolaus von Palombini 8 2 n/a 2
------------------------ ------ ---- ----- ------
* Mark Houslop became a member of the Nominations and Remunerations Committee on 5 January 2017.
Additional reports are requested and received as required and the Directors have access at all times to a professional Company Secretary who assists the Board in ensuring that procedures, rules and regulations are followed. The Directors may also, in furtherance of their duties, take independent legal and financial advice at the Company's expense.
Boards should give sufficient attention to overall strategy
The Board monitors progress on strategy and policy through regular (at least quarterly) formal reports to the Board from the Investment Advisers. The Board also receives regular key performance data on the property portfolio and is fully involved in all strategic decisions.
Directors also make visits to Berlin in order to review the Investment Advisers' operations and make site visits to the properties in the portfolio.
The Boards should regularly review the performance of, and contractual arrangements with, the Manager (or executives of a self-managed Company)
During the year the Investment Advisers had Investment Advisory Agreements with the Company and Taliesin Management Limited (TML) in turn had a service contract with Taliesin Deutschland GmbH (TDL).
Under the terms of the Investment Advisory Agreements JJIM, TML and TDL are responsible on behalf of the Company primarily for portfolio management, financing related and other general real estate related advisory services.
TML and TDL also provide advice and oversight to the Company in relation to third party service providers such as the property manager, architects, real estate agents etc. TDL also provides bookkeeping and accounting services on behalf of the Company and works together with third party accountants, tax advisers and legal specialists in the preparation of more detailed accounts and statutory filings.
The Board established a Management Engagement Committee (the "Committee") on 14 November 2013 which currently comprises of Nigel Le Quesne, Stephen Burnett (Chairman) and Nikolaus von Palombini to review the performance of the Investment Advisers on an annual basis.
As part of the annual review (last carried out in December 2017,) the Committee undertook the following tasks:
a. reviewed the terms of the Investment Advisory Agreement between the Company and the Investment Advisers;
b. reviewed the performance of the Investment Advisers in its role as advisers to the Company;
c. considered the merit of obtaining an independent appraisal of the services provided by the Investment Advisers;
d. reviewed the continued retention of the Investment Advisers' services;
e. reviewed the level and method of remuneration of the Investment Advisers and the notice period included in the Investment Advisory Agreements and made recommendations regarding the mode and frequency of payment;
f. reviewed the Investment Advisers compliance with the terms and provisions of the Investment Advisory Agreements and investigated any breaches of agreed investment limits and any deviation from the agreed investment policy and strategy; and
g. reviewed the standard of service provided by the Investment Advisers under the terms of the Investment Advisory Agreements.
The Boards should agree policies with the Manager covering key operational issues
Although the Board has wide-ranging expertise in real estate, including German real estate, it largely confines itself to the making of strategic and broad policy decisions including budget approval.
Day-to-day decisions and policies relating to the investments are delegated to the Investment Advisers.
The Board is responsible for establishing and maintaining the Company's system of internal control and reviewing its effectiveness. The Board regularly reviews the internal controls of the Investment Advisers and the Administrator who are responsible for the operational aspects of the Company's business.
The Board is reliant upon the Investment Advisers' and the Administrator's internal control systems including financial, operational and compliance controls and risk management.
The Administrator has an administration agreement with the Company and provides significant support functions with regards to the Company's compliance with the applicable rules and regulations of Jersey, as well as the Company's constitutional documentation, continuing listing authority obligations and corporate governance framework.
The Administrator also provides the Company with individuals to act as Compliance Officer, Money Laundering Reporting Officer and Money Laundering Compliance Officer who have unfettered access to the Board, and who provide regular reporting to the Board in respect of their roles.
Boards should monitor the level of the share price discount or premium (if any) and, if desirable, take action to manage it
The Board regularly monitors the share price of the Company and formally reviews the level of premium or discount attached at each quarterly board meeting, where it considers, inter alia, ways in which the performance might be enhanced.
The Board should monitor and evaluate other service providers
The Management Engagement Committee and Audit Committee, in respect of the Auditor appointment, meets annually to review the continuing appointment of all service providers, to ensure their terms remain competitive and in the best interests of shareholders, and to discuss satisfaction with their performance and service levels.
A recommendation from each Committee is provided to the Board for consideration.
Shareholder communications
The Board should regularly monitor the shareholder profile of the Company and put in place a system for canvassing shareholder views and for communicating the Board`s views to shareholders
The Group reports formally to shareholders twice a year, when its semi-annual results are announced, and an Annual Report is sent to shareholders. The Annual Report includes notice of the Annual General Meeting of the Company at which a presentation is given and Directors are available to take questions, both formally during the meeting and informally after the meeting.
The Directors are available for dialogue with shareholders on the Group's plans and objectives and from time to time will meet with them. Communication with the public and with shareholders is the responsibility of the Board. All relevant promotional materials and other communications are made available to the Board prior to release by the Investment Adviser.
The Board should normally take responsibility for, and have direct involvement in, the content of communications regarding major corporate issues even if the Manager is asked to act as spokesman
The Board is actively involved with, and takes responsibility for, the content of all communications regarding major corporate issues.
The Board should ensure that shareholders are provided with sufficient information for them to understand the risk: reward balance to which they are exposed by holding the shares
The Company places great importance on communication with shareholders. It aims to provide shareholders with a full understanding of the Company's activities and performance. It reports formally to shareholders twice a year by way of the annual report and the half-yearly report. The Company's website is also regularly updated.
This is supplemented through news announcements and general information on the London Stock Exchange.
FINANCIAL AND BUSINESS REPORTING
The directors consider the annual report and accounts, taken as a whole, is fair, balanced and understandable.
TALIESIN PROPERTY FUND LIMITED Directors' Responsibilities Statement for the year ended 31 December 2017 --------------------------------------
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Jersey Company law requires the Directors to prepare financial statements for each financial period in accordance with generally accepted accounting principles. The financial statements of the Group are required by law to give a true and fair view of the state of affairs of the Group for that year. In preparing these financial statements the Directors should:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable and prudent;
-- specify which generally accepted accounting principles have been adopted in their preparation, and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. As explained in note 2 to the financial statements, the directors do not believe the going concern basis to be appropriate and these financial statements have not been prepared on that basis.
The Directors are responsible for keeping accounting records which are sufficient to show and explain its transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements prepared by the Group comply with the requirements of the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Directors' responsibility statement under the Disclosure and Transparency Rules 4.1.12
The Directors confirm that to the best of their knowledge and belief:
-- the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and
-- the management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that the Group faces.
By order of the Board
Registered office: 28 Esplanade, St Helier, Jersey, JE2 3QA.
___________________________________________
Miranda Lansdowne
Director
30 April 2018
TALIESIN PROPERTY FUND LIMITED Independent Auditor's Report for the year ended 31 December 2017 ------------------------------------
Independent Auditor's Report to the members of Taliesin Property Fund Limited
Opinion
We have audited the consolidated financial statements of Taliesin Property Fund Limited (the 'group') for the year ended 31 December 2017 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, the financial statements:
-- give a true and fair view of the state of the group's affairs as at 31 December 2017 and of the group's profit for the year then ended;
-- have been properly prepared in accordance with IFRSs as adopted by the European Union; and
-- the financial statements have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard, as applied to listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Use of the audit report
This report is made solely to the company's members as a body in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body for our audit work, for this report, or for the opinions we have formed.
Conclusions relating to going concern
These financial statements have not been prepared on a going concern basis for the reason set out in note 1 to the financial statements. We have nothing to report in respect of our conclusions relating to going concern as the accounts have been appropriately prepared on a basis other than going concern and the appropriate disclosures have been made. Our opinion is not modified in respect of this matter.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Description of the risk How we addressed this
risk
-------------------------------- ------------------------------------------------------------------
Investment property valuation Our audit procedures
The group has a significant included, but were not
portfolio of investment restricted to:
properties which is measured
in accordance with IAS * Assessing the work completed by the third party
40 'Investment property'. property valuers, including whether the valuers have
This valuation leads the correct expertise and whether the valuation has
to a significant audit been completed using a fair value model suitable for
risk due to the estimates Taliesin's properties;
and judgements required
to be made in ascertaining
the value under IFRS
13. * Assessing the reasonableness of previous assumptions
made by the valuers by checking for actual disposal
made in the year;
* Reviewing the key assumptions made and appraising
these against available market data such as similar
market transactions and forecasts for market yield
and market growth; and
* Reviewing the adequacy of the disclosure in the
financial statements, including the valuation
methodology, assumptions and fair value hierarchy
used.
.
-------------------------------- ------------------------------------------------------------------
Revenue recognition, Our audit procedures
including the timing over revenue recognition
and treatment of rental included but were not
income and recognition restricted to:
of property disposal
proceeds * Testing controls, designed by the group to prevent
Management may exert and detect fraud and errors in revenue recognition,
pressure to distort revenue over the recognition of rental income;
recognition which may
result in the overstatement
or deferral of revenues
to assist in meeting * Performing substantive analytical procedures over the
current or future targets recognition of rental income to assess whether
or expectations. revenue had been recognised in the appropriate
accounting period;
* Assessing the recoverability of amounts outstanding
from tenants;
* Assessing whether the revenue recognition policies
adopted complied with IFRS as adopted by the European
Union and are adequately disclosed in the financial
statements; and
* Testing a sample of properties and validating sale
proceeds recognised during the year to contracts and
cash to bank.
-------------------------------- ------------------------------------------------------------------
Use of the going concern Our audit procedures
assumption following consist of:
the Acquisition by affiliates
of The Blackstone Group * Reviewing documents associated with the acquisition
L.P. and announcements issued to shareholders; including
Following the acquisition the offer to ordinary shareholders, the company's
by affiliates of The de-listing from AIM and the buy-back offer to zero
Blackstone Group L.P. dividend preference shareholders;
on 26th February 2018,
and as noted in note
2 to the financial statements,
in line with the directors' * Meeting with the Board of Directors to understand the
report, it is the intention future strategy for the group, including their
of directors to liquidate consideration and future plans for re-finance; and
the Company in 2018.
As the liquidation is
expected to be completed
within 12 months of the * Assessing the appropriateness of preparing the
financial statements financial statements on a basis other than going
being authorised for concern and that appropriate disclosures have been
issue, management has made.
decided that the financial
statements should be
prepared on a basis other
than going concern.
-------------------------------- ------------------------------------------------------------------
Our application of materiality
We apply the concept of materiality in planning and performing our audit, in evaluating the effect of identified misstatements on the financial statements, and in forming our audit opinion. The level of materiality we set is based on our assessment of the magnitude of misstatements that, individually or in aggregate, could reasonably be expected to have influence on the economic decisions of the users of the financial statements.
We established materiality based on net assets which is considered appropriate as investors are interested in making a return on their investment, which is based on the share price of the company. The share price is primarily based on its net asset value, which is driven by the value of the investment properties. We determined the financial statement materiality for the consolidated financial statements as a whole to be EUR6,121,000 (representing approximately 3% of the group's net assets) and performance materiality to be EUR4,284,000 (representing 70% of financial statement materiality).
We agreed with the Audit Committee that we would report to that committee all identified corrected and uncorrected audit differences in excess of EUR184,000 (representing 3% of financial statement materiality) together with differences below that threshold that, in our view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
Our audit involved obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are discussed under "Key audit matters" within this report.
Our audit included an assessment of: whether accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify an information that is apparently incorrect, based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatement or inconsistencies we consider the implications for our report.
Our audit scope included an audit of the consolidated financial statements of Taliesin Property Fund Limited. The audit was scoped by obtaining an understanding of the group and its environment, including controls, and assessing the risks of material misstatement at the group level. Based on that assessment, all entities within the group were subject to full scope audit.
