Annual Financial Report

RNS Number : 7024W

Aberdeen Standard Eur Lgstc Inc PLC

23 April 2019

 

ABERDEEN STANDARD EUROPEAN LOGISTICS INCOME PLC

Legal Entity Identifier (LEI):  213800I9IYIKKNRT3G50

ANNUAL FINANCIAL REPORT FOR THE PERIOD ENDED 31 DECEMBER 2018

1.    STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS

Financial Highlights (1)

Net asset value total return (2)	Net Asset Value (€'000)	Net asset value per share (€)
-2.98%	202,073	1.08
Share price total return (2)	Premium/Discount to net asset value	Ordinary dividend per share
+3.02%	+5.7%	3.0p
Ongoing Charges (2)	IFRS Earnings Per Share	Properties in Portfolio
0.98%	-2.45c	6

(1) The Company was launched on 15 December 2017 and there are no comparative figures available for 2017.

(2) Alternative Performance Measure

2.    CHAIRMAN'S STATEMENT

Dear Shareholder

It is a pleasure to present to you the first full report of the Company covering the period from our initial public offering and launch up until 31 December 2018.

Logistics is a story of growth. The successful launch of the Company (or "ASELI") in December 2017 proves that investors have recognised the opportunity to invest in a market that is benefiting from the rise of e-commerce and further globalisation. These developments have a large impact on the logistics supply chain and can be seen as one of the driving forces behind healthy occupier demand. The under supply of suitable properties situated in many European markets makes logistics one of the most attractive investment categories for investors interested in investment in real estate.

Overview

The Company was launched on 15 December 2017 raising gross proceeds of £187.5 million (€ 212.0 million) following a Placing and Offer for Subscription of Ordinary Shares (the "IPO").

In accordance with the Company's investment policy, the net proceeds of the IPO have been carefully invested over the ensuing months into a diversified portfolio of high quality "big box" logistics warehouses and assets across Europe. Our Investment Manager has deployed capital with the aim of creating a portfolio of assets diversified by both geography and tenant throughout Europe, targeting good quality, well-located assets at established distribution hubs and within close proximity to cities with excellent transport links.

The audited Net Asset Value ("NAV") per Share as at 31 December 2018 was €1.08, reflecting a NAV total return of -2.98% in the period. This return is mainly attributable to the impact of transaction costs on acquiring properties reflecting the fact that the Company was in its initial investment period in 2018. The closing share price at 31 December 2018 was 102.25p per Ordinary share having launched at 100p per share.

Dividends

Interim dividends of 0.7p, 1.0p and 1.3p per Ordinary share, were paid in September 2018, December 2018 and March 2019 in respect of the period from initial launch to 31 December 2018. This was in accordance with the intention stated in the IPO Prospectus to target total dividends of 3.0p per Ordinary Share during the investment phase. The Company intends to declare quarterly interim dividends to shareholders, with dividends declared in respect of the quarters ending on the following dates: 31 March, 30 June, 30 September and 31 December in each year. The dividend target and any dividend payment may be made up of both dividend income and income which is designated as an interest distribution for UK tax purposes and therefore subject to the interest streaming regime applicable to investment trusts.

Portfolio

Over the period, finding the right assets at the right price in what has proved to be a very competitive market has been one of the Investment Manager's key challenges. By the end of 2018 the Company had secured nine investments with one further opportunity in due diligence, in five different countries. Such a well-diversified portfolio was created with the help of the Investment Manager's local transaction managers which is one of the Company's key selling points. The tenth acquisition of a freehold warehouse located in Krakow Poland was subsequently announced in March 2019. The portfolio now consists of ten modern, high quality warehouses, six of which are new.

The durability of the income that we expect to generate given the length of the leases; all indexed, the covenant strength of the tenants; all strong, and the quality of the locations now provides shareholders with a well-diversified portfolio which should enable the Company to meet its investment objective. The Board has been very closely involved in the acquisition of each property, with multiple ad-hoc meetings, regular reporting and monthly interactions with the Investment Manager. Further details on the composition of the portfolio are provided in the Investment Manager's Review.

Yield

The Board has closely monitored the development of the European logistics market over the past twelve months and is conscious of the very strong market demand for logistics assets across much of developed Europe. This has resulted in a material degree of yield compression. At the same time, ongoing demand for assets of the high quality seen in the Company's portfolio is expected to result in a marked uplift in their capital value over time, adding to the total return.

During the Investment Manager's series of investor updates with some of the Company's largest shareholders held in November 2018, discussions focused on the Company's total return characteristics and distribution targets and, in particular, whether the then current level of gearing and/or target return should be reviewed given the market conditions referred to above. Following shareholder feedback, the Board determined in December 2018 that it would be in the best interests of shareholders as a whole to maintain gearing at or around 35 per cent. of gross assets, rather than implementing a higher gearing strategy at this stage of the market cycle in an effort to counteract the effects of decreasing yields.

The Board will keep the level of borrowings under review and the aggregate borrowings will always be subject to the absolute maximum set at the time of the Company's launch, calculated at the time of drawdown for a property purchase, of 50 per cent. of Gross Assets.

As a result of this yield compression, the Company is now seeking to target for an investor at launch an annual dividend yield of 5.0 per cent. per Ordinary Share (reduced from the 5.5 per cent. level indicated at launch). The total shareholder NAV return target remains at 7.5 per cent. per annum (each in Euro terms).

Amendment to Management Fee

As the Company continues to grow in the fast-moving sector of European real estate, the Board and the Manager agreed that the annual management fee applied to the first €500 million of assets would be reduced from 0.95 per cent. to 0.75 per cent. per annum of the net asset value as calculated under the management agreement.

Regulatory Changes

There have been a number of regulatory changes implemented or announced since the Company's launch. Investors should be aware that the Packaged Retail and Insurance Based Investment Products ("PRIIP") Regulation that requires the Manager, as the Company's PRIIPs manufacturer to prepare a Key Information Document ("KID") in respect of the Company. The KID must be made available by the Manager to retail investors prior to a prospective investor making an investment decision and is available via the website. The Manager is responsible for the information contained in the KID and investors should note that the methodologies for calculating the costs, returns and performance scenarios found in the KID, as well as the notes that are found alongside those numbers, are all prescribed by regulation and may not reflect returns expected of the Company. In particular, the likely ongoing charges for the Company are based on estimated costs for the establishment of the Company's portfolio which are likely to be much higher in the first year than in subsequent years.

Data protection rights were harmonised across the European Union following the implementation of the General Data Protection Regulation ("GDPR") on 25 May 2018. The Board has taken the necessary steps to seek appropriate assurances from its third-party service providers to ensure compliance with the new regulations.

Annual General Meeting

The Company's first Annual General Meeting will be held in London on 11 June 2019 at 12.30 p.m. at the offices of Aberdeen Standard Investments, Bow Bells House, 1 Bread Street, London EC4M 9HH. The formal Notice of AGM may be found on page 100 of the published Annual Report. There will be a presentation from the Investment Manager and an opportunity to meet the Directors and Investment Manager over a light buffet lunch after the formal AGM has closed. I look forward very much to seeing as many shareholders as possible at the AGM in London.

Shareholders will find enclosed with this Annual Report a Form of Proxy for use in connection with the AGM. Whether or not you propose to attend the AGM, you are encouraged to complete the Form of Proxy in accordance with the instructions printed on it and return in the prepaid envelope as soon as possible but in any event so as to be received no later than 12:30pm on 7 June 2019. Completion of a Form of Proxy does not prevent you from attending and voting in person at the AGM if you wish to do so.

Outlook

In March 2019, as a result of the uncertainties that a hard BREXIT might create, your Manager carried out a reorganisation of its European subsidiaries and created a new Dublin based entity for its investment management business in Europe: Aberdeen Standard Investments Ireland Limited. As part of that reorganisation, the Manager's Amsterdam office (where the team that manages the Company's portfolio is based) became a branch office of the new Dublin subsidiary. In addition, your Board has undertaken a review of any likely impacts of BREXIT on the Company and has concluded that the effect on foreign exchange is likely to be the most material, given that the Company's income is predominantly in Euros and dividends are payable to shareholders in Sterling. With a well-diversified portfolio of assets spread across five countries and a range of tenants enjoying long indexed leases, the Board does not consider that BREXIT will impact the Company significantly. We would expect to see continued healthy demand for well-located logistics buildings offering occupiers the benefits of easy access to their markets and the opportunity to continue to build their delivery capabilities.

Looking ahead, the Board and Investment Manager believe that Real Estate logistics will stay one of the most favoured sectors for investors as it is undersupplied and supported by structural changes.

The Board and the Investment Manager remain confident that the market for European logistics assets will continue to offer many attractive investment opportunities in the future, and the intention remains to seek to grow the Company through further equity issuance in the coming months when appropriate, alongside the deployment of the associated debt in accordance with the Company's prevailing gearing guidelines.

For 2019, the main aim will be to manage the portfolio in the best possible way together with the local asset managers and generate the maximum amount of income from the assets that we hold in the portfolio while ensuring its prime quality. The European logistics market is sizeable and growing, with the sector benefiting from rapid take-up of facilities and long inflation-linked leases to quality tenants. The Board believes that Europe maintains a clear advantage in terms of yields and low financing costs and that strong demand when combined with the lack of suitable product reinforces the scope for further capital and income growth in the years ahead.

Further details about the Company and the assets in which it is invested are available together with the prospectus, monthly factsheet and Company announcements on our website at: eurologisticsincome.co.uk.

Directorate Change

Finally, I would like to inform Shareholders that, having recently taken on a full time senior executive role with global responsibilities at an organisation based in Paris, I have concluded that I will not be able to devote the necessary time required of the role of Chairman or Director to the Company going forward. As a result, I have decided to step down from the Board of the Company at the conclusion of the AGM and therefore I will not stand for election at that meeting. It has been a pleasure to be involved with the Company from before its launch and through its first financial period and I am confident that the remaining Board members will continue to support the next successful stage of the Company's development. However, I leave the Company in good hands as I and my fellow Directors are delighted to report that Tony Roper, who has a wide experience of the sector, has agreed to take on the role as Chairman with effect from my standing down. The Directors have also considered the ongoing requirements of the Board in light of the range of skills and experience represented by the remaining Directors and have concluded that there is no need to add an additional Board member at this time.

Pascal Duval

Chairman

18 April 2019

3.    MANAGER'S REVIEW

Since the IPO in December 2017 the Company has built a well-diversified property portfolio with modern logistics warehouses in established logistics locations across Europe. All warehouses are fully let with long indexed leases to good covenant tenants. This is in line with the strategy described at the Company's launch and we believe they will be able to generate a durable income stream for investors in the future.

Local resources key to success

One of the key strengths of ASI is the presence of local feet on the ground in the main markets across Europe which gives us the capacity to build and manage a pan-European logistics property portfolio. More than 20 transaction managers, based locally, give us access to on- and off-market deals thanks to their local network with developers, brokers, banks, investors and end-users. Once in the portfolio, there is a pool of 80 asset managers across the European business responsible for keeping the warehouses in good shape and our tenants satisfied, with the aim of keeping the portfolio fully income producing and adding value through active management where possible.

Over the period under review the Investment Manager has investigated over 120 investment opportunities across Europe representing a total investment value of €5.6 billion resulting in 30 bids (€0.9 billion). 13 bids were accepted leading to exclusivity and the start of the due diligence process. Three of these opportunities were rejected during due diligence for different reasons leaving 10 investments, of which 6 were closed by the end of 2018. Rejecting a potential investment during due diligence is always disappointing but is a potential outcome of an in-depth analysis of the legal, technical, fiscal and commercial aspects of a transaction. We want to fully understand all the risks we are taking by adding an asset to the portfolio. Five out of the 10 opportunities were sourced on an off-market basis, meaning we negotiated directly with the sellers, without direct competition from other investors.

Countries where the Company has issued or considered a bid are: Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Poland, Portugal, Slovenia, Spain and Sweden, once again illustrating the access your Investment Manager has to a wide range of markets through our local teams.

Well-diversified property portfolio with modern specifications

The Investment Manager's team is proud of the good quality stock it was able to invest in and at the right price. After launch in December 2017, the priority was to deploy the £187.5 million of capital raised first and to put financing in place soon thereafter. We have had a disciplined approach by investing the capital in properties where we have strong convicton they will provide a decent return in the future. All acquisitions are supported by external property valuations to ensure we do not overpay, potentially leaving room for further capital appreciation in the near future.

By the end of 2018, the Company had 6 assets in the portfolio, 3 assets with signed SPAs and one asset in due diligence which was signed and closed in February 2019. The property portfolio is well-diversified with 10 warehouses in 5 different countries and 26 tenants. The Netherlands is the largest market represented in the portfolio with an expected allocation of 39% once all developments have been completed, followed by France (26%), Germany (20%), Poland (9%) and Spain (6%).