Other information
The directors are responsible for the other information. The other information comprises the information included in the Annual Report and Financial Statements, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:
-- Proper accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
-- the financial statements are not in agreement with the accounting records and returns; or -- we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the directors' responsibilities statement set out on page 17, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Richard Metcalfe
for and on behalf of Mazars LLP
Chartered Accountants
Tower Bridge House
St Katharine's Way
London
E1W 1DD
Date: 30 April 2018
TALIESIN PROPERTY FUND LIMITED
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017
-----------------------------------------------
2017 2016
Note EUR(000) EUR(000)
---------------------------------------- ----- --------- ---------
Continuing operations
Rental income 10,738 10,513
Service charge receipts 2,847 2,689
---------------------------------------- ----- --------- ---------
Revenue 13,585 13,202
Income from disposal of investment
property
(including investment property
held for sale) 3,738 6,887
Carrying amount of investment property
sold (3,227) (6,521)
---------------------------------------- ----- --------- ---------
Profit on disposal of investment
property 511 366
Other operating income 354 262
---------------------------------------- ----- --------- ---------
Total operating revenues 14,450 13,830
Net change in fair value of investment
properties (including investment property held for sale) 62,828 51,864 Total operating expenses 7 (24,464) (20,573) ---------------------------------------- ----- --------- --------- Profit from operating activities 52,814 45,121 Gain on fair value of financial assets 16 2,098 1,787 Finance income 10 1 1 Finance expenses 11 (4,185) (4,995) Net foreign exchange differences 12 (678) (1,392) Change in fair value of derivative financial instruments 21 314 1,526 ---------------------------------------- ----- --------- --------- Net financing costs (2,450) (3,073) Profit before income tax 50,364 42,048 Income tax charge 13 (10,872) (9,295) ---------------------------------------- ----- --------- --------- Total profit for the year 39,492 32,753 Profit and total comprehensive income attributable to: Owners of the parent 37,189 30,795 Non-controlling interest 2,303 1,958 ---------------------------------------- ----- --------- --------- Total profit and total comprehensive income for the year 39,492 32,753 Basic earnings per ordinary share 14 7.41 6.52 Diluted earnings per ordinary share 14 7.41 6.31
The notes on pages 28 to 65 form an integral part of the financial statements.
Consolidated Statement of Financial
Position
for the year ended 31 December
2017 2017 2016
Note EUR(000) EUR(000)
--------------------------------------- ----- --------- ---------
ASSETS
Non-current assets
Investment properties 5 379,159 310,911
Other financial assets 16 7,971 5,855
--------------------------------------- ----- --------- ---------
Total non-current assets 387,130 316,796
Current assets
Cash and cash equivalents 3,062 6,348
Trade and other receivables and
prepayments 17 4,552 5,775
Assets classified as held for sale 6 3,920 7,070
--------------------------------------- ----- --------- ---------
Total current assets 11,534 19,193
Total assets 398,664 335,989
SHAREHOLDERS`EQUITY AND LIABILITIES
Equity
Stated capital account 18 59,851 49,381
Shares to be issued 18 - 6,282
Capital reserve 56 56
Retained earnings 135,470 98,282
--------------------------------------- ----- --------- ---------
Equity attributable to equity holders
of parent 24 195,377 154,001
Non-controlling interests 24 8,645 6,342
Total equity 24 204,022 160,343
The notes on pages 28 to 65 form an integral part of the financial statements.
2017 2016
Note EUR(000) EUR(000)
--------------------------------------- ----- --------- ---------
Non-current liabilities
Interest bearing loans and borrowings 19 67,658 100,781
Financial liabilities at fair value
through profit or loss 21 - 406
Deferred tax liablities 13 41,085 30,729
--------------------------------------- ----- --------- ---------
Total non-current liabilities 108,743 131,916
Current liabilities
Interest bearing loans and borrowings 19 63,846 29,714
Financial liabilities at fair value
through profit or loss 21 80 -
Other liabilities and payables 22 19,028 10,227
Liabilities directly associated
with assets classified as held
for sale 19 2,945 3,789
--------------------------------------- ----- --------- ---------
Total current liabilities 85,899 43,730
Total equity and liabilities 398,664 335,989
Net asset value per ordinary share
(EUR) 14 38.31 31.82
The notes on pages 28 to 65 form an integral part of the financial statements.
The financial statements were approved by the Board of Directors and authorised for issue on 30 April 2018 and were signed on its behalf by:
________________________________ ___________________________________
Nigel Le Quesne Miranda Lansdowne
Director Director
Stated Stated
capital capital Shares Equity
account account to Capital Treasury Retained attributable Non-controlling Total
to equity
ordinary be holders
shares b-shares issued reserve shares earnings of parent interests equity
EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000)
--------------- --------- --------- --------- --------- --------- --------- ------------- ---------------- ---------
Equity at 1
January
2017 49,381 - 6,282 56 - 98,282 154,001 6,342 160,343
Profit for the
year - - - - - 37,188 37,188 2,303 39,491
--------------- --------- --------- --------- --------- --------- --------- ------------- ---------------- ---------
Total
comprehensive
income for
the year - - - - - 37,188 37,188 2,303 39,491
Transaction
with
owners
Issues of
shares 10,470 - (6,282) - - - 4,188 - 4,188
Total
transaction
with owners 10,470 - - - - - 4,188 - 4,188
Equity at 31
December
2017 59,851 - - 56 - 135,470 195,377 8,645 204,022
Equity at 1
January
2016 48,041 - 6,643 56 - 67,487 122,227 4,383 126,610
Profit for the
year - - - - - 30,795 30,795 1,958 32,753
--------------- --------- --------- --------- --------- --------- --------- ------------- ---------------- ---------
Total
comprehensive
income for
the year - - - - - 30,795 30,795 1,958 32,753
Transaction
with
owners
Issues of
shares 11,020 - (6,643) - - - 4,377 - 4,377
Issues of
b-shares (9,680) 9,680 - - - - - - -
Redemption of
b-shares - - - - (9,680) - (9,680) - (9,680)
Cancellation
of
b-shares - (9,680) - - 9,680 - - - -
Shares to be
issued
for services
received - - 6,282 - - - 6,282 - 6,282
--------------- --------- --------- --------- --------- --------- --------- ------------- ---------------- ---------
Total
transaction
with owners (1,340) - 6,282 - - - 979 - 979
Equity at 31
December
2016 49,381 - 6,282 56 - 98,282 154,001 6,342 160,343
The notes on pages 28 to 65 form an integral part of the financial statements.
2017 2016
Note EUR(000) EUR(000)
------------------------------------------- ----- --------- ---------
Profit from operating activities 52,813 45,121
Net change in fair value of investments
properties (62,828) (51,864)
Changes in working capital:
Decrease in receivables 373 780
Increase in payables 12,384 10,482
------------------------------------------- ----- --------- ---------
2,742 4,519
Tax paid (512) (605)
------------------------------------------- ----- --------- ---------
Net cash generated from operating
activities 2,230 3,914
Investing activities
Capital expenditure on properties
held 5 (5,497) (4,907)
Proceeds from disposal of property 3,738 6,887
Interest received 10 1 1
------------------------------------------- ----- --------- ---------
Net cash (used in) / generated
by investing activities (1,758) 1,981
Financing activities
Proceeds from borrowings 4,000 46,500
Loan repayments (4,848) (33,622)
Interest paid (2,520) (3,805)
Capital return to owners 18 - (9,680)
Margin deposit increase (390) (3,030)
------------------------------------------- ----- --------- ---------
Net cash used in financing activities (3,758) (3,637)
Foreign exchange gains on cash
and cash equivalents 12 - 12
Net decrease in cash and cash equivalents (3,286) (2,270)
------------------------------------------- ----- --------- ---------
Cash and cash equivalents at start
of year 6,348 4,078
Cash and cash equivalents at end
of year 3,062 6,348
Cash and cash equivalents comprise:
------------------------------------------- ----- --------- ---------
Cash at bank 3,062 6,348
The notes on pages 28 to 65 form an integral part of the financial statements.
Notes to the Financial Statements for the year ended 31 December 2017 ------------------------------------
Notes
1. General information
The Group is principally engaged in selective investment in primarily residential property in Berlin, Dresden and Potsdam with its operation focused on management of properties held for rent and privatisation (see Note 5).
The Group's investment properties consist of 62 multi-tenant buildings with a total of more than 1,500 rental units.
The Company's Ordinary shares were traded until 27 February 2018 on AIM and the Company's Zero Dividend Preference Shares are listed and traded on the Main Market of the London Stock Exchange.
The consolidated financial statements of Taliesin Property Fund Limited and its subsidiaries (the "Group") for the year ended 31 December 2017 were authorised for issue in accordance with a resolution of the directors on 30 April 2018.
Taliesin Property Fund Limited (the "Company") is a limited company incorporated and domiciled in Jersey. The registered office is located at 28 Esplanade, St Helier, Jersey, JE2 3QA.
Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) as adopted by the European Union.
The Group's financial statements have been prepared on a historical cost basis, except for investment property and certain financial instruments which have been measured at fair value. The consolidated financial statements are presented in Euros and all values are rounded to the nearest thousand (EUR000), except where otherwise indicated.
The preparation of financial statements in accordance with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.
As described in the Post Balance Sheet Events note on page 63, the management considers to liquidate the Group which is left after the outlined post balance sheet events, after the fulfilment of the ZDP buyback. Therefore, the financial statements are prepared on a basis other than going concern. The directors have reviewed the balance sheet of the Company and have concluded, based on currently available data, that no adjustments are required to any of the assets and liabilities as a result of the proposed transfer and subsequent liquidation.
New and amended standards and interpretations
Except for the adoption of newly published and amended standards and interpretations, which are effective for annual periods beginning on or after 1 January 2017, the Group's accounting policies are consistent with those of the previous year.
The Group has adopted the following new and amended IFRSs, including any consequential amendments to other standards, effective for this Group as of 1 January 2017. The nature and the impact of each new standard and amendment is described below.
- Amendments to IAS 7 Disclosure Initiative: These amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities, including both cash and non-cash changes, arising from financing activities.
The Group's liabilities arising from financing activities consist of bank loans and zero dividend preference shares. A reconciliation between the opening and closing balances of these items is provided in note 19. Consistent with the transition provisions of the amendments, the Group has not disclosed comparative information for the prior period. Apart from the additional disclosure in note 19, the application of these amendments has had no impact on the Group's consolidated financial statements.
- Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses: These amendments clarify how an entity should evaluate whether there will be sufficient future taxable profits against which it can utilise a deductible temporary difference.
The application of these amendments has had no impact on the Group's consolidated financial statements as the Group already assesses the sufficiency of future taxable profits in a way that is consistent with these amendments.
1. General information (continued)
- Annual Improvements to IFRSs 2014-2016 Cycle: The Group has applied the amendments to IFRS 12 included in the Annual Improvements to IFRSs 2014-2016 Cycle, for the first time in the current year. The other amendments included in this package are not yet mandatory and have not been early adopted by the Group.
IFRS 12 states that an entity need not provide summarised financial information for interests in subsidiaries, associates or joint ventures that are classified (or included in a disposal Group that is classified), as held for sale. The amendments clarify that this is the only concession from the disclosure requirements of IFRS 12 for such interests.
The application of these amendments has had no effect on the Group's consolidated financial statements as the Group doesn't hold any interests in entities that are classified, or included in a disposal Group that is classified, as held for sale.
Other amendments to certain standards apply for the first time in 2017. However, adoption of these revised standards and interpretations did not have any material effect on the financial statements of the Group.
Accounting Standards and interpretations not yet adopted
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.
- IFRS 9: Financial Instruments and Subsequent Amendments (Hedge Accounting and Amendments to IFRS 9, IFRS 7 and IAS 39 as well as Amendments to IFRS 9/IFRS 7: Mandatory Effective Date and Transition Disclosures)
- IFRS 15: Revenue from Contracts with Customers - IFRS 16: Leases - Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions
- Amendment to IAS 40: Transfers of Investment Property, effective for reporting periods on or after 1. January 2018.
- IFRIC 22 Foreign Currency Transactions and Advance Consideration
IFRS 9
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting of financial instruments: classification and measurement, impairment and hedge accounting.
The standard introduces just two classes of financial assets: assets measured at fair value and assets measured at amortised costs. For financial liabilities the requirements of IAS 39 basically remain. There are merely changes in the recognition of changes in value of financial liabilities measured at fair value.
IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. The Group plans to adopt the new standard on the effective date. Based on an analysis of the Group's financial assets and financial liabilities as at 31 December 2017, and the facts and circumstances that exist at that date, the Group expects all financial assets, and financial liabilities, will continue to be measured on the same bases as is currently adopted under IAS 39.
The Group does not anticipate that the application of the expected credit loss model of IFRS 9 will result in any earlier recognition of credit losses for the respective items, or in any increase of the amount of loss allowance recognised for these items.
The Group does not anticipate that the application of the IFRS 9 hedge accounting requirements will have a material impact on the Group's consolidated financial statements.
1. General information (continued)
IFRS 15
The new revenue recognition standard replaces all current guidance on revenue recognition. A five-step model will be applied to entities to determine when to recognise revenue, and the amount. The model specifies that revenue should be recognised when, or as, an entity transfers control of goods or services to a customer and at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is either recognised over time, in a manner which best reflects the entity's performance, or at a point in time, when control of the goods or services is transferred to the customer. The new standard provides application guidance on numerous related topics, including warranties and licenses and when to capitalise the costs of obtaining a contract and some costs of fulfilling a contract. The new standard is effective for annual periods beginning on or after 1 January,2018, when the Group plans to adopt it.
The Group achieves revenue mainly from rental income, which is recognised over time as the performance obligation is satisfied, and - to a lesser extent - from the sale of apartments, which is recognised when control is transferred to the customer.
The Group assessed that the methods currently used for revenue recognition will be appropriate under IFRS 15 and there is no significant impact on its consolidated financial statements to be expected.
IFRS 16
In January 2016 the IASB issued the new standard IFRS 16 Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor') and replaces the previous standard IAS 17 Leases and related interpretations. According to the new standard the lessee shall recognise an asset that is identified as controlled by the customer in the balance sheet. The right-of-use asset is initially measured at cost and subsequently measured at cost less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. In contrast to lessee accounting, the IFRS lease liability is adjusted for interest and lease payments and therefore substantially carries forward the lessor accounting requirements in IAS 17. The new standard is mandatory for annual periods beginning on or after 1. January 2019.
The new requirement to recognise a right-of-use asset and a related lease liability is expected to have no impact on the amounts recognised in the Group's consolidated financial statements as the Group does not have any non-cancellable lease commitments as at 31 December 2017. In its core business of property rental the Group is the lessor. For lessor accounting the Group does not expect any significant impact by the application of IFRS 16 on the amounts recognised in the consolidated financial statements.
IFRS 2
The amendments address:
-- The measurement of cash-settled share-based payment transactions with vesting and non-vesting conditions;
-- The classification of share-based payment transactions with net settlement features for withholding tax obligations
-- The accounting for a modification to the terms and conditions of a share-based payment transaction that changes its classification from cash-settled to equity-settled.
The amendments are effective for annual reporting periods beginning on or after 1 January 2018, when the Group plans to adopt it. The impact to Group's financial statements is expected to be immaterial.
1. General information (continued)
IAS 40
The amendments clarify that a transfer to, or from, investment property necessitates an assessment of whether a property meets, or has ceased to meet, the definition of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that situations other than the ones listed in IAS 40 may evidence a change in use.
The amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted.
The Group assessed that the methods currently used to determine of whether a property meets, or has ceased to meet, the definition of investment property will be appropriate under the amendments to IAS 40 and there is no significant impact on its consolidated financial statements to be expected.
IFRIC 22
IFRIC 22 addresses how to determine the 'date of transaction' for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a foreign currency which resulted in the recognition of a non-monetary asset or non-monetary liability (e.g. a non-refundable deposit or deferred revenue). The interpretation specifies that the date of transaction is the date on which the entity initially recognises the non- monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.
The Interpretation is effective for annual periods beginning on or after 1 January 2018 but has not yet been endorsed by the European Commission.
The directors of the Company do not anticipate that the application of the amendments in the future will have an impact on the Group's consolidated financial statements.
2. Principal accounting policies
The principal accounting policies are set out below:
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2017. Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company. All intra-Group transactions and balances are eliminated in full.
Non-controlling interests represent the portion of profit or loss and net assets not held by the Group, and are presented separately in the income statement, and within equity in the consolidated statement of financial position, separately from the parent shareholders' equity.
Business combinations and goodwill
The Group acquires subsidiaries that own real estate. At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property.
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated statement of financial position, the purchaser's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date.
In a business combination, where the fair value of net assets acquired is less than the fair value of the consideration, that excess will be recognised as goodwill in the statement of financial position. Where the fair value of the net assets acquired exceeds the fair value of the consideration, that excess will be recognised as negative goodwill in the statement of comprehensive income.
When the acquisition of subsidiaries does not represent a business, it is accounted for as an acquisition of a Group of assets and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based upon their relative fair values, and no goodwill or deferred tax is recognised.
Investment properties
Properties held for long-term rental yields or for capital appreciation or both are classified as investment properties and the provisions of IAS 40 "Investment Property" apply.
Investment properties comprise undeveloped land, land and rights equivalent to land with buildings, and land with third party hereditary building rights. Investment properties are measured initially at cost including related transaction costs. After initial recognition, investment properties are measured at their fair values, with subsequent changes in fair values recognised in profit or loss.
The property portfolio, which is carried in the balance sheet at fair value, is valued six-monthly by professionally qualified external valuers and the Directors must ensure that the valuation of the Group's properties is appropriate for the accounts. Investment properties are valued by adopting the 'investment method' of valuation. This approach involves applying market-derived capitalisation yields based on current and future income streams that are derived from comparable property and leasing transactions and are considered to be the key inputs in the valuation. Other factors that are taken into account in the valuations include the tenure of the property, tenancy details and ground and structural conditions.
Transfers to, or from, investment property are made when there is a change in use. Therefore, the property's deemed cost for subsequent measurement is its fair value at that date.
Investment property is derecognised when it has been disposed. The difference between the net disposal proceeds and the carrying amount of the asset would result in either gains or losses at disposal of investment property.
2. Principal accounting policies (continued)
Assets classified as held for sale
Investment properties and directly associated liabilities are classified as current assets held for sale if notary sale contracts have been executed as at the reporting date but transfer of ownership is outstanding. Current assets classified as held for sale are measured at the lower of their carrying value and fair value, less costs to sell. Assets and liabilities classified as held for sale are presented separately as current items in the consolidated statement of financial position. On re-classification, investment property that is measured at fair value continues to be so measured.
Other financial assets
As other financial assets the Group holds non-derivative structured loan notes and derivative financial assets such as forward currency contracts (Note 16). Each are initially recognised on the transaction date and classified at fair value through profit or loss. Directly attributable transaction costs are recognised in profit or loss as incurred.
The underlying financial assets of these Structured Loan Notes are equity investments held by the note issuer. The fair value assessment of each note is determined by the net asset values of each share on each reporting date. The notes have a five-year maturity after which the notes can be renewed or repaid. Repayment proceeds would come from the sale of the underlying shares.
Forward currency contracts entered into by the Group to hedge the Pound Sterling liability on the Group's Zero Dividend Preference Shares are also measured at fair value. These derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred.
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
Changes in the value of financial assets designated at fair value through profit or loss and gains and losses on disposal, together with interest income, are recognised in profit or loss as "Gain/loss on fair value of financial assets".
Trade and other receivables and prepayments
Trade and other receivables and prepayments predominantly consist of rent receivables, collected rents that are held in escrow accounts at the property manager, prepaid property expenses that are allocated to tenants, a margin deposit held at a foreign exchange broker and collected property sales proceeds held in a notary escrow account. These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method.
Rent and other receivables are recognised at their original invoiced value. Where there is objective evidence that the asset is impaired, its carrying value is adjusted as necessary for any estimated irrecoverable amounts and the adjustment is recognised in profit or loss. Adjustments to impaired receivables are made through an allowance account/bad debt provision. Balances are written off when the probability of recovery is assessed as being remote. When the asset is settled the necessary adjustments will be processed through profit or loss and the statement of financial position.
Cash and cash equivalents
The Group classifies as cash and cash equivalents cash at bank, short term deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.
Equity instruments
An instrument is an equity instrument if it includes no contractual obligation to transfer cash or other assets to the holder. Such instruments issued by the Group are recorded at the proceeds received. Direct expenses relating to the raising of equity share capital are deducted from the proceeds of any equity issued.
2. Principal accounting policies (continued)
Shares to be issued
The Company has entered into arrangements with its investment advisers, Taliesin Management Limited (TML) and JJ Investment Management Limited (JJIM), under which TML and JJIM may be paid a performance fee which may be settled, at the option of TML and JJIM, up to 40% in cash, with the balance being settled in ordinary shares or options over ordinary shares, or any combination thereof.
Where TML and JJIM have given advance notices of their intentions prior to year-end, the Company accounts for the performance fee as follows. In the statement of financial position, the components to be settled in cash are treated as a current liability and included in other liabilities and payables and the component to be settled in equity-based instruments, i.e. shares and/or options, is included in shareholders' equity as provisions for shares and/or options to be issued in the following financial period, at the 20-day average share price prior to the 31 December in the reporting period. The combined value of these components of the performance fee is charged to profit or loss during the financial period to which the performance fee relates. Where TML and JJIM have not given advance notice of their intentions prior to the year-end the whole fee is treated as a current liability and included in other liabilities and payables and the whole amount is charged to profit or loss during the financial period to which the performance fees relate.
Financial liabilities
The Group classifies financial liabilities as non-derivative and derivative financial liabilities.
Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.
Non-derivative financial liabilities are classified as interest bearing loans and borrowings and comprise all bank loans and zero dividend preference shares. Amortised costs are included in finance expense in profit or loss.
The redemption premium of the Zero Dividend Preference shares, which are mandatorily redeemable on a specific date, is calculated using the effective interest rate method and is recognised in profit or loss as a finance expense.
The Group classifies derivative financial liabilities such as interest rate swaps as financial liabilities at fair value through profit or loss. The Group uses interest rate swaps to hedge its risks associated with upward movements in interest rates as well as forward currency contracts to hedge its foreign currency risk. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-valued at fair value at the end of each financial reporting period. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Gains or losses are taken directly to profit or loss as part of net financing costs.
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled, or expire.
Other Liabilities and payables
Other liabilities and payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Gains or losses are taken directly to profit or loss when liabilities are derecognised or amortised.
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 and the amount can be reliably estimated. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the end of the financial period and are discounted to present value where the effect is material.
Retained Earnings
The retained earnings reserve represents profits and losses retained in previous and the current period.
2. Principal accounting policies (continued)
Revenue recognition
Rental income from operating leases is recognised on a straight line basis over the term of the lease, net of any sales-related taxes, at the fair value of the consideration receivable. Tenant lease incentives are recognised as a reduction of rental revenue on a straight line basis over the term of the lease.
Service charge revenue is accounted for on an accruals basis, and is based on property expenses expected to be recovered by occupants.
Sale of property
Profit or loss on the sale of property is recognised when the significant risks and rewards of the ownership of the sold properties have been transferred to the buyer and no material rights to the sold properties remain with the Group.
Corporate income tax expense
The corporate income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit may differ from net profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the financial period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets and liabilities are offset against one another where both assets and liabilities arise within individual taxable entities to the extent that only overall amounts payable or recoverable are carried in the statement of financial position.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.
Deferred tax assets on losses, temporary differences and property valuation differences have been recognised in respect of the German subsidiaries to the extent that it is sufficiently probable that they will be realised in the future against taxable profits, reversals in underlying temporary differences and appreciations in property valuations prior to any disposals of subsidiaries.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Foreign exchange
I. Functional and presentation currency
The financial statements are presented in Euros as this is the primary currency of the economic environment in which the entity operates, and in which the material transactions of the Group are undertaken.
II. Transactions and balances
Transactions undertaken in foreign currencies are translated into Euros at the rate ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Euros at the rate ruling at the end of the financial period. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Gains and losses on exchange are taken directly to profit or loss.
2. Principal accounting policies (continued)
Expenditure and other operating income
Expenditure and other operating income are accounted for on an accruals basis.
Finance income
Finance income is recognised using the effective interest rate (EIR) method. EIR is the rate that exactly discounts estimated future cash flows through the expected life of the financial instrument to the net carrying amount of the financial asset or liability.
3. Critical accounting estimates and judgements
The preparation of the financial statements requires the Directors to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and disclosures of contingencies as at the end of the financial period. If, in the future, such estimates and assumptions, which are based on the Directors' best judgement at the end of the financial period, 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.
Critical accounting estimates
Valuation of property
The fair value of investment properties is based on valuations performed by real estate valuation experts, JLL, using recognised valuation techniques and the principles of IFRS 13.
The Directors remain ultimately responsible for ensuring that the valuers are adequately qualified, competent and base their results on reasonable and realistic assumptions.
Fair value is the price that would be received to sell a property in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset takes place either in the principal market for the property or in the absence of a principal market, in the most advantageous market at the measurement date.