The country allocation is the result of our bottom-up approach in trying to find the best investment opportunity regardless of the country location.

The high quality of the portfolio is illustrated by how recently several of the warehouses in the portfolio were built. Six of them are new and delivered in 2018 or still under construction with a delivery date expected in early 2019. This also explains the somewhat longer period of time needed between signing the SPA and the actual closing of some of these purchases. For example, the acquisitions in Oss and Zeewolde are both forward funding developments currently under construction with SPAs signed in October and November 2018 but completion dates expected in June and July 2019 respectively. For both developments, the Company will receive compensation during the construction phase in the form of an interest payment applied to the monthly instalments paid to the developer. The properties in Avignon, Leon and Erlensee are all forward commitments where the Company agreed a purchase price before completion of the project. In Krakow the building was constructed in 2018. The main advantage of newly built properties is the modern specification in line with the requirements of today's end-users of logistics space.

The number of loading doors, the eaves, office to logistics space ratio, layout of the building, yard depth and floor load capacity are some of the key features of a logistics building we carefully consider as these are important for our end-users. Besides building specifications we carefully consider the quality of the location which needs to be well-established and easily accessible by road, water or railway or located close to an airport.

Quality of location and building are our key areas of focus. Lease length and covenant strength of the tenant are equally important to us, although we try to look beyond the length of the existing lease contract and not simply to buy an income stream. So taking a view on the second life of the property is very important in order to be able to generate a durable and stable income stream in the future. We believe all our warehouses in the portfolio fit these quality requirements.

Property Portfolio as at 31 December 2018

Country	Location	SPA signed	Closing	Built	WAULT (years)1	% of portfolio2
Germany	Flörsheim	Dec 17	Feb 18	2015	8.2	8.0
France	Avignon	Jul 18	Oct 18	2018	12.1	16.9
Netherlands	Ede	Aug 18	Aug 18	1999/ 2005	8.8	9.8
Netherlands	Oss (forward funding)	Oct 18	Jul 19	2019	15.0	5.9
Netherlands	Zeewolde (forward funding)	Nov 18	Jun 19	2019	15.0	11.0
Netherlands	Waddinxveen	Nov 18	Nov 18	1983/ 1994/	14.9	12.5
				2002/ 2018
TOTAL (1)					12.3	64.1

Property acquired post 31 December 2018

Country	Location	SPA signed	Closing	Built	WAULT (years)1	% of portfolio2
Germany	Erlensee	Jun 18	Feb 19	2018	6.1	12.2
Spain	Leon	Jul 18	Apr 19	2019	10.0	5.8
France	Meung-sur-Loire	Nov 18	Feb 19	2004	7.8	8.9
Poland	Krakow	Feb 19	Feb 19	2018	4.8	9.0
TOTAL (2)					6.8	35.9
TOTAL (1+2)					10.2	100.0

1     Weighted average unexpired lease term excluding break options assuming average lease length of developments at completion.

2     Based on assets in portfolio and agreed purchase prices of assets with signed SPAs.

Stable income one of the key performance drivers

All properties in the portfolio will be fully income producing when they complete, with signed leases and long maturities to good covenant tenants in place.

By the end of 2018, the weighted average unexpired lease term of the property portfolio (WAULT) was estimated at 10.9 years, including breaks, and 12.3 years, excluding breaks. If all transactions to be closed post the period end are included the WAULT will be 9.3 years, including breaks, and 10.2 years, excluding breaks.

Part of our due diligence process prior to purchase is to check on the financial strength of the tenants. Dun & Bradstreet is our main source to check a tenant's solvency, but we also use our financial equity analysts if there are reasons for a more in-depth analysis. By the end of 2018 the average weighted credit rating of the tenants in the portfolio was 79 points, which is considered strong. This rating will be 75 points once all deals have been completed.

Lease contracts within Europe are typically indexed every year with the Consumer Price Index (CPI) as a basis. There can be local differences, for example the French L'indice des loyers des activités tertiaries (ILAT) which is an index based on a combination of construction costs, CPI and GDP growth. In Germany, the indexation of rents is only triggered once the cumulative CPI indexation rate of the preceding years exceeds a certain threshold which is then implemented by a certain portion of that threshold.

The undersupplied logistics market in Europe makes us believe there is space for rental growth in the future. This view is supported by increasing construction costs making it harder for new developments to compete with existing rent levels. We believe this potential is not fully reflected in the market rents based on our valuations as at 31 December 2018. Those valuations are also distorted by the two assets in Avignon and Erlensee as both are partially cooled, for the storage of fruit and vegetables, resulting in higher rents to compensate for the extra investment in the installations.

 

Capital growth through active asset management

One of the key drivers of capital growth in the logistics sector has been a strong inward yield shift in the last 10 years. Since 2009, prime yields in Europe have dropped from an average of 7.8% to 5.1% by the end of 2018 strongly driven by healthy market fundamentals, low interest rates and strong investor demand.

At this point of the cycle, the occupier market should become a stronger driver of performance than the capital market. Yield compression is expected to slow down in the near term. Rental growth will become a growing component of capital appreciation, supported by low vacancy rates and inflation coming through in indexation of rents. Furthermore, given low construction levels, we expect void rates to become lower, supporting income growth prospects.

In addition to positive market fundamentals, we intend to add value by actively managing the property portfolio using our local asset managers. We maintain a close working relationship with tenants with the aim

of keeping them satisfied and retaining the occupancy rate, and therefore income, at the highest possible level. Also, there are realistic opportunities to expand the lot size of some of the buildings in the portfolio with the potential to realise a development profit.

Capital growth reflected in higher valuations

Since the launch of the Company, property values have increased by 1.1% to the end of 2018. This is based on year end valuations and purchase prices excluding acquisition costs. The capital growth is mainly driven by an inward yield movement.

Capital appreciation will also be triggered via annual indexation of rents and market rental growth supported by strong demand for logistics, a lack of supply and increasing construction costs for new developments.

Income further boosted by low financing costs

As referred to earlier, strategy has been focused on deploying the capital raised during IPO before putting bank financing in place. Bank financing has been prioritised in those markets where financing costs are lowest.

First financings were drawn down after the year end in February 2019 in order to complete the transaction in Meung-sur-Loire. Bank financing of €33 million was obtained by putting a cross-collateralized loan facility in place on the two French assets in Avignon and Meung-sur-Loire. The loan maturity is 7 years fixed with an all-in interest rate of 1.56% per annum. Two more loan facilities were drawn by the end of February 2019 in Erlensee (€ 17.8 million, 7 years fixed with an all-in interest rate of 1.62%) and Flörsheim (€ 12.4 million, 10 years fixed with an all-in interest rate of 1.54%). The next step is to put financing in place on a combination of warehouses in the Netherlands where financing costs are amongst the lowest in Europe in order to fund the final closings and bring the loan to value of the portfolio close to the target level of around 35%.

The Company is also intending to put in place a sterling revolving credit facility, of approximately £6 million.

This facility will be used (if needed) to finance any liquidity gaps in the cash-flow of the Company.

 

Logistics market outlook

We believe that many of the key drivers behind the demand for logistics space in Europe remain strong and are likely to be long-term and structural in nature rather than linked to the economic cycle. There is evidence of logistics rental growth in some European markets, and we expect this to pick up for key logistics hubs and urban locations, where supply constraints start to come into play. A stabilisation of yields will lead to a stabilisation of new development projects competing for tenants, and increased construction costs are likely to also influence asking rents.

The high demand for logistics investment from real estate investors has resulted in a sharp re-pricing of the sector, with average prime logistics yields in Europe coming down from 5.5% to 5.1% over the last 12 months. We are still optimistic regarding the performance of logistics real estate investments at the current pricing, but we believe stock picking is increasingly important as yields become lower. Rental growth prospects are very different across sub-markets and locations, and need to be factored into acquisition considerations.

In response to the strength of the logistics market rally, Aberdeen Standard Investments surveyed a wide range of warehouse and distribution centre occupiers (conducting interviews with 123 supply chain specialists in 29 countries) to examine the true strength of the occupier base. The survey "The European Logistics Survey - the trends shaping the future of Logistics Property" revealed some new trends emerging in the European logistics sector. These include shifts in technological influence across the supply chain, a surprising level of engagement in sustainability initiatives and results that reinforce the shift of demand towards the consumer and urban locations. However, these trends create substantial tensions between policy, the environment, competing uses and the need to satisfy last mile parcel delivery on a scale never seen before in Europe. The results confirm your Investment Manager's view that the momentum in the sector is likely to be sustained, but with an increasing level of complexity.

The impact of logistics operations on the environment is also a critical part of sustainability strategies being employed in the sector. We believe this preference from occupiers is something we should be increasingly focused on, both for new acquisitions and in our asset management plans for logistics properties currently held within the Company's portfolio.

 

Environment, society and governance (ESG) also matters for logistics occupiers

One of the main drivers behind ESG is public policy.

As sustainable logistics becomes a top public policy issue, governments have begun enacting environmental standards for logistics property development and applying penalties for excess emissions from vehicles. The pressure from distributors is also significant and drives the implementation of this type of solution as they are increasingly demanding that warehouse operators demonstrate environmental credentials. An increasing number of distributors are not only adopting sustainable practices internally, but they take it a step further and are demanding that their logistics partners are committed to sustainable business processes. All of this suggests that ESG initiatives will become standard practice in warehouses across Europe.

 

Summary and implications

The logistics market in Europe is setting new records across almost all variables. Tenant and investment demand are at record highs, vacancy is almost negligible in key locations and the evolution of consumption patterns is driving last mile parcel delivery activity to levels not previously recorded. These strong fundamentals are driving investment yields towards, and in some cases beyond, previous lows.

While the overall prognosis for logistics is positive, we believe there will be a growing differentiation between different types of logistics property. The changing drivers of demand, such as shorter supply chains resulting from greater mechanisation in the manufacturing process or the growth in business to consumer (B2C) e-commerce, will have a differentiating influence on the demand for different types of space and ultimately the income growth prospects for investors.

Careful attention will need to be paid to investments that constitute suitable urban logistics locations, with even ageing stock likely to be attractive to tenants and investors if the location is good enough. In contrast, given the growing cost pressures for contract logistics providers, there will be an increasing focus on the location and structural suitability of properties in more peripheral locations with transport and fuel costs rising. In a sector at the forefront of such attention and technological change, it has never been more important to track the changing trends in the logistics market.

Aberdeen Standard Investments Ireland Limited

18 April 2019

4. STRATEGIC REPORT - OVERVIEW OF STRATEGY

The Company

The Company is a UK investment trust with a premium listing on the Main Market of the London Stock Exchange. The Company invests in European logistics real estate to achieve its investment objective noted below.

The Company was incorporated in England and Wales on 25 October 2017 with registered number 11032222 and launched on 15 December 2017 raising gross proceeds of £187.5 million (€212.0 million).

 

Investment Objective

The Company aims to provide a regular and attractive level of income return together with the potential for long term income and capital growth from investing in high quality European logistics real estate.

 

Investment Policy

The Company aims to deliver the investment objective through investment in, and management of, a diversified portfolio of ''big box'' logistics warehouses and ''last mile'' urban logistics assets in Europe.

The Company invests in a portfolio of assets diversified by both geography and tenant throughout Europe, predominantly targeting well-located assets at established distribution hubs and within population centres.

In particular, the Investment Manager seeks to identify assets benefitting from long-term, index-linked, leases as well as those which may benefit from structural change, and will take into account several factors, including but not limited to:

-    the property characteristics (such as location, building quality, scale, transportation links, workforce availability and operational efficiencies);

-    the terms of the lease (focusing on duration, inflation-linked terms, the basis for rent reviews and the potential for growth in rental income); and

-    the strength of the tenant's financial covenant.

The Company may forward fund the development of, or commit to the forward purchase of new assets when the Investment Manager believes that to do so would enhance returns for shareholders and/or secure an asset at an attractive yield. The Company intends that forward funded or forward purchased assets will be wholly or predominantly pre-let at the time the investments are committed to.

 

Diversification of Risk

The Company manages its assets at all times in a manner which is consistent with the spreading of investment risk. The following investment limits and restrictions apply to the Company and its business which, where appropriate, will be measured at the time of investment and once the Company is fully invested:

-    the Company only invests in assets located in Europe;

-    no more than 50 per cent. of Gross Assets may be concentrated in a single country;

-    no single asset may represent more than 20 per cent. of Gross Assets;

-    forward funded commitments must be predominantly pre-let and the Company's overall exposure to forward Funded commitments is limited to 20 per cent. of Gross Assets;

-    the Company's maximum exposure to any single developer is limited to 20 per cent. of Gross Assets;

-    the Company will not invest in other closed-ended investment companies;

-    the Company may only invest in assets with tenants which have been classified by the Investment Manager's investment process as having strong financial covenants; and

-    no single tenant may represent more than 20 per cent. of the Company's annual gross income measured annually.