The fair value of an investment property is measured using the assumptions that market participants would use when pricing the property, assuming to act in their economic best interest. Thus the fair valuation takes into account a market participant's ability to generate economic benefits by using the property in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group operates in large cities in Germany where there is a well-developed and active property market for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Such inputs include current and recent sale prices of similar properties, and rents based on current market rates with which to calculate discounted cash flows based on reliable estimates of future rental income and discount rates that reflect current market assessments of uncertainties in the amount and timing of cash flows. Estimates of the values of investment properties include assumptions regarding vacancy rates, discount rates and rental income as noted in note 5. The estimates also consider the privatisation potential of investment properties (i.e. the value potential in the split and separate sale of freeholds) and the Group has established specific criteria relating to the progress of the privatisation process that must be met for a property's privatisation value to be considered.
As the valuation techniques applied derive from data that is sometimes not widely publicly available and involve a degree of judgement, the Group classified the valuation techniques for its investment property portfolio as Level 3 as defined by IFRS 13, meaning that the lowest level input that is significant to the fair value measurement is unobservable.
Valuation of financial instruments
I. Financial assets
Investments designated at fair value comprise Structured Loan Notes where the economic value is determined by reference to the value of certain Group companies. The value of the financial assets is determined by reference to the financial statements of those companies.
II. Interest bearing loans and borrowings
In order to measure Interest bearing loans and borrowings initially at fair value, the Directors make judgements based on discounting future cash flows and on current market interest rates and the likely trend in future market interest rates. To ensure that loan obligations are met without default, the Directors' forecast and monitor the Group's debt service coverage ability based on net cash flows also taking into consideration that any collateral requirements are permanently fulfilled.
III. Derivative financial assets and liabilities
Forward currency contracts to hedge the Group`s foreign currency risk as well as interest rate swaps to hedge the Group`s interest rate risks are valued in collaboration with the instrument providers and other market counter-parties on a regular basis by reference to relevant currency exchange rates and interest rate movements as well as the credit status of the contracting parties. The effectiveness of these hedge instruments is continuously monitored in order to determine whether it is in the Group's interest to maintain these arrangements, extend them, or close them in part or in their entirety.
3. Critical accounting estimates and judgements (continued)
Critical accounting judgements
Income taxes
There are certain transactions and computations for which the ultimate tax determination may be different from the initial estimate. The Group recognises tax liabilities based on its understanding of the prevailing tax laws and estimates of whether such taxes will be due in the ordinary course of business. Where the final outcome of these measures is different from the amounts that were initially recognised, such difference will impact the income tax and deferred tax provisions in the period in which such determination is made.
Recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will be available in the future, against which the reversal of temporary differences and losses can be deducted. Recognition, therefore, involves judgement regarding the future financial performance of the particular legal entity or tax Group in which the deferred tax asset has been recognised.
4. Segment information
The Group monitors its business of investing in primarily residential property in Berlin, Potsdam and Dresden in two segments:
First, the procurement and oversight of management of its rent portfolio, which includes the modernisation and maintenance of the Group's investment properties, the management of rent contracts, caring for tenants and the marketing of apartments. The focus of managing the rent units is to optimise rents. Therefore all capital expenditures to the properties are analysed for rent improvement potential. On the other hand service charges are sought to be reduced and to be passed on to tenants.
The second segment is privatisation, the sale of individual apartments. The Group started in fiscal year 2015 to sell a number of apartments as a means to demonstrate to shareholders the value potential in its property portfolio in privatisation. In 2016 the Group sold a total of 19 units in its properties in Warschauer Strasse and Kavalierstrasse. In 2017
another eight units were sold in Kavalierstrasse.
For the purpose of IFRS 8, the chief operating decision makers are the Directors and the Investment Advisers (see note 8). At the meetings between the Directors and the Investment Advisers, the income, expenditure, cash flows, assets and liabilities are reviewed on a whole-Group basis with additional information on the development of the Group's rent portfolio and privatisation business.
All of the Group's income and non-current assets are derived from Germany. No single customer accounts for more than 10% of the Group's income.
Internal and external reporting is on a consolidated basis, with transactions between Group companies eliminated on consolidation. The Group monitors the operating activities of its two business units separately for the purpose of strategic decisions. Therefore the financial information as set out in the consolidated statement of comprehensive income is split among the two segments:
Income statement Segment by activity
------------------------------- ----------- --------------------------------
Total 2017 Rental portfolio Sale segment
EUR(000) EUR(000) EUR(000)
------------------------------- ----------- ----------------- -------------
Rental Income 10,738 10,637 101
Service charge receipts 2,847 2,874 (27)
------------------------------- ----------- ----------------- -------------
Revenue 13,585 13,511 74
Sale of investment properties 3,738 - 3,738
Sold properties book
value (3,227) - (3,227)
------------------------------- ----------- ----------------- -------------
Profit on sale of investment
properties 511 - 511
Other operating income 354 346 8
------------------------------- ----------- ----------------- -------------
Total operating revenues 14,450 13,857 593
Net change in fair value
of investment properties 62,828 62,751 77
Total operating expenses (24,464) (24,283) (181)
------------------------------- ----------- ----------------- -------------
Profit from operating
activities 52,814 52,325 489
Net financing costs (2,450) (2,443) (7)
------------------------------- ----------- ----------------- -------------
Profit before income
tax 50,364 49,882 482
Income tax (charge) (10,872) (10,723) (149)
------------------------------- ----------- ----------------- -------------
Total profit for the
year 39,492 39,159 333
4. Segment information (continued)
Income statement Segment by activity
------------------------------- ----------- --------------------------------
Total 2016 Rental portfolio Sale segment
EUR(000) EUR(000) EUR(000)
------------------------------- ----------- ----------------- -------------
Rental Income 10,513 10,427 86
Service charge receipts 2,689 2,699 (10)
------------------------------- ----------- ----------------- -------------
Revenue 13,202 13,126 76
Sale of investment properties 6,887 - 6,887
Sold properties book
value (6,521) - (6,521)
------------------------------- ----------- ----------------- -------------
Profit on sale of investment
properties 366 - 366
Other operating income 262 255 7
------------------------------- ----------- ----------------- -------------
Total operating revenues 13,830 13,381 449
Net change in fair value
of investment properties 51,864 51,063 801
Total operating expenses (20,573) (20,259) (314)
------------------------------- ----------- ----------------- -------------
Profit from operating
activities 45,121 44,185 936
Net financing costs (3,073) (2,979) (94)
------------------------------- ----------- ----------------- -------------
Profit before income
tax 42,048 41,206 842
Income tax (charge) /
credit (9,295) (9,330) 35
------------------------------- ----------- ----------------- -------------
Total profit for the
year 32,753 31,876 877
After all condominiums in Warschauer Str. 76 were sold in 2016, the Group had just classified the remaining apartments of the property Kavalierstrasse as an asset held for sale during 2017. The corresponding numbers in the balance sheet were an asset in the amount of EUR3,920,000 and a liability in the amount of EUR2,945,045.
5. Investment properties
2017 2016
EUR(000) EUR(000)
-------------------------------------- --------- ---------
Book cost brought forward at 1
January 146,261 148,924
Fair value adjustments brought
forward 164,650 113,587
-------------------------------------- --------- ---------
Valuation brought forward at 1
January 310,911 262,511
Capital expenditure on properties
held 5,497 4,907
Reclassification to assets held
for sale - (7,570)
316,408 259,848
Revaluation (fair value adjustments) 62,751 51,063
-------------------------------------- --------- ---------
Valuation as at 31 December 2017 379,159 310,911
The Group's investment properties consist of 62 multi-tenant buildings with a total of 1,532 rental units with a total rental area of 116,945 m(2). The majority of all rental units are residential apartments (1,362), of which approximately 92% are located in Berlin, the rest in Dresden (3%) and Potsdam (5%).
The fair values of the investment properties held at 31 December 2017 are based on valuations performed by an independent valuer, JLL. These are in accordance with the appropriate sections of the current Valuation Standards (VS) contained within the current Appraisal and Valuation Standards, 8th Edition (the 'Red Book') published by the Royal Institution of Chartered Surveyors (RICS) as well as the standards contained within the TEGoVA European Valuation Standards, and in accordance with IVSC International Valuation Standard 1 (IVS1), the International Accounting Standards (IAS), International Reporting Standards (IFRS) as well as the current guidelines of the European Securities and Markets Authority (ESMA) on the basis of Market Value. JLL has recent experience in the location and category of the investment property being valued.
For all investment property measured at fair value the current use of the property is considered the highest and best use.
Rental income recognised in profit or loss was mostly received from investment properties. Expenditure on investment properties capitalised during the year, amounted to EUR5,497,000 (2016: EUR4,907,000) and related to fundamental refurbishment and improvement of the investment properties such as the renewal of layouts, heating and piping systems of residential apartments. Direct operating expenditure on investment properties charged to profit or loss during the year including maintenance, property management and agent fees during the year amounted to EUR1,299,000 (2016: EUR1,392,000).
The Group has no restrictions on the saleability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements.
The fair value of the investment properties is determined using a discounted cash flow (DCF). As certain input assumptions rely on unobservable data as also outlined in note 3 under critical accounting estimates for property valuation, the valuation technique applied for valuing the investment property portfolio is classified as Level 3 as defined in IFRS 13 and in accordance with EPRA`s (European Public Real Estate Association) guidance.
5. Investment properties (continued)
Residential Properties
Range
Range Year
Year ended ended
Valuation Significant Unobservable 31 Dec Weighted 31 Dec Weighted
Technique Inputs 2017 Average 2016 Average
------------ -------------------------- ------------ ---------- ------------ ----------
estimated rental
value per EUR6.50 EUR6.50
DCF method m(2) per month - EUR12.50 EUR10.39 - EUR11.50 EUR9.68
1.50% - 1.25%
rent growth p.a. 2.25% 2.21% - 2.25% 1.98%
--------------------------------------- ------------ ---------- ------------ ----------
Long-term vacancy 2.00% - 2.00%
rate 4.00% 2.02% - 4.00% 2.05%
3.50% - 4.00%
discount rate 5.75% 4.14% - 6.00% 4.58%
--------------------------------------- ------------ ---------- ------------ ----------
Commercial Properties
Range
Range Year
Year ended ended
Valuation Significant Unobservable 31 Dec Weighted 31 Dec Weighted
Technique Inputs 2017 Average 2016 Average
------------ -------------------------- ------------ ---------- ------------ ----------
estimated rental
value per m(2) per EUR3.67 EUR3.67
DCF method month - EUR25.41 EUR10.04 - EUR25.41 EUR10.07
rent growth p.a. 2.21% 2.21% 1.98% 1.98%
--------------------------------------- ------------ ---------- ------------ ----------
Long-term vacancy 2.00% - 2.00%
rate 4.00% 3.02% - 4.00% 2.94%
3.50% - 4.00%
discount rate 5.75% 4.14% - 6.00% 4.58%
--------------------------------------- ------------ ---------- ------------ ----------
Under the DCF method, a property's fair value is established using explicit assumptions regarding the benefits and liabilities of ownership over the asset's life including an exit or terminal value. The DCF method involves the projection of a series of cash flows on a real property interest. To this projected cash flow series, an appropriate, market derived discount rate is applied to establish the present value of the cash inflows associated with the investment property. The property specific discount rate is based on a rating that includes an assessment of the macro- and micro location, the quality of the property and the cash flow and privatisation potential of each property. The decrease of the assumed weighted average discount rate in comparison to 2016 is predominantly due to a yield compression in the Berlin real estate market, which led to an improved macro and micro location rating of the properties in comparison to 2016.
The duration of the cash flow and the specific timing of inflows and outflows are determined by events such as rent reviews, re-letting, redevelopment or refurbishment or, for example in cases of privatisation, the anticipated timing of events of sale.
The periodic cash flows of the investment properties were estimated as gross income less vacancy, non-recoverable expenses such as property management and maintenance costs. The series of periodic net cash flows, along with an estimate of the terminal value based on the stabilised periodic net cash flows at the end of a ten year period was then discounted.
Changes in vacancy by 1% would not result in a material difference to the fair value assessment. In the directors' view rental increases are based on empiric values over recent years and so the directors do not expect significant fluctuation in the rental revenues. An increase of 0.5% in the discount rate would reduce the fair value by EUR16.1 million and a decrease of 0.5% in the discount rate would increase the fair value by EUR16.6 million.
Although JLL calculate property valuations based on usage (residential or commercial), the Group does not split valuations by usage as it regards commercial space to be incidental to the overall residential focus of the property portfolio.
5. Investment properties (continued)
All other factors remaining constant, an increase in rental income would increase valuations, whilst increases in nominal equivalent yield and discount rate would result in a fall in values and vice versa. However, there are interrelationships between unobservable inputs as they are determined by market conditions. The existence of an increase of more than one unobservable input would augment the impact on the valuation. The impact on the valuation would be mitigated by the interrelationship between unobservable inputs moving in opposite directions. For example, an increase in rents may be offset by an increase in yield, resulting in no net impact on the valuation.
All of the properties owned by the Group have been pledged as security for the Group's financial liabilities.
The movement in the fair value of the investment properties is included in profit or loss within the net change in fair value of investment properties. The net change in fair value of properties amount to EUR62,828,000 is divided into investment properties (EUR62,751,000) and property held for sale (EUR77,000).
Operating lease income
The German subsidiaries rent out residential and commercial real estate within the framework of operating leases. Whereas the renting of residential real estate can be terminated by the tenant with a statutory notice period of three months, commercial real estate is rented predominantly for a fixed contractual term of up to twenty years. The minimum rental payments for residential real estate on the basis of the statutory notice period of three months amount to EUR2,902,000 (2016: EUR2,192,000).
The future minimum lease payments under non-cancellable operating (i.e. commercial) leases receivable by the Group for each of the following periods are as follows:
Future minimum lease payments
2017 2016
EUR(000) EUR(000)
----------------------------------- --------- ---------
Amounts receivables in:
not later than one year 1,056 1,009
Later than one year and not later
than five years 1,825 2,246
later than five years 29 34
----------------------------------- --------- ---------
2,910 3,289
6. Assets classified as held for sale
2017 2016
EUR(000) EUR(000)
--------------------------------------------- --------- ---------
Valuation brought forward at 1 January 7,070 5,220
Reclassification from investment properties - 7,570
Apartments sold (3,227) (6,521)
Valuation gain on apartments held
for sale 77 801
--------------------------------------------- --------- ---------
3,920 7,070
During 2017 the Group sold and transferred ownership of 8 freehold apartments in Kavalierstrasse for a cumulative purchase price of EUR3,738,000, leading to a realised profit of EUR511,000, as of their last fair valuation before transfer of ownership was EUR3,227,000. This is representing an average sales price of approx. EUR4,226 per m(2). As of the reporting date, 11 units remained in Kavalierstrasse unsold.
The liabilities associated with the assets held for sale constitute an interest bearing loan in the amount of EUR2,945,000. (note 19).
7. Operating expenses
2017 2016
Note EUR(000) EUR(000)
------------------------------------- ----- --------- ---------
Service charge expenses 3,047 2,870
Property maintenance costs 1,300 1,392
Administrative costs 570 542
Investment advisory and performance
fees 8 17,292 13,724
Directors` fees 9 116 109
Legal and professional fees 758 315
Other operating expenses 1,114 1,333
Provision for bad debts 20 132 152
Auditor's remuneration (see below) 135 136
------------------------------------- ----- --------- ---------
Total operating expenses 24,464 20,573
Other operating expenses include compensation payments to tenants, legal and public registry fees in connection with the split of multi tenant buildings into freehold apartments as well as accounting expenses for the preparation of the consolidated financial statements.
The Group paid the following fees to its Auditor:
2017 2016
EUR(000) EUR(000)
-------------------------------------------- --------- ---------
Fees payable to the Group's Auditor
for the audit of the Group's consolidated
annual accounts 113 114
Tax compliance services - 22
--------------------------------------------- --------- ---------
113 136
8. Investment advisory and performance fees
2017 2016
EUR(000) EUR(000)
----------------------------- --------- ---------
Investment advisory fees 4,316 3,254
Performance fee (see below) 12,976 10,470
----------------------------- --------- ---------
17,292 13,724
Taliesin Management Limited and JJ Investment Management Limited act as Investment Advisers to the Group for which they receive an advisory fee and a performance fee. Both fees are calculated based on the Group's Adjusted Net Asset Value as defined in note 14. The increase of the advisory fee during the period is related directly to the large increase in the value of the Group's portfolio and hence the Adjusted Net Asset Value per share.
The advisory fee is calculated semi-annually based on the Group's Adjusted Net Asset Value (excluding any accrual for advisory fees or performance fees from this number) and is charged at a rate of 0.875% (the equivalent of 1.75% annually).
The performance fee is also calculated based on the Group's year end Adjusted Net Asset Value (excluding any accrual for advisory fees or performance fees from this number) and entitles the Investment Advisers to a 20% share in the increase from the previous year end's Adjusted Net Asset Value (including the deduction of advisory and performance fees) during the year which is in excess of the 12-month Euribor rate on the first day of the calendar year ("the Hurdle rate"). No performance fee will be charged unless the Adjusted Net Asset Value per share is higher than the last level at which a performance fee was charged, adjusted by the annual Hurdle rate ("the High Water Mark").
For the purpose of calculating the performance fee due to the Investment Advisers, any capital returned to shareholders during the calendar year will be considered to form part of the Group's Adjusted Net Asset Value until the next performance fee charging date.
9. Directors' fees
2017 2016
EUR(000) EUR(000)
--------------------------- --------- ---------
Parent Company Directors:
Nigel A Le Quesne 27 28
Stephen A Burnett 27 28
Nicholas M Houslop 18 19
Nikolaus von Palombini 44 34
Mark Smith - -
--------------------------- --------- ---------
116 109
Nigel Le Quesne is a shareholder and director and Stephen Burnett is a non-executive director, of JTC Group Limited. Mark Smith is a director and shareholder of both Taliesin Management Limited and JJ Investment Management Limited, the Investment Advisers of the Group. Nikolaus von Palombini is the former CFO of Taliesin Deutschland GmbH, the German subsidiary of TML.
See note 25 Related party transactions for further details.
10. Finance income
2017 2016
EUR(000) EUR(000)
--------------------- --------- ---------
Interest receivable 1 1
11. Finance expense
2017 2016
EUR(000) EUR(000)
-------------------------------------- --------- ---------
Interest on bank loans 2,741 3,891
Interest on Zero Dividend Preference
Shares (ZDP) 1,318 978
Other interest 126 126
-------------------------------------- --------- ---------
Total finance expense 4,185 4,995
12. Net foreign exchange differences
2017 2016
EUR(000) EUR(000)
-------------------------------------------- --------- ---------
Realised loss on currency forward
contracts (1,305) (4,080)
Unrealised loss on fair value of currency
forward contracts - (76)
Foreign exchange gain on bank accounts - 12
Foreign exchange gain on ZDP valuation 627 2,761
Foreign exchange loss on margin collateral - (9)
-------------------------------------------- --------- ---------
Net foreign exchange differences (678) (1,392)
The principal operating currency of the Group is Euros. The Group has, however, issued Zero Dividend Preference Shares denominated in Pounds Sterling. In order to hedge this future Pound Sterling liability, the Group had originally entered into forward foreign currency contracts on that portion of the ZDP proceeds that has been converted into Euros. The foreign exchange gain on the ZDPs in the period reflect the depreciation of the Pound Sterling against the Euro. Due to the weak Pound Sterling and its development, the Group hasn't extended the hedging since August 2017.
Therefore, the Group doesn't provide margin collateral with the brokerage firm (in 2016: GBP849,000 / EUR992,000), as the Group no longer receives foreign currency services.
13. Taxation
Taxes on profits of the Group arising in Germany are computed using the tax rate of 15.83% (2016: 15.83%), both for current and deferred tax. Taxable income arising in Cyprus is taxed at 12.5% (2016: 12.5%). The applicable tax rate in Jersey is 0%.
All taxation charges and credits are recognised in profit or loss. The total tax credit for the year is detailed below:
2017 2016
EUR(000) EUR(000)
----------------------------------- --------- ---------
Current tax on profits 604 443
Prior year corporate tax (income)
/ expense (88) 29
Deferred tax charge 10,356 8,823
----------------------------------- --------- ---------
Tax charge for the year 10,872 9,295
The tax expense for the financial year differs from the amount calculated on the profit. The differences are reconciled as follows:
2017 2016
EUR(000) EUR(000)
---------------------------------------------- --------- ---------
Profit before tax 50,364 42,048
Luxembourg, Jersey and Cyprus non-deductible
expenses 18,681 15,317
---------------------------------------------- --------- ---------
Profits due to German taxes 69,045 57,365
Tax charge on profit at the German
tax rate of 15,83% (2016:15,83%) 10,930 9,081
Previous years adjustments to deferred
tax liability / asset (12) (12)
Trade tax (65) 197
Taxes payable 19 29
---------------------------------------------- --------- ---------
Tax charge for the year 10,872 9,295
Deferred tax
Deferred tax assets/(liabilities) are broken down by statement of financial position item as follows:
2017 2016
EUR(000) EUR(000)
---------------------------- --------- ---------
Property value differences (44,731) (34,145)
Losses carried forward 3,631 3,351
Interest rate swaps 13 64
Interest rate caps 2 2
Loan interest adjustments - (1)
---------------------------- --------- ---------
(41,085) (30,729)
The following are the major deferred tax assets and liabilities recognised by the Group with movements thereon during the year. Deferred tax assets and liabilities are shown gross and then offset against one another where both assets and liabilities arise within individual taxable entities to the extent that only overall amounts payable or recoverable are carried in the statement of financial position. Deferred tax assets displayed above are anticipated to be utilised due to taxable profits in future periods.
13. Taxation (continued)
Deferred tax assets
2017 2016
EUR(000) EUR(000)
----------------------------------------- --------- ---------
Gross totals as at 1 January 3,415 3,563
Prior year tax adjustment 9 -
Losses carried forward 271 97
Interest rate swaps (51) (245)
----------------------------------------- --------- ---------
Gross totals as at 31 December 3,644 3,415
Offset against deferred tax liabilities
at individual taxable entitiy level (3,644) (3,415)
----------------------------------------- --------- ---------
Net totals as at 31 December - -
Deferred tax liabilities
2017 2016
EUR(000) EUR(000)
------------------------------------ --------- ---------
Gross totals as at 1 January 34,144 25,469
Property value differences 10,586 8,683
Loan interest adjustments (1) (8)
------------------------------------ --------- ---------
Gross totals as at 31 December 44,729 34,144
Offset against deferred tax assets (3,644) (3,415)
------------------------------------ --------- ---------
Net totals as at 31 December 41,085 30,729
Reconciliation of movement in deferred tax during the year:
2017 2016
EUR(000) EUR(000)
------------------------------ --------- ---------
At 1 January 30,729 21,906
Charged to profit or loss 10,356 8,823
------------------------------ --------- ---------
Net totals as at 31 December 41,085 30,729
14. Earnings per Ordinary share and net asset value per Ordinary share
2017 2016
EUR(000) EUR(000)
----------------------------------------- ---------- ----------
Profit and total comprehensive income
attributable to owners of the parent
(EUR000) 37,189 30,795
Weighted average number of ordinary
shares 5,016,001 4,724,271
----------------------------------------- ---------- ----------
Basic earnings per share (EUR) 7.41 6.52
----------------------------------------- ---------- ----------
Weighted average number of ordinary
shares including shares to be issued 5,016,001 4,880,165
----------------------------------------- ---------- ----------
Diluted earnings per share (EUR) 7.41 6.31
----------------------------------------- ---------- ----------
Net asset value attributable to holders
of ordinary shares (EUR000) 195,377 154,001
Ordinary shares at 31 December (note
18) 5,099,993 4,840,187
----------------------------------------- ---------- ----------
Net asset value per share (EUR) 38.31 31.82
Ordinary shares and shares to be issued
at 31 December 5,099,993 4,996,071
Net asset value per share (EUR) 38.31 30.82
Adjusted Net Asset Value
In addition to the net asset values disclosed above, which are based on the net consolidated assets attributable to Ordinary shareholders as stated in the financial statements ("Accounting NAV"), the Directors monitor the performance of the Group as measured by a Key Performance Indicator ("KPI") known as the Adjusted Net Asset Value ("Adjusted NAV").
This KPI is defined as the Accounting NAV of the Group as adjusted by adding any portfolio premium not already reflected in the accounts and the gross deferred tax liability from which the Accounting NAV is derived.