The Company is not required to dispose of any asset or to rebalance the Portfolio as a result of a change in the respective valuations of its assets.

The Company conducts its affairs so as to qualify as an investment trust for the purposes of section 1158 of the Corporation Tax Act 2010.

 

Borrowing and Gearing

The Company employs gearing with the objective of improving shareholder returns. Debt is typically secured at the asset level and potentially at the Company level with or without a charge over some or all of the Company's assets, depending on the optimal structure for the Company and having consideration to key metrics including lender diversity, cost of debt, debt type and maturity profiles.

Borrowings are typically non-recourse and secured against individual assets or groups of assets and the aggregate borrowings will always be subject to an absolute maximum, calculated at the time of drawdown for a property purchase, of 50 per cent. of Gross Assets.

Where borrowings are secured against a group of assets, such group of assets shall not exceed 25 per cent. of Gross Assets in order to ensure that investment risk remains suitably spread.

The Board has established gearing guidelines for the Alternative Investment Fund Manager ("AIFM") in order to maintain an appropriate level and structure of gearing within the parameters set out above. Under these guidelines, aggregate borrowings are not expected to exceed 35 per cent. of Gross Assets. These limits may be exceeded in the short term from time to time.

The Board will keep the level of borrowings under review. In the event of a breach of the investment guidelines and restrictions set out above, the AIFM will inform the Board upon becoming aware of the same, and if the Board considers the breach to be material, notification will be made to a Regulatory Information Service and the AIFM will look to resolve the breach with the agreement of the Board. The Directors may require that the Company's assets are managed with the objective of bringing borrowings within the appropriate limit while taking due account of the interests of shareholders. Accordingly, corrective measures may not have to be taken immediately if this would be detrimental to shareholder interests.

Any material change to the Company's investment policy set out above will require the approval of shareholders by way of an ordinary resolution at a general meeting and the approval of the UK Listing Authority. Non-material changes to the investment policy may be approved by the Board.

 

Comparative Index

The Company does not have a benchmark.

 

Investment Manager

Under the terms of the Management Agreement, the Company has appointed Aberdeen Standard Fund Managers Limited as the Company's alternative investment fund manager for the purposes of the AIFM Rules. The AIFM has delegated portfolio management to the Amsterdam Branch of Aberdeen Standard Investments Ireland Limited as Investment Manager.

Pursuant to the terms of the Management Agreement, the AIFM is responsible for portfolio and risk management on behalf of the Company and will carry out the on-going oversight functions and supervision and ensure compliance with the applicable requirements of the AIFM Rules. The AIFM and the Investment Manager are both legally and operationally independent of the Company.

 

Dividend Policy

Subject to compliance with all legal requirements the Company intends to pay interim Sterling dividends on a quarterly basis. The Company will declare dividends in Euros, but shareholders will receive dividend payments in Sterling. The date on which the Euro/Sterling exchange rate is set will be announced at the time the dividend is declared; and a further announcement will be made once such exchange rate has been set. Distributions made by the Company may take the form of either dividend income or ''qualifying interest income'' which may be designated as interest distributions for UK tax purposes. It is expected that the majority of the Company's distributions will take the form of dividend income, rather than qualifying interest income, in the period during which the proceeds of the Initial Issue are invested; with the proportion increasing to a significant majority once that investment process has been completed.

At launch the Company confirmed a target annual dividend yield on the issue price of 100p of 5.5 per cent. per Ordinary share. On 20 December 2018 the Company confirmed that the Board had concluded that the Company's distribution target should be amended.

This decision had been taken to ensure that the Company can achieve a sustainable and fully covered dividend over the long term and maintain sufficient cash reserves, without compromising on the very high quality of the Company's portfolio as and when further logistics assets are acquired. The Company is therefore now seeking to target an annual yield of 5.0 per cent. per Ordinary Share whilst continuing to aim for a total NAV return of 7.5 per cent. per annum (each in Euro terms).

Key Performance Indicators (KPIs)

The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and to determine the progress of the Company in pursuing its investment policy. The main KPIs identified by the Board in relation to the Company, which are considered at each Board meeting, are as follows:

KPI	Description
NAV Return (per share)	The Board considers the Company's NAV total return to be the best indicator of performance over time and is therefore the main indicator of performance used by the Board. The figure for the period since inception is set out on page 14 of the published Annual Report. The Company is targeting, for an investor in the Company at launch a total NAV return of 7.5 per cent. per annum (in € terms).
Share Price (on a total return basis)	The Board also monitors the price at which the Company's shares trade on a total return basis over time. A graph showing the total NAV return and the share price performance is shown on page 15 of the published Annual Report.
Discount/Premium to NAV	The discount/premium relative to the NAV per share represented by the share price is closely monitored by the Board. A graph showing the share price premium/(discount) relative to the NAV is shown on page 15 of the published Annual Report.
Dividend	The Board's aim is to maintain or increase the Ordinary dividend so that shareholders can rely on a consistent stream of income. Dividends paid since launch are set out on page 14 of the published Annual Report. The Company is targeting, for an investor in the Company at launch, an annual dividend yield of 5.0 per cent. per Ordinary Share (in € terms).
Ongoing Charges Ratio ("OCR")	The OCR is the ratio of expenses as a percentage of average daily shareholders' funds calculated in accordance with the industry standard. The Board reviews the OCR regularly as part of its review of all expenses. The aim is to ensure that the Company remains competitive and is able to deliver on its yield target to Shareholders. The Company's OCR is disclosed on page 14 of the published Annual Report.

 

Principal Risks and Uncertainties

There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has carried out a robust assessment of these risks set out in the table overleaf together with a description of the mitigating actions taken by the Board. The principal risks associated with an investment in the Company's shares are published quarterly on the Company's factsheet and they can be found in the Company's IPO Prospectus dated 17 November 2017, both of which are on the Company's website. The Board reviews the risks and uncertainties faced by the Company regularly.

In addition to these risks, the outcome and potential impact of the UK Government's Brexit discussions with the European Union are still unclear at the time of writing, and this remains an economic risk for the Company in the meantime. In all other respects, the Company's principal risks and uncertainties have not changed materially since the date of the Annual Report and are not expected to change materially for the current financial year.

Description	Mitigating Action
Investment strategy and objectives The setting of an unattractive strategic proposition to the market and the failure to adapt to changes in investor demand may lead to the Company becoming unattractive to investors, a decreased demand for shares and a widening discount.	The Board keeps the level of premium or discount at which the Company's shares trade, as well as the investment objective and policy, under review at its regular Board meetings where the Board reviews updates from the Investment Manager, investor relations reports and reports from the Broker on the market. In particular, the Board is updated at each Board meeting on the make up of, and any movements in, the shareholder register.
Investing in Real Estate The Company invests in unquoted European logistics real estate to achieve its objective of providing its shareholders with a regular and attractive level of income return together with the potential for long term income and capital growth. A significant or material fall in the value of the property market could affect the ability of the Company to meet its investment objective. Furthermore, the Company needs to retain and in some cases procure suitable tenants for its investments.	The Board believes that the Investment Manager's ability to source suitable investments is a key competitive advantage. Investment opportunities are the subject of close scrutiny and analysis and extensive due diligence by the Investment Manager prior to an investment being made. The Company aims to hold its investments over the long term and pay a fully covered dividend from income received from its tenants. The Company seeks to put in place long term rental agreements to smooth issues associated with short term market movements. The Investment Manager regularly monitors the covenant strength of the underlying tenants.
Investment portfolio, investment management Investing outside of the investment restrictions and guidelines set by the Board could result in poor performance and an inability to meet the Company's objectives, as well as the shares trading at a discount to the NAV. The use of gearing requires the Company to operate within its debt covenants which could result in the need to sell properties which would impact NAV.	The Board sets, and monitors, its investment restrictions and guidelines, and receives regular board reports which include performance reporting on the implementation of the investment policy, the investment process and application of the guidelines. The Investment Manager attends all Board meetings. The Board also monitors the Company's share price relative to the NAV. Loan covenant compliance is monitored closely by the Manager and the Manager aims to use fixed rate, long term debt and ensure that the LTV is relatively low.
Financial obligations The ability of the Company to meet its financial obligations, or increasing the level of gearing, could result in the Company becoming over-geared or unable to take advantage of potential opportunities and result in a loss of value in the Company's shares.	The Board has set a gearing limit and receives regular updates on the actual gearing levels the Company has reached from the Investment Manager together with the assets and liabilities of the Company at each Board meeting. In addition, Aberdeen Standard Fund Managers Limited, as AIFM, has set an overall leverage limit of 185% on a commitment basis (365% on a gross notional basis).
Valuation The valuation of properties in the portfolio is a subjective process.	External valuers provide an independent valuation of all assets quarterly. Members of the Audit Committee meet with the Investment Manager's head of valuation to discuss the basis of the valuations and the valuation process.
Financial and regulatory The financial risks associated with the portfolio could result in losses to the Company. In addition, failure to comply with relevant regulation (including cross-border tax regulations, health and safety compliance, the Companies Act, Corporation Tax Act, the Financial Services and Markets Act, the Alternative Investment Fund Managers Directive, Accounting Standards and the listing rules, disclosure and prospectus rules) may have an impact on the Company.	The financial risks associated with the Company include market risk, liquidity risk, interest rate risk and credit risk, all of which are mitigated by the Investment Manager. The Board relies upon the AIFM to ensure the Company's compliance with applicable regulations and from time to time employs external advisers to advise on specific issues.
Operational The Company is dependent on third parties for the provision of all systems and services (in particular, those of Aberdeen Standard Investments) and any control failures and gaps in these systems and services could result in a loss or damage to the Company.	The Board receives reports from the AIFM on internal controls and risk management at each Board meeting. It receives assurances from all its significant service providers, as well as back to back assurance where applicable. In addition, the Management Engagement Committee undertakes an annual review of the key third party service providers to the Company.
Economic and property risk The Company could be affected by economic, currency and property market risk. This could include inflation or deflation, economic recessions, movements in foreign exchange and interest rates or other external shocks including the uncertainties associated with BREXIT.	The Board considers economic conditions and the uncertainty around political events when making investment decisions. The Board mitigates property market risk through the review of the Group's strategy on a regular basis and discussions are held to ensure the strategy is still appropriate or if it needs updating. The assets of the Company are denominated in non-sterling currency, predominantly the euro. No currency hedging is planned for capital but the Board periodically considers the hedging of dividend payments having regard to availability and cost.

 

Promoting the Company

The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to, and participation in, the promotional programme run by the Manager on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the Manager. The Manager reports quarterly to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make up of that register.

The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of your Company is key and therefore the Company also supports the Manager's investor relations programme which involves regional roadshows, promotional and public relations campaigns.

Board Diversity

The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow the Board to fulfil its obligations. The Board also recognises the benefits and is supportive of the principle of diversity in its recruitment of new Board members.

The Board will not display any bias for age, gender, race, sexual orientation, religion, ethnic or national origins, or disability in considering the appointment of its Directors. However, the Board will continue to ensure that any future appointments are made on the basis of merit against the specification prepared for each appointment and, therefore, the Company does not consider it appropriate to set diversity targets. At 31 December 2018, there were three male Directors and two female Directors on the Board.

Socially Responsible Investment Policy

Further details on the socially responsible investment policies adopted by the Manager are disclosed on page 85 of the published Annual Report.

 

Environmental, Social and Human Rights Issues

The Company has no employees as the Board has delegated day to day management and administrative functions to Aberdeen Standard Fund Managers Limited. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined in the Investment Manager's Review.

Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has turnover below the threshold of £36 million. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.

Emissions relating to properties owned by the Company are the responsibility of the tenants and any emissions relating to the Company's registered office are the responsibility of the Manager. The Company therefore has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

Viability Statement

The Company does not have a formal fixed period strategic plan but the Board formally considers risks and strategy at least annually. The Board considers the Company, with no fixed life, to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years is an appropriate period over which to report. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than three years.

In assessing the viability of the Company over the review period the Directors have conducted a robust review of the principal risks focussing upon the following factors:

-    The principal risks detailed in the Strategic Report;

-    The ongoing relevance of the Company's investment objective in the current environment;

-    The demand for the Company's shares evidenced by the historical level of premium and or discount;

-    The level of income generated by the Company;

-    The level of gearing including the requirement to negotiate new facilities and repay or refinance future facilities; and

-    The flexibility of the Company's bank facilities and putting these facilities in place in time to meet commitments.

The Directors have reviewed summaries from the portfolio models prepared by the Investment Manager which have been stress tested to highlight the performance of the portfolio in a number of varying economic conditions coupled with potential opportunities for mitigation.

Accordingly, taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report. In making this assessment, the Board has considered that matters such as significant economic or stock market volatility, a substantial reduction in the liquidity of the portfolio, or changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future.