These adjustments and the calculations are as shown below:
2017 2016
EUR(000) EUR(000)
------------------------------------------- ---------- ----------
Net consolidated assets attributable
to Ordinary shareholders 195,377 154,001
Gross deferred tax liability (note
13) 44,729 34,146
Plus: Capital return to owners - 9,680
Less: Shares to be issued - (6,282)
Less: Gross deferred tax liability
attributable to non-controlling interest (397) (216)
------------------------------------------- ---------- ----------
Adjusted Net Assets attributable to
Ordinary shareholders 239,709 191,329
Number of Ordinary shares outstanding
at 31 December 5,099,993 4,840,187
------------------------------------------- ---------- ----------
Adjusted Net Asset Value per Ordinary
share (EUR) 47.00 39.53
Adjusted Net Assets attributable to
Ordinary shareholders deducting
capital return to owners 239,709 181,649
------------------------------------------- ---------- ----------
Adjusted Net Asset Value per Ordinary
share (EUR) 47.00 37.53
15. Group information - information about subsidiaries
The details of the subsidiaries are as follows:
Proportion Proportion
of of
capital voting
held power
by the held
Group by the
Date Country (ordinary
of of Principal shares) Company
Name acquisition incorporation activity % %
---------------------------------- ------------- --------------- ---------- ----------- -----------
13. Aug.
Taliesin Limited 2007 Jersey 1 HC 94.0 -
Taliesin Holdings 9. Dec.
Limited 2005 Cyprus 3 HC 94.0 94.0
Taliesin I GmbH 24. Feb.
** 2006 Germany 4 PI 94.0 94.0
Taliesin Managing-Partner 10. Jul.
GmbH ** 2007 Germany 4 PI 94.0 94.0
Taliesin II GmbH 1. Oct.
**** 2006 Germany 4 PI 88.4 88.4
Taliesin Potsdam
1 GmbH & Co. KG 10. Jul.
*** 2007 Germany 4 PI 94.0 94.0
Taliesin Berlin
1 GmbH & Co. KG 15. Aug.
*** 2007 Germany 4 PI 94.0 94.0
Taliesin Berlin
2 GmbH & Co. KG 15. Aug.
*** 2007 Germany 4 PI 94.0 94.0
Taliesin Berlin
3 GmbH & Co. KG 15. Aug.
*** 2007 Germany 4 PI 94.0 94.0
Taliesin Berlin
4 GmbH & Co. KG 15. Aug.
*** 2007 Germany 4 PI 94.0 94.0
Taliesin III GmbH 15. Aug.
& Co.KG *** 2007 Germany 4 PI 94.0 94.0
Phoenix B2 - Glatzerstrasse 27. Dec.
***** 2012 Luxembourg 2 PI 86.9 86.9
Phoenix D1 - Hohenstaufenstrasse 27. Dec.
***** 2012 Luxembourg 2 PI 86.9 86.9 Phoenix II Mixed 27. Dec. H ***** 2012 Luxembourg 2 PI 86.9 86.9 Phoenix II Mixed 27. Dec. I ***** 2012 Luxembourg 2 PI 86.9 86.9 Phoenix II Mixed 27. Dec. J ***** 2012 Luxembourg 2 PI 86.9 86.9 Phoenix II Mixed 27. Dec. K ***** 2012 Luxembourg 2 PI 86.9 86.9 Phoenix II Mixed 27. Dec. N ***** 2012 Luxembourg 2 PI 86.9 86.9 Phoenix III Mixed 27. Dec. O ***** 2012 Luxembourg 2 PI 86.9 86.9 ---------------------------------- ------------- --------------- ---------- ----------- ----------- ** 100% owned by Taliesin HC = Holding Holdings Limited company *** 100% owned by Taliesin PI = Property I GmbH investment **** 94% owned by Taliesin I GmbH ***** 92,4% owned by Taliesin III GmbH & Co. KG 1) registered office: JTC Jersey Limited, 28 Esplanadet, St Helier, Jersey JE2 3QA 2) registered office: JTC Signes, 68-70 Boulevard de la Petrusse, L-2320 Luxembourg 3) registered office: 195 Arch. Markarios III Avenue, Neocleous House, 3030 Limassol, Cyprus 4) registered office: Reinhardtstr.7, 10117 Berlin
The voting shares of Taliesin Limited are held outside the Group. Taliesin Limited is consolidated into the Group based on the economic interest held by the Group. Taliesin Limited holds 6% of the ordinary shares of Taliesin Holdings Limited.
The financial year end of all subsidiary undertakings is 31 December.
On December 19, 2017 the German GmbH & Co. KG Taliesin Berlin 1, 2, 3, 4 and Potsdam 1 were integrated / collapsed into Taliesin I GmbH and had no impact on the consolidation.
16. Other financial assets
2017 2016
EUR(000) EUR(000)
---------------------------------------- --------- ---------
Non Current
Structured loan notes
At 1 January 5,839 4,052
Gain on financial assets at fair value 2,098 1,787
---------------------------------------- --------- ---------
At 31 December 7,937 5,839
Cap financial instrument 34 46
At 31 December 7,971 5,885
Current
Forward contract
At 1 January - 16
Settlement of forward contract - (16)
---------------------------------------- --------- ---------
- -
---------------------------------------- --------- ---------
At 31 December - -
Other Financial Assets comprise:
Non-current:
Structured Loan Notes whose return is linked to the value of an asset at the end of a specified term.
The notes entitle the Group to benefit from the rise in value of the asset, whilst also being exposed to any potential decrease in the value of the asset and are designated at fair value through profit or loss. The underlying financial assets of the notes are equity investments held by the note issuer. The valuation of the notes includes certain unobservable inputs including the value of the underlying assets. The fair value assessment of each note is determined by the valuation agent which is the board of directors of the issuer by reference to the net asset values of each share on each reporting date.
The Group has two interest rate cap agreements with an aggregated nominal amount of EUR11,000,000, closed 2016, to limit the Group's exposure to the risk of changes of market interest rates relating to long-term debt obligations with floating interest rates. The group will be compensated by the counterparty banks if interest rates rise above strike rates of 0,31% and 2,5% (prior year 0,31% and 2,5%). The derivative interest rate cap agreements are initially recognised at fair value on the date on which they are entered into and subsequently re-measured at fair value.
The Group enters into these agreements with established German banks so that the risk of counterparty default is not material.
Current:
Forward currency contracts, that had been entered into by the Group to hedge the Pound Sterling liability on the Group's Zero Dividend Preference Shares, were not extended after they expired on August 15, 2017. Unrealised gain on forward currency contract entered into in prior years measured at fair value. Prior realised gains together with unrealised gains have been charged to foreign exchange related differences (Note 12).
17. Trade and other receivables and prepayments
2017 2016
EUR(000) EUR(000)
--------------------------------------- --------- ---------
Trade receivables 111 243
Rents held in escrow accounts 899 800
Prepaid expenses 2,917 2,755
Income and other taxation recoverable 176 34
Margin deposit (see note 12) - 992
Sales proceeds held on escrow account 6 594
Other receivables and prepayments 443 357
--------------------------------------- --------- ---------
4,552 5,775
All trade and other receivables are due within one year. For disclosures on the bad debt allowances please refer to note 20.
18. Stated capital account and treasury shares
2017 2016
Number EUR(000) Number EUR(000)
-------------------------- ---------- --------- ---------- ---------
Stated capital account
- Issued and fully paid
As at 1 January 4,840,187 49,381 4,483,672 48,041
Shares issued 259,806 10,470 356,515 11,020
Shares buyback - - - (9,680)
-------------------------- ---------- --------- ---------- ---------
As at 31 December 5,099,993 59,851 4,840,187 49,381
Shares to be issued
As at 1 January - 6,282 - 6,643
Shares issued - (6,282) - (6,643)
Provision for shares
to be issued - - - 6,282
-------------------------- ---------- --------- ---------- ---------
As at 31 December - - - 6,282
Under the Memorandum of Association, the Company is authorised to issue an unlimited number of ordinary shares of no par value.
19. Interest bearing loans and borrowings
2017 2016
EUR(000) EUR(000)
-------------------------------------- --------- ---------
Due within one year 63,846 29,714
Liabilities directly associated with
assets classified as held for sale 2,945 3,789
Due after more than one year 67,658 100,781
-------------------------------------- --------- ---------
134,449 134,284
Offsetting / Reconciliation of interest bearing loans and borrowings
cash changes non-cash changes
loan loan interest foreign other reclassi-
2016 raises amortisation accruals exchange fication 2017
EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000) EUR(000)
--------- --------- ------------- --------- --------- --------- ---------- ---------
Interest bearing
loans and
borrowings
- non-current 100,781 4,000 (2,081) 700 (437) 176 (35,481) 67,658
Interest bearing
loans and
borrowings
- current 29,714 - (1,042) 750 (266) 90 34,600 63,846
Liabilities
directly
associated
with
assets classified
as held for
sale 3,789 - (1,725) - - - 881 2,945
Total liabilities
from financial
activities 134,284 4,000 (4,848) 1,450 (703) 266 - 134,449
========= ========= ============= ========= ========= ========= ========== =========
The following interest bearing loans and borrowings are stated at amortised cost:
2017 2016
EUR(000) EUR(000)
--------------------------------- --------- ---------
DGHyp 72,908 74,420
Pfandbriefbank 39,581 38,801
Zero Dividend Preference Shares 22,150 21,536
--------------------------------- --------- ---------
134,639 134,757
Deferred issue costs (190) (473)
--------------------------------- --------- ---------
134,449 134,284
All bank loans have been drawn in connection with purchases of the Group's properties. All of the Group's properties have been pledged as security for the loans.
The total amount drawn down under all loan facilities (including the Zero Dividend Preference Shares) as at 31 December 2017 was EUR134,639,000 (2016: EUR134,757,000).
Under the provisions of IAS 32 the Zero Dividend Preference Shares are classified as a liability and an interest accrual of EUR1,318,000 (2016: EUR978,000) has been charged against income. The redemption amount of the Zero Dividend Preference Shares, due on 30 September 2018, is GBP20,711,000 (EUR23,318,515 at the year end rate of 1.1259 EUR/GBP).
Bank loans relating to assets held for sale amount to EUR2,945,000 (see note 6) and are included above in the "due within one year" figure.
20. Financial risk management
The Group's principal financial liabilities are interest bearing bank loans and Zero Dividend Preference Shares. The main purpose of the Group's loans and ZDPs is to finance the acquisition and development of the Group's property portfolio. The Group has rent and other receivables, trade and other payables and cash and cash equivalents that arise directly from its operations.
The Group is exposed to market risk (including interest rate risk, real estate risk (see note 5 investment properties) and currency risk)), credit risk, equity risk and liquidity risk.
The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management policies. The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Board of Directors oversees the management of these risks and reviews and agrees policies for managing each of these risks, which are summarised below.
Market risk
Market risk is the risk that the fair values of financial instruments will fluctuate because of changes in market prices - such as foreign exchange rates, interest rates and equity prices. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
The Group uses derivatives to manage certain market risks.
Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates primarily to its long-term debt obligations with floating interest rates.
To manage its interest rate risk, the Group enters into interest rate swaps as well as interest rate caps. With interest rate swaps the Group agrees to exchange the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. With interest rate caps the group is entitled to compensation by a counterparty bank if interest rates rise above certain agreed upon strike rates. These interest rate swaps and caps are designed to hedge the German subsidiaries' underlying debt obligations. At 31 December 2017 and after taking into account the effect of interest rate swaps as well as caps, 95.5% of the Group's borrowings are either hedged or fixed rate (2016: 95.5% hedged or fixed rate).
Equity risk
Equity risk is the risk that the value of the structured loan notes (see note 16) will fluctuate due to changes in the value the properties underlying these notes (see note 5). The Group does not attempt to mitigate this risk.
The increase in the value of the structured loan notes in 2017 reflects the strong operating performance of the underlying property-owning subsidiaries, particularly the increase in property values. Future movements in the value of the structured loan notes will be similarly influenced by movements in the value of the underlying properties to which the notes relate, due to the impact on the value of the underlying financial assets referred to in note 16.