Future

Many of the non-performance related trends likely to affect the Company in the future are common across all closed ended investment companies, such as the attractiveness of investment companies as investment vehicles, the impact of regulatory changes and BREXIT uncertainties. These factors need to be viewed alongside the outlook for the Company, both generally and specifically, in relation to the portfolio. The Board's view on the general outlook for the Company can be found in my Chairman's Statement whilst the Investment Manager's views on the outlook for the portfolio are included in the Investment Manager's Review.

Pascal Duval

Chairman

18 April 2019

5.    EXTRACTS FROM THE DIRECTORS' REPORT

The Directors present their Report and the audited financial statements for the period ended 31 December 2018.

 

Results and Dividends

Details of the Company's results and dividends are shown on page 14 of the published Annual Report. The dividend policy is disclosed in the Strategic Report.

Investment Trust Status

The Company was incorporated on 25 October 2017 (registered in England & Wales No. 11032222) and has been accepted by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial periods commencing on or after 15 December 2017. The Directors are of the opinion that the Company has conducted its affairs for the period ended 31 December 2018 so as to enable it to comply with the ongoing requirements for investment trust status.

 

Individual Savings Accounts

The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.

 

Share Capital

On incorporation, the issued share capital of the Company was one Ordinary Share of a nominal value of £0.01, which was subscribed for by Aberdeen Asset Management PLC. On 8 November 2017 the Company issued 50,000 Management Shares of a nominal value of £1.00 each which were subscribed for by Aberdeen Asset Management PLC.

Pursuant to a Placing and Offer for Subscription for Ordinary shares the Company confirmed on 13 December 2017 that it had raised gross proceeds of £187,500,000 (€212,000,000). On 15 December 2017 the Company confirmed that 187,500,001 Ordinary Shares had been allotted and admitted to trading on the Main Market of the London Stock Exchange. Immediately upon initial admission the 50,000 Management Shares were redeemed in full.

The Company's capital structure is summarised in note 13 to the financial statements. At 31 December 2018, there were 187,500,001 fully paid Ordinary shares of 1p each in issue. During the year no Ordinary shares were purchased in the market for treasury or cancellation and no further new Ordinary shares were issued.

 

Cancellation of Share Premium Account

On 16 March 2018, the Company's share premium account of €207,227,000 was cancelled pursuant to a Court Order dated 13 March 2018, in order to create a special distributable reserve for all permitted purposes including the payment of dividends.

 

Voting Rights and Share Restrictions

Ordinary shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares carry a right to receive dividends. On a winding up, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.

There are no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a takeover bid.

 

Borrowings

At the period end the Company had no external borrowings. Subsequent to the period end the Group drew down external debt secured against four assets, Florsheim, Erlensee, Avignon and Meung sur Loire.

Management Agreement

Under the terms of a Management Agreement dated 17 November 2017 between the Company and the AIFM, Aberdeen Standard Fund Managers Limited (and amended by way of side letters on 22 February 2019 and 25 May 2018), the AIFM has been appointed, with effect from Initial Admission, to act as alternative investment fund manager of the Company with responsibility for portfolio management and risk management of the Company's investments. Under the terms of the Management Agreement, the AIFM may delegate portfolio management functions to the Investment Manager.

Under the terms of the Management Agreement, the AIFM is entitled to an annual tiered management fee together with reimbursement of all reasonable costs and expenses incurred by it and the Investment Manager in the performance of its duties.

Pursuant to the terms of the Management Agreement, the AIFM is entitled, with effect from Initial Admission, to receive a tiered annual management fee (the ''Annual Management Fee'') calculated by reference to the Net Asset Value (as calculated under IFRS) on the following basis:

-      On such part of the Net Asset Value that is less than or equal to €500 million, 0.951 per cent. per annum.

-      On such part of the Net Asset Value that is more than €500 million but less than or equal to €1.25 billion, 0.75 per cent. per annum.

-      On such part of the Net Asset Value that is more than €1.25 billion, 0.60 per cent. per annum.

1 On 20 December 2018 the Company announced that the annual management fee chargeable on the first Eur500 million of assets was reduced from 0.95 per cent. to 0.75 per cent. of the Net Asset Value.

No Annual Management Fee was charged on uninvested funds until such time as 75 per cent. of the Net Proceeds had been invested. The Annual Management Fee is payable in Euros quarterly in arrears, save for any period which is less than a full calendar quarter.

The initial term of the Management Agreement is two years commencing on 15 December 2017 (the ''Initial Term''). The Company may terminate the Management Agreement by giving the AIFM not less than 12 months' prior written notice such notice not to expire prior to the end of the Initial Term.

The AIFM has also been appointed by the Company under the terms of the Management Agreement to provide day-to-day administration services to the Company and provide the general company secretarial functions required by the Companies Act. In this role, the AIFM will provide certain administrative services to the Company which includes reporting the Net Asset Value, bookkeeping and accounts preparation. The AIFM has delegated the provision of these accounting and administration services to State Street Bank and Trust Company (London Branch).

The AIFM has also delegated the provision of the general company secretarial services to Aberdeen Asset Management PLC.

Risk Management

Details of the financial risk management policies and objectives relative to the use of financial instruments by the Company are set out in note 19 to the financial statements.

The Board

The current Directors, Messrs P Duval, J Heawood, T Roper, Ms Gulliver and Ms Wilde were each appointed to the Board on 8 November 2017 and, together with Mr N Heather (appointed 25 October 2017 and resigned 8 November 2017) and Mr J Reed (appointed 25 October 2017 and resigned 8 November 2017), were the only Directors who served during the period since incorporation. In accordance with the Articles of Association, with the exception of Mr Duval, each Director will retire from the Board at the Annual General Meeting convened for 11 June 2019 and, being eligible, will offer himself or herself for election to the Board. As referred to in the Chairman's Statement, Mr Duval has indicated that he intends to retire at the AGM and will not be seeking election. In accordance with Principle 3 of the AIC's 2016 Code of Corporate Governance, it is the intention of the Board that in 2020 and thereafter each Director will retire annually and submit themselves for re-election at the AGM. The Board considers that there is a balance of skills and experience within the Board relevant to the leadership and direction of the Company and that all the Directors contribute effectively.

In common with most investment trusts, the Company has no employees. Directors' & Officers' liability insurance cover has been maintained throughout the period at the expense of the Company.

 

Corporate Governance

The Company is committed to high standards of corporate governance. The full text of the Company's Corporate Governance Statement can be found on the Company's website: eurologisticsincome.co.uk. The Board is accountable to the Company's shareholders for good governance and, as required by the Listing Rules of the UK Listing Authority, has applied the principles identified in the UK Corporate Governance Code (published in April 2016). The UK Corporate Governance Code is available on the Financial Reporting Council's website: frc.org.uk.

The Board has considered the principles and recommendations of the 2016 AIC Code of Corporate Governance (AIC Code) by reference to the AIC Corporate Governance Guide for Investment Companies (AIC Guide). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues which are of specific relevance to the Company.

The Company has complied throughout the accounting period with the relevant provisions contained within the AIC Code and the relevant provisions of the UK Corporate Governance Code except as set out below.

The UK Corporate Governance Code includes provisions relating to:

-        the role of the chief executive (A.1.2);

-        executive directors' remuneration (D.2.1 and D.2.2);

-        and the need for an internal audit function (C.3.6).

For the reasons set out in the AIC Code, and as explained in the UK Corporate Governance Code, the Board considers that these provisions are not relevant to the position of the Company, being an externally-managed investment company. In particular, 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.

The Company has therefore not reported further in respect of these provisions.

The Board notes the content of the new UK Code of Corporate Governance published by the FRC in July 2018 (the "2018 UK Code"), which is applicable for accounting periods beginning on or after 1 January 2019, and the new AIC Code of Corporate Governance published in February 2019 (the "2019 AIC Code"). The Board expects the Company to be compliant with the relevant provisions of the 2018 UK Code and the 2019 AIC Code for the year ending 31 December 2019.

During the period ended 31 December 2018, the Board had nine scheduled meetings and a further five ad hoc Board meetings as well as numerous update calls. In addition, the Audit Committee met twice and there were no meetings of the Management Engagement Committee and Nomination Committees. Between meetings the Board maintains regular contact with the Manager and Investment Manager. Directors have attended the following scheduled Board meetings and Committee meetings during the period ended 31 December 2018 (with their eligibility to attend the relevant meeting in brackets):

Director	Board	Audit Committee
P Duval	9 (9)	n/a
C Gulliver	9 (9)	2 (2)
J Heawood	9 (9)	2 (2)
T Roper	9 (9)	2 (2)
D Wilde	9 (9)	2 (2)

 

Policy on Tenure

The Board's policy on tenure is that Directors need not serve on the Board for a limited period of time only.

The Board does not consider that the length of service of a Director is as important as the contribution he or she has to make, and therefore the length of service will be determined on a case-by-case basis.

 

Board Committees Audit Committee

The Audit Committee Report is on pages 44 and 45 of the published Annual Report.

 

Nomination Committee

All appointments to the Board of Directors are considered by the Nomination Committee which comprises all of the Directors and is chaired by the Chairman of the Company. The Nomination Committee advises the Board on succession planning, bearing in mind the balance of skills, knowledge and experience existing on the Board, and will make recommendations to the Board in this regard.

The Nomination Committee also advises the Board on its balance of relevant skills, experience and length of service of the Directors serving on the Board. The Board's overriding priority when appointing new Directors in the future will be to identify the candidate with the best range of skills and experience to complement existing Directors. The Board recognises the benefits of diversity and its policy on diversity is referred to in the Strategic Report on page 12 of the published Annual Report.

 

Management Engagement Committee

The Management Engagement Committee comprises all of the Directors except Ms Gulliver and is chaired by Mr Heawood. The Committee reviews the performance of the Manager and its compliance with the terms of the management and secretarial agreement. The terms and conditions of the Manager's appointment, including an evaluation of fees, are reviewed by the Committee on an annual basis. Based upon the competitive management fee and expertise of the Investment Manager, the Committee believes that the continuing appointment of the Investment Manager on the terms agreed is in the interests of shareholders as a whole.

 

Remuneration Committee

Under the FCA Listing Rules, where an investment trust has only non-executive directors, the Code principles relating to directors' remuneration do not apply.

Accordingly, matters relating to remuneration are dealt with by the full Board, which acts as the Remuneration Committee.

The Company's remuneration policy is to set remuneration at a level to attract individuals of a calibre appropriate to the Company's future development. Further information on remuneration is disclosed in the Directors' Remuneration Report on pages 40 to 42 of the published Annual Report.

 

Terms of Reference

The terms of reference of all the Board Committees may be found on the Company's website eurologisticsincome.co.uk and copies are available from the Company Secretary upon request. The terms of reference are reviewed and re-assessed by the relevant Board committee for their adequacy on an annual basis.

 

Going Concern

In accordance with the Financial Reporting Council's guidance the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern.

The Board has set limits for borrowing and regularly reviews the level of any gearing, cash flow projections and compliance with banking covenants.

The Directors are mindful of the principal risks and uncertainties disclosed in the Strategic Report and the Viability Statement in the Strategic Report and have reviewed forecasts detailing revenue and liabilities and they believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future and at least 12 months from the date of this Annual Report. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements.

Management of Conflicts of Interest

The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, the Directors prepare a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his connected persons. The Board considers each Director's situation and decides on any course of action required to be taken if there is a conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his or her wider duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.

No Director has a service contract with the Company although Directors are issued with letters of appointment upon appointment. The Directors' interests in contractual arrangements with the Company are as shown in note 20 to the financial statements. No other Directors had any interest in contracts with the Company during the period or subsequently.

The Board has adopted appropriate procedures designed to prevent bribery. The Company receives periodic reports from its service providers on the anti-bribery policies of these third parties. It also receives regular compliance reports from the Manager.

The Criminal Finances Act 2017 has introduced the corporate criminal offence of "failing to take reasonable steps to prevent the facilitation of tax evasion". The Board has confirmed that it is the Company's policy to conduct all of its business in an honest and ethical manner.

The Board takes a zero-tolerance approach to facilitation of tax evasion, whether under UK law or under the law of any foreign country.

Accountability and Audit

The respective responsibilities of the Directors and the auditor in connection with the financial statements are set out on pages 43 and 52 respectively of the published Annual Report.

Each Director confirms that:

-    so far as he or she is aware, there is no relevant audit information of which the Company's auditor is unaware; and,

-    each Director has taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Additionally there have been no important events since the period end that impact this Annual Report.

The Directors have reviewed the level of non-audit services provided by the independent auditor during the period amounting to £48,000 for reporting accountant services provided to the Company in connection with the IPO Launch Prospectus in December 2017, together with the independent auditor's procedures in connection with the provision of such services, and remain satisfied that the auditor's objectivity and independence is being safeguarded.

 

Independent Auditor

The auditor, KPMG LLP, has indicated its willingness to remain in office. The Directors will place a resolution before the Annual General Meeting to re-appoint KPMG LLP as auditor for the ensuing year, and to authorise the Directors to determine its remuneration.

 

Internal Control

The Board is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness and confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for the period under review and up to the date of approval of this Annual Report and financial statements. It is regularly reviewed by the Board and accords with the FRC Guidance.

The Board has reviewed the effectiveness of the system of internal control. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and policies by which these risks are managed.

The Directors have delegated the investment management of the Company's assets to members of the Standard Life Aberdeen Group within overall guidelines, and this embraces implementation of the system of internal control, including financial, operational and compliance controls and risk management. Internal control systems are monitored and supported by the Standard Life Aberdeen Group's internal audit function which undertakes periodic examination of business processes, including compliance with the terms of the management agreement, and ensures that recommendations to improve controls are implemented.

Risks are identified and documented through a risk management framework by each function within the Standard Life Aberdeen Group's activities. Risk includes financial, regulatory, market, operational and reputational risk. This helps the internal audit risk assessment model identify those functions for review. Any weaknesses identified are reported to the Board, and timetables are agreed for implementing improvements to systems.

The implementation of any remedial action required is monitored and feedback provided to the Board.

The significant risks faced by the Company have been identified as being financial; operational; and compliance-related.

The key components of the process designed by the Directors to provide effective internal control are outlined below:

-    the AIFM prepares forecasts and management accounts which allow the Board to assess the Company's activities and review its performance;

-    the Board and AIFM have agreed clearly defined investment criteria, specified levels of authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are regularly submitted to the Board and there are meetings with the AIFM and Investment Manager as appropriate;

-    as a matter of course the AIFM's compliance department continually reviews Aberdeen Standard Investments' operations and reports to the Board on a six monthly basis;

-    written agreements are in place which specifically define the roles and responsibilities of the AIFM and other third party service providers and, where relevant, ISAE3402 Reports, a global assurance standard for reporting on internal controls for service organisations, or their equivalents are reviewed;

-    the Board has considered the need for an internal audit function but, because of the compliance and internal control systems in place within Aberdeen Standard Investments, has decided to place reliance on the Manager's systems and internal audit procedures; and

-    at its April 2019 meeting, the Audit Committee carried out an annual assessment of internal controls for the period ended 31 December 2018 by considering documentation from the AIFM, Investment Manager and the Depositary, including the internal audit and compliance functions and taking account of events since 31 December 2018. The results of the assessment, that internal controls are satisfactory, were then reported to the Board at the next Board meeting.

Internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against mis-statement and loss.

 

Substantial Interests

The Board has been advised that the following shareholders owned 3% or more of the issued Ordinary share capital of the Company at 31 December 2018:

Shareholder	No. of Ordinary              % shares held                   held
East Riding of Yorkshire	20,000,000	10.7%
Aberdeen Standard Investments	15,360,001	8.1%
Investec Wealth & Investment Ireland	14,162,288	7.4%
Quilter Cheviot Investment Management	12,979,345	7.1%
CCLA Investment Management	12,635,581	6.7%
Canaccord Genuity Wealth Management (Retail)	10,475,420	5.9%
Hargreaves Lansdown, stockbrokers	8,829,539	5.0%
AJ Bell Stockbrokers	8,403,172	4.4%
Canaccord Genuity Wealth Management	6,827,535	3.2%
JM Finn Stockbrokers	5,833,497	3.3%

There have been no significant changes notified in respect of the above holdings between 31 December 2018 and 18 April 2019.

 

Relations with Shareholders

The Directors place a great deal of importance on communication with shareholders. The Annual Report will be widely distributed to other parties who have an interest in the Company's performance. Shareholders and investors may obtain up to date information on the Company through the Manager's freephone information service and the Company's website eurologisticsincome.co.uk.

The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the Standard Life Aberdeen Group (either the Company Secretary or the Investment Manager) in situations where direct communication is required and usually a representative from the Board is available to meet with major shareholders on an annual basis in order to gauge their views.

The Notice of the Annual General Meeting, included within the Annual Report and financial statements, is sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board or the Investment Manager, either formally at the Company's Annual General Meeting or at the subsequent buffet luncheon for shareholders. The Company Secretary is available to answer general shareholder queries at any time throughout the year.

 

Annual General Meeting

Special Business Directors' Authority to Allot Relevant Securities

Approval is sought in Resolution 11, an ordinary resolution, to renew the Directors' existing general power to allot shares but will also provide a further authority (subject to certain limits) to grant rights to subscribe for or to convert any security into shares under a fully pre-emptive rights issue. The effect of Resolution 11 is to authorise the Directors to allot up to a maximum of 123,750,000 shares in total (representing approximately 66% (as at the latest practicable date before publication of this Annual Report) of the existing issued share capital of the Company), of which a maximum of 61,875,000 shares (approximately 33% (as at the latest practicable date before publication of this Annual Report) of the existing issued share capital of the Company) may only be applied other than to fully pre-emptive rights issues. This authority is renewable annually and will expire at the conclusion of the next Annual General Meeting in 2020, or June 2020, whichever is earlier. The Directors do not have any immediate intention to utilise this authority.

 

Special Business Disapplication of Pre-emption Rights

Resolution 12 is a special resolution that seeks to renew the Directors' existing authority until the conclusion of the next Annual General Meeting to make limited allotments of shares for cash of up to a maximum of 18,750,000 shares representing 10% of the issued share capital (as at the latest practicable date before publication of this Annual Report) other than according to the statutory pre-emption rights which require all shares issued for cash to be offered first to all existing shareholders.

This authority includes the ability to sell shares that have been held in treasury (if any), having previously been bought back by the Company. The Board has established guidelines for treasury shares and will only consider buying in shares for treasury at a discount to their prevailing NAV and selling them from treasury at or above the then prevailing NAV.

New shares issued in accordance with the authority sought in Resolution 12 will always be issued at a premium to the NAV per Ordinary share at the time of issue.

The Board will issue new Ordinary shares or sell Ordinary shares from treasury for cash when it is appropriate to do so, in accordance with its current policy. It is therefore possible that the issued share capital of the Company may change between the date of this document and the Annual General Meeting and therefore the authority sought will be in respect of 10% of the issued share capital as at the date of the Annual General Meeting rather than the date of this document. This authority is renewable annually and will expire at the conclusion of the next Annual General Meeting in 2020 or June 2020, whichever is earlier.

 

Special Business Purchase of the Company's Shares

Resolution 13 is a special resolution proposing to renew the Directors' authority to make market purchases of the Company's shares in accordance with the provisions contained in the Companies Act 2006 and the Listing Rules of the Financial Conduct Authority. The minimum price to be paid per Ordinary share by the Company will not be less than £0.01 per share (being the nominal value) and the maximum price should not be more than the higher of an amount equal to 5% above the average of the middle market quotations for an Ordinary share taken from the London Stock Exchange Daily Official List for the five business days immediately preceding the date on which the Ordinary share is contracted to be purchased; and (ii) the higher of the price of the last independent trade and the current highest independent bid on the trading venue where the purchase is carried out.

The Directors do not intend to use this authority to purchase the Company's Ordinary shares unless to do so would result in an increase in NAV per share and would be in the interests of shareholders generally. The authority sought will be in respect of 14.99% of the issued share capital as at the date of the Annual General Meeting rather than the date of this document.

The authority being sought in Resolution 13 will expire at the conclusion of the Annual General Meeting in 2020, or June 2020, whichever is earlier unless it is renewed before that date. Any Ordinary shares purchased in this way will either be cancelled and the number of Ordinary shares will be reduced accordingly or under the authority granted in Resolution 13 above, may be held in treasury.

If Resolutions 11 to 13 are passed then an announcement will be made on the date of the Annual General Meeting which will detail the exact number of Ordinary shares to which each of these authorities relate.

These powers will give the Directors additional flexibility going forward and the Board considers that it will be in the interests of the Company that such powers be available. Such powers will only be implemented when, in the view of the Directors, to do so will be to the benefit of shareholders as a whole.

 

Special Business Notice of Meetings

Resolution 14 is a special resolution seeking to authorise the Directors to call general meetings of the Company (other than Annual General Meetings) on 14 days' clear notice. This approval will be effective until the Company's next Annual General Meeting in 2020. In order to utilise this shorter notice period, the Company is required to ensure that shareholders are able to vote electronically at the general meeting called on such short notice. The Directors confirm that, in the event that a general meeting is called, they will give as much notice as practicable and will only utilise the authority granted by Resolution 14 in limited and time sensitive circumstances.

 

Dividend Policy

As a result of the timing of the payment of the Company's quarterly dividends, the Company's shareholders are unable to approve a final dividend each year. In line with good corporate governance, the Board therefore proposes to put the Company's dividend policy to shareholders for approval at the Annual General Meeting and on an annual basis thereafter.

The Company's dividend policy shall be that dividends on the Ordinary Shares are payable quarterly in relation to periods ending March, June, September and December and the last dividend referable to a financial year end will not be categorised as a final dividend that is subject to shareholder approval. It is intended that the Company will pay quarterly dividends consistent with the expected annual underlying portfolio yield. The Company has the flexibility in accordance with its Articles to make distributions from capital.

6.  FINANCIAL HIGHLIGHTS

31 December 2018
Total assets (€'000)	210,730
Total equity shareholders' funds (net assets) (€'000)	202,073
Net asset value per share (euros)	1.08
Net asset value per share (pence)	96.7
Share price (mid market) (pence)	102.25
Market capitalisation (£'000)	191,719
Share price premium to sterling net asset value	5.7%
Dividends and earnings
Total shareholder return per share1	3.0%
Dividends per share	1.7p
Revenue reserves (€'000)	40
Loss (€'000)	(3,740)
Operating costs Ongoing charges ratio (Group only expenses)1 Ongoing charges ratio (Group and property expenses)1	0.98% 1.21%

Performance (total return GBP)

Since Launch % return

Share price1                                                                                                                                3.0% NAV total return (€) per Ordinary share1                                                                                      -2.98%

7.    STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent Company financial statements in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the directors are required to:

-      select suitable accounting policies and then apply them consistently;

-      make judgements and estimates that are reasonable, relevant, reliable and prudent;

-      for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;

-      for the parent Company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements;

-      assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

-      use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Responsibility statement of the directors in respect of the annual financial report

We confirm that to the best of our knowledge:

- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;

- the Strategic Report and Directors' Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

We consider the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders

to assess the group's position and performance, business model and strategy.

By order of the Board

Pascal Duval

18 April 2019

 

8.    CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period 25 October 2017 to 31 December 2018

					Period ended
					31 December 2018
		Revenue	Capital		Total
Notes		€'000	€'000		€'000
REVENUE
Rental Income	2	2,323	-		2,323
Other operating income		211	-		211
Total Revenue		2,534	-		2,534
LOSSES ON INVESTMENTS Loss on Revaluation of investment properties	9	-	(4,080)		(4,080)
Total Income and losses on investments		2,534	(4,080)		(1,546)
EXPENDITURE
Investment management fee		(587)	-		(587)
Direct property expenses		(225)	-		(225)
SPV property management fee		(26)	-		(26)
Other expenses	3	(1,005)	-		(1,005)
Total expenditure		(1,843)	-		(1,843)
Net operating return before finance costs		691	(4,080)		(3,389)
FINANCE COSTS Finance costs	4	(658)	-		(658)
Net return before taxation		33	(4,080)		(4,047)
Taxation on loss	5	-	-		-
Net return for the period		33	(4,080)		(4,047)
OTHER COMPREHENSIVE INCOME TO BE RECLASSIFIED TO PROFIT OR LOSS
Currency translation differences on initial capital proceeds		-	407		407
Currency translation on conversion of distribution payments		7	(107)		(100)
Other comprehensive income		7	300		307
Total comprehensive return for the period		40		(3,780)	(3,740)
Basic and diluted earnings/(loss) per share	7	0.02¢		(2.47¢)	(2.45¢)
EPRA earnings per share1					0.18¢

The accompanying notes are an integral part of the financial statements.