20. Financial risk management (continued)
The interest rate profile of the Group's interest-bearing financial instruments as reported to the management of the Group is as follows:
2017 2016
Financial Assets EUR(000) EUR(000)
------------------------------------ --------- ---------
Cash - variable interest 189 243
Cash - non-interest bearing 2,873 6,105
Other - non-interest bearing 11,598 10,245
------------------------------------ --------- ---------
Total 14,660 16,593
Financial Liabilities
------------------------------------ --------- ---------
Liabilities fixed rate interest 99,682 99,318
Liabilities variable rate interest 34,767 34,966
------------------------------------ --------- ---------
Total 134,449 134,284
The durations of the variable rate loans range between 1 and 5 years, with an average duration of 2.36 years (2016: 3.35 years) and the total of the fair values of all loans, based on discounting cash flows at prevailing market rates of interest, is EUR134,449,000 (2016: EUR134,284,000).
The carrying value of the financial liabilities measured at amortised cost set out above equate to the fair value of these liabilities except for the value of the Zero Dividend Preference Shares. The book value measured at net present value of the Zero Dividend Preference Shares as noted above is EUR21,960,000 (2016: EUR20,987,000) and the fair value of all issued ZDP shares as of the reporting date is EUR22,627,000 (2016: EUR22,810,000), measured as the quoted price of the shares, resulting in them being level 1 in the fair value hierarchy.
On a Group basis, an increase of 100 basis points in interest rates would result in a beneficial change in the interest rate swap fair value adjustment in profit or loss of (EUR80,000) (2016: EUR86,000) and an overall increase in the charge to deferred German tax of (EUR13,000) at the marginal rate of 15.83% (2016: EUR14,000 at the marginal rate of 15.83%).
Similarly, a decrease of 100 basis points in interest rates would result in a decrease in the interest rate swap fair value adjustment in profit or loss of (EUR80,000) (2016: EUR870,000) and an overall decrease in the charge to deferred German tax of (EUR13,000) at the marginal rate of 15.83% (2016: EUR14,000 at the marginal rate of 15.83%).
With regards to the interest rate caps an increase of 100 basis points in interest rates would result in a beneficial change in the fair value adjustment in profit or loss of EUR155,000 and an overall increase in the charge to deferred German tax of EUR25,000 at the marginal rate of 15.83%.
Similarly, a decrease of 100 basis points in interest rates would result in a decrease in the interest rate cap fair value adjustment in profit or loss of EUR3,000 and an overall decrease in the charge to deferred German tax of EUR500 at the marginal rate of 15.83%.
As at the reporting date the Group had EUR189,000 of interest bearing deposits (2016: EUR243,000). Overall the Group is not exposed to significant interest rate risk.
20. Financial risk management (continued)
Currency exchange risk
The assets, liabilities, income and expenditure of the Company and the Group are denominated in the Euro except for the Zero Dividend Preference Shares which are denominated in Pounds Sterling. The Company is aware of its currency exchange risk and would contract hedging instruments for those proceeds of the Zero Dividend Preference Share converted to Euro. Due to the development of the exchange rate Pound Sterling to Euro, the management has decided not to extend the hedging.
Proceeds which are lodged in Pounds Sterling deposits are not hedged since they are held in the same currency as the ultimate liability and therefore not deemed to be an exchange risk (see also Note 12).
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
As property investments are relatively illiquid, there can be no assurance that the Group will not encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. It is therefore the Group's intention to mitigate such risk by investing in desirable properties in prime locations. The Group mitigates any day to day liquidity risk by receiving prepayments of service charge from tenants in advance and uses these funds to pay utilities and other rechargeable items at the appropriate time. The Structured Loan Notes (Note 16) may have limited liquidity and it may not be possible to realise these in circumstances of limited market liquidity. The Group has a risk over its ability to service its loans which is managed by management regularly producing cash flow forecasts and by using interest rate swap and interest rate cap arrangements.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risks from both its leasing activities and financing activities, including deposits with banks and financial institutions and derivatives.
The maximum exposure of the Group to credit risk at the reporting date is the carrying value of each class of financial asset.
Trade and other receivables
The Group's exposure to credit risk is influenced by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry in which customers operate.
The Group's credit risk is monitored on an on-going basis. The management believe that the concentration of credit risk is limited due to on-going evaluations of all customers and the wide spread of customers. All trade receivables fall due within one year. The allowance for doubtful debts stood at EUR277,000 as at 31 December 2017 (2016: EUR245,000).
At 31 December 2017 trade and other receivables except rents were not past due. Rent receivables are monitored and written off when required.
20. Financial risk management (continued)
2017 2016
Movement in bad debt provision EUR(000) EUR(000)
-------------------------------- --------- ---------
As at 1 January 245 210
Utilisation of provision (70) (69)
Release of bad debt provison (30) (48)
Increase in provision 132 152
-------------------------------- --------- ---------
As at 31 December 277 245
All other classes of current assets do not include any impaired assets.
Cash and cash equivalents
The Group held cash and cash equivalents of EUR3,062,000 at 31 December 2017 (2016: EUR6,348,000). The cash and cash equivalents are held with reputable banks and financial institutions counterparties.
Financial instruments by category
The carrying amount of each of the categories of financial instruments as per the statement of financial position are as follows:
2017 2016
EUR(000) EUR(000)
---------------------------------------- --------- ---------
Financial assets:
Financial assets at fair value through
profit or loss 7,971 5,885
Cash and cash equivalents 3,062 6,348
Loans and receivables 3,627 4,360
---------------------------------------- --------- ---------
14,660 16,593
Loans and receivables include all trade and other receivable balances, except for prepayments.
2017 2016
EUR(000) EUR(000)
------------------------------------- --------- ---------
Financial liabilities:
Financial liabilities at fair value
through profit or loss 80 406
Financial liabilities at amortised
cost 134,449 140,913
------------------------------------- --------- ---------
134,529 141,319
Financial liabilities at amortised cost include other liabilities and payables in the amount of EUR15,473,000 (2016: EUR6,629,000).
20. Financial risk management (continued)
Financial assets and liabilities - Numerical Information
Maturity of financial assets
The carrying value of financial assets are realisable as follows:
Book Book
value value
2017 2016
EUR(000) EUR(000)
--------------------------------------- --------- ---------
In one year or less 6,689 10,708
In more than two years but not more
than three years 7,937 5,839
In more than three years but not more
than four years 34 46
--------------------------------------- --------- ---------
14,660 16,593
Maturity of financial liabilities
The carrying value of contractual financial liabilities including interest are repayable as follows:
Book Book
value value
2017 2016
EUR(000) EUR(000)
------------------------------ --------- ---------
In one year or less 69,820 44,458
In more than one year but
not more than two years 2,836 49,231
In more than two years but
not more than three years 21,330 8,528
In more than three years but
not more than four years 47,709 5,749
In more than four years but
not more than five years - 43,350
-------------------------------- --------- ---------
141,695 151,316
Less interest (7,246) (10,403)
-------------------------------- --------- ---------
Financial liabilities (see
note 19) 134,449 140,913
20. Financial risk management (continued)
Fair value hierarchy
Under IFRS 13: "Fair Value Measurement", the Group classifies fair value measurements using a three-level fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
(a) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
(b) Level 2: Inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
(c) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The following table shows how financial instruments measured at fair value are grouped into the fair value hierarchy:
Level Level Level
1 2 3 Total
Group: As at 31 December
2017 EUR(000) EUR(000) EUR(000) EUR(000)
-------------------------------- --------- --------- --------- ---------
Financial assets at fair
value through profit or
loss:
Structured loan notes - - 7,937 7,937
-------------------------------- --------- --------- --------- ---------
- - 7,937 7,937
Financial liabilities at
fair value through profit
or loss
Interest rate swap instruments - (80) - (80)
-------------------------------- --------- --------- --------- ---------
Level Level Level
1 2 3 Total
Group: As at 31 December
2016 EUR(000) EUR(000) EUR(000) EUR(000)
-------------------------------- --------- --------- --------- ---------
Financial assets at fair
value through profit or
loss:
Structured loan notes - - 5,839 5,839
Foreign exchange contact - 46 - 46
-------------------------------- --------- --------- --------- ---------
- 46 5,839 5,885
Financial liabilities at
fair value through profit
or loss
Interest rate swap instruments - (406) - (406)
-------------------------------- --------- --------- --------- ---------
See note 16 for details of the structured loan notes and the foreign exchange contracts.
21. Financial liabilities at fair value through profit or loss
2017 2016
EUR(000) EUR(000)
-------------------------------- --------- ---------
Liabilities as at 1 January 406 1,953
Fair value adjustment interest
swap
recognized in profit or loss (326) (1,547)
---------------------------------- --------- ---------
Liabilities as at 31 December 80 406
The above table represents the fair value of interest swap arrangements which the German subsidiaries entered into with their bankers in order to manage their exposure to upward movements in interest rates. These arrangements were entered into along with the loan agreements with the banks detailed in note 19. They require that the Group pays interest on any loans drawn down at the contractual EURIBOR rate plus the contractual margin and to receive (or pay) the difference between this EURIBOR rate and the fixed interest swap rate specified in the swap agreement.
In addition to interest rate swaps the Group entered into interest rate cap agreements to manage its interest rate risk (see note 16). The combined fair value adjustment for the interest rate swap and for the interest rate cap taken to profit or loss is EUR313,000.
The fair values of the interest swap arrangements represent the price at which one party would assume the rights and obligations of the counterparty. The fair values were determined by discounting the anticipated future cash flows. For this purpose, the market interest rates applicable for the remaining term of the contract are used as a basis.
The liabilities as at 31 December 2017 above are only non-current EUR80,000.
The following table summarises the swap facilities in existence as at 31 December 2017:
Expiry
date
of
Fair
value Amount interest
of of swap
Swap Swap Fixed
Bank in EUR(000) in EUR(000) agreement rate
--------- ------------- ------------- ---------- -------
29 Mar
DZ BANK (80) 8,193 2018 3.585%
The following table summarises the swap facilities in existence as at 31 December 2016:
Expiry
date
of
Fair
value Amount interest
of of swap
Swap Swap Fixed
Bank in EUR(000) in EUR(000) agreement rate
--------- ------------- ------------- ---------- -------
29 Mar
DZ BANK (406) 8,410 2018 3.585%
--------- ------------- ------------- ---------- -------
22. Other liabilities and payables
2017 2016
EUR(000) EUR(000)
------------------------------------- --------- ---------
Trade payables 1,393 1,079
Other taxation 291 179
Investment advisory fees 1,073 1,327
Performance fee payable 12,976 4,188
Other payables 1 4
Rent received in advance 239 304
Other advance payments from tenants 3,025 3,115
Administration accruals 30 31
------------------------------------- --------- ---------
19,028 10,227
23. Commitments and contingencies
As at 31 December 2017 the Group had binding commitments on capital investment of EUR3,400,000 (2016: EUR3,040,000) regarding ongoing refurbishment projects. As of the reporting date the Group had no contingent liabilities.
24. Capital management policies and procedures
The Group's capital management objectives are:
(i) to ensure that the Group and all of the companies within it are able to continue as a going concern, and
(ii) to maintain an optimal capital structure which maximises returns for shareholders whilst minimising the cost of capital.
In order to achieve objective (ii) above, the Group may alter its financial structure by varying future dividend paying policy, re-financing existing borrowings, selling assets to repay borrowings, issuing new shares, purchasing shares for cancellation or purchasing shares to be held as treasury shares. The ordinary shares of the parent undertaking of the Group were listed on the AIM market and the Zero Dividend Preference Shares of the parent undertaking are listed on the main market of the London Stock Exchange and this provides additional flexibility in achieving objective (ii) by providing fixed rate, cash flow beneficial financing to the Group.
It is the Group's policy to finance most property acquisitions by bank borrowings, using the acquired properties as security. The Group has mitigated its exposure to the risk that bank loan interest costs increase above the level at which they are covered by the Group's net revenues by entering into interest rate swap arrangements. Further details are contained in note 21.
The Investment Advisers and administrator of the Group work together to supply the Board with adequate accounting information on a quarterly basis which includes key financial performance indicators designed to assist the Board in monitoring the effect of the Group's funding structure, possible changes in funding requirements and the effects of alternative funding strategies on potential developments.