1 See reconciliation of EPRA earnings per share within EPRA performance measures.

 

9.    CONSOLIDATED BALANCE SHEET

As at 31 December 2018

Notes		As at 31 December 2018 Total €'000
NON-CURRENT ASSETS Investment properties	9	148,918
		148,918
CURRENT ASSETS
Trade and other receivables	10	11,679
Cash and cash equivalents	11	50,133
Total current assets		61,812
Total assets		210,730
CURRENT LIABILITIES Trade and other payables	12	8,657
Total current liabilities		8,657
Net current assets		53,155
Net assets		202,073
SHARE CAPITAL AND RESERVES
Share capital	13	2,122
Special distributable reserve	15	203,691
Capital reserve	16	(3,780)
Revenue reserve		40
Equity shareholders' funds		202,073
Net asset value per share	8	€1.08
EPRA Net asset value per share1		€ 1.08

1 See reconciliation of EPRA Net asset value per share within EPRA performance measures.

The accompanying notes are an integral part of the financial statements

 

10.   CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period 25 October 2017 to 31 December 2018

Notes		Share capital €'000	Share premium €'000	Special distributable reserve €'000	Capital reserve €'000	Revenue reserve €'000	Total €'000
Balance at 25 October 2017		-	-	-	-	-	-
Original Share Issue	13/14	2,122	210,102	-	-	-	212,224
Share Issue costs	14	-	(2,875)	-	-	-	(2,875)
Share premium conversion	14/15	-	(207,227)	207,227	-	-	-
Total Comprehensive return for		-	-	-	(3,780)	40	(3,740)
the period
Dividends paid	6	-	-	(3,536)	-	-	(3,536)
Balance at 31 December 2018		2,122	-	203,691	(3,780)	40	202,073

The accompanying notes are an integral part of the financial statements.

 

11.   CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2018

Notes		Period Ended 31 December 2018 €'000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period before taxation		(4,047)
Adjustments for:
Losses on investment properties	9	4,080
Increase in operating trade and other receivables	10	(11,679)
Increase in operating trade and other payables	12	2,727
Finance costs	4	658
Cash used in operations		(8,261)
Tax paid	5	-
Net cash outflow from operating activities		(8,261)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment properties	9	(147,068)
Currency translation differences		307
Net cash outflow from investing activities		(146,761)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid		(3,536)
Liquidity fund interest paid	4	(658)
Proceeds from original share issue	13/14	212,224
Issue costs relating to original share issue	14	(2,875)
Net cash inflow from financing activities		205,155
Net increase in cash and cash equivalents		50,133
Opening balance		-
Closing cash and cash equivalents		50,133
REPRESENTED BY
Cash at bank	11	6,279
Money market funds	11	43,854
		50,133

The accompanying notes are an integral part of the financial statements.

12.   NOTES TO THE FINANCIAL STATEMENTS

1.          Accounting Policies

The principal accounting policies adopted by the Group are set out below, all of which have been applied consistently throughout the period.

(a)        Basis of Accounting

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee ('IASC') that remain in effect, and to the extent that they have been adopted by the European Union, and the Listing Rules of the UK Listing Authority.

The audited Consolidated Financial Statements of the Group have been prepared under the historical cost convention as modified by the measurement of investment property and derivative financial instruments at fair value. The consolidated financial statements are presented in Euro.

In compliance with the AIC's Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (Issued November 2014 and updated in February 2018 with consequential amendments), the consolidated statement of comprehensive income is separated between capital and revenue profits and losses.

New and revised standards and interpretations issued in the current period

The accounting policies adopted have been consistently applied throughout the period presented, unless otherwise stated. This includes the below noted Standards and Interpretations that became effective during the period, which the group has incorporated in the preparation of the financial statements:

-    IFRS 9 Financial instruments: classification and measurement

-    IFRS 15 Revenue from Contracts with Customers

-    Amendments to IAS 40: Transfers of Investment Property

-    FRIC Interpretation 22: Foreign Currency Transactions and Advance Consideration

-    Amendments IFRS 15 - Revenue

Standards and Interpretations issued by IASB and adopted by the EU but not yet effective

At the date of authorisation of these financial statements the following Standards and Interpretations were in issue but not yet effective:

-      IFRS 16 Leases (effective 1 January 2019); sets out the principle for the recognition, measurement, presentation and disclosure of leases for both the lessee and lessor. The impact of this standard has been assessed by the Group in full. The Group is aware lessor accounting remains substantially unchanged and any impact on the Group's financial statements is expected to be insignificant. Should the Group own leasehold properties these leases would be in scope of IFRS 16. All the Group's investment properties are however owned on a freehold basis.

-      IFRIC Interpretation 23: Uncertainty over Income Tax Treatments (effective 1 January 2019);

-      Amendments to IFRS 9: Prepayment Features with Negative Compensation (effective 1 January 2019);

 

Standards and Interpretations issued by IASB but not adopted by the EU and not yet effective

-      IFRS 17 Insurance Contracts (effective 1 January 2021);

-      Amendments to IFRS 3: Business Combinations (effective 1 January 2020)

-      Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures (effective 1 January 2019);

-      Annual Improvements to IFRS Standards 2015 - 2017 Cycle (effective 1 January 2019);

-      Amendments IAS 19 - Employee Benefits (effective 1 January 2019)

-      Amendments IAS 1 - Presentation of Financial Statements (effective 1 January 2020)

-      Amendments IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors (effective 1 January 2020)

-      Amendments to References to the Conceptual Framework in IFRS Standards (effective 1 January 2020)

The Group believes that the application of these Standards and Interpretations will not have a material effect on the consolidated financial statements.

 

(b)        Significant accounting judgements, estimates and assumptions

The preparation of the Group's financial statements requires the directors to make judgements, estimates and assumptions that affect the amounts recognised in the financial statements and contingent liabilities. However, uncertainty about these judgements, assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future periods.

Key estimation uncertainties

Fair value of investment properties: Investment property is stated at fair value as at the balance sheet date as set out in note 9 to these accounts.

The determination of the fair value of investment properties requires the use of estimates such as future cash flows from the assets. The estimate of future cash flows includes consideration of the repair and condition of the property, lease terms, future lease events, as well as other relevant factors for the particular asset.

These estimates are based on local market conditions existing at the balance sheet date.

(c)        Basis of Consolidation

The consolidated financial statements comprise the accounts of the Company and its subsidiaries drawn up to 31 December 2018. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition by acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill.

If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the consolidated statement of comprehensive income.

(d)        Functional and Presentation currency

Items included in the consolidated financial statements of the Group are measured using the currency of the primary economic environment in which the Company and its subsidiaries operate ("the functional currency") which is Euro. The consolidated financial statements are also presented in Euro. All figures in the consolidated financial statements are rounded to the nearest thousand unless otherwise stated.

(e)        Foreign Currency

Transactions denominated in foreign currencies are converted at the exchange rate ruling at the date of the transaction. Monetary and non-monetary assets and liabilities denominated in foreign currencies held at the financial period end are translated using London closing foreign exchange rates at the financial period end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss to capital or revenue in the Consolidated Statement of Comprehensive Income as appropriate. Foreign exchange movements on investments are included in the Consolidated Statement of Comprehensive Income within gains on investments.

(f)         Revenue Recognition

Rental income, excluding VAT, arising from operating leases (including those containing stepped and fixed rent increases) is accounted for in the Consolidated Statement of Comprehensive Income on a straight line basis over the lease term. Lease premiums paid and rent free periods granted, are recognised as assets and are amortised over the non-cancellable lease term.

Interest income is accounted for on an accruals basis and included in operating income.

(g)        Expenses

All expenses are accounted for on an accruals basis. The Group's investment management fees, finance costs and all other expenses are charged through the Consolidated Statement of Comprehensive Income. Service charge costs, to the extent they are not recoverable from tenants, are accounted for on an accruals basis and are included in total expenditure. All expenses are recorded through the revenue column of the Consolidated Statement of Comprehensive Income, except for gains or losses on investment properties.

(h)        Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the period. Taxable profit differs from 'profit before tax' as reported in the Consolidated Statement of Comprehensive Income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group's current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Where corporation tax arises in subsidiaries, these amounts are charged to the Consolidated Statement of Comprehensive Income. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date of the balance sheet in the countries where the Group operates.

The Manager periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation, and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Consolidated financial statements and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

The carrying values of the Group's investment properties are assumed to be realised by sale at the end of use. The capital gains tax rate applied is that which would apply on a direct sale of the property recorded in the Consolidated Balance Sheet regardless of whether the Group would structure the sale via the disposal of the subsidiary holding the asset, to which a different tax rate may apply. The deferred tax is then calculated based on the respective temporary differences and tax consequences arising from recovery through sale.

(i)         Investment Properties

Investment properties are initially recognised at cost, being the fair value of consideration given, including transaction costs associated with the investment property. Any subsequent capital expenditure incurred in improving investment properties is capitalised in the period during which the expenditure is incurred and included within the book cost of the property.

After initial recognition, investment properties are measured at fair value, with the movement in fair value recognised in the Consolidated Statement of Comprehensive Income and transferred to the Capital Reserve. Fair value is based on the external valuation provided by CBRE, chartered surveyors, at the balance sheet date.

The assessed fair value is reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives and/or minimum lease payments.

On derecognition, gains and losses on disposals of investment properties are recognised in the Consolidated Statement of Comprehensive Income.

Recognition and derecognition occurs when the risks and rewards of ownership of the properties have transferred between a willing buyer and a willing seller.

Investment property is transferred to current assets held for sale when it is expected that the carrying amount will be recovered principally through sale rather than from continuing use. For this to be the case, the property must be available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such property and its sale must be highly probable.

The Group has entered into forward funding agreements with third party developers in respect of certain properties. Under these agreements the Group will make payments to the developer as construction progresses. The value of these payments is assessed and certified by an expert and capitalised in the period during which the expenditure is incurred and included within the book cost of the property.

Investment properties are recognised for accounting purposes upon completion of contract. Properties purchased under forward funding contracts are recognised at certified value to date.

(j)         Distributions

Interim distributions payable to the holders of equity shares are only recognised in the Consolidated Statement of Changes in Equity in the period in which they are paid. An annual shareholder resolution is voted upon to approve the Group's distribution policy.

(k)        Operating Lease Contracts - the Group as Lessor

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties and so accounts for leases as operating leases. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

(l)         Share Issue Expenses

Incremental external costs directly attributable to the issue of shares that would otherwise have been avoided are written off to the share premium reserve.

(m)      Segmental Reporting

The Group is engaged in property investment in Europe. Operating results are analysed on a geographic basis by country. In accordance with IFRS 8 'Operating Segments', financial information on business segments is presented in note 17 of the Consolidated financial statements.

(n)        Cash and Cash Equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits, and other short-term highly liquid investments readily convertible within three months or less to known amounts of cash and subject to insignificant risk of changes in value.

(o)        Financial instruments

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the Consolidated Statement of Comprehensive Income.

Financial assets

Financial assets are measured at amortised cost, financial assets 'at fair value through profit or loss' (FVTPL), or financial assets 'at fair value through other comprehensive income' (FVOCI). The classification is based on the business model in which the financial asset is managed and its contractual cash flow characteristics. All purchases and sales of financial assets are recognised on the trade date basis.

 

Financial assets at amortised cost

Financial assets at amortised cost are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

Loans and receivables (including trade and other receivables, bank balances and cash, and others) are measured at amortised cost using the effective interest method, less any impairment. The Group holds the trade receivables with the objective to collect the contractual cash flows. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For all other financial assets, objective evidence of impairment could include:

-    significant financial difficulty of the issuer or counterparty; or

-    breach of contract, such as a default or delinquency in interest or principal payments; or

-    it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or

-    the disappearance of an active market for that financial asset because of financial difficulties.

The Group's financial assets are subject to the expected credit loss model. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. The expected loss rates are based on the payment profiles of tenants over a period of 12 months before 31 December 2018, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the liability of the tenants to settle the receivable. Such forward-looking information would include:

-    changes in economic, regulatory, technological and environmental factors, (such as industry outlook, GDP, employment and politics);

-    external market indicators; and

-    tenant base.

•    

Derecognition of financial assets

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in the Consolidated Statement of Comprehensive Income.

(p)        Financial liabilities

Financial liabilities are classified as 'other financial liabilities'.

Other financial liabilities

Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in the Consolidated Statement of Comprehensive Income.

(q)        Reserves

Share Capital

This represents the proceeds from issuing ordinary shares and is non-distributable.

Share Premium

Share premium represents the excess consideration received over the par value of ordinary shares issued and is classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from share premium.

Special Distributable Reserve

The special reserve is a distributable reserve to be used for all purposes permitted, including the buyback of shares and the payment of dividends.

Capital Reserve

The capital reserve is a distributable reserve subject to applicable legislation and practice, and the following are accounted for in this reserve:

-      gains and losses on the disposal of investment properties;

-      increases and decreases in the fair value of investment properties held at the period end, which are not distributable.

Revenue Reserve

The revenue reserve is a distributable reserve and reflects any surplus arising from the net return on ordinary activities after taxation.

2.          Rental Income

	Period ended 31 December 2018 €'000
Rental income	2,323
Total rental income	2,323

Included within rental income is amortisation of rent free periods granted.

3.          Other Expenses

	Period ended 31 December 2018 €'000
Professional fees	353
Directors' fees	213
Audit fees for statutory audit1	137
Other expenses	112
Broker fees	68
Depositary fees	26
Stock exchange fees	20
Directors liability insurance expense	20
Registrar fees	18
Custody expense	17
Employers NI	13
Savings scheme expense	8
Total expenses	1,005

1 The auditor was paid €45,000 (exclusive of VAT) in respect of non-audit services relating to their role as reporting accountant for initial public offering. This cost is included within share issue costs in note 14.The Audit fee above reflects the 2018 audit fee of €86,000 and work undertaken on the initial accounts of €34,000 plus irrecoverable VAT of €17,000.

4.          Finance Costs

	Period ended 31 December 2018 €'000
Liquidity fund interest paid	658
Total finance costs	658

The Company holds cash in the Aberdeen Global Liquidity Fund plc which charges interest. Throughout the period the interest rate on this euro denominated fund was negative.

5.          Taxation

The Company is resident in the United Kingdom for tax purposes. The Company is approved by HMRC as an investment trust under sections 1158 and 1159 of the Corporation Tax Act 2010.

In respect of each accounting period for which the Company continues to be approved by HMRC as an investment trust the Company will be exempt from UK taxation on its capital gains.

The Company is, however, liable to UK Corporation tax on its income. The Company is able to elect to take advantage of modified UK tax treatment in respect of its ''qualifying interest income'' for an accounting period referred to as the ''streaming'' regime. Under regulations made pursuant to the Finance Act 2009, the Company may, if it so chooses, designate as an ''interest distribution'' all or part of the amount it distributes to shareholders as dividends, to the extent that it has ''qualifying interest income'' for the accounting period. Were the Company to designate any dividend it pays in this manner, it would be able to deduct such interest distributions from its income in calculating its taxable profit for the relevant accounting period. The Company should in practice be exempt from UK corporation tax on dividend income received, provided that such dividends (whether from UK or non-UK companies) fall within one of the ''exempt classes'' in Part 9A of the CTA 2009.

A reconciliation between the tax charge and the product of accounting profit/(loss) multiplied by the applicable tax rate for the period ended 31 December 2018.

	Revenue €'000	Capital €'000	Period ended 31 December 2018 €'000
Net result before taxation	33	(4,080)	(4,047)
UK Corporation tax rate of 19%	6	(775)	(769)
Effect of:
Tax losses arising	-	775	775
Income not taxable	(6)	-	(6)
Taxation on return	-	-	-

Within the Group's subsidiaries tax losses of €565,000 arose on which no deferred tax asset is recognised, as it is not certain there will be future taxable profits to off-set these losses against.

6.          Dividends

	Period ended 31 December 2018 €'000
2018 First Interim dividend of 0.7p per share paid 28 September 2018 2018 Second Interim dividend of 1p per share paid 20 December 2018	1,461 2,075
Total Dividends Paid	3,536

A third interim dividend of 1.3p per share was paid on 22 March 2019 to shareholders on the register on 8 March 2019. Although this payment relates to the period ended 31 December 2018, under IFRS it will be accounted for in the period during which it was paid.

7.          Earnings per Share (Basic And Diluted)

	Period ended 31 December 2018
Revenue return attributable to Ordinary shareholders (€'000)	33
Weighted average number of shares in issue during the period	165,415,705
Total revenue return per Ordinary share	0.02¢
Capital return attributable to Ordinary shareholders (€'000)	(4,080)
Weighted average number of shares in issue during the period	165,415,705
Total capital return per Ordinary share	(2.47¢)
Total return per Ordinary share	(2.45¢)

Earnings per share is calculated on the revenue and capital return for the period (before other comprehensive income) and is calculated using the weighted average number of shares in issue during the period of 165,415,705 shares.

8.          Net Asset Value per Share

	2018
Net assets attributable to shareholders (€'000)	202,073
Number of shares in issue at 31 December 2018	187,500,001
Net asset value per share (€)	1.08

9.          Investment Properties

	2018 €'000
Opening cost Purchases at cost Losses on revaluation	- 152,998 (4,080)
Total Carrying value at 31 December 2018	148,918
Loss on investment properties at Fair value comprise: Valuation losses Movement in lease incentives	(3,813) (267)
	(4,080)

Valuation Methodology

Valuations were performed by CBRE Limited, an accredited independent valuer with a recognised and relevant professional qualification. The valuer has sufficient current local and national knowledge of the particular property markets involved and has the skills and understanding to undertake the valuations competently.

The Investment Manager appoints a suitable valuer (such appointment is reviewed on a periodic basis) to undertake a valuation of all the direct real estate investments on a quarterly basis. The valuation is undertaken in accordance with the RICS Valuation - Global Standards 2017, (Red Book), published by the Royal Institution of Chartered Surveyors.

The Investment Manager meets with the valuer on a quarterly basis to ensure the valuer is aware of all relevant information for the valuation and any change in the investments over the quarter. The Investment Manager then reviews and discusses draft valuations with the valuer to ensure correct factual assumptions are made prior to the valuer issuing a final valuation report.

The fair value of completed investment property is determined using the income capitalisation method. The income capitalisation method is based on capitalising the net income stream at an appropriate yield. In establishing the net income stream the valuer has reflected the current rent payable to lease expiry, at which point the valuer has assumed that each unit will be re-let at their opinion of estimated rental value. The valuer has made allowances for vacancies and rent-free periods where appropriate, as well as deducting non- recoverable costs where applicable. The appropriate yield is selected on the basis of the location of the building, its quality, tenant credit quality and lease terms amongst other factors.

The Property Valuer takes account of deleterious materials included in the construction of the investment properties in arriving at its estimate of Fair Value when the Investment Manager advises of the presence of such materials.

The majority of the leases are on a full repairing and insurance basis and as such the Group is not liable for costs in respect of repairs or maintenance to its investment properties.

The fair value of these investment properties amounted to €149,185,000. The difference between the fair value and the value per the Consolidated balance sheet at 31 December 2018 consists of accrued income relating to the pre-payment for rent-free periods recognised over the life of the lease totalling €267,000 which is separately recorded in the financial statements as a current asset.

The following disclosure is provided in relation to the adoption of IFRS 13 Fair Value Measurement. All properties are deemed Level 3 for the purposes of fair value measurement and the current use of each property is considered the highest and best use.

Country and sector	Fair Value €'000	Key Unobservable inputs	Range (weighted average)
Netherlands - Logistics	82,918	Annual rent per sq ft	41.14 - 67.01 (53.10)
		Capitalisation rate	4.86% - 5.51% (5.12%)
Germany - Logistics	21,200	Annual rent per sq ft	63.98 (63.98)
		Capitalisation rate	5.50% (5.50%)
France - Logistics	44,800	Annual rent per sq ft	85.13 (85.13)
		Capitalisation rate	4.60% (4.60%)

 

Sensitivity Analysis

The table below presents the sensitivity of the valuation to changes in the most significant assumptions underlying the valuation of investment property.

Country and sector	Assumption	Movement	Effect on valuation
Netherlands - Logistics	Capitalisation rate	+50 basis points	(4,870)
		- 50 basis points	5,365
Germany - Logistics	Capitalisation rate	+50 basis points	(1,900)
		- 50 basis points	2,400
France - Logistics	Capitalisation rate	+50 basis points	(4,000)
		- 50 basis points	2,400

10.        Trade And Other Receivables

	2018 €'000
Rents receivable	1,174
Accrued income	226
Cash held by Solicitors	975
Lease incentives	267
Other receivables	9,037
Total receivables	11,679

The ageing of these receivables is as follows:

	2018 €'000
Less than 6 months Between 6 & 12 months Over 12 months	11,679 - -
	11,679

11.        Cash And Cash Equivalents

	2018 €'000
Cash at bank	6,279
Money market funds	43,854
Total cash and cash equivalents	50,133

12.        Trade And Other Payables

	2018 €'000
Rental income received in advance	710
Accrued acquisition and development costs	5,930
Management fees payable	563
All other fees payable	1,454
Total payables	8,657

Other payables include tenant deposits of €636,000.

13.        Share Capital

	2018 €'000
As at 25 October 2017	-
Management shares issued in the period	56
Management shares redeemed in the period	(56)
Ordinary shares issued on incorporation	1
Ordinary shares issued on admission	2,121
As at 31 December 2018	2,122

Ordinary shareholders participate in all general meetings of the Company on the basis of one vote for each share held.

Each Ordinary share has equal rights to dividends and equal rights to participate in a distribution arising from a winding up of the Company. The Ordinary shares are not redeemable.

The total number of shares authorised, issued and fully paid is 187,500,001. The nominal value of each share is £0.01 and amount paid for each share was £1.00. Share proceeds were received in tranches between 15 and 18 December 2017 and converted to Euro at a rate of £1:€1.1318689.

On incorporation, the issued share capital of the Company was one Ordinary Share of a nominal value of £0.01, which was subscribed for by Aberdeen Asset Management PLC. On 8 November 2017 the Company issued 50,000 Management Shares of a nominal value of £1.00 each which were subscribed for by Aberdeen Asset Management PLC. The Management Shares were fully paid up and were redeemed immediately following the Initial admission out of the proceeds of the Initial Issue. The Management Shares redeemable at any time (subject to the provisions of the Companies Act) by the Company and carried the right to receive a fixed annual dividend equal to 0.01 per cent. of the nominal amount of each of the Management Shares payable on demand. For so long as there are shares of any other class in issue, the holders of the Management Shares did not have any right to receive notice of or vote at any general meeting of the Company.

14.        Share Premium

	2018 €'000
Balance at 25 October 2017	-
Premium arising on issue of new shares @ 99p	210,102
Share issue costs deducted	(2,875)
Transfer to special distributable reserve	(207,227)
Balance at 31 December 2018	-

The share premium was converted to EUR using the issue date exchange rate of 1.131869.

15.        Special Distributable Reserve

	2018 €'000
Balance at 25 October 2017 Transfer from share premium account Dividends Paid	- 207,227 (3,536)
Balance at 31 December 2018	203,691

At a General Meeting held on 8 November 2017, a special resolution was passed authorising, conditional on the issue of Ordinary shares by the Company, the amount standing to the credit of the share premium account of the Company following issue to be cancelled. In order to cancel the share premium account the Company was required to obtain a Court Order, which was received on 13 March 2018. A Statement of Capital form was lodged at Companies House with a copy of the Court Order on 16 March 2018. With effect from that date the amount of the share premium account cancelled was credited as a special distributable reserve in the Company's books of account.

16.        Capital Reserves

	Total capital reserve €'000
As at 25 October 2017 Movement in fair value losses of investments Currency translation differences	(4,080) 300
Balance at 31 December 2018	(3,780)

17.        Operating Segments

The Group's reportable segments are the geographical areas in which it operates. These operating segments reflect the components of the Group that are regularly reviewed to allocate resources and assess performance.

	Netherlands €'000	Germany €'000	Spain €'000	France €'000	Parent Company €'000	Total €'000
Total Assets	89,772	24,081	1,689	47,726	47,462	210,730
Total Liabilities	6,211	439	20	1,386	601	8,657
Total Comprehensive return for the	828	932	(26)	322	(2,016)	40
period (Revenue)
Total Comprehensive return for the	(3,427)	(266)	-	(387)	300	(3,780)
period (Capital)
Included in Total Comprehensive Income
Net gain / (loss) from fair value	(3,427)	(266)	-	(387)	-	(4,080)
adjustment on investment property
Rental income	885	1,025	-	413	-	2,323

18.        Financial instruments and investment properties Fair value hierarchy

IFRS 13 requires the Group to classify its financial instruments held at fair value using a hierarchy that reflects the significance of the inputs used in the valuation methodologies. These are as follows:

Level 1 - quoted prices in active markets for identical investments;

Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc.); and

Level 3 - significant unobservable inputs.

The following table shows an analysis of the fair values of investment properties recognised in the balance sheet by level of the fair value hierarchy:

31 December 2018	Level 1 €'000	Level 2 €'000	Level 3 €'000	Total fair value €'000
Investment properties	-	-	148,918	148,918

The lowest level of input is the underlying yields on each property which is an input not based on observable market data.

19.        Risk Management

The Group's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Group also has the ability to enter into derivative transactions in the form of forward foreign currency contracts, futures and options, for the purpose of managing currency and market risks arising from the Group's activities. No derivatives transactions were undertaken during the year.

The main risks the Group faces from its financial instruments are (a) market price risk (comprising of (i) interest rate risk, (ii) currency risk and (iii) other price risk), (b) liquidity risk and (c) credit risk.

(a)     Market price risk

The fair value or future cash flows of a financial instrument held by the Group may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, foreign currency risk and other price risk.

(i)      Market risk arising from interest rate risk

Interest rate movements may affect the level of income receivable on cash deposits.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.

(ii)     Interest risk profile

The interest rate risk profile of the portfolio of financial assets and liabilities at the year end were as follows:

As at 31 December 2018	Interest rate %	Local currency '000	Foreign exchange rate	Euro equivalent €'000
Assets:
Euro	(0.60)	46,774	€ 1.00	46,774
Pound Sterling	0.07	3,015	0.89757	3,359
Total	50,133

The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.