The Group monitors the ratio of net debt (total financial liabilities less swap instruments offset by cash) to shareholders' equity (including non-controlling interests). In the medium to long-term, the Group intends to operate with a capital structure comprising 70% debt and 30% equity. This represents a gearing ratio (i.e. net debt divided by equity) of approximately 2.33:1. The Group's gearing ratio is as follows:
2017 2016
EUR(000) EUR(000)
--------------------------------------- --------- ---------
Net debt
Loans and borrowings - non current 67,658 100,781
Loans and borrowings - current 66,791 33,503
Cash and cash equivalents (3,062) (6,348)
--------------------------------------- --------- ---------
131,387 127,936
Equity
Equity attributable to equity holders
of parent 195,377 154,001
Non-controlling interests 8,645 6,342
--------------------------------------- --------- ---------
204,022 160,343
Gearing ratio (net debt divided by
equity) 0.644 0.798
There have been no breaches in any covenants imposed in compliance with banking facilities.
25. Related party transactions
Nigel Le Quesne is a shareholder and director of JTC Group Limited, of which JTC (Jersey) Limited and JTC (Luxembourg) S.A. are wholly owned subsidiaries. Stephen Burnett is a non-executive director of JTC Group Limited. JTC (Jersey) Limited is the Secretary to the Company and provider of administration services to the Company and its subsidiaries. JTC (Jersey) Limited charged fees totalling EUR239,000 (2016: EUR258,000) to the Group during the year, of which EUR8,000 (2016: EUR66,000) was outstanding as at 31 December 2017. JTC (Luxembourg) S.A provides administrative services to the Company's Luxembourg subsidiaries. JTC (Luxembourg) S.A charged fees totalling EUR185,000 (2016: EUR153,000) to the Group during the year of which EURnil (2016: EUR23,000) was outstanding at 31 December 2017.
Mark Smith is a director and shareholder of TML and JJIM, the Investment Advisers of the Group, which charged investment advisory fees totalling EUR4,316,000 (55% JJIM / 45% TML) (2016: EUR3,254,000) to the Group during the year, of which EUR1,073,000 (2016: EUR1,328,000) was outstanding as at 31 December 2017. TML and JJIM together charged a performance fee of EUR12,976,000 (75% JJIM / 25% TML) (2016: EUR10,470,000) to the Group during the year, all of which was outstanding as at 31 December 2017, see note 8 for further details. In addition, TDL, through its German subsidiary Raumerei GmbH, provides estate agency services at preferential rates to the Group in Berlin.
As at the reporting date Mark Smith owns 75.62% of TML which holds 680,897 shares in the Company, representing 13.35%. These shares were issued in respect of previous performance fees. In addition, Mark Smith holds 598,304 ordinary shares in the Group (including the ordinary shares issued to JJIM which is wholly owned by Mark Smith), representing 11.73% of the Company's voting rights.
There were no other related party transactions with the Company or the Group other than remuneration payable to the Directors, disclosed in note 9, who are the only key management personnel.
There are no employee benefits accrued by directors or key management personnel in the current year (2016: EURnil).
26. Post balance sheet events
On 20 December 2017 the boards of directors of Taliesin Property Fund Limited ("Taliesin") and Wren Bidco Limited ("Bidco 1") and Canary Bidco Limited ("Bidco 2" and together, the "Bidcos") were pleased to announce that they have reached agreement on the terms and conditions of a recommended all cash acquisition of the entire issued ordinary share capital of Taliesin. The announcement was as follows:
Under the terms of the Acquisition, each Scheme Shareholder will be entitled to receive:
for each Scheme Share: 51 Euros in cash
-- The price per Scheme Share represents a premium of approximately:
-- 10 per cent. to the closing price of EUR46.31 per Taliesin Share on 19 December 2017 (being the last business day before the date of this Announcement);
-- 16 per cent. to the volume-weighted average price of EUR44.15 per Taliesin Share for the three-month period ended 19 December 2017 (being the last business day before the date of this Announcement);
-- 20 per cent. to the volume-weighted average price of EUR42.58 per Taliesin Share for the twelve-month period ended 19 December 2017 (being the last business day before the date of this Announcement); and
-- 16 per cent. to the 30 June 2017 Adjusted NAV of EUR44.14 per Taliesin Share.
-- The Offer Price has been agreed by the boards of directors of Taliesin and the Bidcos on the basis that no final dividend for the financial year ended 31 December 2017 will be paid by Taliesin to Taliesin Shareholders. If Taliesin announces, declares, makes or pays any dividend or other distribution on or after the date of this Announcement and prior to the Effective Date, the Bidcos reserves their right to reduce the Offer Price by an amount equal to the amount of such dividend or distribution.
-- The Acquisition values Taliesin's entire issued ordinary share capital at approximately EUR260 million.
-- It is intended that the Acquisition will be implemented by means of a Court-sanctioned scheme of arrangement under Article 125 of the Companies Law.
-- The Scheme Document will contain an updated portfolio valuation reported on in accordance with Rule 29 of the Code.
-- The Taliesin Directors, who have been so advised by Rothschild as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing its advice, Rothschild has taken into account the commercial assessments of the Taliesin Directors.
-- Accordingly, the Taliesin Directors confirm they intend to recommend unanimously that the Taliesin Shareholders vote in favour of the Scheme at the Court Meeting and the Resolutions to be proposed at the General Meeting (in the case of Mark Smith, other than in respect of the Resolution to approve the IM Transaction), as they have irrevocably undertaken to do in respect of their own beneficial holdings which are under their control of:
-- in respect of the Scheme at the Court Meeting and the Resolutions to implement the Scheme, in aggregate, 129,920 Taliesin Shares representing approximately 2.5 per cent. of the issued ordinary share capital of Taliesin on 19 December 2017 (being the last business day before the date of this Announcement); and
-- in respect of the Resolution to approve the IM Transaction, in aggregate, 5,200 Taliesin Shares representing approximately 0.1 per cent. of the Independent Voting Share Capital of Taliesin on 19 December 2017 (being the last business day before the date of this Announcement).
-- The Investment Managers, Seumas Dawes, Georges Saier, Michael and Felicity Milbourn, Julian Adams, and Paul Luke have irrevocably undertaken to vote in favour of the Scheme at the Court Meeting and the Resolutions to be proposed at the General Meeting to implement the Scheme (in the case of the Investment Managers and Paul Luke, other than the Resolution to approve the IM Transaction) in respect of their own beneficial holdings which are under their control of:
-- in respect of the Scheme at the Court Meeting and the Resolutions to implement the Scheme, in aggregate, 2,510,616 Taliesin Shares representing approximately 49.2 per cent. of the issued ordinary share capital of Taliesin on 19 December 2017 (being the last business day before the date of this Announcement); and
-- in respect of the Resolution to approve the IM Transaction, 1,258,155 Taliesin Shares representing approximately 33.8 per cent. of the Independent Voting Share Capital of Taliesin on 19 December 2017 (being the last business day before the date of this Announcement).
-- The Bidcos have therefore received irrevocable undertakings to vote in favour of the Scheme at the Court Meeting and the Resolutions to be proposed at the General Meeting to implement the Scheme (other than the Resolution to approve the IM Transaction) from Taliesin Shareholders holding 2,640,536 Taliesin Shares and representing approximately 51.8 per cent. of the issued ordinary share capital of Taliesin on 19 December 2017 (being the last business day before the date of this Announcement) and 1,263,355 Taliesin Shares representing approximately 33.9 per cent. of Independent Voting Share Capital of Taliesin on 19 December 2017 (being the last business day before the date of this Announcement) in respect of the Resolution to approve the IM Transaction. Further details of these undertakings, including the circumstances in which they cease to be binding are set out in Appendix 3.
-- The terms of the Acquisition will be put to the Taliesin Shareholders at the Court Meeting and the General Meeting (which is expected to immediately follow the Court Meeting). The Court Meeting and the General Meeting are required to enable Taliesin Shareholders to consider, and if thought fit, vote in favour of the resolutions to approve the Scheme and its implementation. In order to become Effective, the Scheme must be approved by a majority in number of Scheme Shareholders, present and voting at the Court Meeting, whether in person or by proxy, representing 75 per cent or more of the voting rights held by those Scheme Shareholders.
-- The Acquisition will be on the terms and subject to the Conditions set out in Appendix 1 to this Announcement. Full details of the Acquisition will be set out in the Scheme Document. It is expected that the Scheme Document, containing further information about the Acquisition and notices of the Court Meeting and General Meeting, together with the Forms of Proxy, will be published as soon as practicable and, in any event, within 28 days of this Announcement (unless the Panel agrees otherwise). An expected timetable of principal events will be included in the Scheme Document.
-- The Acquisition is expected to become Effective in the first quarter of 2018, subject to satisfaction (or, where applicable, waiver) of the Conditions and further terms set out in Appendix 1 to this Announcement.
Taliesin Management Limited and JJ Investment Management Limited (the "Investment Managers") act as investment advisers to Taliesin pursuant to investment advisory agreements. The Bidcos have entered into a share purchase agreement with Mark Smith and certain other sellers under which the Investment Managers will be sold to the Bidcos (the "IM Transaction"), subject to the Acquisition becoming Effective. It is anticipated completion of the IM Transaction will occur immediately following the Acquisition becoming Effective. If the Acquisition does not become Effective, the IM Transaction will not occur. The consideration payable by Bidcos in respect of the IM Transaction will be EUR18 million, after taking into account the proceeds attributable to the Taliesin Shares held by the Investment Managers which will be transferred to the Bidcos on the Effective Date. For the purposes of Rule 16 of the Code, Rothschild has confirmed that, in its opinion, the terms of the IM Transaction are fair and reasonable so far as Independent Taliesin Shareholders are concerned. The IM Transaction is subject to the approval of Independent Taliesin Shareholders in accordance with Rule 16 of the Code.
-- Bidco 1 has entered into a share purchase agreement with JTC Trustees Limited under which Sophia Holdings Limited, an indirect holder of approximately 6 per cent. of Taliesin Holdings Limited (a subsidiary of Taliesin) will be sold to Bidco 1 (the "Sophia Transaction"), subject to the Acquisition becoming Effective. It is anticipated that completion of the Sophia Transaction will occur immediately following completion of the Acquisition. If the Acquisition does not become Effective, the Sophia Transaction will not occur. The consideration payable by Bidco 1 in respect of the Sophia Transaction will be EUR1.
-- Taliesin has in issue zero dividend preference shares of no par value which are listed on the Main Market of the London Stock Exchange (the "ZDP Shares"). As further described in this announcement, upon the Acquisition becoming Effective, Taliesin is required under the Articles to initiate a process of offering an early repurchase of the ZDP Shares in accordance with the provisions set out in the Articles which the holders of the ZDP Shares may either accept or reject. Full details of the terms of the buyback offer and relevant documentation will be sent to holders of ZDP Shares following the Scheme becoming effective.
On 26 February 2018 the following was announced:
Scheme effective
Taliesin Property Fund Limited ("Taliesin") is pleased to announce that the acquisition by Wren Bidco Limited and Canary Bidco Limited, newly incorporated companies owned by entities advised by affiliates of The Blackstone Group L.P., of the entire issued ordinary share capital of Taliesin has become effective today, 26 February 2018. This follows the delivery of the Court Order to the Registrar of Companies.
The consideration of 51 Euros (unless a Currency Election has been made, in which case such consideration shall be in pounds sterling) in cash per Scheme Share to be paid to or for the account of each Scheme Shareholder pursuant to the Scheme will be despatched (in the case of certificated holders of Scheme Shares) or settled in CREST (in the case of uncertificated holders of Scheme Share) by no later than 12 March 2018.
Dealings in Taliesin Shares have been disabled in CREST since 6:00 p.m. on 23 February 2018 and trading in Taliesin Shares on AIM has been suspended from 7:30 a.m. on the date of this announcement. An application also has been made by the Company to cancel the admission to trading of Taliesin Shares on AIM and such cancellation is expected to occur with effect from 7:00 a.m. on 27 February 2018.
Capitalised terms and expressions used in this announcement have the same meanings as set out in the document relating to the Scheme dated 18 January 2018 (the "Scheme Document").
The Company`s common shares have been de-listed from AIM on the 27(th) of February 2018.
Following the effectiveness of the scheme described above, the Group was undergoing a restructuring. On 8(th) of March 2018 the Group Companies which holds the Investment Properties as described in Note 5 and 6 were transferred outside of the Group structure of Taliesin Property Fund Ltd. Therefore, as of the date of the transfer the Group will not generate sufficient income, which led to the Directors assessment outlined in the Section "Going Concern" on Page 11.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BUGDSUDXBGIG
(END) Dow Jones Newswires
April 30, 2018 11:29 ET (15:29 GMT)
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