An increase of 1 per cent in interest rates as at the reporting date would have increased the reported profit by €501,000. A decrease of 1 per cent would have reduced the reported profit by €501,000. Other financial assets (eg debtors) are not subject to interest rate risk.

(iii)    Market risk arising from foreign currency risk

The income and capital value of the Groups investments and liabilities can be affected by exchange rate movements as some of the Group's assets and income are denominated in currencies other than Euro which is the Group's reporting currency.

The revenue account is subject to currency fluctuation arising from overseas income.

 

Foreign currency risk profile

Foreign currency risk exposure by currency of denomination:

As at 31 December 2018	Investment exposure €'000	Net monetary exposure €'000	Total currency exposure €'000
Danish krone Norwegian krone Pound Sterling	- - -	6 26 3,129	6 26 3,129
Total overseas investments	-	3,161	3,161
Euro	148,918	49,994	198,912
Total	148,918	53,155	202,073

The asset allocation between specific markets can vary from time to time based on the manager's opinion of the attractiveness of the individual markets.

 

Foreign currency sensitivity

The following table details the Group's sensitivity to a 10% increase and decrease in sterling against the relevant foreign currencies and the resultant impact that any such increase or decrease would have on net return before tax and equity shareholders' funds. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in foreign currency rates.

	As at 31 December 2018 €'000
Danish krone Norwegian krone Pound Sterling	0.6 2.6 312.9

 

(iv)       Market risk arising from other price risk

Other price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.

 

Other price risk sensitivity

If the investment valuation fell by 10% at 31 December 2018, the impact on net return before tax and equity shareholders funds would have been negative €15m. If the investment portfolio valuation rose by 10% at 31 December 2018, the impact on net return before tax and equity shareholders funds would have been positive €15m. Exposures vary throughout the period as a consequence of changes in the net assets of the Group arising out of the investment and risk management processes.

(b)        Liquidity risk

This is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. All creditors are payable within three months.

The Group's liquidity risk is managed by the Investment Manager placing cash in liquid deposits and accounts. Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments and also includes:

-      The level of dividends and other distributions to be paid by the Group may fluctuate and there is no guarantee that any such distributions will be paid.

-      The Group's target returns are targets only and are based on estimates and assumptions about a variety of factors all of which are beyond the Group's control and which may adversely affect the Group's ability to make its target returns. The Group may not be able to implement its investment policy and strategy in a manner that generates dividends in line with the target returns or the Group's investment objective. Liquidity risk is not considered to be significant.

(c)        Credit risk

This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Group suffering a loss.

The risk is not considered significant by the Board, and is managed as follows:

The Group is currently acquiring a portfolio of European logistics properties. This will result in the group having a number of leases with tenants. In the event of default by a tenant, the Group will suffer a rental shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property until it is re-let. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Investment Manager monitors such reports in order to anticipate and minimise the impact of defaults by tenants. Cash is held only with reputable financial institutions with high quality external credit ratings.

None of the Group's financial assets is secured by collateral.

The maximum credit risk exposure as at 31 December 2018 was €61.8m. This was due to trade receivables and cash as per notes 10 and 11.

(d)        Taxation and Regulation risks

All cash is placed with financial institutions with a credit rating of -A or above. Bankruptcy or insolvency may cause the Group's ability to access cash placed on deposit to be delayed or limited. Should the credit quality or the financial position of the financial institutions currently employed significantly deteriorate, the Investment Manager would move the cash holdings to another financial institution. There are no significant concentrations of liquidity risk within the Group.

The Company must comply with the provisions of the Companies Act and, as the shares are admitted to the premium segment of the Official List, the Listing Rules and the Disclosure Guidance and Transparency Rules.

A breach of the Companies Act could result in the Company and/or the Board being fined or being the subject of criminal proceedings. Breach of the Listing Rules could result in the shares being suspended from listing. Legal and regulatory changes could occur that may adversely affect the Company. Changes in the regulation of companies may adversely affect the value of the Portfolio and the ability of the Company to pursue its investment objective. The Company has obtained UK Investment Trust Company status. The Company must comply with the provisions of sections 1158 and 1159 of the Corporation Tax Act 2010 and Part 2 Chapter 1 of Statutory Instruments 2011/2999 to maintain this status. Breaching these regulations could result in the Company paying UK Corporation Tax it would otherwise be exempt from, adversely affecting the Company's ability to pursue its investment objective.

Capital Management

The Group considers that capital comprises issued Ordinary shares and long term borrowings. The Group's capital is deployed in the acquisition and management of subsidiaries in line with the Group's investment objective.

Specifically to provide a regular and attractive level of income return together with the potential for long term income and capital growth from investing in high quality European logistics real estate.

The following investment limits and restrictions will apply to the Group and its business which, where appropriate, will be measured at the time of investment and once the Group is fully invested:

-    the Group will only invest in assets located in Europe;

-    no more than 50 per cent. of Gross Assets will be concentrated in a single country;

-    no single asset may represent more than 20 per cent. of Gross Assets;

-    forward funded commitments will be wholly or predominantly pre-let and the Group's overall exposure to forward funded commitments will be limited to 20 per cent. of Gross Assets;

-    the Group's maximum exposure to any single developer will be limited to 20 per cent of Gross Assets;

-    the Group will not invest in other closed-ended investment companies;

-    the Group may only invest in assets with tenants which have been classified by the Investment Manager's investment process as having strong financial covenants; and

-    no single tenant will represent more than 20 per cent. of the Group's annual gross income measured annually.

The Group's principal use of cash will be to fund investments in accordance with its investment policy, on-going operational expenses and to pay dividends and other distributions to shareholders, as set out in the Prospectus. The Group may from time to time have surplus cash (for example, following the disposal of an investment). Pending reinvestment of such cash, it is expected that any surplus cash will be temporarily invested in cash equivalents, money market instruments, bonds, commercial paper or other debt obligations with financial institutions or other counterparties having a single -A (or equivalent) or higher credit rating as determined by an internationally recognised rating agency; or ''government and public securities'' as defined for the purposes of the FCA rules.

The Group monitors capital primarily through regular financial reporting and also through a gearing policy. The Group intends to use gearing with the objective of improving shareholder returns. Debt will typically be secured at the asset level and potentially at the Group level with or without a charge over some or all of the Group's assets, depending on the optimal structure for the Group and having consideration to key metrics

including lender diversity, cost of debt, debt type and maturity profiles. Borrowings will typically be non-recourse and secured against individual assets or groups of assets and the aggregate borrowings will always be subject to an absolute maximum, calculated at the time of drawdown for a property purchase, of 50 per cent. of Gross Assets. Where borrowings are secured against a group of assets, such group of assets shall not exceed 25 per cent. of Gross Assets in order to ensure that investment risk remains suitably spread. The Board has established gearing guidelines for the AIFM in order to maintain an appropriate level and structure of gearing within the parameters set out above. Under these guidelines, aggregate borrowings are expected to be at or around 35 per cent. of gross assets. The Board will keep the level of borrowings under review and the aggregate borrowings will always be subject to the absolute maximum set at the time of the Group's launch, calculated at the time of drawdown for a property purchase, of 50 per cent. of Gross Assets.

20.        Related Party Transactions

The Company's Alternative Investment Fund Manager ('AIFM') throughout the period was Aberdeen Standard Fund Managers Limited ("ASFML"). Under the terms of a Management Agreement dated 17 November 2017 the AIFM is appointed to provide investment management services, risk management services and general administrative services including acting as the Company Secretary. The agreement is terminable by either the Company or ASFML on not less than 12 months' written notice, following 2 years from the date of Admission of the Company to the London Stock Exchange.

Under the terms of the agreement portfolio management services are delegated by ASFML to Aberdeen Standard Investments Ireland Limited ('ASIIL'). The total management fees charged to the Consolidated Statement of Comprehensive Income during the period were €587,000, of which €563,000 were payable at the period end. Under the terms of a Global Secretarial Agreement between ASFML and Aberdeen Asset Management PLC ('AAM PLC'), company secretarial services are provided to the Company by AAM PLC.

The remuneration of Directors is detailed below. Further details on the Directors can be found on pages 30 to 32 of the published Annual Report.

	2018 €'000
Pascal Duval	51
Caroline Gulliver	45
John Heawood	39
Tony Roper	39
Diane Wilde	39
	213

Please note the above figures are all Euro, while those in the directors remuneration report are stated in GBP.

21.        Lease Analysis

The Group leases out its investment properties under operating leases.

The future income under non-cancellable operating leases, based on the unexpired lease length at the year end was as follows (based on total rents)

	2018 €'000
Less than one year Between one and five years Over five years	6,894 26,485 40,499
Total	73,878

22.        Post Balance Sheet Events

Following the period end the Group completed the acquisitions of assets in Leon, Krakow, Meung Sur Loire and Erlensee. The Group also drew external debt secured against 4 assets, Florsheim, Erlensee, Avignon and Meung sur Loire.

23.        Capital Commitments

As at the 31 December 2018 the Group had capital commitments of €91.2m, specifically:

-      €33.3m relating to the purchase of a property in Erlensee, Germany. The acquisition completed in February 2019.

-      €22.4m relating to the purchase of a property in Meung-sur-Loire, France. The acquisition completed in February 2019.

-      €13.8m relating to the forward purchase of a property in Leon, Spain. The acquisition completed in April 2019.

-      €9m relating to the forward funding of a property in Oss, Netherlands.

-      €12.7m relating to the forward funding of a property in Zeewolde, Netherlands.

24.        Ultimate Parent Company

In the opinion of the Directors on the basis of shareholdings advised to them, the Company has no immediate or ultimate controlling party.

 

SUSTAINABILITY

EPRA FINANCIAL REPORTING (UNAUDITED)

One of EPRA's aims is to improve the transparency, comparability and relevance of the published results of listed real estate companies in Europe. EPRA performance measures calculated in line with 'Best Practice Recommendation Guidelines - November 2016' are therefore enclosed.

EPRA Performance Measures

	31 December 2018 Total
EPRA earnings (€'000)	340
EPRA earnings per share (cents)	0.18
EPRA NAV (€'000)	202,073
EPRA NAV per share (cents)	107.77
EPRA NNNAV (€'000)	202,073
EPRA NNNAV per share (cents)	107.77
EPRA Net Initial Yield	1.68%
EPRA topped-up Net Initial Yield	1.78%
EPRA Vacancy Rate	0.0%
EPRA Cost Ratios - including direct vacancy costs	79%
EPRA Cost Ratios - excluding direct vacancy costs	79%
A. EPRA Earnings
Earnings per IFRS income statement (€'000)	(3,740)
Adjustments to calculate EPRA Earnings, exclude:
Net changes in value of investment properties (€'000)	4,080
EPRA Earnings (€'000)	340
Basic number of shares	187,500,001
EPRA Earnings per share (cents)	0.18
B. EPRA Net Asset Value
IFRS NAV (€'000)	202,073
Shares in issue at end of year	1,875,001
EPRA NAV per share (cents)	107.77
C. EPRA Triple Net Asset Value (NNNAV)
EPRA NAV (€'000)	202,073
EPRA NNNAV (€'000)	202,073
EPRA NNNAV per share (cents)	107.77
D. EPRA Net Initial Yield and 'topped up' NIY disclosure
Investment property - wholly owned	149,185
Less developments	(23,740)
Completed property portfolio	125,445
Allowance for estimated purchasers' costs	5,279
Gross up completed property portfolio valuation	130,724
Annualised cash passing rental income	2,391
Property outgoings	(198)
Annualised net rents	2,193
Add: notional rent expiration of rent free periods or other lease incentives	138
Topped-up net annualised rent	2,331
EPRA NIY	1.68%
EPRA "topped-up" NIY	1.78%
E. EPRA Cost Ratios
Administrative / property operating expense line per IFRS income statement	1,843
EPRA Costs (including direct vacancy costs)	1,843
Direct vacancy costs	-
EPRA Costs (excluding direct vacancy costs)	1,843
Gross Rental income less ground rent costs	2,323
EPRA Cost Ratio (including direct vacancy costs)	79%
EPRA Cost Ratio (excluding direct vacancy costs)	79%

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the period ended 31 December 2018 are an abridged version of the Company's full Annual Report and financial statements, which have been approved and audited with an unqualified report and did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the report, and did not contain a statement under s.498 of the Companies Act 2006.

The Annual Report will be posted to shareholders in May 2019 and additional copies will be available from the registered office of the Company and on the Company's website, eurologisticsincome.co.uk*

The Annual General Meeting will be held at 12.30 pm on 11 June 2019 at Bow Bells House, 1 Bread Street, Edinburgh EH2 2BY.

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements.  Investors may not get back the amount they originally invested.

*Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

For Aberdeen Standard European Logistics Income PLC

Aberdeen Asset Management PLC, Secretaries

18 April 2019

 

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